Teenage Workers Leading Recovery

a week over week improvement. How about those teens. It's you know, at the end of the school year, kids entering the summer workforce. What's the marketplace like for them? Barry rid Holds, Bloomberg Opinion columnists and host of Masters in Business on Bloomberg Radio is also founder, chairman and chief investment officer rid Holds Wealth Management. He's got some thoughts on that. So for all those teenagers, Barry, there's got to be lots of jobs out there, right, It's

just a question of what am I gonna get paid? Yeah, there there are a ton of jobs there. And and when you look at teenage employment, especially the labor participation rate, this is at a thirteen year high. Um. But it's way down. There's this really interesting generational story that's taken

place pretty much over the past thirty years. The labor teen participation rate has fallen, and and I argue that it's fallen as minimum wage lagged behind things like inflation or productivity, or corporate profits or executive comp and at a certain point, teenagers say, wait, in pre crisis, pre in two thousand seven, you want to pay me five dollars in fifteen cents an hour before you know FICA and and taxes. Most kids just turned around and say it's not worth it to do that. And you could

see that reflected in the participation right now. Funny thing, the minimum wage went up in O eight oh nine and twenty ten, and not coincidentally, from at seven and a quarter and up, which is a bump from where it was. The labor participation rate of teenagers started to tick up. And here's the craziest thing. Unlike most other participation rates, it's now higher than it was pre pandemic.

So maybe the kids are bored, they want to get out of the house, They're tired of looking at mom, dad, brother, sister, and say, let me, let me just see a change of pace. But all of this just keeps coming back to wages. Wages are table stakes. If you can't offer a competitive wage, your your potential pool of applicants are going to be tiny. And I mentioned the Pittsburgh Gazette article about an ice cream parlor that doubled their wages from seven to fifteen dollars. Usually they put on an

air they get two or three applicants. At fifteen an hour, they got a thousand applicants. So wages are every thing the kids, no, right, I actually, to be honest, Barry, when I was a kid, my parents were just like, you're getting a job. It wasn't really my choice. You know. It was like I had to do something I wasn't allowed to not you could see that in that participation, right, Listen,

I had a paper out when I was twelve. I was mowing lawns and shoveling snow at fourteen, fifteen, sixteen, And by the time I got to college, you know, I was waiting tables and and tending bar or short

order chefs way back when. But that's a generational thing, and five ten fifteen, let's say, ten fifteen years ago, that wasn't what the standard was it's get an internship, work on your extracurricular activities, get into a better college, get get into a better um internship program, and first job. The focus shifted away from earning a living then to what are you going to do over the lifetime earnings? You can see, Barry, what do you think I mean?

We're seeing anecdotal evidence of wages on the lower end of the hiring pool, whether it's McDonald's going to thirteen bucks or you know, Amazon, you know, going to fifteen dollars here is that just anecdotal or does that really signify this, you know, pulling up the bottom of the wage scale. It's a good question because very I gotta I gotta point out, you know, we haven't really seen wage inflation at all. If you look over the last decades, right, everything,

the price of everything rises butt wages. So so here's the here's the issue you're referring to, and it plays into both wages and inflation. We have a tendency for wage prices to be sticky, and then at a certain point it becomes clear that wages are insufficient and you get this reset higher. So instead of seeing like an

annualized increase in wage inflation. You sort of get this reset up and then it goes plateaus for a while, and you could tell that wages are moving higher, not because of the BLS or Census data, but my favorite data point is the quits rate. The people with full time jobs who are saying to their bosses audio smoas and moving on because there are better opportunities at higher wages. And if your boss won't give you a raise, someone else will. And so the flip side of why can't

I hire people becomes why can't I retain people? For the hiring. I keep saying wages are table stakes, but if you want to keep people, it's more than just wages. It's some sort of path to equity, profit participation, benefits for oh one k things like that. And as we've seen over the past year, are you have to give people some freedom and control over their working circumstances. Ours we got and we got down to the we got down to the two minute mark, which means I gotta

ask you about Ferrari. I speak. It's a new job, right. They got a new guy as CEO. He comes from wait for it, st micro Electronics. Ferrari, the new guy they hired run Ferrari deals with like touch screen interactivity. What the heck? Let me let me break this down really,

really easily, so that even you can understand it. Tesla doesn't make cars, they make computers that move, and Ferrari has recognized that and said, we have been building so much electronics into our all, all of the traction, control, over the management, management, all of the which tire is going to get, how much power it for vector and how much time, how many times a second, how many

hundreds of times a second? Are we gonna adjust that that the electronics become even more important than your favorite V twelve and ps. If you think Ferrari is going to be internal combustion engine forever, I got some bad news for you, Matt. They will eventually go to the faster, greener e V and the only thing they're gonna miss is the wonderful sound that comes out of those four chrome pipes at the back. I don't either, Paul. We're

gonna buy old Ferrari's. Me and Barry are gonna be on bring a Trailer dot com while the rest of you are driving brand new electronic whiz kid cars and uh, while we still probably won't be able to afford them. Great talking to Barry ittt Holtz. As always, this is Bloomberg. Now President has revoked the Trump era bands on TikTok and we chat we chat in the United States of America. Jim Anderson, CEO of Social Flow, is here UM to

talk with us a little bit about this. And we also want to point out here at Bloomberg we use social Flow. It's a platform used by Bloomberg for social media purposes. So just full disclosure there, we have another relationship with Jim. Um, let's get to the TikTok and we chat what what were the bands like and what does this um revocation mean? I mean kids were still using TikTok and we chat in the United States, right, oh, without a doubt. And to be clear, this was never

about TikTok or or we chat chat. It was about the US and China relationship. And you know, President Trump issues his executive order he said that Bike Dance had to sell TikTok and there were various suitors. If you remember Microsoft, the Oracle, We're going to buy it. But remember the Chinese government ultimately had to approve that sale.

And that always seemed wildly unlikely. You know, so really this is less about regulation of big tech and more about the U. S. Relationship with China expressed through big tech A Jim. It's the expectation not in Silicon Valley, that Biden administration will in fact dial down the rhetoric in terms of maybe some of the regulatory concerns about big tech that we're really starting to ramp up during towards the end of the Trump presidency. Yeah, for sure,

dialing down the rhetoric. I mean, it doesn't take too much of an expert a server to to look and see that. You know, President Biden governs in a very different fashion than President Trump did. But I wouldn't, you know, confuse, you know, dial down rhetoric with a lack of substance. I think there's really something still quite substantive here, and that's because the U. S. China relationship and competitive nature of that relationship is still very very much in place.

So the fact that he revoked the executive order in some ways was inevitable because it was a fairly dubious executive order. I think the subsequent court filings and all suggested that there was a long battle to be had with that executive order. So rather than fight a losing battle, I think he just decided quite quite understandably to just revoke it. But you know that that doesn't mean this

is over. I think there's still a substantial and legitimate concern about a Chinese company owning data about U. S citizens and that's not gone away. Yeah. That, well, that definitely hasn't gone away. And we see other concerns around. For example, the peace cable UM I think, is just reaching the southern coast of France and Google isn't going to use it, Amazon is not going to use it.

How is this all gonna work out? Because no doubt Huawei shares data with the Chinese government if they have to write, I would assume some US big US tech companies probably do the same with US. Yeah. Well, and that's a great point too, because we were seeing you know, situations where people are you know, being compelled under court order to provide data and the companies will fight it, etcetera. So you know, two different you know ideologies that work there.

One is very you know, authoritarians and the other is is more of a democracy or a public So I don't know that I can give you an answer to that, But I will say that this is just one of many battles we're going to see. And the thing that my mind makes it so unique is just how wildly popular TikTok continues to be. I mean it it is red hot. It's got the attention of young people. Um, it's proven quite difficult for competitors to harness the same

level of creativity. So you might think that, oh, TikTok is is doomed. You know, it's a bit of a strong statement, but you know, with all of this regulatory overhang and concern about presidential executive orders, you might think that it's not relevant. But in many ways, TikTok is more relevant than ever too young people who who quite honestly don't really care about the geopolitical political implications. They just like a fun app. So what do you think

the future is for TikTok. It's still owned by Byte Dance, right, I mean, is this think they could spun out or I p O somewhere or again, as you mentioned, it's just become so popular. Yeah, I think it depends on whether the Chinese government ultimately would like to harvest the economic value or use it to make a political point, and my guess is um that they're not, you know, sort of eager to just harness a couple of billion

dollars of economic excited. Maybe more than a couple of billion if the I POD or spun it out to another owner. I mean, it could be worth tens of billions of dollars. But the Chinese government's got lots of money. I'm not sure they say necessarily want to say, hey, let's let's just get tens of billions. I think they want to continue to use their position and the stay their their effective control over an asset's so popular in the U. S as as more of a geopolitical chip.

So I would expect this to continue. And ultimately there may very well be something that comes out of the Biden administration that actually forces the same thing that President Trump was trying to do at the time, which is to force a divestiture. That wouldn't surprise me at all. Well, and the Biden administration could put some pressure itself on our own big social media platforms. Right, just got about ten seconds here, Jim, Oh, yeah, and that will continue, right.

Antitrust and privacy are the two big dimensions there, and those are not going away Facebook, Punch and center on those all right. Jim, thanks so much for joining us. We always appreciate chatting with you. Getting the latest from some of the big tech platforms out there, and again good news for TikTok for sure. Jim Anderson, CEO of Social Flow, joining us here and again looking at the markets again. Still you know Hire today and led by

the NASTAC one hundred. That's up seven tenths of one percent, So a little bit of a move into those tech names we are seeing again. Lots of economic data. This morning's CPI came in a little bit higher than expected, stoking some concerns about inflation into this market place. Let's check in with Chris Zacarelli. He's the chief investment officer for Independent Advisers Alliance Today about seven billion dollars in assets under management. Chris, thanks so much for joining us here.

You've got the economic data this morning. Did that make you think that this FED is likely to begin tapering sooner rather than later. Well, the FET is definitely considering tapering at some point, and with the FED meeting next next week, we're we're thinking now is the time to

start positioning for that. So whether they start the communication process for tapering next week or potentially more likely in August during the Jackson Whole symposium, we know they're going to be talking about tapering very shortly, and so I think looking at these inflation numbers, clearly the FAT has to be watching what's happened the last couple of months. They've been communicating pretty effectively that they're going to look

through a lot of these inflation numbers. So I don't know that this morning's print is necessarily going to change their game plan. But for all those people who think inflation is going to be transitory and not sticky, as we continue to see these prints every single month, it's got at least put some doubt in your mind and take away a little bit of that conviction. So I think, if anything, that would be the one change at the margin that that I would expect out of today's now words,

Let's say, what does transitory look like? It's transitory like um, three to six months, or is transitory like a year or two? You know in our in our minds, transitory would be less than a year. I think you asked that question of of a hundred people, and you'll get close to a hundred answers. I think everyone has has their own range of what transitory is. I think a FED is deliberately been vague about what transitory means in order to give themselves a little bit more room to

work with. But if anything, they've said time and again that they're willing to allow inflation to run a little bit hotter hotter than they normally would. They're much more focused on the labor part of their dual mandate than they are in the price stability part of their two dual mandate. So for our mind, if we see these types of prints going over the course of more than six months, that would definitely be a concern to us. It's possible to FED would let that run a little

bit longer. But the longer the definition of transitory, the longer we're going to be in this this state of flux. And I think the more volatility that that um brings to the situation, which is which is why they need to really kind of button that up. All right, Chris, giving that background, where are you guys doing some work today? Where do you see some opportunities? So for us, an

interesting area is still the financials. So whether that's the regional banks or the larger money sending money money center banks. The financials are really showing some weakness from a technical point of view, but from evaluation point of view, there's they're still cheap to where they've been historically. So we think within the financials, if the economy continues to do well and interest rates they anchored, financials should do okay.

And I think we're going to see some buying opportunities in the next few months within financials as people continue to see interest rates being very staying stuck very low. However, if interest rates start going higher again, that's great for financials. So we think financials are are well priced. We think there's some weakness at least in terms of the technicals. So I pick your spots, and I think you're gonna

see some financials go on sale. But we see that as heads you do okay, tales you do very well, and so we like the risk rewards set up at least within within that end street. So again thinking about some opportunities here, you know, again the concern is that

the FED is going to need to raise rates here. Um, given that scenario, are there parts of the market that you just think you're gonna be really rocked when and if that happens, well, if interest rates start going higher, and again that's more likely to be at the ten year or third year range, we're gonna see longer term insestrates move higher through through the market. Tapering is one way that could happen, and and a shift and sentiment

is another way. As far as short term rates, with the when the Fed will begin raising, I think most people believe that's a year or two out at the earliest, even as inflation starts to heat up. So we think if longer term interest rates go higher again through either taper discussions or just because the bond market changes the narrative for how how high they think rates will will go in the future and how much economic growth and

inflation rates higher. We think technology shares and high price price to earn shares are are the parts of the market that are are most vulnerable in that case, and so those those are areas of the market i'd be careful on. You want to right size your positions in those longer duration stocks, so to speak. You know that, um, the narrative that this is a very dangerous moment for central banks has really gained a lot of pace. Um. We heard that from Andy Haldane, chief economists at the

Bank of England. We have heard Martin folkirts Land down, Peter Hooper at Deutsche Bank saying, you know, inflation could be more than just transitory and uh. Bill Dudley wrote for Bloomberg Opinion that the problem with this is this overheating is that when it's time to turn around, the Fed's gonna have to raise rates quickly, more quickly than people are ready for, and faster and uh and higher than people may be ready for, and that could bring about a full blown recession. It's like a turn on

a dime kind of situation. Is that a concern you think that's gaining a lot more traction. I don't know that has gained as extraction as it should. It's a concern that we share. We are also in that camp that, um. The idea that the FED is going to play this perfectly keep inflation in check while the economy reopens, I

think is a is a stretch. And I think for all those people who are keeping interest rates as low as they are buying that tenure today and keep knocking down those rates, that's a big article of faith from from our point of view, and one that we don't have as much conviction and as clearly a lot of bond market investors have. We think there's a really big difference between uh an extraordinary amount of quantitative easing, which

was done after the global financial crisis. Sure M two can jump up astronomically, but as long as the velocity of money collapses, you can get away with so much

quantitative easing without seeing a lot of inflation. But what's different this time around is we've got so much fiscal stimulus in addition to the monetary stimulus, and that's something we're surprised that the market is not seemed to not be taking into consideration the idea of putting trillions of dollars into the hands of consumers, especially those lower income consumers, we're much more likely to spend it. We think that's where the risk lies. It's not that we have so

much quantitative easing. It is that we have quantitative easing on top of trillions of dollars a fiscal stimulus. And I'm not the only person who's who's making this point. I think there are others who are starting to talk

about it. But if I think that narrative is the one that I haven't seen really take off, and I'm surprised about it, I would think, And that much fiscal stimulus on top of monetary stimulus is why inflation is much more of a risk than it ever was in two thousand nine, two thousand ten, and even into the Taper chance. Chris, have a valuation here again setting new highs in this marketplace. Yes, earnings have been very good for the past couple of quarters. How do you view evaluation?

Is that a concern for you and for this market? I think where the market's price right now, at least using the SMPI as a proxy, you have to be aware that that valuations are elevated now. I think within the SMP five you have to look at kind of the the index composition, and because so much of the index is heavily weighted towards technology and communication shares, a lot of those companies are businesses that are that deserve

those valuations. So I think evaluation in and of itself is not a concern for us, but it's something that we're keeping in mind. It's definitely a necessary condition, all right, Chris, thanks so much for joining us. Chris Scarelly, chief investment

officer for Independent Advisor Alliance. Let's get over now to Ted Swimmer, head of Corporate Finance and Capital Market at Citizens speak Capital Markets at Citizens, because we had um first off, Ted, really interesting no doubt from the SEC yesterday that Gary Gensler has instructed his staff to well make markets work better is the broad order, But UM talking really to to his staff about market makers and um, you know, buying fund thos. What do you think about

the changes we should see? Well, thank first of all, thanks for having me this morning. We're seeing some very positive fund flows in the businesses that we're working on. We're seeing a lot of investor demand. Loan and bond side of the businesses seem to be taking off. We feel like the markets are incredibly accommodative now for future

for transactions in the second half of the year. First half of the year has been very aggressive already, but not a ton of new business coming in, not a ton of new l B O s or acquisition related deals. But we're feeling like the pipelines are building rapidly in the second half of the year and we think the markets will be very accommodated for it. So what are some sectors ted that you're seeing some of the activity.

And again I think just from the public equity markets, a lot of investors have been piling into some of the cyclical areas of the market that will benefit from reopening. What are you seeing from the corporate finance, the capital markets, the UH specialized loan market. What are you seeing there in terms of sector demand so so far in the first half of year. That UH, the debt markets, which

tend to be more backwards looking and forwards looking. UH, we saw a lot of deals in the healthcare and tech markets, given that those markets were not as much affected by the COVID environment last year, So revenues and EPO DOC continue to improve, making a very very easy

to do debt transactions in those markets. As we see the second a half year picking up and earnings picking up in more of the cyclicals, I will see more cyclical deals done in the second half of the year, but the first half of the year has really been dominated more by technology and healthcaretil related transactions. Do you have any concerns about inflation. I mean, we're starting to hear some big names in economics voice concerns about the

possibility that it may not be transitory. We we do have some I mean it's it's not an overwhelming concern, but we're in the companies that we bank, we're starting to see inflation take off. We're started a few all the consumer pinch a little bit on the inflation side of the business. From an inflation perspective. Uh you know, the bond market has seen some gets seems to get concerned about inflation and then papers off, and because there's still so much demand on that side of the market.

I think it's out there. I think, well, I think our bank thinks it's going to hit at some point. It's not an immediate concern, but looking out tools to eighteen months, I certainly think it's going to be part of the discussion on everything we're doing. Talk to us just real quickly about private equity ted kind of are they driving deal flow out there and kind of the

small mid market part of the market. Absolutely, private equity is becoming, not becoming, is the dominant force in the upper middle markets uh D fifty million dollar eve dot type transactions. We're seeing a lot of private equities obviously stay on the sidelines from a new business perspective last year, and that market is hot right now. From from both the selling perspective, we're seeing a number of p sell some firms, but the main buyer out there is the

PE market. A number of middle market companies we're seeing wanting to sell. Given I think they looked over the precipice last year during COVID, got nervous see the potential change in the capital gains tax next year, and I think they want to They want to have a liquidity event, and private equities the dominant buyer. The debt markets are certainly whether it's private BED or public BET is certainly

accommodated or those transactions to occur. And I think we'll see the second half of the year dominated by by eminent by private equity snatching up opportunities. Obviously, we saw a couple of those deals announced last week, and uh, I think we'll see that as a continuing trend through the third and fourth quarter of this year. Hey, Ted, thanks so much for joining us. We really appreciate you

taking the time. They're giving us some thoughts on the capital markets there, uh remain hot, likely to get even hotter in the second half of the year, says Mr Swimmer Ted Swimmer, head of Corporate Finance and Capital Markets at Citizens. Good to get a sense of kind of how things are going out there in the deal flow. We've seen some big, big deals, obviously strategic M and A transactions, but small and mid market also doing well

and very active. 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, three pt on Fall Sweeney. I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio