Bloomberg Audio Studios, podcasts, radio news.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Affle Cardplay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex Delaul Sweeney live here in our Bloomberg Interactive Brokers studio in New York City.
We're also streaming livel on Youtubes.
Ahead over to YouTube dot com and search Bloomberg Podcast and that's where you'll find this. Eli Lilly stock's hitting it up four percent today, all time high stocks up like fifty eight percent year to date. Patients taking Eli Lilli's blockbuster weight loss shot We're ninety four percent less likely to develop diabetes in a three year study that illuminates the long term health benefits of treating obesity and Alex. As you mentioned, these are just like wonder drugs.
I mean, it definitely feels like they're all magical.
They're magical thing. Yeah, they cure everything. So I need to figure out what's going on here. Sam Fazzelli he joined to SEE as the director of Research for Global Industries. He's a senior pharmaceutical analyst. That that's his day job for Bloomberg Intelligence. And believe it or not, he's actually at his desk in the London.
He was in Bordeaux on Friday, and I was gonna.
Say I expected him to be in some dialing from some exotic locale in Europe somewhere, but he's actually this is exotic.
Look yeah, exactly.
The ceiling looks pretty cool, all right.
So Sam, I mean, well, thank you for coming into work as opposed to your peers there Bi Sam talk to us about Eli Lilly, their drugs here and obese.
These numbers just jump out at you, don't.
They They do, they do.
But let me take you back a little bit where we not always told we went to the doctor and we started glucose was going up. Not not you guys, obviously you're a fascinatingly amazingly healthy and fit, but those who weren't and told you need to lose some weight to my friend, because you have risk of developing diabetes. So where is the if you reduce weight and manage the obesity, you lose all these you know, I'll be suppeating this thing, sleep APNA, risk of developing diabetes, everything
that we're talking about here. You eat less, you lose weight less risk of developing diabetes, So not exactly a shock. Nevertheless, it's great to see that it actually does what it says under tin that by reducing weight you do manage all these side effects. But before we get too excited,
I want to highlight one little wrinkle here. It's no wrinkle with the data if you read the press release, and I've got it right up here on my terminal eli Leui coming announced today positive top line results from this amount one a three year study, one hundred and seventy six week treatment period. Find me somebody who stayed in the real world on this drug for one hundred and seventy six weeks, so we survey physicians. But if we find forty weeks, I'm sure it's going to go up.
But that very different setting. So how much of a real world will this actually translate into in terms of preventing diabetes.
Time will tell.
So you're not saying that the study was bogus. You're saying the study was real. But in reality, people don't stay that long on the drug. Therefore the results won't be as magical for them.
Right in clinical trials, you get the best possible data basically because it's highly controlled.
People are followed, you make sure that they stay on.
There would probably have been people who have dropped off here, so maybe the actual average treatment period wasn't exactly one hundred and seventy six weeks for everybody, because people do drop off. And I'm assuming in this trial the data they're reporting to us is what's called intent to treat, i e.
You've intended to treat that patience.
Whatever happens to them, you still count them, even if they've fallen off the drug. Nevertheless, we need to see the detail. But in a trial setting things always look better than in real world. So here we have to remember. Average stay time according to our is that Mike show My colleague runs every six months. It's about forty weeks, similar to what we get for we go VI and people, and even the press release they say as soon as they came off, weight went back up and the risks
started going up again of developing diabetes. So this is not something that you've cleaned it all up. I can stop now at one hundred and seventy six and I'm done. It's the same story over again.
Right, exactly.
So I mean, so look at the stock for Eli literly Sam, I say, it's up sixty four percent year to date, all time high.
How much of this stock performance is these glps?
Oh gosh, if you know, if you look at the chart and look at the flow of information and news and the upgrades et cetera that are coming to quarterlies, every quarterly result et cetera, to sales, I would say a meaningful chunk of this. I can't quantify it exactly because this is a company that's got other stuff going on Alzheimer's disease, oncology, you know, the skin diseases, et cetera. So this is not a one trick pony, but a
large amount of this story. And you can tell by when somebody reports a positive result in a competitor setting.
These stocks sell off four or five percent.
Right, You remember the days with rash only three or four weeks ago, I think, right, And let's not forget in a few weeks time, we have the European Association for the Study of Diabetes Russia's data is coming out. Somebody is going to be up three or four percent that day, and somebody's going to be down three or four percent who it is.
We'll see what the data says.
So the point that you made that if people come off it and they gain the weight back, so in that sense, it's not like everlastingly magical. Will there be iterations though where that won't be the case.
There's two ways of doing dealing with this.
So you go on the drug, you come off the drug, you go back on the drug, you come off the drug, and you just do your cycling every few years after you've got to a point where you think, I don't know why people come off the drug necessarily on an average is it side effect tends to get a lot better over time, and.
Maybe it's cost.
Maybe it's because they're fed up begin taking an injection every week. So if you put all those things together, as they get cheaper and injections become once a month, maybe or they become oral for the maintenance phase of the dose, and that oral doesn't make you feel ill, feel ill every time you take it in terms of gastric intestinal maybe that's the future. Maybe there are other modalities. Amlin is one that Nova Notice and Zealand Farm are developing as a target that seems to have less side
effect issues. Maybe you can maintain your weight loss by those drugs which don't have the same side effect issue. So that has to be the way that you see it. But nobody ever complies with the drug forever.
Right When do the pharmaceutical companies SAM have a timetable for when they will have a pill format as opposed to an injection.
Yeah, so they're all trying to develop them. There are a couple of companies Russia and Astros and a Covich. I've got what we would call traditional potentially small molecules that comes in a pill, so it's not the same biologic that you're currently seeing. The folks who are developing these same glpe GPS, et cetera. Are also trying to
formulate them so that they can be taken orally. The trick there is if it starts releasing in the stomach, you need to take them on an empty stomach so that you get absorption.
If you take them on a full stomach, then they have a problem.
So that becomes a bit of a headache for somebody who gets up in the morning decides to eat or not eat, and then they also get side effects. So I would say three or four years there is already a diabetes version, Robeltsi's on the market as an oral.
But let's say three or four years.
What about heart disease? Does it actually cure heart or reduced death? I should say, and heart disease?
Yeah, yeah, we know that already. We do we do, we do, we do that.
We know that already from the cardiovascular outcomes trials, the sea VOTs that they've done, at least for Novo, I'd be very shocked if, if, if Lily doesn't get the same result.
So for those on YouTube, there is literally no one.
I tak two people, two people.
In Sam's guys. It's it's five, it's three thirty here, it's tea time. We're in England. It's they're all up there having their tea.
Tree thirty in the afternoon. Man pauls on the beach at that. Yeah, you're on the beach at b there you go.
All right, Hey, Sam, I turned my camera that way. You see a lot more people.
Okay, give me, we got like thirty seconds left here.
What what's the exciting thing that you and your team are working on in terms of, you know what some of these treatments are out there that people need to be paying attention to.
Yeah in general, I mean or we see the diabetes general.
Okay, So we've got three three conferences coming up that we're all excited to buy. And as I said, the European Diabetes Conference. There RASH will get the data and we'll get some cuts of other data that would be an interesting one to look at. For ASMO European Oncology Conference, new data coming out, some press releases today for potentially surprising data. And then the World Lung Conference where we have some new modalities being presented. All of them will
have something funky going on. And for the cancer ones, we have a webinar coming up hopefully for our clients.
Very good. Sam Fazzelli, thank you so much.
As always, director of Research for Global Industries. I'm not sure what that means. You should just be head of European Research when I was part of this thing, but they've changed it all up here. Most importantly, he's one of the top pharmaceutical and biotech analysts a city of London, and we got him at Bloomberg Intelligence and Bordeaux, France and Bordeaux friends exactly. I mean, you know again, I'm waiting for the invite for us to go over there, and I.
Got a picture.
You got pictures?
Yeah, I got a picture from Friday. Okay, it's an old pick, but still it was something.
Yeah, he's got like a horse farm there or something.
I don't know whatever. Sam's just really cool, Okay, and we just totally love him.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card Play and Android Auto with the Bloomberg Business. You can also listen live on was on Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven.
Let's go to Tesla.
The stock's pretty much unchanged today. It's down about ten percent year to date. It's flat over trailing twelve months. Looks like the EU is looking to slap some terraffs on some of these Tesla vehicles that are coming that are made in China.
Is this a big deal? The market doesn't seem to think so. The stock's not doing a whole lot.
Here.
Craig Trudell joins US Global Autos editor for Bloomberg News, joining us from London via zoom.
Craig, what's the latest coming out of the EU.
Here?
As it relates to Tesla.
Yeah, this is a case of Tesla having a bit of a special situation where other manufacturers are subject to terraffs on the basis and part of whether or not they cooperated with the EU's investigation of just how much
they were subsidized by the Chinese government. And what the EU did here was they sampled a few companies and sort of, you know, took a specific look at a few manufacturers and made decisions based on what they found and on whether or not those companies complied with those investigations. And you know, some separate rates were going to be
applied to companies that were not sampled. What Tesla did was go to Brussels and say, look, we don't think that we were subsidized as much as some of the other guys, so subject us to a lower duty rate. And that's what happened here. So they're subject to a nine percent tariff byd on the other hand, an additional seventeen percent. All of these rates are on top of the existing ten percent that cars coming in from China
face when they are shipped into the EU. And so I guess, you know, if I'm an investor, I sort of knew that this was coming, had a sense that Tesla, you know, there was a potential for you know, a slightly more lenient treatment. But in the end, am I happy about Model three is being subject to nineteen duties you know coming in from Shanghai?
Probably not.
Does this mean that Elon Musk will want to manufacture more Tesla's in Germany then? Or is he just going to cut bait?
I think it's a really interesting question. I mean, the model why is far and away, you know, the model for Tesla globally, and I think increasingly so. Even as as the company has you know, given a little bit of a facelift to the Model three, the why is really you know, the volume play for them, and they make those in Germany. It wouldn't be a cinch to add Model three to the to the plant in Germany. But you know, does it does it make a lot more sense to build that vehicle there as opposed to
shipping it in from China. It may, you know, be in their best interest to do so. The nineteen percent duty is substantial enough to where it certainly has to make the math much more interesting in terms of whether or not they decide to pull that trigger.
So from the EU's perspective here, is this a Tesla issue or is this just a China issue because I know they've got tarifs on other Chinese manufacturers as well.
Yeah.
I think the reason that that you know, Tesla is sort of being led with today and how this is getting covered is is Tesla, you know, was was sort of separate from everybody else looking to be assessed on its own.
Uh.
Whereas all the other manufacturers, uh, you know, the duty rates were known, Tesla was was still a little bit of a mystery. So this is you know, sort of one one more sort of checked box in terms of, you know, what the particulars are going to be for these duties that go into effect later this year. And you know, I think this is very sort of par for the course for anything that gets you know, decided by the European Commission. Uh, it gets decided over and
over and over again. And so this is very much a broader China story. Uh. And and not Tesla specific.
Did Tesla evs that are manufactured in China even make it into the EU and that point into the US or no?
Yeah, the model all the Model three's that that are sold in Europe are coming from Shanghai at the moment, and uh, you know, so whether or not the company maybe uh perhaps they would potentially look at, you know, exporting from the US. I don't think we have a good enough sense of, you know, the particulars of their cost base to really sort of you know, be able to say what makes the most sense for them, uh, you know, sort of immediately as a result of this
change in tariffs that will go into place. But it has been interesting that we have seen the company, even before these tariffs actually take effect, bump up their prices in Europe a little bit, and you've maybe seen that result in in some some challenges for them sales wise, where they've not had a very good start to the year, and that's even carried in into the second half where you know, the initial sales results that we've seen for
Tesla have not been particularly good. I think the fact that they've not and able to continue to bring prices down and have sort of you know, been unsure whether or not all of the model threes that they're they're shipping into into the EU from China maybe subject to these tariffs. It has been absolutely a headwind.
For them all right, Greig, thanks so much for joining us. Really appreciate it.
Craig Trudell, a Global autos editor for Bloomberg News, joining us from London Q headquarters.
There in London, you're listening.
To the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Focarplay and then brout Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Well, Alex you alongside Paul Sweeney, is a Bloomberg Intelligence Radio. We are broadcasting to live from Interactive Broker Studio right here in New York City. You can also check us out on YouTube as well. So back to the markets. Yeah, I appreciate nothing's really happening in the broader equity market. You are seeing little bit buying coming into the bond market, particularly in the front end. We all look towards Jackson Hole. I'm really into that revision of the labor data that
we're going to get tomorrow. Is the FED going to be particularly behind the curb, But we wanted to get a professional to weigh in on all of this, and Dryden Pence is Chief Investment Officer at Pence Wealth Management and he joined us now in the studio Dryden.
What do you think, what do you think we're going to learn this week.
I think we're going to learn this week that the much predicted, you know, September rate cut is on the table, that labor data is probably going to be revised a little bit. I think people forgot that a lot of the labor data was affected by weather, and so you had people that were temporary or layoffs or things like that, so you get these anomalies that are when we've all witnessed weather here lately in New York City, so those things have caused it to.
Change a little bit.
I think we'll find September's on the table. I think that we'll find that the economy is still robust and not as I mean, while it's slowing, it's not slowing to the level that others were talking about. So I think we're going to find a benign move to a quarter cut in September, and then we're data dependent to see what happens in December.
We're just finishing up I guess this week kind of earnings here. We've got some retailers coming in as well as in Nvidia coming up to kind of put a punctuation mark on it next next week, What did you make of the earnings season we just had.
I think it's been a robust earning season.
I mean, the point of the matter is is is you know, you had this growth scare that freaked everybody out a couple weeks ago. But I mean the point of matter is is that we're seeing the broadening out of earnings. The earning situation is that we've you know, earning recessions, you know, rolling recessions turned into rolling recoveries, and so you're seeing the earnings of the rest of the four ninety three of the S and P five
hundred begin to move forward and come out. You're seeing about seven eight percent to thirteen percent earnings growth there, and that bodes well for the whole broader part of the market. So we're moving from magnificent seven, where Nvidia accounts for all the earnings growth, to the rest of the market moving forward. So that does one of two things. It either puts a floor on it by making it stronger and stable, or it moves the market forward as we go through the rest of the.
Year, but only for those that actually had that earnings growth, So where did you see it? For example, like Bank of America's had all their clients bought everything last week except.
For energy and industrials, Like, where do you see that growth? Where do you not?
Well?
I think the issue is I begin to see as we look at this later part of the cycle, we're going to see industrials begin to do better. And we think we're going to see industrials and small caps, and you're beginning to see pieces of that. I mean, most companies are beating their earnings growth estimates. As that's all come out, we're almost all the way through earning the season.
But I think as you get into late third quarter and fourth quarters, we're moving through this and you're going to see companies begin to publish and begin to show even better earnings going forward. So it's again it's the broadening out of the S and P five hundred and also small caps and industrials. We think that are going to continue to see a regular cad of improvement.
One of the companies on your list was actually in the news this week. A m D is a company that's on your list. They made an acquisition of ZT Systems, which is technology company based in the bustling technology hub of Secaucus, New Jersey.
I know, what's your AMD call.
We have been We've liked a m D for a very long time, and we've owned it from the when it was in some of our portfolios since it was a you know, a small cap and just out there. Now it's all the way, it's you know, moved up tremendously. So we liked it for a very long time. We like a m D here too, in terms of what they're doing with their company. You know, there's sort of the number two in a lot of spaces, not only the advanced stuff but just kind of the everyday chips.
We've always said by chips on dips uh. And so we think that with with AI, with everything going on, this is a this acquisition is a MD kind of you know, getting really serious about going after Nvidiah and so I like companies that are number two and hungry.
Okay, So it's like an AMD not and video story for you, right, gotcha? You also like Chipotle?
I do?
And do you like it without the CEO Brian Nikol, Well.
The point that makes a big difference in Starbucks needed to make a change. There's probably a good move there.
But when you think.
About the consumer, consumers are what we call it, have now become more conscious. You know, at one point, coming out of the pandemic, it was going to buy anything at any price because everybody who had to all this liquidity. Now we're seeing that the consumers being pickier.
They want value.
This is why if you contrast Chipotle and McDonald's, I mean, fast food is supposed to be fast and cheap, and one becomes neither, right, then people move away from it.
And you saw that with McDonald's.
With Chipotle, people are seeing value in what they're spending. So you're continuing to see, Okay, it's worth the extra money for what I'm getting, and I'm paying for that, and so that becomes a more stable, stable move. So we think that the whole story here is about a conscious consumer. They're still spending money, more people are making more money than ever before, and they're spending it, but they're being more discerning about it and they're being a little pickier.
What do you think about the consumer here? Does that a lot of folks are saying there's really at least two consumers out there, the ones I own risk assets, whether stocks, bonds, real estate, and they're doing fine and maybe even more fine if the indust rates come down, and then there's everybody else who really feels the brunt of inflation in their pocketbook.
Does that impact kind of the stocks you look at it does?
I mean, we really do focus on We look for big, noble themes driving consumer activity. We look for choke points or companies that really you don't have a kind of either monopolistic power. They're a key into that consumer behavior. So what we're again, we're seeing this trend of consumers being pickier. You have people at the lower end of the economic spectrum are certainly becoming stretched. Inflation is changing
their behavior a little bit. But it's very interesting. Inflation expectations have come down now people are beginning to make some changes in that and you and you and you.
Did see some real wage growth.
So I think the big thing that the agenda, and whether it's politicians or anybody else, it takes a little time for these things to work their way through the economy, and I think that we're seeing some stabilization of it. Consumer confidence is probably beginning to get a little bit better, not a little bit worse. So I think this is an adjustment period that we're moving from a torrid pace of economic growth to a sustainable one, right, like.
Just slowing, not slumping basically.
But you know, back to Chipotle for a second. So this is what I've heard from Paul. You said three tacos.
Okay, there, we got caught out on social media for under you know, skipping on some of the ingredients. So they went overboard and now overstuff your orders to the point now that I only get two tacos instead of three.
So how is that good for Chippotle?
Because it's good for Paul, it's good for but like it is it good for them? Like their top line doesn't grow as much and they have to put out more in the food.
I think they have done.
This is where chip has a competitive advantage in that they really do pay attention to their consumers and their customers, and they really focus throughout their entire history as how do I put these families, these people that are coming into these stores. These people are that they have a reliable product at a reasonable price, and they consumers see
value and if they see value, they show up. And I think that that's what that's a that's a competitive advantage that Chappotle has, uh maybe against some of the competitors. And that's what you're saying, right, they listen, they react, they really react, and everybody feels it. So that's that's a good consumer products company and we like those.
Yep, it's good stuff.
All.
So much for journey us Dryden Pen's chief investment officer Pence Wealth Management, based in Newport Beach, California.
We've covered that territory before. I'm not buying. I'm not buying the whole Pimpco thing out there.
It's pretty out there, beautiful. That's something as long as it lasts, right, mudslines.
Nice, someone's got it there. I'm glad I do exactly exactly.
All right, Well, coming up, I'm going to talk to Paul about what he can expect at his next luxury hotel trip.
Nice.
Uh huh okay, bunk beds. Oh no, yeah, yeah, he's going to be into it.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa playing Bloomberg eleven thirty.
Alex, you' here alongside Paul sw We need. This is Bloomberg Intelligence Radio. We cover all the top news and business, economic and finance. There are lens of our Bloomberg Intelligence folks. They cover two thousand companies and one hundred and thirty industries all around the world. For now that we're going to go to Miami, Florida, because you know, why not, We're going to speak to Henri Pierre Jacques. He's co
founder and managing partner at Harlem Capital Partners. He joins us from Miami, Florida.
Now.
Harlem Capital Partners was founded back in twenty fifteen. Is a venture cap firm based in New York, and it prefers to make investments and things like AI, consumer technology, E commerce, enterprise, human resource technology, all the stuff that we talk about every single day. Henri Pierre walk me through kind of how you guys think of the AI landscape right now, the good investments and the risky investments.
Yeah, I mean, obviously there's a lot of hype around AI. I mean, I think the way that we think about it generally, as we want to invest in AI companies that don't touch anything close to the large incumbents such as Apple, Apple, Microsoft, Chat, TBT, and so we're really focused on vertical AI applications, and so some of our investments have been in super niche fields like accounting AI services, insurance broker AI services, and so we're really trying to
not touch the consumer AI marketplace. So we think distribution largely will win there for the large players.
So, Henri, how do you We're such in the early innings of AI, A lot of people don't even know what it is, can't really articulate what it is, how it's used, what the applications are. Yeah, I'm thinking me, I'm speaking my own book here. How do you guys? How are you guys approaching AI right here? Because it feels to me like AI today is what we were calling big data five years ago and ten years ago we're just calling tech. So I'm not sure what it is.
How are you guys approaching if from an investment perspective?
Yeah, I mean, ultimately, AI has been around for decade plus. I think what this wave has seen as generitive AI, which is more of the image and tool and video creation, and people are kind of bucketing that for all of AI. I mean largely for a lot of the companies we invest in, like they're really just enterprise software companies that are using AI in the background. Ultimately, you know, right now there are more CFOs and CTOs who are getting AI budget spinds, and so if the company says AI,
then their company will allow them to spend more. But the end of the day and the next three to five years, like the customer only cares about how you're solving their problem, right, We've gone through the similar way
for what in blockchain. If you're solving my problem on web two versus blockchain versus AI, autesome I don't really care, right, But there are these cycles where you'll see spend get budgeted, and that's why you're seeing a big pullback for a lot of the SaaS public companies because the software spins getting drive to the AI spin. But in three to five years, you know, maybe even shorter, that word won't be where spin is going. It's ultimately, are you solving
the problem that the customer has? And so we're less focused on the technology and more about what problem are you solving? If you're using I versus software doesn't really matter in the day, but you will get these short term cycles where people will have spin for certain you know, technologies because it's hot in the market.
Can you give me some examples of some of your recent investments in AI, like the companies and sort of why them, but dumb it down for me for sure.
Yeah. So one that I did, it's called test Party. So basically what they do is they help websites be eighty A compliant. And so a lot of people are either deaf or blind or have blurry vision. And there's actually like betteral laws that require companies to have what sites that are accessible to them, right, and traditionally speaking, people are going through this you know, either you're paying
somebody in India or it's very manual. Right, And now we can use AI to actually go through and scrub these sites and tell you, hey, these parts of your sites are broken. Here's the code that can do to fix it until you're eighty eight complyiant and you know, billions of dollars a year. You'll see lawsuits where people are getting sued because their websites aren't compliant. And so
this is a tool. This has been like, these companies have been around, but they largely were consulting services before, but now it's instead of having to pay people to do this, you can actually use technology to help, particularly e commerce websites, be more accessible to people who maybe not have you know, perfect vision or perfect hearing.
Henri, what's a what's a typical deal side? I guess what's a typical investment look like for you guys? Maybe in terms of size? How early do you guys like to get into these companies? What's a what's something in use Spot?
I mean we're super early, so I mean our bread and butter is kind of pre seed seed, So I would say typically these companies are between zero and a million of revenue. Our sweet Spot check is a one point five to three million dollar check usually for ten to fifteen percent ownership. So we're really early. I would say half our companies we're pre revenue. Half our companies we're post revenue. But ultimately, you know the stage that
we're at. We're backing the founders, but like sometimes there are our businesses and customers, but sometimes there's no product or no customers yet, and we're really just making a bet on the founder to kind of you know, go and tackle their vision again.
That gives me so much anxiety just hearing about that.
What's a success ratio?
My wife says the same for.
Someone like you at Harlem Capital Partners, what's a typical success ratio? Like you've started this in twenty fifteen, we're nine ten years into it, So how's that run for you guys?
Yeah, I mean so for context, we started as an angel syndikit, so for three to four years we were investing our own money into companies, and then we actually raise a fund for our capital five years ago. So we're on our second fund now, so really like five years into the journey of like having a stitutional capital, you know, typical like I can give you, like we're early in the cycle, but we have kind of like
a forty percent Series A conversion. I would say that's like really the target for seed stage funn is how many of your companies get to the Series A because from there you typically see a sixty percent conversion to the Series B seriously et cetera, and beyond. So that's like the near term measurement that we're focused on, but
like long term, yeah, it's really hard. Obviously early stage venture, you know, three percent or startups become unicorns, and it's a law of outliers, right, and so typically, you know, if you invest in thirty companies, one to two companies will drive your returns and like that's ultimately what you're fighting for, and the other twenty eight will be you know, call it zero to five exes. But the one winner is the one that kind of drives your returns. So it's not it's stressful.
Yeah, I mean, hey, it's not hard. No, No, this is definitely not my risk profile. I needs steady job, I need the whole thing before I let you go.
We have like a minute left here. Talk about some recent investments in say, vertical software.
Yeah, so a company called Finterry. So it's a reconciliation platform for insurance brokers. So oftentimes insurance companies are kind of outsourcing who they're using for the sales process. You have like ten different brokers, they're getting paid differently, different timetables. And so now you can use AI to actually, like it's vertical software, but you can use vertical software or AI help those companies actually manage the process of paying
all those brokers. Traditionally speaking, those have been done in excel files, word documents, and so we invest in this company pre revenue. They've grown ten x in the last nine months. They're going really quickly. And so what we're seeing vertical software is a lot of these companies are looking for very specific problems because everybody who has been buying software for the past ten to twelve years, so like, nobody really no longer needs this broad solution because Microsoft
or Salesforce or whoever is kind of solving that. But if you have a very specific problem, I'm willing to pay for the software. But people aren't generally buying horizontal software anymore because that's kind of been done. There's already a lot of incumbent who are solving massive problems, like it's a very specific problem that a company has.
Hey, Henri, this has been a real pleasure.
I definitely want to hear more about how all of this continues to unfold for you. On RePr, Jack co founder and managing partner at Harlem Capital Partners, joining us from Miami, Florida.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
We are live here in our Bloomberg Interactive Brokers studio. We're streaming live on YouTube as well, so they head over to YouTube dot com and search Bloomberg Podcast and that's where you can find us. Talk about some volatility. You know, two weeks ago Monday, we had a VIX that surged above sixty. I think I got about sixty five intra day. The VIX right now for Tom Keen is at fifteen spot for what a move there?
What's a money manager?
What's an investor to do with that kind of volatility? Katarina Simi and then she joins us. She's a senior vice president private wealth advisor for Morgan Stanley Private Wealth Management. So, KATHERINEA talk to us. What kind of conversations have you had with your clients over the last couple of weeks as they dealt with that volatility From a couple of weeks ago to weoiver right back where we started.
It seems like, well, and.
Alex, thank you for having me on. You are one hundred percent right. This definitely is not a lazy summer investors are concerned.
You know.
The questions that we get ranged from how sustainable is this rally or how long the market decline is going to last? Because we see these fluctuations that are making investors very nervous. And one thing we know for sure is this volatility is here to stay. If we look back historically at these stretches eating two presidential elections, they
usually are known for this heightened volatility. And what we tell our clients is really to expect it, to be prepared for it, to take take advantage of the dips in the market when it makes sense, to rebalance portfolio to stay on the quality side, and definitely avoid making any type portfolio changes based on what they think the outcome of the election might be, because you know, as
we all know, there might be surprises, you know. So we have the roadmap for either outcome, but we are going to start implementing it after we have clarity on the outcome.
Where would you buy market on dips right now and where would you be selling any rip alex.
What we see right now is disproportionate over exposure to technology in many portfolios, and we love technology. It is definitely here to stay. But this is where you know, sometimes it's skewed and off balance, and what we recommend to do is go back and rebalance and buy on dips into the sectors like financials, industrials, consumer staples, healthcare, energy, and just to make sure that you know, we have this strategically positioned portfolio, especially if we add the stocks
or emphasize the stocks that pay dividends. Now, in addition to growth, we also have that income component that is going to help investors get through this turbulent, highly volatile time.
How about in the bond market, Katerina, how are you telling your clients to be positioned here? Should they just go take it to your treasury and get four percent or maybe take some credit risk.
Well, Paul, you know, this is where we have to make some tough decisions. You know, we know that the interest rate cuts on the horizon, and whether we are going to get a quarter point cut or a half point cut. We know rates are coming down and towards the end of the year they're going to get most likely lower than where they are today. So investor sav a choice. They still have picks of the higher rates. When we look back, you know, at last twenty twenty
five years. You know, I became financial advisor in ninety nine, and this is the first time in my entire career I'm seeing rates at these levels. So take your pick. There are opportunities in high yield. There are opportunities in high quality investment grade corporates. You know, there are still you know, some buys that we can find in municipals. We don't recommend going out on the far side of the yield curf, you know, we are you know, really
trying to stay moderate in the middle. But we don't want to go too short either because we're going to run out of rates and then you know, most likely default in default into much lower yields.
But in the corporate credit market, I was reading an article today that talked about how there is so much demand for precisely the scenario that you lay it out, that you have to just go down the credit quality to get yields even at five percent. So that kind of upside that you're used to getting from the corporate bond market really isn't there. So how much risk do you want to be taking on right now?
Well, Alex, there are two sides to look at it. You might need to take on a little bit more risk, but still stay in the investment grade. The other side of it is to look at patting somewhat higher premium. And we're not talking, you know, like ten years ago when we're paying ten ten percent over par. You know, yes, prices or wants have moved, but there are still some buying opportunities and there's still dips, just like in the
equity markets. You know, somebody is looking into building their fixed income portfolio, you know, there has to be diversification, exposure to various asset classes like high yield, investment grade, municipal preferreds, you know, and just putting together this well
balanced portfolio and buying it gradually and strategically. But I probably would not wait too long because once the rangers are going to start coming down, you know that moved to higher prices and lower quality is going to continue.
Katerina, how do you position alternative investments for your clients? You know, I'm I'm always surprised that retail investors have an appetite for alternative investments, whether it's hedge funds or private equity or private debt. How do you guys position that well?
Alternative investments definitely give us an opportunity to access parts of the market with that we otherwise can not, and we by doing that, we give ourselves, you know, the access to potentially higher returns. But also alternatives can be used as very effective hedge against the market risks where we're looking to attain the market like returns with lower than the market risks.
You know.
The trade of here, of course, the lack of liquidity, and not all of them created equals. Some alternatives have there are a little bit more liquid private equity investments, for example, are not you know, so that's the trade of for investors when they're making a decision to go into this alternative space. We absolutely see opportunities distressed creddit, you know, real estate. There are some you know, pockets
of the market that can be access there. But lack of liquidity is something that is a very big consideration for a lot of investors.
Oh yeah, I mean just check out the last couple weeks. What about small caps? Can you give me the spiel on small caps? It feels like these guys are definitely hitting a binary world, like you either love them or you hate them.
Well, absolutely, and Alex not that the history always repeats itself. But when we look back at the past cycles, once the rates are starting to come down, usually we first see the optic in large cabs, but then it's followed by the optics in small cabs and broader. On the economic level, you know, we have the higher interest rate environment which is affecting consumer confidence and also it is effective expecting profitability of the companies and you know, on
one side, we're happy, then inflation is coming down. On the other side, this is where you know, the profit margins are being squeezed as well, more so for the small caps than for the large cabs. But at the same time, it might be a delayed reaction, but we absolutely are positioning small caps in the portfolio. The returns that we have seen recently is somewhat of a surprise because for us is more of a long play, you know, we're looking at the longer time horizon for that position.
Hey, Keterinea, we're just finishing up on earning seasons. What's you been your takeaway for earning so far?
Well, we've seen you know, pretty good earnings so far in the year, which was almost a pleasant surprise, you know, they were better than expected. Our outlook for the remainder of the year is not quite as optimistic, as we see earnings being affected by consumer confidence, by higher rate, by lack of liquidity, and also by just general economic slowdown. And our base scenario is still that soft lending scenario that is going to affect some parts of the market
and some parts of the economy. But we see the earnings being not quite as good as we saw earlier in the year. And the most important piece of data for us are these forward looking estimates as companies are posting their earnings, you know, for us to really see
how well they're positioned in the market. And that's why in this particular time, we favor individual stock investing versus index investing, where we can specifically focus on valuations, on market position, and on the forward cooking out cooking earnings.
Before we let you go, Jackson Hall, what are you looking for?
Who knows?
You know, that's a great answer.
Is it is really just.
So so difficult to you know, pinpoint and exactly you know, exact data that should come out of it, you know, for us to you know, to build the roadmap. But we're looking for, you know, just just a little bit of positivity to you know, give give investors some good news, you know, during this time of market volatility prior to the election.
Right, so like slowing economy, but not like a slump economy like that kind of idea.
That's exactly right. Anything that leads us to soft lending, you know, is good is good enough for us.
All Right, Well, I appreciate it, Thank you so much.
Katerina Semonetti joining US Senior vice president, private wealth advisor of Morgan Stanley Private Wealth Management.
I feel like the Jacksonville conversation.
Would be really different like three weeks ago, like it was right after that job's number, And I wonder if Powell winds up changing or talk about the market action in relation to jobs, like I wonder how he talks.
About that, because again, two weeks ago Monday, there was particularly in the morning session, a real so weekenic exactly in the marketplace, we stabilized kind of midday, kind of rallied a little bit towards end of that day, and then ever since then they're kind of moving up into the right.
So you forgot that Friday because you're on the beach.
But yes, this is the Bloomberg Intelligence podcast, available on Apples Spotify, and anywhere else you'll get your podcasts. Listen live each weekday, ten am to noon Eastern on Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal