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Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market movin news.
I'm the Bloomberg Markets Podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com, Slash podcast, at Emma Go m Go, and I'm just clicking on the time. Series is a terrible year for MNA, I mean, less than three and a half trillion. You compare that to twenty twenty one, which was a banner year of about six and a half trillion of deals done. I mean, this is the weakest year since twenty thirteen. How about
twenty twenty four any better? It's check in with Ted Smith, co founder and president of Union Square Advisors.
Of course is highlight of.
His career when he's a managing director of Credit Swiss First Fauston. I think we crossed passed there back in the day. Hey, Ted, talk to us about twenty twenty three. What did you see in the marketplace and more importantly, what are you guys in the M and A biz thinking about twenty twenty four?
Morning, Paul, Great to be with you again. Thanks well, you hit the nail on the head. It certainly has not been a great year for M and A in twenty twenty three, off almost half from the peaks of twenty twenty one. We saw a lot of fits and starts this year. Heard the earlier commentary with Danielle about where things are with the FED. That certainly put some freeze on the market. The higher cost of capital for
longer meant that some folks stayed on the sidelines. Also, as the large corporate acquirers were thinking about whether they wanted to get back into the market or not. Took longer, frankly than we thought at the beginning of the year, so we started to see some green shoots really in
late late summer and right after Labor Day. We do think activity is picking up now and we'll continue into twenty twenty four, but we were delayed by about six months from our beginning of twenty twenty three forecast on when we thought M and A would start to pick up from twenty twenty two, which itself was significantly down from twenty one and ted.
When you look at though question around regulatory uncertainty, it seems like the FTC is pushing back against everything. Is that something that's top of mind at all?
It certainly is.
I mean, we think about it, and obviously acquirers think about it. Such a big part of the market though today is about private equity as acquirers, not just the strategics, and they typically are not as wound around the issue from a regulator's perspective. And also we've seen an approach for a long time from the large strategic acquirers of asking forgiveness rather than permission to do a number of these deals. So we think that attitude will continue to pervade.
The FTC clearly and the DOJ clearly want to flex their muscles here amongst the really large tech acquirers, and we think that will continue to be the case. On the other hand, there's a lot of other acquirers out there other than the Magnificent seven that we think don't get as much scrutiny and will probably rise up and participate in more m and.
A ted the era of free money is over. We've got a ten year trading north of four percent here, So the cost of debt capitals higher for acquirers. How is that impacting kind of activity, structures, that kind of thing.
Yeah, we definitely saw a little more structure, both in terms because of the cost of debt, but also just uncertainty in the market generally. But the reality, at least for technology companies where USA we spend our time, is that the cost of debt is still cheaper than the.
Cost of equity in most cases.
So while it's more expensive than it was a year ago, two years ago, the total explosion in private credit that we've seen over the last couple of years has really made debts still a possible source of capital and meaningful source of capital. We just completed a four hundred and sixty million dollar transaction that was exclusively done in the private credit market for a large private equity firm in one of its portfolio companies.
So it's available.
Yes, it's more expensive than it has been, but we continue to see the private credit markets being really active, particularly in the tech sector.
Inted. I talked to IPO bankers for the bulk of my day, and they keep kind of pounding the table on valuation discrepancy. When you look at private equity buyers who are in need to return some of the cash to LPs, are they going to caveon valuation or how are those conversations going to play out?
Yeah, I think it's a really good question. I think.
We continue to think that the IPO market is going to be tepid going forward. I was an IPO banker for the first phase of my career, and so I've seen this up and down movie before. But we really just don't see a lot of product likely to come
loose in the IPO markets. We do think those private equity buyers who do need to return capital to their LPs are more likely to pursue sales to either Strategics or other private equity firms, but far more frequently and at more volume than we'll see in the IPO market. And if they do cave on value, we think that's going to be the exception to pursuing an IPO rather than the rule.
Hey, Ted, I know you guys at Union Square Advisors. You know traffic a lot in the tech space. If I go out to sand Hill Road and look for some capital, or if I just go talk to the folks out there, who are their VC folks, who are the real capital folks out there for the tech industry. What's the mood out there on sand Hill Road these days?
I think it's We're glad. Twenty twenty three is almost in the rearview. Mirror is one big part of that. There continues to be a lot of focus around investment, around all things AI, although I think the irrational exuberance around that is even coming down a bit.
Again.
I used the term green shoots earlier about what we were seeing in M and A. We're certainly seeing a little bit of an unloosening of the purse strings in earlier stage VC, which obviously then leads to mid stage and late stage VC investing for the right companies. So I think right now the mood is we're going to get through the end of the year. We're going to take stock of where our portfolio is, but we want to put more capital to work in twenty four than we did in twenty three.
And looking at twenty four, how does that timeline play out. Do we see a flurry of activity call it second quarter ahead of an election in November and elections globally, or how does that shape up in twenty twenty four.
It's a really good question.
It's somewhat ironic that we're sitting here talking about that the more stable year is going to be the election year than the year that we just went through, but we do think that that may be there, at least for the first half of the year.
That may be true.
We're working on a number of transactions where we've been in prep mode for the fall that are going to launch in January. I aspect our competitors are doing exactly the same thing. So we do see sort of a Q one Q two flurry of activity well ahead of what we've seen in twenty twenty three. And then the uncertainty that the elections always inject into the markets, may take over as we hit summer and early fall leading into the elections. As we all know, markets hate uncertainty,
so we'll see some up and down on that. We may see some slowing in both the investing and the M and A life cycle as we move closer to the election, and then we may see a lot of activity post November once it's clear one way or the other which way things are going, at least in this country.
And Ted, one of the things that's new to me, at least compared to when I was in your game on the street is the growth of private credit. How important is that to just getting deals done? Because we talked to a lot of private credit people and the capital is flowing into their funds like crazy and they're really really active. Talk to us about that private credit business, what it means for your M and A market.
Yeah, it's today, Paul, it's north of a two trillion dollars asset class. So to your point, a lot of money has gone into it. We continue to have that be an incredible part of the work that we're doing in our capital Off of our Capital Market's desk. We're not underwriters we're arrangers, but we still have a tremendous business led by Mike Meyer, who's driving that for us. They're part of virtually every deal that we do on
the financing side, unless it's a pure equity deal. And then when we're talking on the M and A side, if there is going to be a debt component associated with it, again, we'll tap a broad range of relationships in that private credit market. So it's a long winded way of saying they've become incredibly important not only to our business but to the tech business broadly over the last five years.
And we don't see that dimming at all.
And how does that structure play out in twenty twenty four. Are we seeing a mixture of debt being brought on in some of those cash offers? Do you see kind of earnouts being part of that? In twenty twenty four.
We've seen more structure, We've seen some earnouts, We've seen other sort of bells and whistles, if you will, higher preferences in certain investments, not in every case, but in some over the course of twenty twenty three, as people evaluated being a little more risk averse. I think as we go into twenty twenty four, I heard again the great conversation about what's happening in and around the FED.
As we start to see some stabilization and some easing there, we think some of that structure may fall away a little bit, but generally that market will be very active, and we will see a combination of debt capital used in cash on hand by strategic buyers and for private equity buyers who again have big checkbooks but also like to use debt to increase their returns, we think they'll be very active in doing that in twenty twenty four.
Ded, thanks so much for joining us. Really appreciate getting your thoughts here At Ted Smith, he's a co founder and as president of Union Square Advisors.
You're listening to the team Ken's Are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
I'm going to go to a big Pfeiser, big pharma here. Pfizer the stock off pretty substantially today, falls to its lowest in ten years on a disappointing forecast, and I'm looking at the stock right here. We're gonna bring in Sam Fazzelli. He is the head of European Research and he's a farmer analysts Bloomberg Intelligence. He's based in London. He has a PhD. Not really good with the zoom thing, but he's pretty smart. I've been told here. So Sam,
what's going on with Pfizer? These are the great, great people that brought us the COVID vaccine stocks down fifty percent year to date. It's given up so much of kind of what it gained during the COVID period. What's the story on Pfizer with the guidance they gave and kind of maybe the longer term view.
Yeah, Hi, Paul.
By the way, I'm fully zoomed up here, so I don't know zoom thing was. Look, I mean it's I.
Literally I don't know if you've got only one left in the office. I mean, just for the people on Uh, let me see this YouTube, all right.
I'm making a I'm making a phone call to somebody.
This is ridiculous.
It's a no, no, no, they're all they're all.
They're all having tea time.
Come on, now.
Look, the the thing with Pfizer is that they've there's been this uncertainty since the massive boom in COVID vaccine sales, et cetera, as to what is the long term shape of this business. And you know, frankly, we've just had cut after cut after cut, and we're now being told that maybe next year, instead of the eight billion that consensus was looking for for COVID vaccines is going to be five. Maybe instead of the a five billion of packed slovid sales.
Is going to be three. So you know, that's a big cut.
But in reality, if you take out Covid, and you take out the acquisition they've just completed today or yesterday, the at least going forward, if you take those numbers out for twenty twenty four, you're still a couple of billion or a billion or so short of consensus. So it's not just about vaccines, it's not just about pack slovid. Business is tough for this company, which is why they're doing the deal they're doing.
Sam, you mentioned the deal they're doing acquiring Cgena, a canter drug manufacturer. What could Pfiser have done or should Piser have done differently with the best fit of hindsight, it's down fifty seven percent from a December twenty twenty one peak and lost almost two hundred billion dollars in market value.
Yeah, I honestly don't think it's something that I mean, clearly they could have had a more exciting pipeline, you know, if things had gone better for them in the obesity drug that they reported a week or two ago. There are quite a lot of headwinds for this company, which is again why they're doing the deal.
The reality is it's just the stock is resetting to.
What the facts are in the world of COVID, and it was very difficult to second guest those. Nobody knew how bad the vaccine fatigue would be when it comes to dealing with the second and third year or fourth year of boosters.
Nobody knows what is going to be next year. I actually think, and I think they've said it.
Themselves today, that they're being as conservative as possible on the COVID vaccine front for next year. It's they're assuming the same as this year, but the lower sales in terms of foll use for lower sales, So let's see how this pans out.
Is it going to be a better year for them?
Is this the low point from which guidance is going to start going up is what I think everybody's going to have to be figuring out.
Yeah, and when you look at the an R function on the Bloomberg terminal professer, which is analyst recommendations, it's right as Sam was suggesting, fourteen buys, fourteen holes. The street has no idea what's going on with this name. Sam, let's broad that out a little bit. You mentioned the weight loss drugs, and that is boy if Ai was the early part of twenty twenty three's driver of the market. It seems like these weight loss drugs have been the
driver for the second half of the year, big big store. Here, can you and I know you guys at Bloomberg Intelligence have done a ton of work on let's have a big, big seminal research report out on this market. Here, can you frame out kind of where we are today with these weight loss drugs and how much of a driver is it for the farmer industry going forward?
Yeah, so for the industry as a whole. Let me just start with your last question. I think a lot of people are getting into the game. You know that Rash has just got announce a deal. You've got Astra Zenekos got into this. Pfizer is doing its best to stay in the game. One company that did rule themselves out is Johnson and Johnson. They said, it's two crowded, too busy, We're not interested, and they have a pretty powerful oncology business. But and then where are we going
with this? With this u with these drugs. The reality is that the more we see from them in terms of the control of other obesity related side of issues, cardiovascular disease, kidney disease, and in time cancer and other types of diseases that are the results of this upsetting balance in the body, which is essentially what happens in these patients. They are what we call a constantly under a state of inflammation, which is bad. I mean inflammatory response.
The whole body is under that stress when you have extra poundage around. So that's what I think. These drugs are going to be shown to continue to be powerful, but we're going to get more data, We're going to get more competitive competition coming. Prices are going to have to go up, and I'm assuming volume will go up on the back of it.
And Sam, is there an indication or an area that's most similar or reminiscent to you of weight loss drugs in terms of the potential market. I'm just looking at some of the stock moves we've seen with Novo and Lily and a lot of the small caps, and it does remind me of the gold rush that was COVID vaccines.
Yep. Except the COVID vaccines.
You know, we were vaccinating an entire population to try and manage that pressure, and we I think we did the most countries at a pretty good job of that. But then you come back to the diseases endemic and most of the countries are now suggesting it for only sixty five plus, certainly in the UK where I am, and the reality.
Is a lot of people got bored with it. I don't think people are going to get bored with obesity drugs. Some people are not going to tolerate them. Some people are not going.
To be able to take them for fifty two weeks or whatever, eighty eight weeks, which was the latest data set that camera, But that doesn't matter as long as they can keep their weight down, take a holiday from the drug, come back to it. I think this is a much more sticky market than covid Vaccini's was.
Yeah very quickly.
Though.
Is it reminiscent of kind of hepsi in terms of the fact that these drugs do require you to be on them forever? Essentially?
Yeah, But again, if you remember Hipsey was a blip, we had a large rise and then everybody got under control and helps he was curative.
We don't have a curative setting here.
I think the best thing I'm going to equal it to potentially is if we get a highly effective Alzheimer's drug. Remember the obesity game has been in play for ten twenty years.
Now we've got effective drugs.
I think we might see that with Alzheimer's in the next ten to fifteen years.
I mean, the headquarters for Bloomberg in London is spectacular Queen Victoria Street. It is the absolute coolest building you'll ever see or and these knuckleheads are not in the office. I'm going to make a phone call as soon as we're done here. Sam Fazzelli, head of European Research. He covers all the farmer stuff for Bloomberg Intelligence, one of the top form analysts in the city of London for Bloomberg Intelligence.
You're listening to the tape Cat's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Some news out on Tesla today. They're recalling two million cars to fix autopilot safety flaws. That sounds kind of important. Let's check in with somebody who knows this stuff, cold Steve Man, Global auto market research leader Bloomberg Intelligence. He's based in Princeton, New Jersey. Not in and of itself is news because for ten years he ran our Asia business for Bloomberg Intelligence. Somehow he got back into this country despite all my efforts to keep him out. He's
a good man, he's a great analyst. We appreciate getting some time, and Steve, don't be afraid. You can get on that New Jersey trains and get up to New York City, the capital of the financial world, anytime you want.
Will do.
Thanks for joining us, Steve. What do we make here of Tesla?
Here?
Is this a problem? I mean just sounds like it kind of a standard auto issue.
It is it is a standard auto issue. If you just look at the surface, it's two million cars. There's a lot of vehicles, it's everything they've built so far. It's it's in terms of costs, it's a minor change, it's an over the air fix. But what's really I think we'll get into the investor's mind is how is this going to impact this company going forward? Because they do have an aggressive target to roll out AI, roll out autonomous vehicle at level five fully automated by next year.
So now this recall it's about a simple fix at the level too, a much more basic level in UH driving automation. So it puts in a question like, look, you know, is ELON is a test like going to get to a level five, a much more sophisticate level next year.
And see when you look at it, you mentioned that it's an over there where over the air software fix. This is a two year probe. So when you talk about expectations for fully autonomous vehicles, kind of where could that target move If this is just a signal that again Tesla is going to have to punt.
Just a little bit, well, you know, I think the fix is kind of small and like you said earlier, it's I think it's a little bit too early to say if this was significant delay that, but it does put into an investor's mind, like you know, some doubts, right if you look at the valuation for Tesla, it's
pretty a big chunk of it. It's about AI, it's about autonomous vehicle, and because of this recall, it's likely to you know, put some doubts into the investor's mind in terms of are they going to achieve it now? If they don't achieve it next year, I have no doubts they will achieve it. I mean, that's the where the world is moving to wright AI. They're going to achieve it now. You know, there are some questions in
terms of how they're going to get there. Are they going to get their next year or they do they need to add other you know, other equipment for example to get them there.
Uh?
Do they have to add more software redundancy to get them there? Because of this recall? So delays potentially delays, But I still think they will get there eventually.
Hey, Steve, you know, one of the issues out there as it relates to electric vehicles has been trying to get a sense of what the ultimate demand is for evs. I just bought a new vehicle, had zero interest in paying any kind of premium to get an EV so I went with the old internal combustion engine. What's your think, what's your take on kind of global demand for evs. Even Ford announce that they're cutting production of their F one fifty E truck.
I think there's there's big, huge differences depending on what region you're talking about. You know, we've China that's definitely going higher. It's you know, they're selling one million vehicle EV's battery EV's one million battery evs, you know a month. That's how much US sells in a year. So they're accelerating. Now if you're at you know, if you're talking about US and Europe, there's some delay and the main reason why is the battery supply chain is not built out
for the US and European market. So what that means is the cost, the end cost to the consumer will be much higher because they have to import those those batteries into into those regions. Now, we have the Inflation Reduction Act, you know, that's that's actually coming online, and with that act, it's actually uh, what they're doing is limiting the amount of materials and components battery materials, battery components from China. That will also raise price for consumer here.
So there is some risk in terms of demand in the next i say, in the next three years, but because of the long term this inflation reduction Act, it's actually the whole intent is to build out the supply chain, the battery supply chain in the US, and hopefully as those capacity, battery manufacturing capacity ramps up, the costs will come down for battery production and that's going to get passed on to consumer and hopefully that will you know,
create some demand lift and lift demand up for battery evs.
And see if you mentioned the demand overseas. Just looking at the terminal the financials from Tesla, about half of their revenue generated from the US and just over twenty two percent based on twenty twenty two sales in China. How do those competitive dynamics though shape up? Given Neo and other companies operating in China, and as Paul mentioned.
The US competition, yeah, it is, it is. It's I think evs in China. You know, China's always been a very hyper competitive market for the auto industry. It hasn't been for battery EV's, but it's becoming that. It's you know, there's Neil, there's x pun UH, there's leap motor. You can yeah. You know, in the last few years, there's been a lot of uh public companies. There's been the public companies that came uh that listed uh y you know, and there's all uh, there's all uh. There's a whole
host of private companies that are producing battery EV's. So it's it's becoming a tougher market. But Elon, Musk and Tesla still have a niche. They still have I would say, you know, a m a majority uh of the market in in China for battery EV's, But if you look at if you include pahvs, that's a different story. Byd is the the market share leader. But if you just look at the battery ev Tesla still leads because of uh, the the brand cachet it carries.
So, you know, one of the issues here in the States, I think there is This is just my opinion, not based on any research but just talking to people. I don't think the demand here for evs is as strong as maybe the companies think it is or maybe some analysts think it is.
Yeah, that yeah, that's true. We're actually you know, sales is probably gonna definitely will slow down. You know, we're probably thinking around a ten percent range right from you know, high mid mid kind of double digits. So it's definitely going to slow down. And I think it's a major story. Major reason for that is the affordability. Like I said earlier, batteries are are still being imported. There's gonna be bans and materials, you know, because the China actually owns the
battery supply chain. And if you're banning that technology from China, and where else are you going to get the batteries from really, But so that means they'll take time. It'll take time for the US to build up the supply chain. And once they have the supply chain, I think the
costs will come down. Hopefully by then, the you know, the EV charging infrastructure will be you know, expanded, uh further to what it is what we have today and uh and with the lower pricing with uh you know, EV infrastructure built out, charging officure structure built out, hopefully it will create some demand for battery V. And but that's like I said earlier, that's probably two three years
from now. I think we're gonna take a break, take a We're gonna slow down a little bit until the supply chain catches up.
Is the cyber truck actually gonna drive sales for Tesla?
I don't think so. I don't think it's a high volume product for cyber truck for Tesla. Uh, it's you know, the styling is not for everyone. Everybody everybody, uh, you know, everybody's used to the traditional truck. They have to prove themselves. You have strong incumbents GM, Ford and Chrysler that they have to overcome the mindset of the average consumer that buys pickup truck to go with the cyber truck. So I don't think so. But Tesla is planning to roll
out a compact vehicle. You know, some have dubbed it as a model to uh. And you know, I think that could be the next things, that next thing that we should be focusing on, because that you know that that that's going to help them not only expand into other segments within the auto market, but also help them expand into other regions as well, because pickup trucks is really big in the US, but not so in other parts of the world.
Right, Steve Man, absolute best Steve Man, global Auto market research leader Bloomberg Intelligence. He is back in the USA, as they say, based on our Princeton office. We'll be talking a lot more to Steve Man about the global auto industry, unique insights into Asia given his time over there, so good to have him back.
You're listening to the Take Catcher Live program bloom Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Mike Green joints as Supportfolio Manager Chief Strategist to simplify asset management. Joins us live here in our Bloomberg Interactive Broker studio. Mike, I'm not going to be paying attention. I'll probably be sitting on a train somewhere. You will be paying attention to, as will other professional investors out there. What do you want to hear? What do you think we're going to hear? What should we hear?
Do you think well, I think the market is pretty much prices in at this point, right, there's a zero percent probability slightly less than one percent probability that there's going to be any actual movement. Fed's not going to upset the apple cart in that process. At the same time, I think everybody is expecting, effectively a stern lecture on financial conditions and that we, you know, really should be
more responsible in our thought process. And I think that's going to be the underlying story.
Right.
We saw with inflation today that the FED is actually rapidly moving towards the subjective of two percent. Some people would actually argue, myself included, that we're probably going to overshoot to the downside, and that becomes the key question.
But I think the one thing, if I were to make a quick observation, it's that everybody keeps pricing the markets off of twenty five basis point moves and that's a pretty good model when you're talking about hikes, because the FED tends to hike in a somewhat conservative fashion. It was a surprise when they did seventy fives and fifties contributed to the volatility in twenty twenty twenty two.
As we look at cuts, though those actually you have about a fifty to fifty chance about equal probability of fifty basis point cuts. And so a lot of the statements around we're going to cut early, we're going to cut in the first quarter, I think are contingent on the idea that the only cut that can occur is at twenty five. I think it's more likely actually that we probably see a fifty later in the year, and that would suggest that the probabilities that the market has
are not quite as crazy as people think. Right if we were to wait and be more patient and not cut in the first quarter or certainly not January, but instead we're to wait and cut in July, August, September, et cetera, and do so in fifty basis point increments that would be consistent with pricing. Also feels probably more accurate.
So what happened in the first half of the year. Though from a market's perspective, if the Fed, as you said, kind of punts until there's called a jumbo cut in the summer, well.
That becomes the real question, right, because what we where we are today, is it a very bifurcated market. If I'm Apple or if I'm a wealthy US individual, I'm celebrating the fact that interest rates are higher because I've got a significant amount of cash on my balance sheet or in my bank accounts. I'm suddenly earning a really attractive return on that, and with the retreat and inflation,
that makes me feel much wealthier. If I'm a senior citizen, I've benefited from an eight point three eight percent increase in social Security this year. That now looks like one of the greatest giveaways in history, right, So when we think about it from that perspective, actually, if the FED starts to cut it becomes actually a problem for those entities on the flip side of the equation. We're seeing from things like the NFIB small business surveys the credit
availability is not loose for small businesses. That small businesses are really struggling, and the lower income of it, Americans who need access to credit to pay their daily bills, they're also really struggling using credit cards, thirty percent interest rates, etc. So this is a very bifurcated market, and it really becomes an interesting question of do we get to the point where something breaks and the FED is forced to do this or as many particularly that are active in
the FED, FED researchers, etc. Are kind of hoping for it is the FED behave in a proactive fashion. I think the odds of that are low.
Hey, Mike, you've been doing this a long time. Equities, credit, FX, commodities, all that kind of stuff.
If we're in a higher.
For longer kind of range here, I mean, I guess we'll start cutting at some point this year. Where do you see some of the best opportunities right here, just across asset classes.
Well, I think that.
There's a couple of interesting things that have happened that suggest, as we particularly come into the presidential election here, that the opportunities are relatively limited for Biden to goose the economy once more. And so some of the areas that have fallen deeply out of favor would include areas in green investment. Things tied to the Inflation Reduction Act actually point to some of those as having fallen significantly enough that now is a contrarian play. They become somewhat interesting
some of the lithium plays, et cetera. On the flip side of that. And just to be very clear, the Inflation Reduction Act terribly named because it can be used to stimulate the economy, but you know, we have to actually acknowledge that that will be one of the goals going into twenty twenty four. The other thing that I would highlight is is that we've now seen a really interesting event where g has made the pilgrimage to Mecca, right, and that I think is as we're seeing in the
weakness of the Chinese economy. That was something I called for earlier in the year. That's certainly borne out. A lot of people had expected this giant, you know, giant China rebound on a China reopening. We're now seeing that their economy is very structurally weak.
That's something that continues into twenty forty.
I think, well, that becomes the interesting question because that unfortunately, this is a situation with both in which both g and Biden need to stimulate their economy. They need to figure out ways to make sure that we don't go into deeper economic drawdowns that could be proved problematic for each of them. For Biden it would mean a failure to be re elected, or for the Democratic Party it
would mean a failure to be re elected. If Biden doesn't stand Fji, it has far more dire consequences, he goes out with his boots on, and.
So does that present an opportunity you're saying within Chinese equities.
I think it's interesting if you look at some of the Chinese equities, for example, if you look at the large cap Chinese ETFs, or you.
Look at the the FXI is what you're look.
FXI would be an interesting example of that, as would you know Asher for example. Those are interesting contrarian opportunities where the pricing is I would argue underappreciating the potential for a stimulus type rebound.
Actually, just to call that out, the FXI is return a loss of fifteen percent this year a wait in the face of ESPX being.
A right without recovering in twenty twenty two. Right, So it's not like it's a reversal from last year. It's been down fairly significantly.
How about just kind of the US versus international versus emerging markets, where do you see kind of the best I guess risk reward here.
Well, China certainly falls into the potential for an emerging market rebound, and we are kind of at this situation where if I look at things like oil prices, etc. They've retreated significantly. Many people were very bullish on it going into this year. Obviously that's failed to materialize. That suggests that the growing consumption out of places like the emerging markets has been weaker than anticipated. We've seen supply cuts rather than dramatic additions, US production being the notable
exception there. If I look at the emerging markets, you know they clearly have growth potential. India is obviously benefiting from picking up from China there, and I would highlight that is the notable outlier in the emerging market space.
But if I look elsewhere around the world, a China slowdown is really problematic for the emerging markets, and so you can get a momentary bounce, But if we're really looking at kind of the much broader picture of how this develops, we're now in this uncomfortable time period where it's about how do we change supply chains as compared to how do we dramatically expand them as we did under the China regime. And so I think emerging markets
continue to be challenged. They continue to be in a situation where, particularly with very strong US dollar against emerging markets and high interest rates, it's becoming harder and harder for people to justify investment in many of those regions.
If we can say internationally, what's your view on the UK and Europe, it just feels like, again you pointed to Bloomberg TV talking about the IPO market, for all intents and purposes, Europe is nil in that front.
Well, I think something really interesting is happening in Europe and that they're suddenly actually facing the same thing that they did with Japan in nineteen eighty nine. Right, So, if you look at the nineteen eighties, Europe enjoyed quite a bit of shaden freud at the idea of the United States becoming second fiddle to Japan. You saw that exact same type of shad and freud as it related to China. And what changed it, of course, was Japan
began going after the European auto market. Same things happening right now. China going after the European auto market, I would argue, has been one of the key catalysts and changing the tenor and tone of behavior towards China. I think that's one of the reasons why China is slowly backing away from some of its aggressiveness on trade. On
the flips out of it. Europe itself is just so structurally challenged that it becomes a really interesting question of how far does it have to go before change actually starts to emerge. And we just have not seen an incredible amount of emphasis on growth in Europe. They've effectively tried to limit the amount of damage to the euro limit the amount of damage to their economy from terrible choices they made around energy in particular over the last decade.
And to change that is going to require a radical reimagination of Europe where they try to go for growth as compared to preserving something that really can't be preserved anymore.
Have you ever gotten involved with crypto or what is your involvement or exposure to crypto? Well, so that's not my generation, but I mean.
Yeah, well I think I think you and I are roughly the same generation. But look, I think that there's some really interesting stuff around crypto. It has some of the same positive bubble dynamics associated with the build out of the Internet in the late nineteen ninety and I think that there's actually an incredible need to move to what I call digital securities right digitally native securities, the idea of a smart token that has far more information
contained in it than a qsip does. For example, opens up the ideas of creating all sorts of interesting structured products, investment vehicles that people could desperately use, et cetera. But crypto itself is basically a technology now in search of that of that need. And I think it's a fascinating insight in terms of crypto itself that the only thing we have is speculation after ten plus years.
All right, Mike, thanks so much for joining us. Appreciate getting you on our studio. Mike Greenie's portfolio manager, chief strategist at Simplify Asset Management.
Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio to the