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 moving news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com Slash podcast For broadcasting Live from the COMMONWEALTHS twenty twenty three National Financial Advisors Conference, We're at the Gaylord Rockies Resort in a rural Colorado, a world class water park.
I will report for those that are into the water park thing what we're doing here. There's a lot of registered investment advisors here. People manage money for others. They gather here along with their platform, the folks at Commonwealth. Matthew Jessup joins up piece as CEO and managing partner of Jessup Wealth Management. So, Matthew, you've been in this business a long time. You started a UBS wealth management, correct,
then you go off to form your own firm. Why do you go off to form your own firm and talk to us about you know, what it was like building that business.
So, Paul, when I got started in the business that was back in the day of you know, cold calling, right yep, you know, smile and dial and I was able to build a client base. And in the late two thousands, you know, you go through the GFC. You know, the last thing I wanted to worry about is the custodian where my money was held. And you know, being independent had gave me the ability to invest money the way I wanted and grow the business in my fashion.
And it's worked out really well over the years. We're managing over three hundred million of assets, over four hundred households across the US.
So how do you build that business? What are some of the tools you use to build that business? So you know a lot of it is going to be word of mouth and referrals. I do it old school now these days, you know, the days of smile and dialing is obviously over. But you know, if you look at you know how that business has grown, it's mainly through that word of mouth, through our entire client base.
In terms of.
What you do to get your message out there, beyond word of mouth, I'm thinking about social media, posting on Twitter, for example. Bailey was just talking about putting charts up there, or maybe even going a little bit further a YouTube account or a podcast. What do you think are the best bang for your buck ways to spread the word.
Matt, great question for us, It's gonna be our podcast. So we started the Independent Advisor's Podcast. We've been doing it for two hundred and twenty two consecutive weeks. Each of those podcasts last about thirty forty minutes. And what we do is a really good job of educating our client base and potential clients. You know, we're gonna talk
about big news and headlines over the past week. We're gonna highlight you know, tweets or exes, articles and research, and then we do financial planning topics of the week. And this was started with me and my business partner, Mark mcavy, who's our firm's chief investment officer.
So what do you find that your clients need the most these days? I mean, if you kind of just lose yourself in social media or in the news, it can be dizzying. So I mean, how do you try to get your clients to focus on.
You know, at the end of the day, it's helping them meet their long term financial goals and avoiding the short term noise, and we if we look at the market day to day and react to that, we're going to get them off base. And so I think we do a good job putting the news headlines into perspective. You know, let's take geopolitics as an example. You know, if an investor was waiting for the absence of geopolitics,
they never own stocks. And so I think we do a good job managing and balancing what they're seeing day to day in the markets pall, and managing that with their long term goals.
So how do they think? I mean, everybody's different or everybody's got different goals here when you start off the conversation kind of where would you like to take them? For most of these people, it's say sixty forty portfolios still the place to start or is there a different place?
You know, if a lot of retirees, I think that's fine. You know, I think that the sixty forty, due to the way the market was in twenty twenty two, is getting a bad rap lately. We don't think it's dead, you know. I think ultimately the way our firm manages money, we don't sub anything out mainly to third parties. We're using individual securities, our own research, and we have our own in house trader, and right now, I know we're going to get to it a little bit. You know,
we're overweight equities right now. We have a different contrarian view than Wall Street right now. Why well, ultimately we think that Wall Street is too pessimistic right now. I think when you look at a lot of the indicators, Matt, it could be everything from investor sentiment, y you look at a lot of the extreme ratios we've seen over the past year. I think the market can't get around the fact that stocks can do good in higher interest
rate environments. You know, NYU did a great study that looked at four variables, rising rates, falling rates, rising interest rates, falling with inflation on the other two variables. And when you look at those and all those scenarios of falling interest rates in inflation, ultimately stocks only do bad in one of the three, and that is going to be a rising inflationary environment. And ultimately we are seeing inflation come down. It's not going to come down every month.
We know that data point just recently, but we're making a lot of headway and these fed rates hikes take time to work their self through the system.
Yeah, fair enough.
Hey, I want to know about your take on the long end of the curve here. I think a lot more people have been learning about it. Certainly we've seen massive inflows to TLT, which is a twenty year plus bond fund.
ETFU and YEP.
And one of the things that I think people are noticing is small moves in yield contribute to very big moves in principle on the long end. But a lot of your investors, a lot of your clients may be looking at say the thirty year at four and three quarters percent and saying, I don't care about moves in the principle over the time because I'm gonna hold this to maturity.
Those rates look juicy. Are they gonna look juicy when we look back in ten fifteen years.
Well, man, I will kind of take the other side of it. Right now, we're on the short end of the curve, because the big concern for us is ultimately rates are gonna come down, we feel over the next couple of years, and what we're going to look for is a definitive move and consistency before we start locking
in some of those longer term rates. Now, I don't think I'm unique in that feeling ultimately, but I think at a certain point, owning individual bonds for our clients takes away a lot of the risk that you just mentioned, sir.
All right, So Matthew talk to us about some younger investors. How do you go out and try to attract younger investors because a lot of folks are just concerned that maybe they're not saving enough early enough. Maybe they're not because they have a lot of challenges, whether it's student debt or other things. How do you approach some of the younger investors out there?
Great question, Paul, So you and matt were just talking about, you know, presence on social media. You know, if you look at these next generational investors, they're looking towards professionals that can guide them and provide that advice, but they want to connect on a personal level.
You know.
I'm at a firm where I'm the oldest team member in my young forties. So what's great is I've built up Me and Mark have built up a great team that can sit down one on one with these younger investors who can relate to them right to their goals. That they're dealing with. And so I think that's a good thing, is that ultimately we can relate on a one to one basis in multiple levels. And what do you think they do they want anything different in their
investments than maybe some of the I don't know. The baby boomers are just some of the older investors, great question, Paul. They're more risk averse, believe it or not. Okay, So what we find out is that investors in their twenties and thirties, they're not having experience shed in investing into equities.
And so what we see in a lot of times is we are spending a lot of time educating in Paul up front on risk, reward, volatility, goals and objectives because ultimately, with the time horizon they have, they're going to be very much benefited by having that equity exposure. But then we have to get them past those day to day and month to month headlines that might derail that bigger plan if you think of it.
And it's interesting, I mean the younger investors now fixed in come is actually an option. There's a generation of people who have had nothing but zero interest rates that it had to go out and take more and more risk, whether it's equities or alternative Now fixed income can really be a percentage of your portfolio.
Absolutely.
I mean I think, you know, going back to Matt's point about it, at some point, you know you've got to start thinking about locking in some longer term rates. While we have these great short term rates, you got to go out and enjoy that. It's time to harvest. But at a certain point, I think over the next say, you know, six to twelve months, looking at longer durations is probably gonna make a lot of sense.
What are you were hoping to gain from this week here at this conference.
First and foremost easy question. Networking with my peers. That's where I get a lot of good information best practices. You know, we're not here to reinvent the wheel, and so I have a good group of like minded individuals that we network with. We have a great study group of about ten other advisors that me and my business partner Mark we meet with and we share and get a lot of good ideas on how to run our practices.
All right, Matthew, thank you so much for joining us. Matthew Jessup, he's a CEO and managing partner. Jessup Wealth Management.
You're listening to the tenth can'shur Live program Bloomberg Markets weekdays at ten am Eastern conn Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
We're broadcasting live from Commonwealth's twenty twenty three National Financial Advisors Conference at the Gaylord Rockies Resort in Aurora, California. Today we're joined with our host here, Brad McMillan. He's the CIO, that's Chief Investment Officer for Commonwealth. Brad, thanks so much for joining us. Thanks for having us out here in Denver. Appreciate it. So I see a bunch
of your clients walking around here, registered investment advisors. When you sit down and talk with them and mingle with them, what are some of their biggest concerns here is they try to figure out how to navigate these markets on behalf of their clients.
There's a couple of things that are really dominating the conversation right now. One is inflation. We see it coming down, but you know there's a real fear is it going to go back up? Is it going to go back to normal levels? And what are normal levels anyway, So that's one thing, and very closely tied to that as interest rates. And you just had Matt jessipull in here, you know, talking about how rates are evolving and we have you know, very good short term rates right now
and people love that. But is that going to last? You know, how is that going to change? So how do we navigate this significant shift in the fiscal and monetary structure. It's a real challenge.
So what do we What are some of the big issues here? I mean, I think we heard some We had some earnings today from some of the big banks this morning, and it seems like pretty solid out there. I mean, you know, they had some good loan growth, they had some good net interest markets, some of their capital markets businesses are pretty pretty strong. So at least looking just from today's companies reporting, it looks like the
economy is in decent shape. Is that concidned with how you guys think about it?
It does because we've had a lot of talk over the past year eighteen months about how we're going to have a recession, and a recession is inevitable and the world is coming to an end and so forth, and so on. What we've been saying consistently is we see an economy driven by the consumer, and we see the consumer getting more jobs at higher wages. You know, when you have when you have this kind of job growth, and we've just seen that is not softened. Really, we
just saw the most recent data. You know, when you have this kind of job growth, when we have this kind of wage growth, when have this kind of spending ability growth, we don't see a recession. So when you look at the earnings expectations, they're kind of based on that recession thesis and we just don't see that. And I think, as you say today's data, the banks are doing okay because people are out there spending.
Concern that're spending.
My concern is that people are out spending their income because we have seen wage growth, but it has not kept up with inflation. So prices are rising faster than people's paychecks. And you can see that everywhere when you look at the affordability of homes, of cars, of gasoline, all the things that the Fed doesn't really necessarily want to put into the core inflation category, right, but the things that we need excess savings have been spent off.
People are putting much more or in terms of payments on credit cards. They're also delinquent on those credit cards at a higher rate, delinquent on auto loans which are too much for them to afford at a higher rate, and they've got to start paying back student loans, which they haven't been doing for a couple of years.
Doesn't the consumer worry you?
The consumer does worry me. And everything you've pointed out is are real issues. But at the same time, when you look at the data, we have gotten worse than we've been over the past year, and that's true, but we're still better than we have been, you know, at typical points previously in the cycle, so we still have some running room here. I mean, things are softening, We're seeing consumers maybe start to pull back a little bit, and certainly interest rates are having an effect, there's no
doubt about that. But the flip side of this is a lot of people own homes with low mortgages locked in. Their spending is not going to be affected by interest rates, So there's another side to the story. But are things slowing Absolutely? Does that mean we're going to have a re anytime soon? I don't see it in the data.
All right, So what do you want this Federal Reserve to do? We're gonna you know, I mean, it's they've been very, very clear and very aggressive in fighting inflation and rise and raising interestratetions. What do you think they're gonna do over the next several meetings.
I think they've gotten to where they need to be. When you look at the inflation numbers, they're going to be trending down, if only because of housing. We know how the housing numbers are gonna trend. They're going to trend down. We should see inflation in the three three and a half range by the end of the year. That being the case. When you look at the surge in tenure yields, that's already done a significant amount of the tightening.
You know.
If the Fed wants rates to be in the five range for the ten year, hey guess what we're about there. So they have little, if anything more to do. I expect them to keep talking hawkishly because that's what the Fed does, you know, But I don't see a need to raise rates much further, if at all.
All Right, So given that backdrop here, as you talk to some of these ris, I mean, are you sensing that now it's the time to get a little bit more aggressive here. Maybe you know, maybe increase your equity allocation, maybe go out a little bit more duration in your fixing come portfolio.
We are talking a little bit in going out in the equity and the duration of the portfolio. You know, as Matt was talking about a minute ago. Now is the time to lock in some rates. Yeah, you can get more, you know, on a current basis, but at the same time that's going to change. So if I'm looking to lock in a longer term liability and I can get you know, four eight, four nine percent, that's a great long term yield to lock in. And I think you're going to start seeing that with insurance companies
for example. As far as equities go, I'm not as pessive. I'm still optimistical inequities going forward. I think we have some opportunity for some earnings out performance. We talked about that. I think valuations, most of the hit has already been taken from rising rates, So I do think there's some optimism there. I am a little bit concerned at the index level when you look at the vulnerability to the
seven major socks, so you know, individual stocks. Yeah, I think there's a running room for a lot of them, but we might see some volatility at the index level.
What is your outlook in terms of rate cuts? I mean, if you're optimistic on the economy and not too worried anymore about rising rates, do you see them being held at this level for much longer or do you think that the Fed cuts rates for any particular reason next year?
You know, it's interesting a lot of people are calling for rate cuts, and I think that's the wrong question. I don't think we should be asking when does the Fed cut rates? I think the question has to be why would the Fed cut rates? They are at a level that historically is normal, you know, And I think one of Powell's overriding objectives is to restore normality to the market, so he's there. So what would make them cut rates? If inflation were to rise again, they're going
to raise rates. If inflation goes down to normal and they don't have to cut rates, why would they cut rates? The only thing that really might make them cut rates is a severe recession, and as I said, I don't see that. So I don't see any rate cuts for probably at least through next.
Year, all right, So I guess one of the other. When you speak to some of your rias here, are you telling them maybe like some of the sectors you guys like like, you know, I'm still bullish on tech, or I think there's still room and energy. How do you kind of frame that discussion?
Generally speaking, we're not tactical investors, but at the same time, we do recognize that, for example, small cap has outperformed over the past several years. Value has outperformed over the past several years, and we look at that and we know why that is, and we see, you know, potential catalysts for more outperformance going forwards. So we do have some overweights in those spaces. You know, when people talk about vulnerabilities, we've already talked about the magnificent seven there.
I think there's a chance that we might see a repricing of that as we see higher yielding investments like value stocks start to become more stable. In other words, I think we're going to see a rotation. We've seen some outperformance in large growth. I think the reverse of that is due to do some catch up.
All Right, we're out here in Colorado. I feel like it's kind of energy country. What's your energy call here? I mean with these energy stocks.
The interesting thing is when you look at energy, you're basically talking about the oil and gas prices, and that has gone up a bit, but it hasn't really gone up that much. And I think the real tell here is what's happened in the Middle East. We haven't seen oil prices spiked to any significant degree, and that tells me a couple of things. First of all, there's a perception out there, right or wrong, that this is not
going to be a wider war. Second of all, that we have the US production as a stabilizer now, and I think we just hit an all time high for production. So the US oil industry is continuing to do very well and that's stabilizing prices. So I'm not sure I see too much upside from prices. I do think we're going to see consolidation, as we just saw with the Exxon deal. So you know, it's very much an industry in fox. I think I'm not sure there's a lot about performance going forward there.
All right, Bret, thanks so much for joining us. Brad McMillan, he is the CIO of Commonwealth, the host of this gig add here in Aurora, Colorado.
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We're broadcasting live from Commonweal's twenty twenty three National Financial Advisors Conference or at the Gaylord Rockies Resort in Aurora, Colorado. Matt Tons of big banks reporting earnings this morning. You know who we need to talk to is Allison Williams.
Yeah, absolutely, our number one go to source on the big banks. Allison is here with me in the Interactive Brokers studio. And what morning we've had in terms of earnings. We had Blackrock come out, we had Wells, Fargo come out, JP Morgan, PNC Financial, and City. All of them beat at least on the bottom line. Alison, what stands out to you?
So maybe I'll start with black Rock. They were the first to report they had a rare quarter of outflows, but it really was tied to Lofi Institutional. So we think that there's limited earnings impacts there, so we're less worried about them from the three big banks beats, So net interest income coming in better than expected, I would say this is consistent with a lot of the optimism
that we felt in late September. The issue, really though, for the banks is twenty twenty four, so we're happy that there's upside to four Q. We have a higher run rate entering next year, but with expectations that previously suggested the FED could be cutting soon, now that's being pushed out. We're even talking about hikes that poses risk to the outlook. On the other side of things, credit, I mean, wow, the credit beat at JP Morgan was
pretty tremendous. We analysts expected about a billion dollars of reserve building. They actually had a net release. So the better economy better than expected. Right like a year ago, we're talking about recession. The economy's coming better. There's rate risk, but the credit is also holding up better.
So I wonder what they're making in terms of rates on an average loan compared to what they're paying in terms of average late rates. I know on a checking account you're going to get like zero point two percent and if you need a mortgage, it's going to be eight percent.
So that's a killer spread.
Right.
So what we've.
Seen in the past year, you know, a year ago where about higher rates are good because we saw the yield, as you said, what customers are paying them when they borrow that repriced pretty quickly. Yeah, and the deposit costs have come later. That's cutting into the net interest income, but not as much as expected. So I think a lot of banks were excited in September or at least
alluded to the fact that things were trending better stabilizing. Again, the question is, you know, does that sort of reinvigorate as and funding costs go higher.
Well, we thought after SVB that there would be, you know, a big war for deposits and that costs would rise, but it really hasn't happened, has it.
Well, yeah, it hasn't. I mean it has to some extent. So we did see further increases in deposit costs, but at a slowing rate. So investors are always sort of looking for that second derivative, and so that's where we're getting the positive news. The other thing I would point to is good cost control. We did see higher than expective costs at Wells Fargo, but part of that was Severn, so that that could imply a better run rate for costs. They do have some good efficiency measures JP Morgan, their
core costs coming in better than expected. That guidance again also better than expected. You know, loans is the one area that was a little bit weaker than we thought a few months ago in terms of commercial loans. But what these big banks are benefiting from is card so JP Morgan City Group. You know, aside from Capital One, there have some of the biggest card exposures out there, Bank America, Wells Fargo to a lesser extent, but still
better than those regional banks. And so I think the loan the loan portfolios and the net interest income trends might not you know, necessarily repeat for those regionals.
Hey, Alison, commercial real estate, what are the banks saying about the commercial real estate exposure? Is this going to be a problem for them?
It is going to be a problem, but it's you know, it's it's overwhelmed this quarter. I think by all the positives that I talked about, but most significantly Wells Fargo they're the biggest commercial real estate lender. They had said in September that you know, a year ago, eighteen months ago, they were concerned about specific pockets and specific cities.
Today that risk.
Has broadened out. They are taking reserves, so we did see reserve building for office, commercial real estate. On the other side of that, you know, JP Morgan taking a reserve release in home mortgage, so we're seeing reserves for commercial real estate, in office, we're seeing reserves for car and as I said, there's growth there, so they're reserving for that. But we're seeing some offset.
You know.
JP Morgan talked about some of their economic exsumptions changing and that is really the driver in terms of the provisions coming in better than expected.
And at the same time, Jamie Diamond says these are the most dangerous times in decades. I guess he's talking more about geopolitical risk than he is about the economy.
I think he's talking broadly, but it's at the margin, right. So their assumptions are a bit better, but they're still conservative, So they ill are I guess, writing more conservatively, but maybe a less little bit less worried than they were a last quarter. And I think Jamie's comments go to you know, the fact that we really are in unprecedented times for a big reason. And to me, I think the biggest factor is, you know, we've never seen central
bank balance sheets have this huge build up. We don't know what that unwind is going to look like, and I'd be surprised if we didn't get a surprise. Right, No one knows what that's going to look like, and so this is a very different cycle again, the consumer, very different cycle. Normally we would not be seeing card growth fueling these banks.
We would that in itself has to be a concern, right.
That means that more and more consumers are putting more stuff on credit cards and they're not paying their balance off right away, so they're rolling them over, even though interest rates on credit cards are extremely.
High, So at this point it's more about their growing loans and so they want to reserve.
For it card.
It is normalizing, but it is normalizing but still very very strong. I would say the one thing to watch for for consumer is that spending is slowing, but they're still using up those deposit balances.
Alison, Great, talking to you as usual. Alison Williams runs our bank coverage here at Bloomberg.
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Well, I'm here in New York City, capital of the world.
Thank you very much for that, Paul, and we want to talk about, you know, what you do in markets when there's so much going on.
From geopolitical issues like.
The Hamas attacks in Israel, and of course we're all waiting for the counter attack to issues that we face here in the US, like Steve'scalisee can't even work with the Republicans, so he drops out of the run for Speaker of the House.
That's likely gonna lead to or.
Could likely lead to a government shutdown. But we also need funding for Israel and Ukraine. And then you've got massive swings in the bond market.
Yesterday, I think the thirty year.
Bond moved by like twenty basis points and that caused moves in the equity indexes and everything else as well.
Let's go to Jared Dillion.
He is an investment strategist at Malden Economics, also editor of The Daily Dirt Nap and Jared, what do you make of these markets? I guess probably the rates moves are the most interesting.
Yeah, the rates moves are definitely the most interesting. And thanks for having me on.
Yeah.
I mean there was a lot of bond bears a week or two ago, and there's a lot less today.
With the war in the Middle East.
It's you know, I think the trend reached just absolute exhaustion.
People.
I saw forecasts for five percent on tens, five and a half, six percent. People were extrapolating the trend forever. You know, we came in on Monday morning and we had a completely different world. And in an environment where you have huge geopolitical tensions, you know, really what you're looking to do is do things like buy bonds by gold, buy oil, and probably sell stocks.
And by volatility, well.
I mean, how hard is it to deal in a bond market when you have this kind of volatility? Do you just stick to the front end or what's your take?
So I actually, I personally have a pretty large position in the front end. And you know, just yesterday we had a whole parade of or I guess it was two days ago. We had a parade of FED speakers who said that we pretty much eliminated the last rate hike, and what that did was that really started the clock on when the first rate cut is going to be. And generally after a rate hike cycle, there's not a lot of time before the FED begins cutting rates again.
The longest that the FED has been able to maintain rates at the highest level was at seven months, and that was back in two thousand and seven. So I think we're gonna be getting We're gonna be talking about rate rate cuts within the next few months.
Hey, Jedal's just looking through your notes you provided is one of the things that really jumped out of me was your point here that shorter work weeks will cause lower economic growth. We won't see three to four percent GDP growth again, that's a big statement. Tell us what you're thinking.
There, Yeah, it's you know, it's really output is a function of work. It's a function of how hard you work and how long you work, and how productively you work. I mean, if you don't, if we collectively as a country, if we work less, we will have less output and GDP will go down. I don't think that's a really controversial statement. I think, I think a lot of people
want to have their cake and eat it too. I think that, you know, we think that we can have a thirty two hour work week or a three and a half day work week and still maintain the same output and the same level of prosperity and standard of living.
But it's just not possible. And what's going to happen is is that when we as a society start to value leisure time over work in productivity, then we start to look a little bit more like Europe, which has had growth you know, pretty pretty pretty close to zero over the last fifteen years.
But it's lovely.
I'm here to tell you, having just lived in Germany for the last six years.
It's much less stressful.
What about the down side, Jared, I mean, if we don't grow three to four percent, does that mean we also won't have bigger sessions or do we have to deal with bigger sessions without the growth.
Well, I mean, the interesting thing is is that the US has really leapfrogged most western countries in terms of wealth in the last fifteen twenty years. I mean, our per capita GDP is about sixty thousand dollars, and throughout Europe it kind of ranges between thirty five and forty five thousand dollars. I mean, you know, the United States has become fabulously wealthy. It is more stressful, you know, I'm stressed out. I work pretty much all the time.
You know, I work a full day and I go home and I sit on the couch and I do more work. And that's kind of what we do as a culture.
Yeah, me too, pretty much. It's a little bit of a bummer, but I actually I like work. Not everyone is that lucky. Talk to me about your view of.
The economy and the sling that we're seeing here, because you know, you talk about having your cake and eat it too. Paul wants to see a soft landing and lower rates.
Well, somebody told me early in my career, like twenty years ago, that there's no such thing as a soft landing. But having said that, you know, we've been on recession watch ever since the curve inverted sixteen months ago. Sixteen months ago, the yield curve inverted, So we've been on recession watch ever since then, and we haven't had a recession yet. I believe that we will. I don't believe that it will be severe, certainly not on the scale of what happened in two thousand and eight, which is
really the last real recession that we got. We had a technical recession during the pandemic in the early days of the pandemic, and we had a little bit of a slowdown in twenty fifteen, but we haven't really had the downside of the business cycle in fifteen years, and a lot of people have forgotten what that feels like.
Now.
What's happening right now is that the yield curve is steepening pretty quickly. And as you know that, when the yield curve inverts, it signals that a recession is going to happen, and when the yield curve steepen, it is actually happening. So we should be seeing signs of that relatively soon.
Hey, Jared, talk to us about your your thoughts on oil here. It's had a lot of near term volatility here due to some geopolitical issues, certainly over the last week and then over the last several months. What's your maybe intermediate to longer term call on oil.
I don't think that I have a really strong opinion. I mean, there's the people who work in the energy space full time. You know, the axiom is that you generally want to fade geopolitical events. My memory of this is pretty hazy, but there was something that happened in Iran three or four years ago where oil spiked and that was a high and it never came back to that level again. I think this time is a little
bit different. You know, the conflict in Israel really opens up a whole bunch of possibilities of things that could go wrong. I think, you know, if you were a trader, buying some far upside calls.
In oil might not be a bad idea.
We could walk in one morning it could be twenty percent higher, you know, based on a rounds involvement or something like that. So in the short term, I'm definitely bullish.
Isn't this time different? For everything?
Alison Williams was just telling me about Jamie Diamond's comments on world danger and saying, you know, we're in an unprecedented situation in terms of FED balance sheets, and I was thinking, we've been in an unprecedented situation for like fifteen years.
That's always the case, That's always the case, you know.
It was funny, I was I was on Twitter the other day and my friend Porter Collin, who's one of the figures in the Big Short movie. He's a friend of mine, and he tweeted that the end of quantitative tightening is probably near. You know, we've been rolling off the bounce sheet for the last year, year and a half, and you know, it's it hasn't really helped the situation with rates because when the Fed's selling three to five billion of treasuries every day, like it puts a lot
of pressure on the Yell curve. But I think I thought that was a pretty smart comment. I think it is. I think it is likely that we will end QT sometime in the near future.
Yep, all right, Jared, thank you so much for joining us, Jared, I really appreciate it. Jared Dillion. He's an investment strategist at Malden Economics Scholl.
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We are broadcasting live from Commonwealth's twenty twenty three National Financial Advisors Conference at the Gaylord Rockies Resort in Aurora, Colorado. Joining me right now. We're right here at the conference and it's very nice. I could show you the results. Karen McCall joins us. She is senior vice president of Wealth Management at Commonwealth. Joins us, Karen, We've seen a lot of the you know, investment advisors building around here
over the past couple of days. What's kind of what do they really need from you guys as they try to manage their business. They've got retail clients, They've got compliance issues, they got back office issues. I think a lot of them just want to interact with their clients.
What do you what do you hear from them in terms of our advisors?
Paul, is that yeah, exactly?
Yeah.
So this national conference, this is a great opportunity to bring our community together. We have over two thousand advisors all over the country and they really enjoy coming together in a community like this. We have the opportunity to really share with them the things that we're doing in the home office. We basically in wealth management, we exist to help the advisors attract, retain, and grow assets. We serve as an extension of their practice, and we're really
there to assist them. Their client's needs are becoming more and more complex every day, and each advisor cannot be an expert in every realm that that is necessary for a client. So we're there to help them to bring that subject matter expertise to help them navigate that complexity to be able to choose the right products for clients' needs.
Talk to us about high net worth ultra high net worth kind of people. It seems like we're getting more and more of those. How do you kind of adapt to some of your you know, the RAA's clients actually getting bigger.
Yes, that's absolutely happening. Our advisors are seeing that on a daily basis. We're seeing lots of opportunities to work with clients at that five million dollar threshold and above, and even at that ultra high net worth, which we define at twenty million dollars and above. And you can imagine that at those asset levels, there are all sorts of needs that come into play. It's not just the investment portfolio. It's not just thinking through the asset allocation
and the underlying manager selection. But you're also having to bring expertise around tech strategies and protection strategies, how to use some insurance products for example. We also can help them with estate planning, bring in legal experts where we
need to. So it's the way that we've done it is really we stood up an entirely new service within Commonwealth called Private Client, and when our advisors utilize that service, a team of experts from all the realms across wealth management come together to work with that advisor so that we are addressing all of the dimensions of that client's needs.
Yah Paul mentioned that it seems like there's an increasing amount of high networth individuals. Do you see that in your business as well? Are more and more people very rich and need to invest?
Yeah, yes, which is a good problem to have. We are absolutely seeing more and more wealthy clients.
Come.
A place where we're seeing this is we have a lot of our our advisors have a lot of business owner clients, and as they sell businesses, their financial picture changes radically from one day to the next, and we want to make sure that our advisors are ready to deal with that, to be able to address the needs of an existing client that suddenly comes into an enormous amount of wealth.
How about alternative investments. I've heard some of these advisors say, you know, over the last couple of years, they've heard they've been asked a lot more by their clients about private equity, hedge funds, private credit. How has that been growing as part of their business? We've seen.
A heightened demand for alternatives as well, and so at Commonwealth we have a team that's dedicated to the alternative space, that really focuses there and has that expertise and is helping our advisors utilize those those solutions in the best way possible. We also recently entered a partnership with a company called I Capital, which is basically a platform of hedge funds, private equity, private debt, and our advisors are reacting very well to that and increasingly utilizing the platform.
How helpful is this conference? How helpful is this conference to you?
Karen?
What are you doing there?
This conference is incredibly helpful. I spent a lot of time in conversations with advisors. I had the opportunity yesterday to update the entire group on all of the initiatives that we have in wealth Management, and I think it really drums up excitement when they hear about things that we're doing, like our Virtual Paraplanner program, which allows them to delegate a lot of the financial planning that that
they're doing. We also have the opportunity to promote things like our custom trading services, which allows which allows advisors that want to serve as portfolio managers to outsource some of the more administrative tasks like the monitoring, oversight, and trading to our team of experts. So that really allows them to free up time to be able to spend with their clients.
All right, Karen, thanks so much for joining us.
Really appreciate it, and I know Paul really appreciates being out at that conference as well. Karen McCall, Senior VP at a Wealth Management at Commonwealth, talking to us about her business, today's investment environment, and the conference that they are hosting out there in Colorado.
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We're down here, We're out here, I should say, man, we're out here in Aurora, Colorado. We're broadcasting live on almost twenty twenty three National Financial Advisors Conference. We're at the Gaylord Rockies Resort Hotel and a roar and I look up at the mountains and there is snow up there, and matt at the highest elevations. I'm heading up the Breckenridge in just minutes, so I'll be able to report back on some real time conditions there. Let's go to
our next guest here at the conference, Sam Millett. He's a director of fixed income at Commonwealthy Joins US. Sam, thanks so much for making your way over to the Bloomberg remote booth here. Let's talk about Fixingcome here. I mean, we've got a federal reserve that appears to be at or near peak rates. How do you expect I don't know, the next twelve months to unfold in terms of what the Fed does with interest rates.
Hey, Paul, thanks so much for having me. It's a great question. It's definitely been on the mind of our advisors here at this conference. You know, I like to listen to the FED when they try to tell us what they're saying and what they're planning to do. So I believe they're going to be very data dependent at
the upcoming meetings. Looking at you know, rate probabilities, i'd say that most likely, it seems like we're probably going to keep flat at this most the upcoming FED meeting, but you know, going forward from there, we're just gonna have to watch the.
Data, all right. So, I mean, I think the is you when you talk to your registered investment advisors here, what are you suggesting that they do? What do you suggest they tell their clients about kind of their allocation to fixed and come where should they go? Kind of duration, all that kind of stuff.
Yeah.
Absolutely, So we've really had kind of a bias towards higher quality throughout the course of this year, and that's really resonated with a lot of our advisors. Additionally, you know, I think the duration question has been, you know, front and center on everyone's mind after the last couple of years and looking at most of our advisors, many of them entered the year with relatively low durations compared to
their benchmarks. Therefore seeing them move a little bit closer higher up in duration get to market rate duration has really been the key.
What do you think about.
The current state of the thirty year I mean, yesterday we saw it jump twenty basis points, and that's not the first time we've seen this extreme volatility.
Is that here to stay?
Yeah, I think it's definitely been a pretty big move in the past couple of weeks. When you're looking at long term rates, I do believe that there's a likelihood we'll see them come down a bit over the course in the next few months. But you know, ultimately, I think it's very difficult to call the direction of rates when you go any further than that.
How about the you know, I'm a I don't mind taking a little risk out there. I mean, should I be thinking about, you know, the high yield market, because if I look at the returns year to date across the fixing come spectrum, the only place where I see
positive returns is in high yield. And the kind of surprising to me, because again, the recession talk is pretty pretty prevalent out there, is the should I be out there thinking about high yield debt here as opposed to just kind of sitting where I am now with my two year Treasury at five percent.
Yeah, I think you know, when you look at high yield, the performance this year has been exemplary. It's really stood out, especially compared to most sectors within fixed income. With that being said, we do have some concerns about valuation levels.
You know, you look at historical spreads in the high yield space and frankly, they seem to be relatively low if you're expecting some sort of economic slowdown in the year ahead, which gives us a little bit of pause when we hear questions about should I be moving from relatively you know, credit safe and shorter duration assets like a two year treasury out into the high yield space because you know, frankly, I think that there's a really big shift in risk that you're taking when you do
that trade, and you have to be aware of the fact that you know that can work against you if you jump too soon.
Well, Matt gets on, nybe my co host, Matt Miller, because I'm sitting here in two and a half to two year treasury is getting five percent. But he keeps tell me I have to worry about reinvestment risk. So what do you tell.
For a year you only got a year left?
Paul, I know I've a got go I think it about it, And so the question is what do you tell your advisors here about you know, maybe sitting here in this two year paper, or you know, you can even get a CD these days, you can you know, savings account, which my twenty seven year old daughter did, which is very good on her part. I'm very proud of that firsts going up maybe a little bit more duration, taking out some of that reinvestment risk.
Yeah, I've definitely had that conversation a lot with our advisors because that's something their clients are asking them for a lot. You know, one year to two year CDs and treasuries have been extremely popular. The only thing that we caution with that is, you know, the idea of a lot of these client requests for this paper, they come in and say, I want to lock in yields at a high rate right now.
Yep.
And while you certainly can for a year or two, you know, if you look at longer term interest rate projections, including those directly from the Federal Reserve, you know, it seems quite likely that those will not be available for reinvestment at similar rates two years from now.
Right, all right, Matt, thanks for joining us. Really appreciate it, Thanks so much.
So.
We're just kind of getting the lay of the land there on the fixed income space, and we did that with Sam Malett. He joins us here at the conference here in a Rura, California. That's Sam Mallett, director of fixed Income at Common Model.
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So, Madam saying, there's a lot of stuff out there for you and you know, the litigation folks and the antitrust folks to really focus on the most recent deal I wanted to get your opinion on was exon Pioneer. You know, it's a big deal. How do you think the regulars are going to look at that?
You know, I think that deal is going to get scrutiny.
You said it's a big deal. It involves exon.
It's a sensitive area oil and gas, but I think in the end it's probably okay. I don't see how the FTC challenges it. Mean, this is really a combination in the Permian Basin where there's a lot of competition, still a lot of other biggies, and most of the company's holdings in this area, which is called the basin. It actually comprises several basins are not really all that close to each other, and combined.
They'd have about fifteen percent.
So I think it's going to get some scrutiny and it could take some time, but I think eventually this will get cleared.
But I wonder why the FTC seems I mean, why can we count on them to oppose big M and A what's the idea behind that? You know?
I think that essentially this is an FTC that sort of has a generally I don't like to say this because it really shouldn't be this way, and they say they'll deny this, but they really tend to think that big is bad. You know, the bigger the company, the more power it has, the more dominance it has, the more ability it has to engage in anti competitive actions that could harm consumers, that could harm labor that could have also different harms.
That sounds like a fair take, actually, I mean in the abstract, right.
Well, in the abstract that's in the abstract, it could be a fair take. But you really have to look at these deals one by one because if you take the position that any big deal is bad, that any kind of merger and consolidation is bad, what you're not thinking about are those deals that can be pro competitive and can have efficiencies and can ultimately be actually.
Be good for consumers. Right, So you're really.
Just discounting any of that, and it's kind of just a blanket application across the board that simply may not be the case. It may very well be the case for some of the deals that they're looking at now, and some of the deals they've tried to block and actually have been able to block in the past. But I just think that to look at everything across the board that way probably is a mistake.
I wonder how Microsoft activision. I mean by the way that deal's completed.
It's done. It's not like they're looking to close it. It's quite done.
It's closed.
But if I think about it, you know, Microsoft a gigantic behemoth that owns the Xbox, you know, one of two video game platforms, has now bought the maker of Call of Duty, the most important video game that exists, Right, So, I mean they're vertically integrating.
They're vertically integrating. They were vertically integrated already, they're vertically integrating more. But at the end of the day, it comes down to what the economics of this deal shows.
Is there an.
Ability and incentive by Microsoft to keep all those activision games to itself and not supply these games to their distribution competitors, to forego the licensing piece that they would get from that, to have the customer bad will of gamers that we have the other options and would like to play the game and now can't.
Which side is better for them? And what was proven in court.
Was that it didn't make sense financially in the long run for Microsoft to withhold these games from its competitors.
That's essentially what the judge found.
Right, More people play video games in PlayStation then Xbox Sony's PlayStation, and they're definitely they definitely want to play Call of Duty on that platform. If Microsoft didn't allow them that, they would be looking at a lot of lost revenue.
Now, that's right, And I also think that there's still if you look at market shares just in gaming, that companies that create device and create and produce these games, there's still a lot of competition. You know, globally, Activision isn't one of the biggest players, right It has Call of Duty, which is a very popular game, but who's to say that there's not another game that's going to come along in a year or two or in five years that surpasses that.
All right, let's go from gaming to supermarkets. Here, what's the status of Kroger Albertson's.
It's not looking good right now. You know, the companies seem to be trying to play ball. They're talking about divesting stores in order to get antitrust clearance to a company called CNS.
But it's looking like the FTC might end up suing.
This was sort of what I thought early on, and now we've also heard that the California State Ag is thinking about doing the same. So it looks like if the companies want to get this closed, they're going to have to end up winning at court.
That doesn't seem I mean, it seems like an easy fix. Here just to say, hey, here's our geographic overlap, and mullt divest.
These right, And that's essentially what the companies are doing. And because of that, Paul I actually think they have a good shot at winning in court in front of a judge.
But this particular.
FTC was very skeptical of remedies generally, any kind of remedy, whether structural like this divesting stores, or whether it's just behavioral promises like Microsoft had offered up And in this case, the FDC is particularly skeptical because there was a big grossery deal years ago in which many stores were divested.
This was Albertsonson Safe Way, and it failed spectacularly. The buyer of the divested assets went bankrupt and Albertson's ended up buying back a bunch of the stores that they were supposed to divest.
So there's particular.
Skepticism in this industry that this work. And this is a lot of stores. You're talking up to six hundred to be divested to CNS, which is primarily a wholesaler.
What are the other deals that we need to be watching out for, Jen, Well.
Look, we're going to trial later this month in the Jet Blue Spirit Challenge. Oh yeah, Paul has talked about that one a bit. He's skeptical about that one. But that starts trial October twenty third. It's going to go about four weeks in Boston. So that's coming up. And we still are kind of waiting around to see what happens with Adobe en Figma. This one's been dragging on
and the DOJ has been really quiet about it. We know the UK and the EU are investigating that deal as well and possibly have some concerns, and the Department of Justice may be just sort of biding its time because the deal cannot close while the UK and the EU investigations are ongoing. But I tend to think there's going to be a lawsuit there.
Too, all right, Jenry, that's good business for the attorneys if nobody else. Genery, she's a senior legal analyst.
He covers the.
Antitrust business for Bloomberg Intelligence.
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