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. Let's go to our next guest, get right back to these markets. John Hurdle joins US executive chairman at Hurdle, Callahan and Company. Hey, John, we have a risk one day today, but there's still a lot of concern out there. September was a tough month for risk assets, stocks down. How do you guys think about the rest of this year.
You know it's still driven in large part by this federal Reserve. How are you guys thinking about it?
Well, we'd like to have a real yield in the bond portfolio for the first time in a long time. You know, I the first thirty years I was in the business, bonds were such a critical dimension of a diverse, fied portfolio, and then we got this place where we had no real yield and we needed the bonds to stabilize the portfolios, but the price of that stabilization was huge because we've got no real yield. So as an investor, I like having real yield back in the bond market.
I also feel like this is more of a stock picker's market. It's not just risk on risk off. That's a term that has really become popular in the last ten years. It's more of a trading term than an investing term. We're always risk on because we think to fulfill our client's missions, we've got to be in growth assets,
which are stocks and private equity and so forth. So it's really a question we're not you know, we're investors, not traders, and so this market actually feels a little more normal than what we've gone through for the last ten years.
So what do you think in terms of the sixty forty split, Is that still the way to go for the average investor?
Or?
Would you allocate more to bonds right now at these yields?
We wouldn't really allocate. We're not allocating more to bonds yet, and we've been about seventy thirty so for a long time we've been more growth oriented than fixed income than income oriented. But we are adding duration. So we feel like if we can move up duration and we're still underweight relative to the Investment Great Index, but we're you know, closer to matching it. We're adding duration, so we field with a ten year to four sixty. We're getting closer.
You know, could it get to a five percent? Interesting? But at this point we can increase yield, so get current yield. The yield curve is steepening a little bit, and if we do slip into a recession and interest rate strop again, then we get capital appreciation out of those bonds. So we're adding duration.
John On on the equity side here, you know, some of the performance are most of the vast majority, if not all, of the performance in the S and P. Five hundred has been from a handful of names to magnificent seven. Do you chase those here or do you try to look for some of the names that have not participated.
Well, you know, Mark Andresen wrote years ago that sawfwar is eating the world, and so that is a secular change. It's kind of like the industrial revolution. On the other hand, Howard Mark says beautifully that there is no asset in the world. It's a good investment at any price. It depends on the name. We've got to go name by name. And by the way, there are other companies that we like that are We do like the tech set. We like the US relative to the world because of our
exposure to technology. But really, when we think about the great technology companies like Microsoft, they have strong balance sheets, they have an installed base, and they have a moat around their business. There are other businesses like Thermo Fisher and Canadian Pacific Rail that aren't tech companies. Well, Canadian Pacific isn't a tech company per se, but it also has a strong balance sheet, installed base, and moat around
its business. So you know, it's not just tech companies, but we think it's companies that have that kind of a strong position and can manage through these uncertain times.
Are you concerned about you know, we talk so much about the fact that inflation was helpful to earnings and now we're in a disinflationary environment withouthurt earnings.
Maybe you know, markets are always priced at equilibriate, So every time I sell something, someone's buying it from me, and every time I buy something, someone's selling it from to me. So if there's this notion that there's always a positive and negative story and interest rates. You know, five years ago we were desperate to get interest rates higher and the Fed just couldn't get it done. And then you know, we had this COVID situation and probably the six trillion dollars.
Hey, John, we're gonna have to I'm sorry, We're going to leave it there just because of the time, but we appreciate getting your thoughts. John Hurdle, Executive chairman at Hurdle, Callahan and Company.
You're listening to the team Ken's are online program Bloomberg Markets weekdays at ten am eastering on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
All right, Tom Farley joins us here. He's the chief executive officer a Bullish, former president of the New York Stock Exchange, here to chat with this. Hey Tom, First of all, thanks for joining us. Tell us about what you guys are doing at Bullish.
Great to be on with you. I am soaked by the way I heard you talking about the rain. I just I just walked into the office from a meeting and completely drenched.
There you go, I'm glad this. I'm glad this is radio.
But you're on Zoom as well.
We got you on YouTube, we got you out on YouTube.
There you go, my man.
Great to be with you, guys. Yeah, bullish.
Look from the outset, we're taking an approach of being a compliant adult digital assets exchange, and that didn't really benefit us, to be honest with you, eighteen nineteen twenty, it felt like the exchanges that were winning in many in many cases were kind of cutting corners and doing things differently than we were doing. But in the long run, it'll it'll, you know, it'll work out in many ways, Paul. Guys like you and I. You know that people might
look at and say our granddads. But we've been in markets for all this time. We've seen the future, and the professional financial services businesses will win in the digital asset space. There will be two to four global exchanges, not five, not one, and they will be well run businesses. And so we've just focused on institutions, only fully regulated did coins that actually make sense. You know, everybody loves a frog coin or or digital animal drawing or what
have you. But what I'm really looking for are the projects that are adding real value in the world that are benefiting from blockchain technology to do good things, to make for a more efficient financial market. And so those are the areas we've been focusing on Bullish and it's
it's working. We're gaining market share. Where the number two exchange in the world for ether, where on any given day three, four or five for bitcoin, which are you know, obviously two of the big the big ones out Well, I.
Definitely not a granddad. I want to point out that Tom Farley was born after the Beatles broke up.
So.
You did, though, Tom, which, by the way, in crypto and crypto, it makes me a great grand dad exactly.
Honestly.
You know, when I first I got into this back in twenty twelve, but it was it was through an investment in coinbase pre revenue. I got lucky, to be honest, but kind of learned the space and then immerse myself in Night twenty twenty and it was like the jargon, the inscrutable jargon, and I would say like that doesn't make any sense, and people would look at me like literally like I was one thousand years old, like oh, you'll just never get it.
That's why they make up that kind of jargon. By the way, I've been following crypto for about the exact same time. I bought my first bitcoin in December of I guess twenty thirteen. December of twenty thirteen was when I got nice trade for six hundred dollars.
Well, he lost it the key though, I did lose my password.
But Tom, you were pretty busy at the time running the New York Stock Exchange, which is arguably, you know, the most important exchange in the world, certainly historically it is. How have you used what you learned at ICE and at NYC in the world of crypto.
Oh, my gosh, like a million ways, especially now, you know, coming out of all the Shenanigans of twenty twenty one and twenty twenty two and people being hurt and you know, deception outright fraud in some cases, people now care about credit worthy counter parties, they care about.
Businesses being run the right way.
And look, I'd love to tell you what we're doing at Bullish is like, you know, solving differential equations, but it's not. It's connecting buyers and sellers and ensuring that you have a lot of bids and offers tightly tightly
wrapped around the market price. And that's what I've done since I was twenty eight years old, twenty nine years old when I when I went into the New York Board of Trade, which is could be a whole nother radio hour to talk about a twenty nine year old kid trying to break up floor trading, but let's leave that aside. Hey, Tom, it's really it's really the same, it's really the same thing.
In fact, in some ways it's easier.
You know, in New York soalcing change, we were processing one hundred million messages a second in our options feed, one hundred million messages second. In crypto, if you're doing five thousand a second, you get a gold medal. So in some ways it's it's easier. Some ways it's it's more difficult. But every day, all day, I'm benefiting from the great people that I learned from in exchange world my whole career.
Tom, How frustrating is it to you? And maybe just a crypto market in general, when it still feels like traditional financial Wall Street, if you will, Global banking, if you will, still does not really recognize or appreciate crypto. I mean, Jamie Diamond's still not on board. Just for an example, how do you put that in context?
Uh?
I mean, you know, it's interesting, it's a good question. And you know, Warren Buffett I would add to that. I mean, these are these are people I think highly of, but when you drill into their message, I actually share a lot of their concern. You know, they were especially Jamie was talking at the height of the mania and kind of saying, hey, I've seen this movie before, ye and and look at to some extent he was right. And and we as an industry have brought the uncertainty
that we're in right now upon us. It was, as I said, it was too much jargon, there's too much deception. There are too many frog coins. So so it was right on the At the same time, JP Morgan, uh, is you is doing projects to benefit from the interesting technological facets of blockchain, you know, the finality, the instant finale to your instant settlement, the transparency that goes along with blockchain, the incremental security that goes along with blockchain.
JP Morgan engages in brokerage for and and and and prime brokerage or futures kind of commissioned business for bitcoin or bitcoin futures on the CMME. So I think really what you were seeing from some smarter look. There were some people that just don't get it. They think Bitcoin's going to go away tomorrow. Bitcoin ain't going away anytime. But there were some people, I think who just sensed something wasn't right, and there was some merit to that.
And this is a time of retrenchment, and I have a lot of hope, maybe even optimism that we've bumped along along the bottom and things are getting a lot better quickly.
Hey, Tom, thanks so much for joining us. Really appreciate you taking the time there. Tom Farley, CEO of Bullish, former president at the n y S talking about the crypto space and the exchanges that support the crypto space, as Thomas suggesting, they've got some work to do. Arguably as an industry, it's kind of short a lot of aspects of that market.
Man ten years ago. If you had the choice tween JP Morgan, Stock and bitcoin boom oh.
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 Again.
I'm looking at the two year here. I can just jump into a two year treasury five point zero three percent. I think on a rainy day like today, that's just fine.
Dude, you're all in on the two years.
I'm all in.
And keep telling you there's reinvestment risk there.
I'll deal with that when it happens. And I'm all about today.
Get the stick from a money market. You know that that rolls over for you. I am your daughter's Marcus account.
I'm in that one with her. You're in that so I matched her. So we bubbled up on this.
My wife gets in it, and then she recommends all our friends, and every time she recommends somebody, she gets a bump on her rate.
That's a nice incentive there. I guess that's how my daughter did it. Anyway, Ben Emmage joints is because he's a professional. He's had a fixed income with New Edge Wealth. Ben, do I buy the two year here? Or you got something better for me?
So I would agree with you, Paul that if you take the two yields and he will subtract any of the core measures that we saw today. Yep, it's actually positive real return.
That's why we're getting really illed these days, right right.
So that for that reason, I say, yes you should because you don't have the duration risk. You may have to have a investment risk, but you certainly get compensated for inflation. So that's good, okay, And out the you curve, I still remain relatively skeptical. I think at ten years and thirtyth Bondh's is not enough compensation there.
Yet.
We may get there, you know, if we hit that five percent level, which I think we're going. But I think your best bet is on the front of the curve.
We see almost that on the twenty year, don't we. I mean, I feel like, do you see yields going much higher out out the curve?
So that depends on a few things, Matt, that it depends one on obviously, the message of the FAT coming out of all those data we're getting now is what's higher for longer? Is it still higher and then longer or are we at the high I think there's a mixed message on this from the fat currny or as.
In there is because Powell says, on one hand in a press press conference, he'll say, we're not going to cut rate for years. Any there's an X on the end of that year, So I mean it's multiple, not just one year. We're not going to cut rates for years. Then I look at the dot plot and I see two rate cuts scheduled for next year. Not scheduled. I realized they're just prognoses. But the majority of the Federal
Reserve expects to cut twice next year. Were they not listening to Powell or are they not on the same page as Powell?
So actually that forecast changed the last meeting because there were people predicting a Hanna based points cuts, so they took some of that back, which I think, by the way, explains a lot of the yield movement we have seen of last period. It's just a fat has acknowledged this. This is a stronger economy. So it depends on that too. Where the economy conditions showed is resilience, including today's data. You can you know it's softening, is cooling, but it's
not collapsing in any sort of way. Lastly, we do have a I think is supply demand imbalance so to speak, in the treasury markets. Then we've got tons of supply and we're seeing this change in demand. Maybe you call like I read Jersey as some interesting specific analis on that I would echo more that that that you know, the supply is large, and it looks like that they want to continue to issue more long term bonds. So I think all those factors drive you to that that
five percent barrier. Now how high from there, who knows, but I think five percent of the psychological number.
What you know, I've just been fascinated with energy, global energy price at WTI crude oil here we're off about a half a percent today, but still above ninety one dollars or barrows at a just a real big move off that high sixties we had just several months ago, and that's inflation area. How do you think about energy prices and how does that kind of factor into I guess the economy.
It certainly is well because you know the data today in PC Basker too showed an increase of energy there, just like in CPI. So at some point people are going to take notice of it and factor that again in their expectations. So that's one issue you know Googlesby in the speech yesterday made a real point about that, saying, if you know, if we could TATA have this inflation on the right path, if people expect differently from inflation in the future, we may have to adjust policy. Right,
So there's that issue. Then I think it's about how high will oil prices go before we getting real impact on the economy because the past is I think a good guy there. If high oil prices were the search and spike high, then it's going to slow down activity. People are going to pair back. It just seems to be always a factor for slow down. Nonetheless, it will be inflationary because we're still in a very high inflation.
Environment we have seen or we haven't seen. I should say gas prices keep up with oil prices. And I'm not talking about at the pump, you know, I'm talking about the R BOB futures contract. It's not taken off at the same rate. Do you think that means that oil prices. Is this just a spike and they're going to come back down or are they holding at this level?
I think it's the spike because of the little specific technical features in the oil market currently. I think what's happening there is that people recognize that the oil production costs cuts are really filtering through the global system.
So how to watch the crack spreads? Right, I'm just learning our bob.
That's a new one for me.
Yeah.
Really that's gasoline futures. Yes, why so again just to ask this question again, why is.
It going down?
So?
I think that is a supply issue there, okay, And it was reported yesterday there was some additional supply there, so it is very much sensitive to that. Whereas with oil is the opposite situation. You know, John Ferrell on Saveant has me at this point this morning, we actually have high oil production United States. We just got low inventories, a cushing for all kinds of reasons. So the draw on that inventory pushes up the price. But once it gets back flooded in with all those oil production.
Cushion that's in Oklahoma, right, and they have like the tanks that's where the pipelines go in and.
Out Central I gotta get the Have you been the cushion?
No?
I haven't.
Alex Steel goes all the time. The alyxis are. I want to go there because that seems like the pretty you want to see how the sausage is made in global energy. That's that's where we good. So so energy inflationary impact is it something that's more temporary from your perspective.
So, I mean you have to watch headline inflation because eventually, if it gets higher headline, then it will spill over to an extending core. You know, Bloomberg has a very nice tracking of headline real time, and it has moved up again. It's sticked higher after a whole period of the cline. So I think we just have to watch this where this is going. They said, like, I think that if you're getting it little spike and oil prices
they would go well over one hundreds. That it has a psychological effect on consumers.
I don't understand why more people aren't worried about the strike dragging on because Okay, there's inventory now, but because they built up before the strike car of cars. But if they strike for longer, that inventory is gonna get whittled away. And we're already at a pretty high level in terms of car prices. New car prices, used car prices have been heading down, but that's going to turn around for sure. And then you get one hundred and fifty thousand people who are going to get a thirty
percent raise. If this works out right, then other people are gonna want that kind of raise too, or something close. So you've got both the cost of goods, which to me are the most important goods, cars and.
Wages as opposed to bread and water rising.
That's got to be inflationary, hasn't it.
Yeah, it echoes a bit to the Chepanese idea, right of Then you have unions, I think, successful in negotiating higher wages, so other unions are going to try that too, or seen some evidence of it. Now we have higher energy prices and people reacting to those energy prices with unions demanding wages part of it. So I won't say there's a spiral here yet, but there's some of that element happening. And I think overall strike should not disrupt
the economy too much. That the California strike was five billion to the California economy but nothing to the US economy.
So what's your base case for next year?
Ben?
Are we going to have a recession?
I'm not in that camp. I think the economy is holding up. So soft landing still so still that software landing, that idea that we have too much of investment pushed in the economy from the Inflation Reduction Act and the Chips Act and the Infrastructure Act. That's just really coming true.
But in that case you don't probably see FED cuts. Why would the FED cut if we have a soft.
Landing, No, I think it's I think that is where I'm coming in my five percent yield scenario. So at a four and a half current at the ten year, the fifty base points forecasted in fat in the fat by the fat, it's probably going to be taken back too. If anything, if you look at that top lock currently the market is fifty base points away from the fat median, it's probably going to be again pulled up to the FETs media and that will bring you to the ten
year five percent. And even at that level, which is high, I wouldn't think that that would necessarily bring the economy to a recession. I want to make one final point, which is always the Yu curve discussion on the recession. Yep, you know we have been in an inverted Yu curve now for a bit. It has been historically the harbing Geroff recession. At least a lot of studies but I've noted that each time the YU curve gets inverted and then becomes initially flat, like every old treasure huels are
the same. That's when things become very uncertain. It's basically the bomb market saying I get paid the same yield for two years or for thirty years, but I don't know where it's going. Right, pretty uncertain, and it historically has shown that after that moment, the economy a lot of weaknesses slow down. All right, so you know we have to watch it.
Keep and I only yield curb as we like to do. Ben Emon's head of Fixed Income with New Edge Wealth. Thanks so much for joining us.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am eastering on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
All right, let's talk about risk here. I look at the VIX. Matt doesn't like the VIX, but I look at the VIX because.
It's on screen, watching it a lot lately.
Sixteen point four to six. That is by no means in an area where people are freaked out. About anything here. But you know, the question is is the market properly pricing in risk?
No, it's not the twelve to fourteen that it had been over.
The No, which is amazing. Yeah. Nimrit Kang joins us co CIO and senior portfolio manager at north Star Asset Management. Nimert I wonder thanks so much for joining us. First of all, wonder how you guys think about risk manage risk in your portfolio here, because it's been a crazy few years here.
Yeah, thank you for having me, Paul. And it's really interesting actually that you ask about risk because at Northstar. You know, the last time I was on the radio here with you, we were talking about how it's a Goldilock's economy. The markets are at all time highs. Just a month later the market's down seven percent from its highes. The we all know what's happened in the bond market
with the rise in the ten year yields. So when we at northstart think about risk, we think about risk as our clients not being able to beat their financial goals and also not having their portfolios be in alignment with their values. The way we have approached risk is really think about what are the long term trends that are in place, and that's where we think about some of this. You know, the big change in the monetary cycle that we have seen from the cost of money
being free to actually having a price on money. How does that change things everywhere? Right? And in juxtaposed to that, there's also some major secular trends in place that have been in place for decades, if not longer, and those are related to ecological reckoning. You know, we all know the extreme weather conditions we've been seeing. That's just the symptomatic of some of those trends that have been placed.
The other one is related to aging demographics. Again been in place, but a big chunk of the population is entering the retirement age in the developed markets and we're starting to see all that manifestation come through in the you know, in the labor numbers and so forth. So for us, risk is really trying to understand what are we trying to do for the long term to achieve those goals pet for our clients, but then also thinking about how do we boil it down to portfolio construction.
And you what do you come up with there? I mean, we've been talking for the last well, we had talked last year about the death of the sixty forty portfolio, but I guess this year it's been a pretty good deal.
Yeah, you know, it's it's interesting you say that because we, especially on the fixed income side, we're looking at yields in agencies and so forth in the six percent range, right going out ten years, five, ten years, And if you really want to just hold those bonds to that point to the maturity and collect that six percent yield, that sounds pretty good and for a lot of our clients that make sense in terms of meeting their objectives.
And then when we think about equities, for us, it's about having a very high quality equity portfolio consisting of companies that are just great, you know, high quality, low debt, you know, very good capital deployment, run by capable management teams, that are good stewards of capital and labor, and that are providing those essential products and solutions which we think there's going to be demand for, you know, going out
ten years. And that's really how we think about constructing those portfolios and thinking about risk.
One of the things that we talked about a lot, or or is talked about a lot in financial services over the last really four or five six years has been EESG and the development of that as a factor. I guess, how do you guys think about that, because it seems like in the US at least it's kind of lost some momentum here has come a little politicized. I guess.
Yes.
So Northstar has been doing socially responsible investing since nineteen ninety, right, okay, And the way that we think about socially responsible investing is coming from a different perspective where we think.
That there is no company that is going to be socially responsible because the environment is evolving, our sense of what's appropriate, what was appropriate thirty years ago is no longer acceptable. Right, There's more and more things that are being demanded. The society is changing. We can use our shareholder rights on behalf of our clients to advocate for positive change at these companies or for them to act in better ways, behave more responsibility, as we would like
to call it. So, you know, in some ways, Paul, if you think about in nineteen thirties, the Financial Standards Accounting Board put in place that you know, you have to report financials a certain way. ESG is a similar there's the metrics. We don't think that you can look at you can really understand how a company is shaping its environment or what it's doing by just looking at metrics. Right,
that's a starting point. We fully support that their standardization in the industry to that or to that account, But for us, it's really about making sure that the companies are upholding what we call our five pillar framework, that they are in alignment with this view that we have in terms of what they are doing to bridge the economic inequity, gender and racial equity, what are they doing in terms of human rights, what are they doing for
environmental all the different environmental aspects that we're looking at, and then what does that all say about their corporate governance? So it's not about ESG being in and out of fashion. It's about making sure that there are material risks out there and how do we incorporate that in our analysis? Right, So, if we fast forward, there's this huge we noticed this this summer in itself was where we had extreme temperatures and all those different parts. Water is an area where
there's more and more stress. Water stress. How do we think about all those trends. It's not about a metric that's in fashion or not. It's the long term sustainability and to ensure that we do get those financial returns over long terms. They're not going to be there if the companies that we're investing in their business models are threatened and they're no longer can do business right. So that's how we approach it here at north Star.
Hey, Nimber, thanks so much for joining us and sharing your thoughts. You always appreciate that. Nimerck Kang, co CIO and Senior portfolio manager at north Star Asset Management.
Thanks for listening to the Bloomberg Markets podcast. 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