Private Credit, Silvergate, Apple, and the Latino Vote

We can roundtable this seing at this A lot going on the street as always, and we want to bring together some of the smartest minds we have on all things Wall Street. We do that with Shanalie Bassett Bloomberg News and Alison William She's a senior banks analyst at Bloomberg Intelligence. Shanali joins us here in our Bloomberg Interactive Broker studio, and Alison joins us on the phone. SHINALI a lot of news coming out of the street over the last few days. I want to focus just on headcount.

What are the banks doing these days? I mean, deal flow in twenty twenty two very tough to come by. Trading better, but deal flow tough to come by. Same kind of year to date. I'm kind of surprised I haven't seen bigger layoffs. What are you hearing from your context on the street? Listen, A lot of these bankers

say that there's pent up demand. Big corporations want to do strategic things, but they're strapped on money, number one, and they're also strapped on the ability to make these really big strategic decisions in the middle of so much uncertainty, particularly with a pace of interest rate increases in the United States. So with that uncertainty, they don't want to lay people off because things would come back, but they have not. They don't look like they're going to come

back in full force anytime soon. So they're finding other things to do because they expect that things like activism will force spinoffs. Remember places like Elliott Paul Singer has raised record amounts of money, so there's a chance that they can do other things. You know. I don't even know where to begin on the Wall Street beat, just because I feel like this week has been literally drinking out of a fire hose or attempting to at least

with the Wall Street story. But one of the most read on the Bloomberg terminal stories today is JP Morgan and blaming Just Staley for their tides with Epstein, demanding eight years of pay. Walk us through the story. Of course, it's of interest a lot, not just for Wall Street audience, but everyone that's been following the story. Yeah, and this has been going on for a while, but really it's hit a new climax, if you will, where you have JP Morgan suing Jeff Staley, who is a former Jamie

Diamond protege, a star banker, former CEO of Barclays. JP Morgan itself was sued a couple of times over the Epstein debacle because Epstein, Jeffrey Epstein, was a client of the bank. And now what you have Jamie Diamond and JP Morgan really doing now is really separating themselves from Jeff Staley's own actions within the bank. And I would say that Just Staley himself has really denied a lot

of the allegations against him. The suit spot forward against JP Morgan were from the US Virgin Islands, which has been leading a lot of this litigation when it comes to Just Dally and Jeffrey Epstein, as well as a woman identified by Jane Doe who says she was a victim of Jeffrey Epstein so very closely watched Saga and Tokuti's point, a lot of money at stake. Yeah, absolutely.

As Alison Williams Bloomberg Intelligence, what are your thoughts, Allison, as you talk to all these big banks that you've covered for for decades, what did they think about twenty twenty three. Is there going to be any meaningful rebound in activity there? I know the trading business has been pretty solid, but the advisory business and some of the capital raising business has not. Yeah, that's been I think

the disappointment to start the year. And to Hinali's point, I think that most of the banks were sort of bank or hoarding. I guess, as we say, not willing to let go of all the bankers after they had to quickly do all these hires in twenty twenty one, and so they're a little bit reticent to start doing cutbacks.

There was a lot of hope, and I think the disappointing thing is that even though the markets were sort of have had a strong rally or had a strong rally going, you know, starting at the end of last year into January, the IPO issuance has still been really dismal. M and A is really dismal, and so I think that's why you're starting to see some things bubble up. This is normally the strongest seasonal quarter, and I think, you know, what we really need is clarity on the

macro environment. So even though the stocks have rallied, some of the expectations for those who want to come to market are still a little bit too high, and they've been and they've been hazard into sort of execute. So the pipelines are still there, but equity M and A disappointing. The one bright spot, if you will, has been in the debt capital markets business. We heard from City Group yesterday they're expect you know, the industry while it's down

about forty percent in the first quarter. So that's that's better than the down fifty percent that we've been seeing, but only modestly and has to do with comparisons. But the one bright spot is the debt issuance. We have seen some companies coming to market, especially on the investment rate. I want to piggyback off of what Alison is saying because there's one deal that's being talked about today that is kind of hot, and that is the Uber leverage loan. Remember,

Morgan Stanley is really leading that. Uber's a long time client and Morgan Stanley it's trading at thirty four dollars to share, remember when public closer to forty. So really this has been a tough trade. But Morgan Stanley, you know, as a lead underwriter and now is helping bring a leverage loan offering back to the table. They had a leverage loan offering last month that had seemingly high demand. You can see it, Paul, investors are still searching for yield.

I am dying to know how this plays out. But remember Morgan Stanley is also hung with a lot of that Twitter debt, so it's meaningful to watch them come out in the market again with a company like Uber. Can we just take a moment to appreciate Uber and the Uber news today because in this story, Ridehilling Company looking to raise seven hundred and sixty million dollars from that sale, and that's separate from them considering to spend

off their freight logistics division. So interesting stuff going on over at Uber. Well, let's bring it back to the banks if we can. Allison tell us a little bit about the trade here, because it feels fairly intuitive that if you were looking at higher rates for the economy, six percent, I believe is now the base keys for a lot of economists out there, not the consensus yet, but we're getting there. Does the automatic translation for the

bank sector simply mean more interest profit? So that's what it's meant so far. So rising rates has been really a boon to the net interest income. But I think the damper that we're going to see in twenty twenty three is that the cost side of the equation now

is starting to go up. So in the early days rising from zero interest rates, that we got the lift on the yield side of the equation, and that's really been strong, and bangs really haven't had to sort of lift their deposits rates because we were coming off of such a low base. But now we are seeing that. We started to see that sort of late last year, and we think we're going to continue to see that

this year. I think that's sort of well understood at this point in terms of the expectations for a net interest income. But it's really you know, the credit losses side of the equation, the long growth side of the equation that investors are focusing on and then you know, looking at interest rates, I think that you know, what we've heard from managements is we really do need the FED to stop hiking, to get sort of more economic, to get a little bit more certainty on where the

economy is going. You know, Alison, if I were starting my career overget on Wall Street as a young person, I'd go right the private equity That's just where I think some amazing returns can still be had. What's your outlook, you know, give us a kind of for the private

equity business, and then over the next twelve to eighteen months. Yeah, so private equity, you know they have I mean, the amount of money they have raised has been incredible, Even those managements have become you know, a little bit more hesitant. But it's really I mean within private markets, it's really the private credit side where we've seen some of the biggest boom in turns of fundraising, and we expect that

to continue this year. To your point, a little bit more activity going on on that side of things versus versus the trading desks, where we're expecting to see lower revenue again compared to last year. All right, good stuff, A little Wall Street round table. There. We do that with Shinali Basset of Bloomberg News and Alison Williams and

Bloomberg Intelligence. She covers the banks. She's been doing that for decades here Bloomberg and then before that at Morgan Stanley Investment Management where they were big shareholders a lot of the big financial institutions. So we'd love to get her perspective here. Well, we're just talking to Alison Williams and Bloomberg Intelligence since she was talking about deal flow really being slow, and I guess that happens when interest rates rise, it gets a little bit more expensive to

get deals done. Let's talk to somebody who's actually right in it, Hip Deep Randy Swimmer. He's co head of senior Lending and senior managing director Churchill Asset Management, and Randy, we like to talk to you about kind of what's going on in the deal flow world. You know, mid market deals, not necessarily the ones the big blockbusters, but a lot of the bid market deals that really rely on senior lending, leverage, lending, all that kind of stuff

that you guys do. There's a bunch of private credit folks out there that are putting money into the space, it's kind of tough to get deals done, I guess when interest rates aren't zero. So talk to us about what you're seeing in the marketplace. So, yeah, January was actually a busy month. We actually led ten deals. That was the most of any direct lender in January. Now it was one month February busy as well, having gotten

the final numbers. Yet, what we're seeing is that general flow to your point in M and A is off from last year at this time, part because of what's going on with interest rates, in part because of the lack of a straight line at the FED. I. You know, we all got thinking, hey, seventy five, fifty twenty five, they're going to do twenty five again and then maybe hold off all of a sudden years floating fifty basis points. That's a little bit of a surprise. Maybe he's just

trying to be job on the market down. But generally speaking, in private credit and private equity, the capital is long term, and these private equity sponsors that we work with, and in general indirect lending have raised capital over a long period of time with strategies that are not short term. So they have in their pipeline deals that they've been working on for months and months and months, and they're coming to us increasing numbers now as they get the

sense that the economy is strong. Because one of the things that people are missing is how strong businesses are that are in defensive sector. So healthcare, technology, software. Our portfolio, which is mostly defensive, is up revenue wise the entire portfolio thirty percent over last year, cash flows a little less twenty nine percent. What's driving that is these businesses that are more to be are in a very different slip stream than consumer focused high cap acts in some

areas with high commodity costs or high wage costs. Those businesses are really driving the economy right now. They're driving job growth as we've seen with wage pressures. And I think in general that part of the business defensive sectors the private equity sponsors are focused on is going to be very active this year. Now. M and A flow will be short of what it was last year because last year, a year ago, we had zero interest rates.

Amazingly right we kid hadn't started raising yet. But I think the other thing that's going on is the sellers of these companies are looking just like if you're going to sell your apartment and you're looking at the right price. They're saying, you know what, get all the papers ready, get my mortgage papers ready to get it all ready to go, and then if I've seen opening, I'm going to go for it. So I think the second half

of the year is poised for a huge rebound. Well, how does that kind of square with say M and A activity, for example, it feels like a lot of the price deals lately have been driven by acquisitions. Yes, and I think that is a tried and true technique that private ape sponsors have to build these businesses up. The M and A flow, as I mentioned, is slower, but I think what's going on is there's a sense of what can we need, what we need to do

if we have to finance these businesses. Paul, to your question about interest rates, So let's say they raise another fifty basis points. That gets you to five and a quarter from four to seventy five. You know, the average FED funds rate of the last sixty years was five and a half, so even we're not even at the at the average yet June of two thousand and seven it reached five and a half percent, so we're not

quite at that point, I don't think. And by the way, the economy is in much better shape today than it was back then, and the banks are in much better shape. So that's the other thing that's going on. The private sector. Direct lenders are taking huge share from the banks right now. We just did the numbers, sixty one by ratio of sixty one to four, direct enders are doing more deals than the banks are doing year to date. That's a

fifteen to one margin, okay. So what it means is for the deals that are getting done, even though the volume is half, folks like Churchill are doing them. So actually, our investors and by the way, I've done the tour in the last month since I saw you last of these sort of capitals of the world, so as in Tokyo's in Munich and last week this past week, I was in Baltimore, Okay. And our clients are seeing two things. One how's the portfolio holding up with the higher interest rates?

And two what's going to happen with deal flow? Are you going to give me continue to invest my money? On the deal flows side, we're saying yeah, we're actually seeing based on January and early returns on February we're seeing plenty of flow on the portfolios side. What's interesting is because these defensive sectors or businesses that are actually doing well, we're actually seeing more upgrades in our portfolio than downgrades, and the performance of these businesses continues to

be strong. Now, we did a proform of study of the portfolio if the FED goes to six percent, and we found that if you perform at that, interest coverage still remains solid around two times. I asked my portfolio menasor okay, and this was a question investor had, all Right, how many of your companies will be below one time interest coverage? And the answer was, on a perform at basis only one percent. That's pretty strong, Okay. That means that a very small number of those companies will not

make their interests. Now. Of course they're going to be growing the meantime, so we're not worried. But this is I think there's there's a glass half full approach here that we're taking that we're seeing, which we're getting the message out to our investors that we've actually think this is a good time to be in private credit. All right, So if I you know, back when interest rates for zero, i'd come to Churchill Asset Management, I give you my

money because you guys would get me yield. Now I can park my money into your treasury and get five percent. What does that do to your capital raising? Yeah, you can do that. You know, we don't view private credit as a timing issue because we've been getting seven percent year in, year out as a as an unlevered return for investors for seventeen years. It's up now, no question

about it. And what we're telling investors and they're asking this like, you know, well if we come in now, you know, are we missing out on to your point, corporate investment? Great bonds? The challenge with bonds right now is that what happens if interest rates continue to go up? What if the Fed pushes rates up higher and new

buy bonds. Now, the other thing that I'm hearing is that the risk premium is not there in a lot of the corporate bond market because it's if you get five percent on treasuries, you're only getting six percent on corporates. Is that enough? So if you play this private credit game with senior loans, it's twelve percent. You know, that's first of all, it's floating rates. So if rates keep going up, you're going to do better. Second of all, it's not correlated to the rest of the market. If

we have supervolatility in the second third quarter. I'd like to think of private credit as kind of the noise cancelation headphones for the capital markets. Whatever is going on the markets, you're not going to feel that because these are again long term capital no ratings, the marks are private and so that stability is the kind of thing that these investors from based on my tour of those capitals,

are really asking for. All right, good stuff. Randy really appreciate chatting with you get a good sense of what's going on out there in a private credit business. And we talk about private equity, but as Matt and I have been saying, as we've been talking to Randy for a while here, the private credit space is just so active and it's just amazing to me how quickly that business has grown. And Randy had some good stats there. Randy Swimmer, he's co head of senior lending and he's

the senior managing director at Churchill Asset Management. Private credit lending to private equity firms a lot of times who are getting deals done in the mid market space a lot of opportunity that I think for a lot of people maybe flies under the radar a little bit, but they've been getting great returns for a long time and it's just an interesting part of the market. So we like to check in with Randy every once in a a

while and he comes into our Bloomberg Interactive Broker studio. Well, there's a long way to go until the next presidential election, but many political organizations are already ramping up efforts. In particular, some are focusing on the Latino vote and working out the best approach to electoral issues that matter most to this growing population. Let's get more on that effort now

and a special report from Bloomberg's Lisa Mateo. The political divide among Latino voters is seeing a subtle shift to the Grand Old Party. Exit polls from twenty twenty two showed Democrats one about sixty percent of Latino's overall down from sixty five percent in twenty twenty, and with Latinos making up more than thirty million of the country's registered voters, the push to capture their support continues to grow. There is now a microscope on our community that has not

existed before. Yvonne Gautierrez is managing director for Latino Victory, an organization dedicated to building political power in the Latino community. Because in twenty twenty, we did see some small county and regions, you know, that did have a hired Republican turnout vote, but that was not emblematic really across the board. Democratic Congressman Henry Kuaiyar, who recently won Texas' twenty eighth district, says Republicans have been making a genuine play for the

Latino vote. I have not seen this in the younger George Boursh and then Trump and then of course the National Republicans certainly did that this last election. While there wasn't a red wave in the twenty twenty two midterms, Republican Governor ron DeSantis turned heads when he won Florida's

heavily Latino counties of Miami, Dade, and Osciola. Ronnie Lucetto National Chairman for the Republican National Hispanic Assembly says DeSantis's stance on COVID lockdowns helped they temporarily lockdown and then opened up immediately and kind of let everybody kind of live their life and make their own decisions into the Hispanic community. Being able to make your own decisions and freedom is one of the most important values that you

can have as an American. Teresa Kumar, co founder and president of Voto Latino, says the swift reopening appealed to many Latino business owners. That was for many Latino business owners a lifeline because they don't have any plan B to fall upon. She adds that the age of Hispanic voters in the Sunshine State also played a part. Lord is the only state where young Latino voters will never eclips older Latino voters and they have a tendency of

being far more progressive policies. In California, Governor Gavin Newsom was reelected with the support of sixty two percent of Latino voters, but still two points lower than his first election in twenty eighteen, according to the Los Angeles Times. In Pennsylvania, Kumar says Latino support was strong for Democrat John Fetterman in Fetterman's race, and this is according to exip points that came out of March for Our Lives.

Seventy nine percent of Latino youth voted for a Democrat in this past election and findings from research firm Equis shows solid support for Democrats from Latino voters in places like Nevada and Arizona in twenty twenty two. Yet still representative Quaar feels the party needs to step up their game. Some of us, for many years have said to the nationals ADCROPO C you know, DNC, and the state parties. We've said, hey, guys, we cannot take Hispanics for granted.

You know, Usually the effort was, let's start after Labor Day, you know, sixty days or so before the election, and then let's start pushing that Latino victories. Gautierrez says, politicians need to remember that Latinos are not a monolist. Latinos in Texas and California and Florida are all very different and have very different lived experiences in background, and therefore

their votes are going to be different at times. Lucetto points to the topic of abortion and how the support for pro life policies can vary culturally from state to state. You have a large Mexican population in Texas and a illegal voting population of Mexicans in Texas and in Mexico, abortion was really for the most part illegal all the way up until the end of twenty twenty twenty one. So that's a losing battle if you're pushing a pro

life policy for a Mexican population. But that didn't work so well when you look at New Mexico, because New Mexico is more of a Spanish Hispanic type of voting block. When it comes to immigration, Latinos are torn between providing a path to citizenship and illegal immigration. A New York Times Siena College pole shows about fifty five percent of Latinos support Democrats on legal immigration and roughly a third

support a border wall. The same poll shows that while Democrats maintain a majority of Latino voters, younger male Hispanics, especially in the South, appear to be drifting away from the party due to economic concerns. So could a shift in the Latino vote be significant enough to change the

political landscape of swing states with large Latino populations. Absolutely, because you're looking at purple states right now, you know, bluish purple states for the most part, and you flip Arizona, you flipped Nevada, and you start flipping a couple of little districts here and there inside of California, you start making a difference, small steps that could move bigger changes

in New York. Lisa Mateo Bloomberg Radio. Good stuff, Lisa Matteo from She's right here on Bloomberg in Actor Broker studio. So we can ask some questions of Lisa. Lisa Mateo, business correspondent from Bloomberg Radio. But those in the New York market, No, Lisa, from her years at Picks eleven Channel eleven anchor reporter for eighteen years, also did some radio gigs at CBS and iHeartMedia, so she knows what she's doing out here. Lisa, thanks so much for this report.

Is fascinating. Oh. I have to point out too from yourhythme the most important part A proud graduate of Rutgers Universe. Yes, the state University of New Jersey. Lisa, you did this report on Latino votes. It's important today, It's can be really important in twenty twenty four. What I found fascinating is it's not a monolith, as you say, explain to us kind of the differences across the country among the

Hispanic vote. Yeah, it's also what countries you're from, but it also has to do with age, it has to do with gender as well. If you think about it, age, I mean, that's something that politicians are really going to be focused on come the next election in twenty twenty four, because you think about it, the ten year difference, Latinos are ten years younger than the country overall. If you think about age wise, four and a half million Latinos are going to be coming into voting age by the

next elections. So you see where their focus is. And it's just such an important thing because a lot of the younger Latinos have more progressive issues and thoughts. But the problem is that it also switches by gender. So when you think about young male Latinos, some of those are switching more toward Republican because they're thinking more economy, especially in the South, but females are more progressive. So I think age is definitely going to be something that

they're going to be focused on. They're going to be investing more, investing earlier, starting earlier. They're already knocking on doors getting more Latinos registered to vote now, so yeah, what about the twenty twenty four election here, obviously this is going to be a major factor. Do we get any insight about the next presidential election? They are on something that was interesting too. We're talking about the next

president elential because you have Title forty two. You know that's going to be coming to expiring in a few months. So immigration was a huge issue, but also something that you're seeing starting to shift. So it's interesting to see the different ways people are thinking about immigration for Latinos. You know that New York Times pole just stuck out to me so much. Fifty five percent support the immigration, but you have still have that third that is supporting

that border wall. So see you're starting to see that divide there. Yet, what are the big important issues for Latinos? Can we boil it down to a couple I think there was actually a study by vote to Latino. They did a study right before the midterms, and they said what issues are important to you? Number one, of course was economy. Number two though, was abortion, so you see how that younger generation is starting to come in there. And number three was gun reform. So those were the

top three right before the midterms. And it's interesting right before the midterms, But I want to talk about participation from the Latino votes specifically, because these issues can matter, but if you're not actually shown up at the polls, then those issues don't matter. It talks about you. Yeah, there's thirty million registered Latino voters, so you think about it, but you have to turn out to the polls. And just like you're saying, so, that's why they're starting those initiatives,

are going door to door. They're starting to get people out there to recognize their importance of their voice. And that's really what they're focus on. How do you reach them? Is it Univision, Telemundo, is it digital media? How did these politicians try to reach this community? Well, it's funny.

I was talking to a lot of them about that and they said, what they're doing now, it's rather than putting a lot of the big money behind let's say advertising or things like that, they're going into these smaller organizations. They're going to for example, auto shows, they're going to you know, certain dances, like different things where they can really get in and talk to people, shake hands, go one on one, you know, rather than just a big

advertisement place somewhere. You know, across media, they're going into the communities and talking with people one on one. Fascinating. It's going to be you know, I follow this story for a lot of time I spent a lot of time with Univision and some of the Spanish language media companies, and it's a big growing part of the population and an influential one economically and politically. So it's great to

get this reporting. Lisa Matteo, she's a business correspondent for Bloomberg Radio, joining us here live on our Bloomberg Interactive a broker studio with an important story. As we start barreling towards that twenty twenty four presidential election, we're gonna have a lot more stories like that. A lot of news out there on the cryptospace, and not a lot of it's very good. The ripple effect from FTX implosion is kind of finding its way to the banks, you know,

talk about Silvergate Financial, Silicon Valley Bank. Lots of issues out there, not many of them good. Let's check in with Mike mcloone's senior macro strategist for Bloomberg Intelligence here. So, Mike, again, it seems like the ripple effect from FTX is kind of hitting some of the financial institutions here. How do you and others in the cryptospace read what we're seeing from the banking side of the equation. Hey, Paul Well. I think it's a classic worn buff at the tide's

going out and find out who's wearing clothes. The key point is I don't think we're done yet with finding out who wasn't wearing clothes. So Silvergate, on the back of FTX, on the back of Celsius, the things, we can just keep going down the line. And it all predicated in the fact that markets went down, not just cryptos. So I think the greater risk here is there is going to be more contains from this. Prices are more likely to go lower. But it's not just cryptos, it's everything.

Remember the FED is still tightening, and but I think the good thingle commodomis will get some good, hopefully astute regulation. Bitcoin is still known as being the outsider. It's not as secure, it's clear the commandity. But I'll end with this. The key point is next Thursday is the one year anniversary of the first rate hike, and that takes the big macro here is the FET is still tightening rates.

It's only been a year less than the year that rates are still zero, so we're seeing that trickle down and cryptos are the fastest horse in the race going down the most, Mike, it feels like as we hear about the news coming out of Gemini, coming out of silver Gate, it feels like it wasn't just FTX that kind of created this ripple effect. It goes back further to the three arrows capital saga as well. How many

more shoes are there left to drop from clearing out? Well, that's Critio's exact appropriate question, and my fear and just being realistic, is there's probably going to be more because I do expect in the macro we might not have put in the bottom in most risk assets. And that's just by being simple and find what the fet is telling us. They are still tightening. We've had this bounce in bitcoin from fifteen to twenty five. I did point

out twenty five significant resistance. If you're tactical, you should boy be selling it. And if that happens, we're going to see more of the questions what's next. But what we're seeing lately is most major institutions are going out and claiming, you know, saying we don't not have exposure to the bad actors. But I'm afraid there's still more. I mean, I just don't know how to quantify that it's more difficult as people who really dig in to me that being the macro strategist, I point out that

I see rolling over in most diss assets. I see something I've never seen before, that we have the bloomer commandity next down twenty percent and the FED still tightening. So cryptos are more likely to suffer the fastest horse in the race. But one thing I'll point out too is the key. My key seem at the beginning of years watching Ethereum a little bit in the number two cryptos. The key levels that watch are A thousand to two thousand, and it's still stuck in the middle of that range,

just making it difficult for all of us. So my gear in the self proclaimed crypto capital, at least in the United States, done that down in Miami. What's the feeling in the in the community there about crypto just broadly defined and maybe just some some things think things

you're hearing. It's impressive the long term building I'm seen from mostly the rational, mature people who are in it for a reason and are not the young speculative type who just haven't experience for the facts of fiduciary duty before. So I sense from most people here that okay, this is rough, but it's just part of any nascent crypto asset.

And if you just look at the last low and bitcoin, it was around eighteen nineteen, around four to five thousand, and here we are twenty one thousand, So where is it going forward? And then it's just all the building in the space and one thing that's unstoppable. It's been happening lately with this Gray Gray Scale Bitcoin Trust GBTC

and it's lawsuit. With this litigation with the SEC, they are much more likely to win that case now, which should be the trickle down that Okay, these incumbents are here. This is just the example of rap lead advancing technology taking over and just kind of have to adopt it or risk falling behind in the meantime though it's a

bear market. Well, we actually had the Gray Scale CEO, Michael Shnheim the one PM yesterday, a very exciting interview and one of the questions we asked him was are you worried about kind of a flow of redemptions when it comes to just kind of the fun flow in GBTC. He didn't really give a straight answer, but Mike, are

you worried about that. No, what I see in GBTC is most people are seen is somewhat is distressed debt with a high probability of going back to par So the discount got into the extreme of around fifty percent. Right now it's thirty four percent. And if our when I think it's going to be an evilent, they're going to become an ETF. I think they almost have to because it's happening in every a lot of other countries. That's going to go back to zero. This question is

why do you why you know so? I think it's more likely GBTC is put in a low than Bitcoin has because that extreme discount and the probability that they will become an ETF and win this case. But that's gonna be a while. Mike. In addition to all the crypto work you do, your day job is commodities an i'll strategists here with the FED seemingly continuing to raise the interest race, what's the what are you talking to your commodity clients about. The most of these days sell rallies.

I'm enjoying and that's been you know, I was too early on that last year, but it's just a key fact of commodities, particularly crude oil Paul. They are the world's most significantly autocore correlating assets, and when they go up a lot, they basically their own enemies. And that's

proving proving true now. So we look at wt A, crud oils down thirty percent, down in the air, natural gas is dropped to the same price that traded in nineteen ninety, and the FED is still tightening, and there's the consensus that China the Man will bring commodies up. My ruling commodities is fade to consensus because it's already in the market. Expect a severe normal commodity correction, Expect

prices to go much lower. And a key fact I point out earlier it is just the fact that the Bloomer Commodity index is still down twenty percent on a one year basis, and the FED is still tightening I've

never seen. This means you should look to sell any kind of rallies in commodities, and one of the one that's closest to the SF five hundred copper copper if you if you it's basically the same price SMP five hundred, if you multidivide the SP five hundred by a thousand, it's right about four, and I fully expect it's more

likely to go to three than five. We'll put this into perspective orse with a copper story, because it felt like with this China reopening, it was a no brainer that copper had this massive bowl case where did it go thirty seconds exactly in creating exactly no brainers. We know what that means to do the opposite, So copper got a little cheap last year. It's the world's most significant industrial metal, and it's heading lower. In my view,

it's found ten percent on a one year basis. I think it's more likely to head towards three and it's very unlikely to go back above five. It's got to get through this recession, which is inevitable if you look

at the yield curve in the US. Mike mclogan clear concise calls as always Mike McLoone, senior macro strategist for Bloomberg Intelligence in Miami, Florida, which is the self proclaimed in my mind, capital of all things crypt Though all this may be the conversation of the day, particularly feen tech geeks out there, we're in a round table to seeing talk all things tech, focus on Apple, computer on Aragrana Senior Tech Annalso Bloomberg Intelligence joins us as well

as Mark German, reporter with Bloomberg News, and then we'll talk a little tech here. And Mark, I want to start with you talk to us about Apple and their view of India as an opportunity here. Whenever I think of Apple in India, I think, boy, don't they have to bring in a lower priced model. How do you think they're viewing it? India, in Apple's view, could be

the company's next China. Right If you remember, China was a very small market for Apple only about fifteen years ago, right, But when Apple went to a larger sized iPhone with the iPhone six plus back in twenty fourteen, things really escalated. And Apple sees India in the same way. Right now, China brings in about seventy five billion a here in revenue for Apple. That's nearly a fourth of overall annual revenues.

They want India to eventually be the same might take ten twenty thirty years, but that's what they're t push towards. And so in order to do that, they're making India it's own dedicated sales region within the company its own operational region, separating it out of Europe right in Africa and the Middle Eastditerranean where it was bundled before. And they think this is really going to help push growth and more resources there. Hop into this conversation put some

numbers on it for us, this supply chain shift. Essentially, you're the shift that Mark is really outlining. What kind of impact does that have on the fundamentals at a time when I feel like Tim Cook's real legacy was securing the supply chain. Oh yeah, from a supply chain point of view, India, you know, will become a big part of it, but that may take some time. But I cannot agree more with what Mark is talking here.

India from a numbers point of view, should and could be a very big market for Apple down the road, and largely because the population size is there. And the only question you have to really think about is, you know, at what paces the middle class becoming more and more richer, because frankly, I don't think Apple is going to go down the value chain and come up with the lower

price model. I think the population in India has to get richer in order to afford that, and Mark, I mean, I guess is that something that you think Apple is ready to I'm not sure wait for or is that something they anticipate having that India market evolved like Anoraga suggesting, Yeah, I agree with the honor Rug. Apple's not going to go down market. They're not going to come out with

lower price devices for a specific market. What they are going to do is they're going to keep coming out with the new types of Spellman plans, new trade in programs, other new promotions that don't change the cost to the phone right per se, but makes it a lot more attainable for people in markets like India. So you're going to see that, well, Mark, talk to us a little bit again. You talked about the products as well. But it's interesting that Apple is shifting to India up yet.

I don't think it's they're They're not the main dominant kind of product maker in that market. It's still Samsung, right Yeah. Apple definitely is not the dominant player in India and that gives them a big growth opportunity long term. Right. The dominant players there are Samsung phones from shao Me,

Huawei and other players. These are the Chinese brands a lot of times these phones can sell for sub four hundred dollars, and I think that makes that much more attainable combined with installment programs in a place like India, which is obviously an emerging market. But I do think Apple is going to do whatever it can marketing wise, promotional wise in order to make the iPhone a bit of a better purchase in India, right, maybe bundle it with other products and services and such. So I do

think they will eventually get it done. You know, five G is just still so nascent in India, and it's still you know, nascent for Apple itself. They only went into the five G market two years ago. So I do think they have a long term growth path there. And of course, you know, we do believe that Apple's not going to go down market, but if they decided to sort of hit that lever can go down market.

Release you know, a new version of the iPhone SE just for India, or a new version of the iPhone SE which right now is four hundred and fifty dollars that has you know, better attributes, bigger screen, five G, etc. I think that could be successful there with the right marketing program behind it. Hey, and Rod talk to us about the air pod business for Apple. I have my AirPods and the problem is they don't stay in my ear. So I know the product design is perfect at Apple,

so the problem must be my ear. But tell me about the iPod business from a financial perspective. Yeah, I was really intrigued with it a few days ago when I when I you know, am mine ended up in the washing machine, and you know, I ended up spending two hundred forty nine dollars for it, plus the plan of twenty nine bucks. And I said, started looking at the numbers. Before the pandemic, the attached right foot iPhone was about twenty percent off of the you know, currently

it's somewhere around thirty eight forty percent. And then in the most recent survey that we did for and the users, we saw sixty two percent attach rate. And you know, we are modeling that over the next seven eight years, the whole world moves into that rollm off close to a sixty percent attach rate. Wait that's the case. What does that mean? I mean every iPhone users? You're an iPhone user, do you have a do you have an air part or not? Believe me, I landed in Chicago

last Monday, and I looked around the plane. There wasn't one human being in that plane that didn't have an air part along with it. So sixty person is probably conservative in my wife. But if that happens, you know, airpart become the third biggest category, you know, for for Apple down the road, and frank you speaking, you're gonna lose them. They're gonna fall in water. Your replacement cycle is going to be far faster than an iPhone. And

you know, it's just it's just a beautiful product. Frankly doesn't stay in my ear, So what does it say about my ears? I guess that's the question. Hey, Mark, I'd love to get the latest reporting from you. I'm kind of what's the feeling in Cupertino about China, both as a supplier and as an end of market. What's the latest thinking. I think Apple is pretty confident in its supply chain in China. I think they have seen the Chinese supply chain be pretty strong and pretty resilient

other than the last four years. So it's taken some time for them to really wrap their heads around this idea that this whole supply chain they spent twenty five years building, you know, really has faced criticism recently, has

faced issues. And really you can chop it up really to the tariffs issue in twenty eight, twenty nineteen, right, and then you can connect it to COVID as well, and those two factors really with a string of bad luck and COVID zero policies in China, you know, really, you know, weaken that supply chain a little bit in the eyes of investors and some And so I don't think Apple is going to shift away from China as people think. I think that the Chinese supply chain is

here to stay. But I have a big caveat whereas I think Apple is going to double up and really build additional supply chains, different manufacturing final assembly facilities in India, Vietnam, Thailand, Malaysia, Cork, Ireland and really expand there. So if there are further issues in the Chinese supply chain, they have backups in place. Mark, let's go to a different part of the business here, Apple TV are what's the growth case for Apple TV at a time when a lot of streaming companies, a

lot of media giants really struggling. Yeah, the growth case is really the price at seven dollars a month. Apple is still well under the price points you're seeing of Netflix and HBO Max and those bundles there. I think if Apple further pushes Apple TV Plus in terms of bundles their Apple or One bundles they included in the price point of some of their other products, I think it could be Okay. One new thing they're trying is they're sort of building this temper very back catalog of content.

So they have their originals, which is what you're paying for, but you also you get about six of these random iTunes movies, usually the same ones that are streaming on Netflix, included with TV plus. So if they continue to expand that, it makes TV plus quite a bit of a better offering. They have not marketed that. They don't advertise it. It's not advertised as part of the price point every month,

but I think that's something they're testing right now. And if they continue pulling that lever and make it a bigger part of the package, I think TV plus could be quite successful. Hey fit finished up with you here? What's the bear case for the stock? Apple? Thirty seven buys eight holds and only two cells. Is there a bearcase for Apple? The big case is really you know, China is the biggest bearcase frankly, and then that's really what you know, I get scared about. I think that's

one idea. But the second part also is, for the long period of time, Apple's been growing sales at a clip of about ten percent per year, let's say for the last several years. We don't think that's going to happen anymore. It's going to be high single digit growth fade stock. And as you know, I mean, you know, what multiple are you going to pay for a stock at that time? I think there is a lot of discussion about valuation. We have done a lot of work on that area. I think those are the two areas

that I hear the most criticism about. All Right, good stuff, Really appreciate getting you too, smart folks together on a rock ran A, senior tech analysts with Bloomberg Intelligence and Mark German, reporter for Bloomberg News covering all things technology. Twenty twenty two was a year to forget for risk on investors at sixty forty stock portfolio nowhere to hide This year kind of an up and down, really strong

januarying for some bond investors. Some of the best January, they've they've ever seen and then kind of given it back in February. So where do we go from here? Let's check out with Mike Smith. He's a senior portfolio manager Offspring Discovery smid cap Growth Fund and for those of you not in the know out there, Smith is kind of a combination between small cap and MidCap. You put it together and it's a smid cap. So how about that? Thanks for joining us here. Let's look forward here.

How are you guys approaching this market? Are you do you feel like you're held hostage by the Federal Reserve or do you still feel like there's ways to make money here and maybe add some value. Hey, Paul, good afternoon. Thanks for having me on. I think there's definitely reasons to be hopeful and optimistic. You know, starting with what you just said, there was a lot of damage done last year, and we entered this year with the post year that last year's paying is this year's opportunity, and

that's starting to play out a little bit. I think it's reasonable to expect a choppy year and some ups and downs as we move forward. But you know, what we see is there's a divergence and fundamentals that that is starting to reappear. When you look at the universe of growth companies that we focus on and you compare that to the broader market, fundamentals are superior on three fronts.

The growth differential is actually as wide as it's been in quite some time, about two times the ten year average. There's superior margins and returns, and there's also increasing evidence of superior resilience. The rate at which estimates are being cut and revide lower for growth companies, you know, is less than what we're seeing for the rest of the universe. And you know, typically you pay a premium for better fundamentals. You pay a higher price for better growth, better margin,

and more resilience. But last year that premium went away. And so what we think re emerges is a reward for patient and optimistic investors who are willing to take some risk and try to navigate the chop you want sat waters that we're all sailing through. So where where are we are? Where are you guys in terms of your view of valuation if you want to get you know,

until your portfolio more towards growth companies. Where is the kind of the valuation play we think valuation overall is about average for growth stocks, so you know, it got quite extended. That's part of what contributed to the pain in the first half of last year. We're not at all time lows, but we're at a fair value where you can be rewarded for investing in those superior fundamentals. And I think in terms of where you find opportunity,

it's broad based. I think one of the most interesting things that's going on is technology cycles through different industries and is adopted by all different types of businesses. It's creating winners and losers and companies with superior growth and lots of different places. So give us a sense, are there some sectors you like at the moment. Yeah, the most interesting opportunities that we see are in technology, consumer,

and healthcare. Those are the three sectors where fundamental differentials get rewarded. It's very hard in places like energy and interstensitive financials to make money based on fundamentals. You get paid for getting the oil price right or the yield curve right. We avoid those sectors and dive into opportunities where the differences in the quality of the business matter. You've got a name here that you guys like Mercado Libre. I've heard that name before. It's a really interesting story.

Tell us about it. Yeah, Mercado Libre is essentially both the Amazon and PayPal of Latin America. And you know, it's early days in the markets where they do business in terms of the adoption of e commerce and digital payments, and the value proposition to the end user, the consumer is meaningfully better, you know. I regardless of the economic regime, people pay for better, They pay for more convenience, they

pay for less friction, more safe transactions. And so the growth dynamics that they're seeing, which are quite explosive, are primarily driven by that value proposition and the under penetration of e commerce and digital payments. So you mentioned healthcare before. How do you guys play healthcare? Do you go into the services side, the pharmacide, the biotech side. How do you guys like to get exposure to healthcare? You know, again, I think it starts with the value proposition and what

does each individual business enable. As we sit here today in the United States, We've never spent more on healthcare, and the system has never been more complicated and more broken. And so any business that brings a solution to the table that saves lives or saved dollars, we think as

a long runway for growth. And so when you look at you know, companies like Inspire Medical Systems as an example, you know, what they enable is an alternative that's better for the patient who wants to wear a map getting night to deal with their sleep apnean if you don't have to, and if you get better results with less inconvenience or at a lower cost, you know, there's wide adoption and so um, you know there are multiple examples of that throughout our portfolio. But again, it all comes

back to enabling something better. That's the common denominator. So, Dan, on the macro side, how concerned are you that that we are in a higher rate for longer potentially an environment And how do you guys feel about that? At Allspring? You know it's your crystal ball is as good as mine when it comes to where rates settle and what the FED does from here, I think it's clear there's a commitment to kill inflation, and the BED couldn't be more clear about where they stand on that. So we

have to be humble in processing what that means. But um, you know at the end of the day, we have an amount of debt in our country. We have a lot of bad demographics in the developed economies, including the United States. Those are both two big overhangs on growth. You know, it's hard to see a scenario where it takes a long time to kill inflation. It takes a long time to restrain growth growth, because they're structural horses that are going to cause those restraints or constraints to

happen anyways. So you know, I think time will tell as we moved through the year. I'm not looking for a big upside surprise that rates have come way down, but I think it's quite possible. We've seen the highs and we just need to bide our time now to get to the other side of the cycle. All right, Mike, I always appreciate get a couple of minutes of your time, Mike Smith. He's a senior portfolio manager at all Spring Discovery.

It's a smidcap growth fund, small MidCap growth and all Spring is a former Strong Capital which was an absolute must stop when you want it to go to the Midwest and see institutional investors strong out there that the burbs of Milwaukee, Wisconsin, which pound for pound, I think Milwaukee, Wisconsin might have some of the best money managers out there. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of 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.