FTX, CPI, ETFs, and Real Estate (Podcast)

the crypto spaces facing existential crisis. I would say, Um, Samuel Bankman Freed SPF to the kids is the FDx cryptocurrency to Rivers Exchange CEO and co founder. They've got some real problems there, as does some related businesses there. We need to roundtable this discussion with people that actually report this on a daily basis, cover from a research perspective.

Mike mcglogan, senior commodity strategist with Bloomberg Intelligence. He's really been our crypto crypto go to from b I and Katie Greifeld, cross asset reporter with Bloomberg News, joins us, Hey, Mike, you know you've seen booms and bus across a wide range of securities and commodities. Is this a Lehman moment for the crypto space in your learning opinion? Oh yes, I do think so. Was quite the shock they have.

This happened with Sam Bank and Free and ft X. I mean they were He was the stud of the play industry. Everybody loved him. He was great, He had some great conferences everything. This is a big shocker. Um. The question is now where do we go from here? And I think what we're going to do is, yes, we're going to get through this. The the technology is still very valid, but it's going to come when we do finally break out to back to the enduring trends

can probably come from a lower plateau. So I'm looking at bitcoin now, is now we know pretty significant resistance is twenty thou good supports ten thousand. But the key thing to point out is a Serriums holding a thousand dollars support. Just put that in context. At the end of two thousand, it was I think, you know, discussion about bitcoin or ethereum as an asset class. That's not

what this is really a about. Right after Lehman Brothers, you wouldn't have said the dollar is a horrible fiat currency. It wasn't about that. It was about what Dick Fold did and the decisions made at the bank. This is about what Sam Bankman, Sam Bankman, Freed did and the decisions he made f t X and al Mada a kind of lack of transparency there. What do you think happened, Mike? What did SPF do that left a four to eight billion dollar hole that he can't pay back? Got overshoes,

that's a very young person. But how did he take customer money from f t X and then gamble it on at Almeida. Well, there's a lot of acculation accusations that that happened. Exactly what happened within that company, I don't really know, I mean, but that's what I hear. He came out today on Twitter and he's apologized, so he's kind of been meeting errors here at least finally, so we can kind of, you know, move forward from that. But if I was exactly what he did a similar things,

I think we've had a lot of space. It's just that classic human nature of greed. When you cry, I it reminds me of what happened with Japan when they collapsed Native was that cross acid. But those are real equities. They are across the holding of tokens, which only have value if someone's willing to buy them. Where do you think Where do you think this story goes next? Katie?

I mean it was Sam Bankman Freed with the space kind of what what do you guys on the reporting side thinking about, Oh my gosh, well, I'll sell you on the reporting side. It's a little bit busy right now, but I think I will bring it back to the conversation we had with Nick Carter of Cowtil Adventures yesterday. The immediate news, of course, is what's happening with f t X? Are they hurtling towards bankruptcy? What is going

to happen with Sam BigMan Freed? But you've got to look for the fallout because no matter doesn't f t X bankruptcy a foregone conclusion? Well, V don't. We haven't gotten the headline, we haven't gotten the filowing, so we can't say that yet, right, But is there anyone? So c Z and Byance have said they're not going to rescue him. Sequoia wrote down there um investments, so they're clear not going to do it. Soft Bank has made some pretty horrible investment decisions, so maybe soft Bank will

go in there and throw good money after bad. You know, we know that Sam BigMan Fried is trying. He said that he's going to quote give anything for capital, So maybe someone comes out of the woodwork who were not expecting, maybe someone from the trad five space. But to your point, with four billion dollars, four billion dollars, I know that's those are some big bucks there. But beyond what is happening with ft X, the chaos that's happening that, I think you need to look at the lenders like Nick

Carter totalist. If Alameda Research, like Sam Bankman Fried said today, is really winding down trading, Alameda was, you know, really involved with a lot of the lenders that are still left in the space. So that's where I would look.

If you look at the coin level, I know that every single coin is rallying today, but you look at something like Salana, it's up thirty seven percent right now, that seems a little bit hairy when you think about what big backing that that blockchain got from Alameda, that it got from Sam Bankman Freed. I know there was

a CPI per but I don't know. And you think the rally and and Mike, by the way, what do you think, because Katie thinks the big rally and crypto really is about the CPI print and the huge rally in stocks. Okay, but it's kind of ironic. Finally we got a CPI number we can expect, which my colleague will have been nailed expected. But the key thing is why is it weaker and expected? I published on this deflation numbers coming out of China because we're heading towards recession.

The market just hasn't figured out yet. You look at the forward curve FED funds a year from now, they dropped twenty five basis points obviously two or no. Two. But to me, this is what the part of we should expect CPI inflation dums will start being weaker and expect because my colleague on along and b I it's predicting a hundred percent chance or models recession next year and then we start tilting over. But this is the whole tie. Now, this is chance that seems like a

dangerous call. Same person called a five percent you know fed funds, right, you know? Okay, it was clearly going. I mean we all kind of knew that we did and that was way out of I would say, six, but calling for a chance of something happening next year other than the sun coming up. All right, this is this is Mike, We're gonna have to leave it. Then we're gonna come back. We'll do that later. Mike mcglowan,

Senior Commodity Strategies from Bloomberg Intelligence. Katie Greifeld Cross Asset Reporter, and Matt You've got a show on this stuff, right, It's a special, an hour long special today at one pm Thursday afternoon, six pm in London, will tell you all about what's going on with f t X and al Maida markets. Definitely moving on this a CPI print. We want to check in with Christian Chan. He's the

chief investment officer at Asset Mark. Uh. Christian, you see the collect that you see the moves in equity markets and the fixed income markets today, what does that tell you about kind of where this market is in terms of you know, expectations pent up, the meaning for a pivot, waiting for a pivot? I mean, how do you interpret today's data? Egg Good morning a body, Uh yeah, really great inflation number. I think all around, if you can consider seven point seven percent year on year growth in

prices as as a good print. UM. But I think what everybody is cheering for is that it looks like we're finally on the downside of this slope here. Um. The core number even fell a bit, so I think better than certainly expectations. And when we look across the breadth of prices, UM pretty good in terms of UM all of the components of CPI that fell, um, and it's really just shelter that was you know, still contributing

to a you know, the pretty good price increase. But I think that, as we all know, takes a while to percolate through the you know, through the CPI numbers. So from the market's perspective, yeah, I think you know. The way I think about this is, yes, it's good news, um, particularly with I think what was feared, and I kind of think of the CPI number as the same way we thought about earnings really over the last couple of quarters,

which is better than fear. Let let me just run through the numbers quickly for our listeners so they know what we got at eight thirty this morning, so about two hours ago, we got the headline number at seven point seven percent. It's still as shockingly high inflation as I was saying before. It's still um a very big number, but it's the lowest that we've gotten this year. And we were looking for seven point nine percent, and the previous print was eight point two percent, So seven point

seven makes us feel good. The core was up, or at least cp I excluding food and energy was up month over month zero point three percent. Um we were we were looking for zero point five percent, though, so it's much better than that, and we're down from zero point six percent, so we're still looking at serious inflation. Christian, you mentioned the rent component, and this is something that

a lot of people have been talking about. Obviously, people don't sign new rental contracts every month, so you know those effects take a year to play out. Is this why you know the market is optimistic about a seven point seven percent number, because they don't really believe it's as bad as it as it looks. Yeah, I think

that's exactly right. And when when I think about, you know that that rental piece in particularly as you mentioned it, it does take a while for for lower rents to to work through into the CBI numbers, same thing with the owner's equivalent rent um. But I think you're exactly right. I think that we're hopefully on this, you know, down slope of inflation UM. And I think about the other parts of the market and what's happened, so the inflation

swaps UM. So I think yesterday they're trading at three point four percent, so implying at three point four percent inflation rate one year from today down to about two point nine percent. So I think people are pricing in a different not just a different level inflation, but a different path in terms of the progression back down to something closer to two or three percent UM in a

year or so. You University of Michigan expectations tomorrow morning. Um, Right now, it looks like the economists that we've talked to expect the one year inflation outlook to be five point one percent. That's still very high. That's higher than it previously was. But you know, maybe that number is a beat. Um. University Michigan such a strong football team this year they are. That's really worries me. A huge

game as high state. I'm concerned about that. But in terms of the markets, Christian what do you what are you expecting? Because we've really rallied up to over on the SNP. You know, two weeks ago, three weeks ago, we were at thirty six hundred. Are we going to finish the year at these levels or even higher? I think that's a that's a really distinct possibility. I think, um, you know, certainly, earnings have been better than I think we had feared, better than a lot of folks have

have expected. Um. And if we continue to get good prints on CPI I think we could see you know, these levels hold or even trade higher. I don't think we'll rip, you know, well above four thousand, but um and and stay there for that long. But um, I think that the big macro driver today is clearly inflation.

And if we start to get a sensor that's under control and we're pricing that properly in the marketplace, UM yeah, I think we could finally see inflation prints being a bit of a tail wind for both equity and bond markets as opposed to, um, you know, the big headwind that they've been over the last six months or so. All Right, Christie, you're based in Concord, California, right, yes, alright, just east of San Francisco. Are you guys gonna get snow up at Tahoe this this this winter, that's what

we're hoping for. I don't know that we have much yet, but uh yeah, we're all hoping for a good skies and that's for sure. I love tom It's a great place to ski up there. Squaw Valley, you know that's my favor I love well. I love the movie Hot Dog. You've got to be a certain age to even remember that movie, but that was based at Squaw Valley. That's

some good stuff up there. We're all basically we're hoping for a mild winter for continental Europe, but we want as much snow as possible in the Alba Stand in the Rockies, exactly out of the Sierra Nevada. Christian Chan, CEO of a st Market, joins us, we've got the infestrates pulling back today, but we think about the mortgage rates out there, they've searched the north of seven percent.

I think Matt might have locked in something like three and a quarter percent when he bought his house recently. So a big, big move up in reinfest rates really impacting the real estate business. So the Federal Reserve is certainly haven't an impact there. We want to talk about the commercial real estate business and for that we checked on the Hassam Naji, President and CEO of Marcus and Millichap,

which is a New York Soaker change traded company. M m I is the symboliscott of market capitalization about one point four billion dollars. Hassan, thanks so much for joining us here, so talk to us about the state of the commercial real estate business. We've seen the residential business are to roll over here with the higher rates. What are we seeing in your commercial space? Good morning, Thanks

for having me on the program. Very similar to the trans you mentioned on the residential side of the marketplace. We're seeing essentially a reaction to a shock delivered by the rapid and steep interest or increases. Therefore, pricing is challenged, maturing loans that now need to be refinanced are challenged, and the market is just recalibrating to try and figure out what the actual valuations on each asset should be

because of the cost of debt. Debt is a very big component of commercial real estate transactions, especially among private investors, which make up the vast majority of transactions and ownership throughout the US. So when rates go up two d and fifty basis points, it does make a very big

difference on the valuation component. The second part of we're seeing this especially if um, a lot of businesses feel like they can just act half of their office space, right, I mean, if you have so many employees working from home and it looks like that's no longer just a pandemic thing for at least a significant portion of your workforce, it's going to stay that way. You just don't need as much room, do you. On the office side of

the equation, You're absolutely right. There is a reduction of footprint that is created by the hybrid workplace that is here to stay. We really do believe that, most of our clients believe that. But it's also to some extent overstated in that even I mean here right here in New York today and you're seeing people come back into the city office occupancies probably half of what it was pre pandemic, and it will probably take two or three more years for it to become more normal, if you will.

But you're bringing up a great point. Valuations for office under are under the most pressure. Valuations for apartments and uh Indu streel which were the lowest yields because there were the darling of the industry, are very challenged because the higher interest rates are challenging those yields a lot more than say shopping centers, which were trading already trading at a higher yield. Therefore they had some room to

absorb the interest rate shock. But the good news all around commercial real state, with the exception of office, is that supply and demand or in grade shape vacancies were at all time low. There's not been an overbuilding cycle, and there hasn't been an over leveraging cycle like we had an eight o nine where the basically the credit markets collapsed. We don't see any of that happening, but I can tell you live from mine interactions, there's a

there's a shock factor on the interest rate side. What about the stores we used to have on this block. I don't know where you are in New York right now, but you should come over on this block. We used to have a container store. There was an H and M. There was Jay Crew Ah, there was a Victorious secret Um. You know, all of those places are not only gone,

but nothing has filled them in yet. They're still just sitting here empty in one of Dare I say, the nicest buildings in midtown Manhattan on a block that used to be you know, I mean we're across street from blooming Tail's right, Matt to your point, Urban retail and older shopping centers in the suburbs that don't really have a sustainable anchor tenant anymore, or the hardest hit among retail that will take a long time to come back.

If they come back. Some of those older shopping centers are being reimagined and really acquired for reuse, which is the reinvention of retail. But I'll tell you our core neighborhood shopping center clients and even the strip centers that are more in the path of traffic outside of core urban areas, are they come back? It? Uh. Those shopping centers, because they're tied to restaurants, fitness and entertainment, which is

back in full force, are doing very well. Um. In fact, they're they're leading in terms of the sales trans for a third quarter versus all the property types. So the real estate is always changing. That's the one thing to remember. So if if I'm a commercial real estate investor, is it as simple as going along the Nashville's, the Austin's, the Miami's, the world and you know, maybe not so much some of the northern cities, the higher tax cities.

Is as simple as that. You know, they follow the demographics. And the sun Belt is a winner Florida, Texas, some of the markets you mentioned, uh in the Northwest. I think Seattle is an incredibly strong market with great demographics. So you're absolutely right. Those are the growth markets, follow the growth. But I also have to say that some of the urbier markets San Francisco, Bay Area in southern California,

New York, not so much Chicago. Yet those core markets where pricing is adjusted and is adjusting further, all of a sudden become the diamond in the rough. You have to think five years out, where will the recovery have not just gone with the demographics, but what are some of the metro's you know, left for big bruises and damage. That can be the diamond and the rough investment. I'm a big believer in the fact that urban America will come back. It will take time, but it will come back.

I love it. I'm still hung up on the strip mall success that's pretty awesome. I mean e commerce, I mean some e commerce searched during the pandemic. But what we're hearing for some retailers is foot traffic is coming back.

It is people really want that experiential retail. Every one of our clients that owns the shopping center that has a nice mix of restaurants, bars, in other forms of entertainment and fitness, uh, you know, personal care, beauty, all of those things are attracting consumers back, especially in the birds rights on because people those people who are working from home. You know, my wife, Um, she doesn't ever

have to go into the office anymore. So now instead of doing pilates downtown in Manhattan, she does pilates on Central Park Avenue and Scarsdale exactly. I mean, you're you're you're nailing the trend right there. But I do think in the next two or three quarters there will be some very unique buying opportunities because values of commercial real estate in general have to adjust to the higher interest rates. I think the FED was behind the curve. Now they're

hitting the economy with the head sledge hammer. As soon as we get a little relief on you know, the worst of the interest rates being interested, increases being over and the inflation curve starting to go the other way like we saw this morning. And look at the market reaction, you're gonna see some you know, relief rally and commercial real estate too. But I do think there will be

some buying opportunities. Alright, good stuff, as always saw Nay, president and CEO of Marcus and MILLICHEP, publicly traded real estate company m m I is the ticket to put into your Bloomberg terminal. They're commercial real estate. Yeah, and Matt, there is actually a store going in at fifty nine and Lex here in our building, so they are putting something. What is it? I don't know. Oh, I think it's gonna be a bank, like a bank slash lounge market.

Since Charlie was just reporting a moving seriously higher to yes booming. You know what This kind of rally is called face ripping. Face ripping rally. That's a little hard, I think, but it is just ripping. It's the most smps up, the most since twenty twenty. I used that sense function that Lisa Brahmwoods like, we're not allowed to tell listeners because you know that's an internal function. Other clients don't have access to that function. Is that right?

Why it doesn't do anything? I don't know why, but all right, yeah, alright, I use it and I'm proud to use it. Right. Amanda Rebella joins us here in our Bloomberg her active broker studio. She's ahead of passive sales US on shore d w S group. We've determined that as a Deutsche Bank group there what is chassive sales? What does that mean? We we go over this but I forget now, which that's okay. It's basically anything which is tracking an index, so um E t S would

be the main thing. But also we have scope for offering clients as opposed to active because there are obviously e t f s with active managers. But you're just looking at the passive side of But working with our Steam colleagues on the active side as well, there's no passive or active. You know, they make sense in the portfolio together. All right, every time we talk to your man, you've got new E T S force. What do you

get today? So today we're delighted to announce that yesterday we listed on see both three new tickets smp D, SMPG and smp V. These are providing exposure to E s G dividend aristocrats, UM growth and also value as well. And delighted to be partnering with SMP again there So, UM, I love E t F s. As you may remember, I have an E t F show UM that I host with Katie Greifeld and Eric Balcunus, the ladder of

whom is a legend in the E t F space. Um, what what makes you want to track these specific indexes? Why do you pick um? You know, value makes sense to me, dividend aristocrats, That's that's an interesting one. Why why do you choose these right now? Yeah? Sure so? Um, Well, first of all, Matt, you were talking about how you want to pay rise. Maybe you need to think about passive income in your portfolio. And so dividend strategies generally

have been really interesting. This year. We've seen about forty five billion dollars worth of flow go into dividend strategies here to date across different ETFs, and so we feel that there's something that we can add value in for our investors and new investors. How does that get back to an E t F if I on a stock that has a dividend page of dividend. Obviously I'm getting they nail it to me, you know, or my broker

gets it. Um, how does that work with an e t F because you have a whole basket of stocks, and you know, I don't even own really the basket, I just own a ticket for the basket, right, So UM, what we do is the portfolio managers, they'll accrue all of the dividend cash that they're receiving, and then we'll pay it out typically on the quarterly, will SENDI annual basis. Um, you end up getting a check through your broker that you're holding them holding the E t F with and UM.

With dividend strategies, what we're looking to do is we're thinking about within in this case the smp fift universe, UM, which are the names that are strong dividend paers. When we mean when we say strong dividend pairs, we want to be thinking about sustainable dividends. So forgive the pun, but it's about over the last twenty five years, which names have paid good qualitary dividends and haven't yet. And you don't want to get into a BP situation. Remember that.

Actually exactly they hadn't cut their dividend for like thirty years maybe longer, and then all of a sudden, uh, you know, they junked it really, which was Spad news, and the CEO is out right exactly talk to us about E s G. I continue waiver here, what's what are the good folks adws think about the E T F S and E s G as A I don't set a factor? Is it style? Is it? I don't know what it is. Yeah, this is a question that

we get a lot so UM for us. E s G is just another lens to look through when you're thinking about investment portfolio management, and so we think about it a lot. In terms of data. There's like clues in the data that can help us UM. We see more and more that E s G um has, like in these tough markets, provided some outperformance. And it's not always going to provide out performance necessarily, it's not meant to.

It doesn't promise too But the reason why it has done more recently is that E s G data can provide us with some insights into things like reprose, for example, So there is some scope for dampening. On the downside, we think it's just you know, another a set of data points that some can use in terms of like stop picking or bond picking to think about, um, you know,

names are maybe more resilient. And also at the end of the day, we've had COP twenty seven this week, Um, we need to be thinking about which companies are oh yeah, you know, more resilient and like to regulatory change as well to helping us with this one and a half degree um target us all aiming towards and net zero economy. These are the companies that should be doing better at

the end. I just came back from Indonesia. I was there for two weeks, exploring the oceans around Indonesia, and you know what, one of the things that really bothers me. Rich countries around the world send all their trash to Indonesia, ostensibly to recycle, but of course they don't recycle at the businesses that get paid to take the trash there just turn around and dump it in the street or in the ocean. Even worse. So I would like to vote with my money, you know, and buy an e

t F that fights against that kind of thing. All right, I'm sure you can. I mean, you know, there's there's an et F for everything after. That's kind of what I've been learning over the last several years. Amenda Rebella, thank you so much for joining us. Amanda is the head of passive sales. We now know what that is for the US on shore business at DWS Group. We now know what dw S stands for. We've learned so much in this segment. Market's still moving, holding onto the games.

Question for a lot of investors here is recession. Are we going to go into recession? If so, how long? How deep? That's kind of the question that a lot of folks have, a lot of economists are figuring out right now. And along chief US economists for Bloomberk Economics Joints. And I gotta call this out because I do it every time because it's just so ridiculous. She gets a b A and economics and statistics from Berkeley, I mean, who does that? And then she turns around and gets

a PhD in economics from the University of Chicago. I mean that is serious math there. So she's a real economics geek, and we're glad that she's on our team. I'm pretty sure she also had a couple other like scholarships and rams and stuff that we don't know but I don't know about. I'm sure Cambridge and Oxford are in there somewhere, But I gotta ask Anna, did they never tell you any of these schools don't forecast something

that's a hundred percent chance to happen, that's very high? Well, you know, I have to tell you that that is

what the models telling you. And but it's your model. Well, the model does have forecast errors, right, and so in terms of the confidence level, there's still a slither possibility that there's you know that the model prediction of I'm going, I'm going with your call and because you were absolutely spot on the way ahead of the market on where rates were going and uh um, but for this recession, um that you were other economics are economists are forecasting?

Do you have any sense of how deep it maybe, how long it may be, like how much of a problem is this going to be? You know, usually a deep recession is triggered by some kind of underlying financial vulnerability. So if you recall, the two thousand and eight recession was deep because it started off where where credit market completely freeze, um, you know, due to um mortgages go blowing up, right, So we don't see a similar kind of vulnerabilities on the balance sheet of household and corporates

right now. So um, as of the information that we have, we we don't see that trigger for that kind of uh landing free freeze up in the lending and credit market. Um. So that's sad. Um. We think that the recession might be a shallow one. Um and I think that that's the consensus on Well Street as well. One thing I'm interested in, Anna, is the is the housing market. Because you know, we see these rates continue to go higher

and higher. People are now saying six percent could be even higher than that for the FEDS terminal rate, which means mortgage rates are going to be what eight nine ten per cent? That makes it harder to buy houses. And if unemployment rises and people are forced to sell houses they can no longer make their monthly not those prices are going to have to come down pretty steep. Well. So, for first of all, mortgage rate price is most related to ten year and thirty year treasury yields, and those

those prices react to expectations of where the fat will go. So, um, if if today people are priced in a five percent terminal rate, then it's already you know, reflected in the mortgage rate. So so so as the fat actually hikes to five, the mortgage rate would not increase further. So that's what they're going to five? Right, are they going

to six? Well, our baseline is still five percent. Um And because we precisely for the reasons that you saw in the CPI really least today there's strong disinflationary forces in in the economy, and um, it could there's a possibility that inflation could fall rather sharply after March of next year, which will would which would still put the terminal rate at about five percent from my point of view,

at four in May. That's right and um. But regarding the housing market though, um um, So you know, the US market has underbuilt houses for almost a decade now, and we estimate that there's been a three to four million shortfall and houses that have been human accumulated over the past ten years, which means that you know, there's still a lot of latent demand for housing and houses housing place do fall by the that we are forecasting over the next few years, there would be just uh,

it would become more portable for maybe half of the population of the US. And so I think that half, at least half of the population would be cheering for housing price corrections because these are the people who really wanted to buy but don't have how you know, you cannot afford to right now. And the second thing is that this housing uh bubble that we are in right now, the rise in prices happened really quickly, and the fall

of the happened really quickly. So the number of people who actually bought the houses, well, at the peak of those prices, it's not there are not as many of those people as back in the two thousands of four to two thousand and six housing market bubble. And a lot of the house owners now have much more equities in their houses them back in the two thousand and four two own six cycles. So so yeah, so that that aspect alone could limit downside risk and so over

the housing market corrections to the broader economy. All right, and we got to get you in the office, which in London right now. You're in London right now. When you come to New York, please stop by and and come on the show with me and Paul. We'd love to have you here. Thank you so much for joining us. Anna Wong, I'm gonna say chief Economists for Bloomberg in chief you as economist um for Bloomberg. But she's dot

a ton of addition to the crazy education. Former chief in the National Economists on the White House Council of Economic Acrisors. That sounds big. Former Deputy Director in the Office of International Economic Analysis at the U. S. Treasury. I don't know. That sounds kind of important, massive, massive, And here we are talking to her about inflation and and she's given us some of her best work and her model says chance of a recession next year. We're

gonna go with that. I want to talk activist investoring. Uh. That is a very interesting part of the market, and there are some people that are pretty good at it, and you have to have patience and you have to really do your bottoms of homework. One of those folks that does that is James Arrest, a founding partner in c i O of co Capital LLLC. He's been doing this for a long time. One of the things that popped up at me former managing director head of International

Investing in Janet partners Um. That popped out to me, James, thanks so much for joining us here in our Bloomberg Interactive Broker studio. You're one of the You're one of the many that relocated from New York to Miami. Give us thirty seconds on that. I'm not sure I should be telling that story to anyone. I'm certainly not on

live there. But we have an office at Rock Center, um, and I have to tell you trying to get a round Rock Center at Christmas, Yes, with that demonic fifteen second Christmas song played by by Sacks, with thousands of people squished next to each other at some point to see a tree being lit up like we've never witnessed a miracle of electricity. The last year that I was here, I started telling people, go to a Starbucks, lock yourself in the bathroom, turn off the light, turn it back on.

It's a much more dramatic way to experience electricity. People thought I was crazy, so I bought a person's cane to make my way around without being you know, accosted. And people that I know saw me do this, and I thought it's time to take a bit of a break from you. I have to expect their tax implications as well, but talk to us about you know, your um,

your flavor of activists investing. Tell us a story about what what drives you when you get up in the morning, A deal that you've done that you really are proud of. You know. I get to work every day with people who are inspired and inspiring and who are the best operators in the industries that we invest in, and the the things that I learned from them, and the engagement and the intellectually stimulating dialogue is what really gets me

out of bed. The other thing is, you know I have I think as a bona fide New Yorker, you need to have several neurological conditions, you know, to lasting the city as long as as one does. One of them is I seem to really want to address problems that I see in the world, and I seem to be really convinced that I can do something about these things. And and it doesn't just extend to my investing. It extends to to to a whole lot of different arenas of life. I want to be helpful, I want to

fix things. Um and you're a board member of Human Rights Watch, for example, I am, and that's some of the most important work that I think I get to do. I just got involved with an organization called Young Audiences, which exposes kids to the arts, which you know, arts funding is dying in this country. It's down seventy percent since the beginning of this century. We're behind that too. But we want to hear about making money. Making money is what makes all of these other endeavors possible. But

it's fun. Um. Look, there's a lot that we've done that we're really uh grateful to have gone to do. I think that it all. I'll tell you where it all kind of started. A number of years ago. We bought into a company, or I bought into a company called Compass Group, which at the time was the biggest contract catering company in the world. Right, and the Compass Group is a company that I had grown up with and I had always wanted to buy, but it was

always too expensive. I am, I think, first and foremost, a deep value investor, and my partners share that incentivity as well. But it was always like thirty five times earnings and generated ten percent margins and grew double digits because of consolidation, because everybody was going from having their in house canteens to outsourcing. So this company fast forward five to six years is valued at ten times earnings and the margins have gone from ten to three percent.

But meanwhile, as the biggest operator in the sector, it should have had the highest margins. Thinker as CpG Space Ellen. This is many years ago, twice as big as the Dexel. I mean, this is you know who used to love this company, John Marie Eveyard, you know famous. Yes, I know him very well and I you know, but he's he's I would consider him a friend. He's you know. So he had a colleague named Chel Duvaux and child at the man who you know, we met with and

presented our work to. This ended up being a very very good investment, went up ten folding period in which the market went down. This story is a pretty lengthy one, but it's an interesting one, so I go into some detail without taking too much off your time. Um, it's nobody knew what the album was. Everybody knew this is cheap. This is a world class company, should be doing a

lot better than it's doing. It's cheap on the pressed earnings, But nobody knew what the problem was, and certainly management didn't either. So we looked high and low for someone who could help us turn the company around, figure out how what the problems were, how to solve them. Found a guy called Jerry Robinson, who got rest his souldiers

passed away last year, almost exactly ye year ago. Jerry Surgery was the founder of the company, bought it out of Grand Met in the eighties, brought it public in what was the biggest I p O at the time, and basically took this from a two hundred million dollar company to a multibillion dollar entity. Cashed out when we reached out to him. He had gone on to turn around five different multi billion dollar companies in the UK with dramatic success. He said, look, James, I happened to

still be an investor in the company. I am heartbroken and how poorly managed it is. I have a plan for you. I will come and meet you. He flew to New York on his own time, met with me, presented me with the most compelling operational turnaround plan I think I've ever seen and will probably ever see in my life. Here's what was happening in compass to have you back to talk about it, because and now, I mean it's a thirty three billion dollar company, right and

huge success story. James, so grateful that you came into the office. I hope we get to talk to you again. I think there's a hurricane in Miami right now, so you're gonna stick around. I'm assuming in New York for a little while. I'm actually had it to to to California to visit some good stuff. James Rasta, thank you very much for joining us, founding partner in c i O at Coast Capital, joining us in our Bloomberg Interactive Broker studio. Thanks for listening to the Bloomberg Markets podcast.

You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on Ball Sweeney I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio.