Treasuries, ETFs, GE, and Private Credit (Podcast)

do so for some time. So that means we have to talk to Ira Jersey. Whether we want to or not, we have to talk to Ira Jersey because he is the go to guy. He's the chief US interest rate strategist for Bloomberg Intelligence. So Ira, you know, what do you expect from your Federal Reserve Here? The talk is kind of really ramped up on. Hey, we only need

twenty five basis points this time. Yeah, I still think that they'll they'll do twenty five basis points and they'll leave the door open to doing one or two more um interest rate hikes. Remember, we don't get a summary of economic projections this time, so there won't be any new Dot plot or anything like that. But but it will be parsing very carefully j Powell's post meeting statement next Wednesday, because um, you know, we want to get a hint of what their reaction function is based on

incoming data, Like will they potentially stop at the March meeting. Um, we don't think that they will, but um, but it's going to be a very close call thereafter, we think so. Um, And it will be very data dependent. So if if inflation keeps on the down trajectory that has been on in recent months, then you know, we might be very

close to nearing the end of interest rate tykes. Um, that's a big if, right, because as China reopens and Europe seems to avoid a deep procession, there could be a lot more a lot more spending on commodities that could push prices up and that could come through an inflation. Yeah, that's true, man. You know, I think one of the one of the risks though, and one of the one of the key factors that's helping the inflationary environment right

now is is base effects. Right. So, so the spring of last year, when you saw the largest month on month increases in a lot of prices and now you're going to see some of those base effects roll off, so you'll actually have, um, you know, somewhat of a

stabilization on a year on year perspective. UM. But but but you're right, like and and one of the things that we've often noted is, look, if if the Federal Reserve hikes to five percent, you know, plus or minus points, so let's say it's five percent UM then and and you wind up having the PC deflator more or less five percent, which seems like it's very likely going to happen over the next couple of months. UM. Then really the Federal Reserve will say, Okay, look, our job is

not done, but we're we're just not cutting policy. And what's still amazing to me is that even though the Fed's been very consistent for the last six seven months, with almost every member saying, look, once we reach the peak, we're going to stay there for a long period of time, the market still doesn't believe that. Right. The market is still pricing in cuts that I don't want to sit

around with five percent inflation. I mean, base effect was the mantra that we heard at the beginning of twenty two, and it still didn't slow inflation down that much. Right, if you look at year over year cp I, it averaged seven percent in two thousand twenty one, it averaged six and a half percent in twenty two. So let's say we get down to five and a half percent in twenty three. I don't want to look forward to

five percent in four like, get it done. Well, that's and that's the reason why they're not going to be cutting right, So I think, you know, the we we have to well, they they're not going to probably raise much more than five and a half percent or five and a quarter um in part because the the some

of the underlying inflationary pressures are coming down. So you mentioned things like commodities and and um uh and and good prices, and good prices have already been falling, right, So so I think we we throughout all of this, we've actually missed the fact that core goods prices are actually falling on a month a month basis. What's continuing to rise significantly is our services prices, and those are driven in large part by by wages and wage games um.

And obviously the employment situation continues to be um, you know, reasonably good. So so the federal Reserve will be pretty happy,

I think to maintain interest rates this year. Look if Matt, if you if you're you know, you're right, And there is a large portion of the market that still thinks that the Federal Reserve is behind the curve and they need to continue to hike well beyond five there's a whole another part side of the market that's actually, you know, clearly winning saying that hey, we're going to be in a recession in the second half of the year, and because of that, the Fed is going to be cutting

sooner rather than later before um uh, you know, and even before year end. We we actually did a piece yesterday looking at what options markets are pricing and option and even though the market is currently pricing for about forty basis points of interest rate cuts by the end of the year, it's what the market is really pricing for is either one cut or four or five six cuts, right, So, so we're really pricing this bimodal distribution of of uh, but but all leaning toward cuts and not much more

in terms of hikes. So so, even though there were some that are sympathetic to your view, Matt Well, um that most of the market is not and and that we're priced for four cuts and which I personally thinks won't happen. I just want them to take care of inflation before we get into such a deepercession that my boss isn't willing to give me a raise to keep up with inflation. Right, this is a bad situation. And uh,

it's been going on for too long already. And if they continue just to let it go on, it's going to get much worse. Because until now, wage gains have almost kept up with inflation. They they still have been outpaced by inflation. But if you get into a situation where inflation keeps smoldering and not only you know, we see three m like starting to fire people, they're definitely

not giving any raises. Now. You know the the FC Central New Jersey tickets that cost me twenty dollars last year and thirty dollars this year, that cost me forty dollars next year. I'm not gonna be able to afford to go anymore. Well, and and that's one of the reasons why, and that that the Federal Reserve, I think is not is going to take away and see approach once they once they reached the next couple of a couple of meetings and they reached that five percent level.

That not that that five percent levels any kind of magic number, UM, but they they know that there is starting to see a slowdown in the in economic activity. And usually slowdowns in economic activity are followed by UM, followed by slower price gains and and uh, and inflation tends to come down. So that's the reason why I think that the Fed is going to take a little

bit of a wait and see approach. And UM, you know, if if, certainly, if if inflation re accelerates in a major way, UM, then the Federal Reserve at that point would be able to hike more. But but I think, you know, taking a pause and then trying to maintain rates at five five and a quarter percent is what they intend on doing, right And and look, my job also met is not to not to tell them what to do and not to give my opinion, but trying

to point out what they should be doing. What they will do, and what I think that they will do is maintain interest rate. It's for the rest of this year, probably into because if the employment situation is strong enough, they'll have the ability to do that. That's what we need though, someone to tell us what they will do. You don't need to hear from me and Vince tell them what they should do. Good stuff. We'll get to a soccer discussion at another time. IRA Jersey, Chief US

Interest rate strategist for Bloomberg Intelligence. We wove in the soccer, Yeah, yeah, we woven into a little bit f C United FC Central Jersey or something like that, Central Jersey or something like that Rayal Center, New Jersey, Real Central New Jersey. All right, there we go. I have a buddy, uh, David Auerbach. He's a managing director at Armada E T F Advisors and also a fellow Fish fan. Oh. We actually went to see the New Year's Eve shows together,

one of them ye at Madison Square. Wasn't it was amazing? That's it. It was fantastic. But the funny thing is, so we're sitting there and we had a suite, a couple of couple of c eats, um great view. The light show is insane, and in the second set we get into this deep, like spacey discussion about Mall Reads and I thought, you know what, in this entire stadium, in all of MSG, nobody else is talking about Mall ranks. Right now, let's bring in David on the phone, joining

us out of Texas. UM great to have you on the program. David, Let's start by talking about the situation that that the real estate industry, or the residential real estate industry funds itself in right now. We'll get to the malls later. But you run house h a U S, which is an e t F and actively managed e t F that invests in publicly traded reads. Talk to me about the state of your industry. Well, good morning, thanks for having me back on the air, and of

course I'd rather talk about our fun experience. But you know, right now, in the world of publicly traded reads, you know, we see really a lot of upside as you know, after the ball told results, you know, a lot of the reats are coming out basically forecasting we're not going to have as great of a year and o Y growth and you know, really crushed it like we did last year, because last year was almost unprecedented for some

of the residential reeths. But these guys are still forecasting growth and in the wake of rising interest rates and rising inflation, we're focused on that end rental payment. We call it the residential reat income ets because we say that the rent payment goes into your pocket as income in the form of dividends, and pretty much across the board, these residential reeths have been raising their UH dividends over the past couple of years through COVID. That's great for Paul, Paul,

how good is you? You You love dividends stuff. So has the residential real estate market, I mean, is it's still adjusting to this higher mortgage rate environment. Has it steadied? What are we seeing here? Yeah, it's definitely adjusting, there's

no question about it. You know, some of the home sales numbers that have been coming out recently, though there's somewhat kind of dated results, are showing somewhat of a turnaround compared to what we had seen, you know, in the mid second mid second half of the year last year. I hate to use the term, and everybody kicks around that new normal. Look. Interested interest rates have gone from zero to four and a half percent. Mortgage rates you know, went from like two to six three to six percent

last year. We're in this six percent mortgage range right now, and so I think people are accepting it. The problem is that you know, hey, I get this great job opportunity to move from Dallas, Texas to New York, and I'm trading my two seven five mortgage for a six and change mortgage in New York. I'm you know, I'm basically locked in. I'm kind of geographically constrained at that point.

And so from the rental payment from the rental side, you know, unless you're in the market to go out and buy that house right now, you're really focused on what's my end rent payment going to be next month? Is it going up ten percent or is it going up a hundred percent? Well, and I mean so many people who haven't been able to buy have been and

put in that position. And in terms of the investment though, David, for those listening who don't quite get the E t F, you know, functionality, How does that work when when when you get paid dividends by the public reads you invest in. How does say Paul buys a share of house, how does that come through to him? Uh, It's it's a great question. And basically it's passed through directly to the

end shareholder. We pay a quarterly dividend and it's basically a culmination of the income received from our underlying constituents. Our fund owns twenty five publicly traded reefs. Those are comprised of apartment reads, single family rental reads, manufactured housing, senior housing. All these companies are reporting monthly and quarterly dividends. That adds up and that basically event goes into your pocket at the end of the day as a shareholder

on the phone of the dividends. So it's just like any other stuff. So Paul calls this guy at pain Weber or wherever and says around for a while and says, you just reinvest those dividends or they just cut him a check every quarter. That's right, right, And you know, past seem probably more like a you know, day one Robin Hood type of guy who is well ahead of there. But yes, that is correct. Again. Ets are publicly traded vehicles.

They trade just like stocks. Bid ask spreads trade during the market hours, you know, and we highlight that liquidity. You know, Matt, you and I talked about the private versus public and what we've been seeing in some of the private resets out there, you know, talking about gaining redemptions, investors having a hard time pulling their money out. You know, they're never going to be able to get out of this maze of you know, trying to capture their investment.

And so for us, we're highlighting the liquidity of publicly traded reafs and ets. You want to put a million

dollars into house, thank you very much. You can pull out a million dollars of house very quickly, just as well versus you may have a harder time at some of these private vehicles right now, So, David, talk about mortgage rates up that six percent range, is the expectation that you know, a lot of folks are saying if it's going to be cutting rates at the end of this year early next year, So is that Are the mortgage folks you talked to saying, hey, the mortgage rates

will come back down along with the Fed. Yes, the answer is yes. Mortgage rates staly traditionally do tend to move hand in hand with interest rates. If we do see that correction coming back in later in the back half of the year, yes, I would expect to see that. However, at the end of the day though, until we really see the mortgage rates go back from let's say six percent, so you know, a more manageable level of four percent. I still think we're gonna see, you know, some popsy

turbunus in the housing market. What does this? What are these big changes? And I mean I don't know when's the last time the FED raised four fifty basis points in a year? Um? What do they do to e t F s and net asset values? I mean, they're bigger and bigger divergences, right, how do those fix themselves? Well, you know, for us again, we're looking for us at the residential reefs and focusing on the underlying constituents themselves.

I will highlight that many of these reefs took advantage during COVID to re capitalized, you know, their balance sheets, and we're able to lock in very long term debt at a very attractive rates. So unfortunately, you know, I can't control as I as I tell people, I can't control my et F stock price. I can't control my constituent stock price. All I can focus is on the narrative, highlighting how well capitalized these companies are, and I focus

on the fundamentals. And usually at the end of the day, matters we talked about. I take, you know, pick your favorite Wall Street stock reets, Apple, Microsoft, whoever, take your fore fait, your favorite company, and I try to boil it down to four bullet points. What do you want a good company to do well? At the end of the day, It's very simple. You want them to grow revenues,

grow profits, grow dividends, and grow guidance. And that's pretty much what you have been seeing from the residential reads across the board over the past year two years coming out of COVID, and so from the fundamental perspective, the bottom line is, these guys are in a pretty solid position right now. Let's just CLEI really touch on malls for a second, because I thought it was such a cool conversation that we had um in an extended version

of Tweezer. It wasn't It wasn't really tweezer. What what? What? What? What? What is up with that business? Like? Can it ever come back? Um? What do they need to do? And what do you think about it? Ecap Rates in the mall sector have been going backwards down the number line. To throw another reference at you, and when we look at some of the high quality properties versus you know you and I spent a lot of time talking about

American Dream and uh in fact. Bloomberg Opinion ran a great piece yesterday talking about how mall landlords are spending huge dollars to offer these exponential type experiences and indoor ski malls and the retail location as an example. And the question is if you if you build it, will they come? And you know, at the end of the day, Look, there is no place like the mall. I have fond memories and going to the arcade, going to Mrs Fields Cookies and you know that was where we spent our weekends.

And I know it's a different generation, but the mall guys are trying to reach out towards that next generation, whether it's through e sports venus. I do see the mall isn't going away. I think we're going to see an evolution of the mall space. I'm looking forward to it. Good stuff. I hope they put in pickleball. Pickleball, you're a big pickleball fan. Yeah, all on and whatever the

latest fat is. David auerback Managing Director Armada E. T F S giving us his thoughts on the residential real estate market in their Residential reet Um Income et F H A U S House. Uh So we'll see how that goes, but mortgage rates at six percent makes it tough for some buyers. Now, let's talk about some industrial America, agricultural equipment, turbine engines, all that kind of good stuff. We can do that with Karen Herbal Hall Hubal Heart.

She covers all that industrial stuff for Bloomberg Intelligence. Uh, Karen lots to talk about. Let's start with one of your all time faves. You've been following this company for decades, Ge, what do we learned today with their earnings and kind of what's their story going forward? Uh, well, you know, um on just briefly on the fourth quarter, I guess, uh, there was positive surprises and negative surprises on aerospace. That was kind of in line power, which is a big

turnaround story. They did much better than expected on margins um double digit margins, which they haven't done in four years. UM. However, they lost that in renewables, which is um uh you know, an ongoing issue for them. UM. As far as the outlook, uh, you know, again it's going to be driven by aerospace. The outlook was lower than people expected on EPs spaces.

I think they're probably low bowling on air on aerospace, and they're giving themselves the room for problems again in renewables, although the long term out look is good for renewable, so we might want to talk about that a bit. So all right, let's talk about that, and let's talk about the longer term outlook for General Electric for the stock. What do you think? What do you think? You know? I think is gonna be another wishy washy year because A they've still got a spin off Power Power, the

energy business now called Veranova. That is a problem. It's going to lose money again this year. They're gonna try to get it out the door in the spin in the first quarter. So that's gonna be hovering over while we have the overlay of their ongoing business. Aerospace is going to have you know, over growth, uh you know, uh, you know, high double digit margins. And then the big issue that came up in the quarter, it was probably eight of the ten questions, was on what is free

cash we're gonna look like next year? Um? What is look like? Okay, here we go, okay, um on that Okay, on that front, um, free cash. So it's gonna look good for airspace, but renewables and and powers since they

have it's a very long term business. When they get orders, they have to disperse UM money up front on these long term projects, and they're gonna pay out three to four billion dollars in disbursements for projects in the renewable busines this which is really going to significantly impact free cash flow. They are gonna have positive free cash flow, it will be up from this year, but there's a lot of uncertainty about the timing and magnitude of the

renewable up from payments. They will get that money back. But again, um, eight out of the ten questions were on how does free cash flow look next year? So I think that's what the focus is going to be on this, Karen. I like to look at, especially with big behemoths like this. I like to look at a comp screen CEMP on the Bloomberg. It automatically pulls up the stock over a five year window. And if I pull up GE over a five year window, put them up against Honeywell, Semens A, b B, what dogs, What

a horrible, horrible investment it's been. Um, is it is that going to change? I mean, do I need to start from square one, wipe out the last four years and and and start my comp screen from you know yesterday or this month's yeah, you know once this you know, I think the long term picture for GE Aerospace is tremendous and that is gonna be GE core once everything else is gone. Um their market leader in engine in

in the commercial engine business. They have um, you know a good position in military as well, but the focus will be commercial airspace. That recovery is still in very early phases. It's got a long way to go. Um, that business can probably plus margins. It's at eighteen percent. Now, that's story they're gonna when when they divest power the problem business. I mean, um, you know, energy, the power business, it's gonna be a high quality aerospace play and it's

going to be a very interesting story. All right. One other stock that has done almost as poorly as GE, well maybe even worse depending on the window you look, UM is three M. I mean, over five years, three M has managed to underperform g E. How do you how do you do worse than General Electric? But they've done it. Why is it so bad? When you know other company is like that create that build big equipment in America like Caterpillar and Deer have done so much better.

Three M has a huge overhang of UM litigation issues with UM T fast and or they have and also an air plug UM litigation T FAST is that forever chemicals. It's also affecting DuPont, etcetera. And that could be our litigation guys say that could be dollar overhang on the start for a while. Um they'll be they'll be litigating that for years and then they'll be paying it out over a long period of time. They can't get out from under that cloud. On top of that, the operating

performance has been disappointing. So every you know, everywhere you look, it's not been great news for three MS. So I mean there's stock looks as bad as buyer. You know, the German chemical companies. Three M went public I p O. January nineteen o one, just before the crash and just before that, so that's when three M went public. So Karen pulling back the lens a little bit when they're firing and they're are we going to see those are we gonna see those kind of headcount cuts at Caterpillar

at Deer Uh? Well, first, I think that's a signal um to the broad industrial sector because three M, with the breath of their product line in industrials and consumers, they kind of are g d P and they're kind of signaling that. And they did see they have expectations of declines and organic growth in every business but healthcare next year. So I think that's a signal to the

broader industrial sector. However, Deer and Caterpillar are driven have a very good outlook in the commodity markets and they are really going to distinguish themselves in twenty three. Like you know, um, add equipment is going to be strong, mining is going to be strong. Uh you know, So that's why those docks are are are breaking away because they're in a commodity cycle that uh is going to

continue to be strong. So there your industrial agricultural companies that we've been talking about, what did they do in a recession? Because it clearly boy All that they're going to see it right away they probably have seen it. Do they cut people? Do they cut they shut plants? What do your companies do? Well? You know, if if you're talking agg that's kind of a cycle of its own, and um, you know, given what's gone gone on bring prices, there's a good story there. Um. Chris Gilno covers that

and can do that in more detail. But but on on the on Cat and Dear they're both in the construction equipment business as well, and there will be some minor hit to that business, but less than a normal recession because all the money the government spending. So that's the other thing. They have the Infrastructure Bill, the Inflation Reduction ACTOM, the Infrastructure Bill, money is starting to flow.

Demand for that equipment is very very strong um and then that will continue as the Inflation Reduction Act starts to contribute later in the year. So they've got a lot of wind behind their sales um in in the construction side, and then the mining side looks good, and then the agg side looks good, so that those two companies that you've named, you know, have a very favorable album. Alright, good stuff, coluber Heart. She follows all that industrial stuff

for that's medical America. That's it, dude. I mean, I reason, you know enough of this, enough of this Twitter junk, you know, enough of this cloud service exactly exactly. Even a wheelbarrow I'd be happy with. You know, Yeah, you got a Craftsman wheelbarrow. That's what you need, right, Well, I don't know about Craftsman but you've got your own brand loyalty and wheelbarrels. Does snap On make wheelbarrows? I don't know Mac Tools and knows. That's Coluberhart from Bloomberg Intelligence.

It's kind of rough when you look under the foot of the of the dow of the s and P five three M is the biggest loser in percentage terms, they're down five and a half percent. I wonder what they thought, you know, when they said we're gonna cut jobs and they started preparing the press release. Do we buy these shares now because they're probably gonna pop tomorrow open. You're not a tech company. When the tech company's report

job layoffs, the stock goes up. When you're just up playing old American industrial company, that's not People worry about demand, Hey, worry about demand, all right. A lot of folks like to talk about private equity, but we like talking about private credit. That's been an asset class, just really getting a lot of assets, a lot of attention over the last several years. It's been a really good business, particular when rates were lower. Now with the rates going higher,

what's the outlook there for all things private credit? We welcome our good friend Randy Schwimmer, he's go ahead of senior lending and senior managing director over there at Churchill Asset Management. So, Radio, what does this asset class look like? What is your outlook for private credit in a world

that's no longer you know, zero percent interest rates? We'll tell you if you liked private credit in two you are gonna love it in because what's happening is essentially the same thing that happened then, Rates going up, inflation coming down in the second half of the year, seemingly continue in the first quarter. UM strong economy, strong economy, yields up, so we're at practically record yields in terms

of private credit for senior debt close to UM. Haven't seen that in a long long time, and it doesn't look like that's going away because the FED looks like they're gonna stick around for a while. So what do you expect from the Fed? And how key is that too? UM the asset class. What we know is that we don't really know where they're gonna end up because we don't have the data yet. They're taking it seems like a slower approach basis points. Looks like the outlook for

the next hike. Um. What the FED members are saying is, let's see what the data brings. Let's get it up to four seventy five, which would be the next hike, get up to five percent and see what happens. Then the question is will we continue to see a strong economy which is bedeviling the FED right now because they're trying to slow things down. They've started to take the punch away from the punch bowl, away from the party, where they have to start turney lights on, dismissing the

dj you know, telling people to leave the room. That would happen if you get up to a six percent FED funds rate, which would really slow things down. Paul, have you looked at con lately? Yes, I, thanks to you, I do. It's condition positive territory. It's it's looking good. Are great. The economy seems to be humming along just fine, and maybe that argues for a bigger push. How much does it matter, Randy? I mean, when the FED peaks, is that a problem for private credit because it's been

on fire as they've been raising rates. We'll think about that level of interest rates. So the typical so first spread on senior credit right now six six on top of what let's say as a five to you know difference, a five percent benchmark and at six percent, now you're talking twelve percent cost twelve percent interest rates for senior debt.

You know that all of a sudden makes the calculus tricky for private equity sponsors who are looking at their equity investments and saying, well, I'm trying to get yield on my equity, and now the senior dick guys are costing me. You know, how does that? How does that math work? So at some point that interest cost gets to be a real burden on these borrowers UM, and you're starting to see interest coverage shrink. We never paid attention to that in one because interest was basically zero.

But now you're you're you've doubled interests, spreads and total costs. Now the interest coverage is tightening, and particularly with the have nots in the economy. So you've been talking about industrials, which in many cases are the halves in this in this economy right now doing very well, but in some of the have nots, with retail, some retail businesses, UM energy, some some heavy consumer facing businesses, those businesses are going

to have a challenging time with higher interest rates. All right, So when a sponsor comes to you guys now with the deal, Um, are the covenants tighter? Are the you know, the leverage ration is different, the coverage races. Yeah, because because because coverage is tighter than the amount of debt that they can put on these companies is smaller. So that's come down anywhere from half to a full turn of leverage, which is really good for investors because lower leverage,

lower risk, higher yield is better returns um. But from the issuer's perspective, it's going to be more costly. They're gonna have to watch their margins. So the businesses we like tend to be more high margin businesses, low capex, more defensive like business services. So as you look at your portfolio right now, I presume presume your credit guys are really shopping in their pencils saying, how is our portfolio set up right now for rising interest rates? What

maybe a recession kind of what are you seeing here? Well, the way that our portfolio is constructed, it's mostly defensive industries as I mentioned, with high free cash flow um ratios, and so the business is generally speaking and doing quite well. In fact, for the third quarter. We don't have fourth

quarter yet. Third quarter numbers for our portfolio, we call it the Griffin Index after after our mascot Churchill Griffin UM is up in revenues and cash flow over twenty Now those include companies that are doing add on so M and A is part of that. But these businesses are growing UM. To your point when you started about the economy, certainly in those areas that are more defensive, those businesses are doing well. Our portfolio companies are doing well.

That seems to be the case in general in when you look at the more business services arena UM. And that's both the challenge and the opportunity that we have because if our portfolio continues to perform, it means we can continue to lend. So private equity firm comes to us and says, hey, we got a deal. We look at if it fits the kind of parameters that we

like for these businesses. We have the capital to invest in and what is the deal flow like now you're seeing So we had a good January, good first part of January, some of its kind of leaked over from the end of the year UM. But the forward pipeline

is slowed down, no question about it. What's helpful about direct lending is that the ratio of deals that are being done in the private credit space versus public is now foward and one in favorite private because of long term capital and the ability of folks like Churchill to commit large dollars and get deals done typical term loan from your typical deals like length. Yeah, so it's it's

basically five to seven years. Um. Now, they don't last for that long because these companies tend to get reefinancier bought. So the average you know, ten or is probably two and a half to three years. You guys are doing small and mid size. Maybe these are companies that are between you know, fifty million revenues five million revenues. That's not kk R type deal, is it? Whose sources? So

these are middle market private equity sponsors there. You know, we have two fifty that are in our stable that come to us all the time, and you know we're top one of the top lenders in the space. All right, A couple of things I want to ask about your business specifically, Um, you have a wildly popular newsletter to lead Left Left, and I feel like that could also be um and and an indicator as to the interest

in the asset. Right, So what's it looks like? Well, what's interesting is we had an M and A webinar last week. We had seven hundred registrants. You know, not quite the Bloomberg radio audience for Paul and Matt, but but basically people going online and listening to what's going on. The short story from five top middle market investment bankers who came on this webinar to talk about business is

it's a world of the haves and have nots. The haves being the companies that we talked about earlier, the defensive businesses the have nots, or the businesses that are more retail focused, higher capex and so forth. For those have not so there's no bid. If you're a seller. It's like if you you have a five dollar apartment, you want to get your five d thousand, somebody offers you four hundred. You know what, I'm gonna wait. So a lot of those sellers are waiting for the good businesses.

And you know, you have an apartment to people like it's a nice area in Manhattan, they say, you know what, I'll give you that five I don't even need financing. I can close tomorrow. You're gonna sell that business. So we're seeing the haves getting traded, the haves not have nods not And the big factor now is the wait and see that we talked about with the Fed. What's the Fed gonna do, What's gonna happen with interest rates?

And most importantly, what's gonna happen with valuations, Because for the haves, evaluations are okay, we we only have a minute. But I know one of the other questions, what's going to happen with the debt ceiling? We're gonna start talking about it every day and I'm already sick of it. I can't wait. But what do you what do you think about it? How does it impact Well, remember in UM it was a big deal. I can't believe that was twelve years ago. UM, and you know the mark

public markets, we had a real strong reaction. We lost it a letter, we lost an A from the triple A to a double A UM. And I think it feels like government has become more fraught than it was then, and so it's gonna be a Can you believe government is more dysfunctional now than it was then. So here we are and we're gonna be all hopeful that a resolution is in place. I know we have till I guess June to figure it out. So I can't wait

to listen and hear on Bloomberg Radio. All right, if I was coming out of the Chase credit program today like I did back in the day, I'd go work for these guys. I think Private Church is a place to go. Absolutely some of your resume and green sending my resume from one. I think I'm not even fifties, so I'll come over. Experience matters, Thank you, all right. Randy Scharmmer, he's cohed of Senior Lending. He's a senior

managing director Churchill Asset Management. We love talking to Randy a because he's nearby and he can come to the studio. That's a plus. But we like just talking about private credit. It's a growing asset class and it's just where a lot of funds are going. Um it's where you know, you get some of these deals in the small midsize space on the M and A side, and it's a

great capital structure these guys can put on you. We gotta get the lead left on the Bloomberg terminals where we have to Oh, that would be a good idea. Right now, you can go to lead Left dot com. But maybe we can include it in your Bloomberg subscription. Yeah, we'll take a look at that, all right. Randy Schremmer, thanks so much for joining us. Love talking about that stuff. Let's talk our c suite conversation of the day. Let's

talk online grocery shopping. We can do that with che Hwang, CEO and co founder of a box that is a New York Stock Exchange listed company the tickers b O x D. Put that into your Bloomberg Professional terminal and take a look at that. So Shae, thanks so much for joining us here. Inflation is kind of the topic of the day for all consumers. Um, and boy, I'll tell you the place I feel it the most. I think is in the supermarket, is in the grocery store.

Talk to us about how it's impacting your business. I wish I could say I was immune from it, but as a consumer, I feel it as well. And it's not just the topic of the day, but probably the topic of the year as well. Um. You know, it's been rampant throughout the industry first we had supply chain. Now we just have general inflation, uh kind of problems. But overall, it's not an easy time being a consumer in those grocery aisles, in store or online. So what

um kind of experiences boxed offering consumers? And is it just consumers? I feel like you have a B to B component as well. Yeah, absolutely so. Traditionally, um pre covid O, our business was seventy beata see B two B. So anyone who wants wholesale consumables delivered to their doorstep, whether they live out in rural areas or they they're in a city office, we can service them anywhere in the lower forty eight states. But why, what's what's the unique selling point here? I mean, do I pick a

box of stuff? Do I put all the stuff I want in my box? Um? Do you deliver it quickly? What's what separates you from other online grocers? Yeah? I think the answer is yes to everything you just said. So we've built a business on allowing folks to build a basket of these goods. So the typical consumer buys eight items and so we ship it to you generally in two days or less. Many folks get it overnight direct your doorsteps, so you don't have to lug all

this stuff all around and without a membership fee. You know. On top of that, because folks generally buy so many items at once, we can admortise that shipping price for individual items over that giant box that you get. So we actually offer pretty compelling prices compared to other online folks when you compare the unit price. And if you think about us not charging a membership so you talked to us about the membership fee aspect, what's the strategy there,

How does it compare against others membership fee? Right? Right? Right? So I just want to get a sense of kind of what's the strategy behind that and how that, you know, comparis to your competitors. Yeah, so a lot of competitors out there do charge a membership fee, uh, in order to shop, but we just decided not to do that.

I think when you look at other ways that we've been able to lower prices, whether it's getting folks to buy a lot in a single card as I just mentioned, or partnering with manufacturers in order to get some advertising on our site to subsidize those prices. Uh. You know, we've been doing a pretty good job. I think, and consumers time and time and again come to Box, whether you're a business or consumer, not only for kind of the fast shipping, the ease of use, but also pretty

sharp pricing as as well. So I've was living in Berlin for the past few years, and over there, Uh, you order online groceries, they get to you in like ten to twelve minutes. Um. Guerrillas was one of the brands. Flicker Flinker was another one. Is how come that isn't picking up here in the US? UM? I think it had quite a brief kind of flash in the pan moment. I would say probably a year ago. Um, at least here in New York where I'm standing right now. You know,

there were ads everywhere. UM. I think you know, for what it's worth. UM, it does have its place sometimes you just need something in the next ten minutes. But for the most part, I think your general bigger shops are probably taking place once a week, uh, and for the wholesale stuff maybe once every other week. UM. So I think the future really will be dominated by whoever

solves that end to end kind of experience. I I need wholesale in a week, but I need Uh, something an ingredient for my my recipe in thirty minutes, but I need my weekly shop in two hours right now. As simple as that sounds, no one has that end to end, seamless experience, and I think that's what everyone in grocery is trying to chase. So how has your business evolved during the pandemic over the last several years. Oh,

it's it's involved quite a bit. So I know, we just talked about B two B. So B two B. I mean we saw major headwinds. Uh during the depth of COVID. You can imagine we serve at small do medium sized offices, transportation companies. Um, those folks just weren't ordering UM. But we're seeing that rocket back. So UM B two B. If we're gonna talk numbers, hard numbers. Through Q three of last year, it was up a blended over fift So folks are really coming back and

ordering more UM. And also all this technology that underpins our whole business. We wrote it ourselves, whether it's the middle where the automation hardware. We then extracted it and now we began to license that technology to folks all around the world. So we've evolved quite a bit throughout that time as well. So UM one of the very successful pieces of UM grocery business are private labels, right,

UM shop Rate has bowl and basket Costco has Kirkland. UM. What do you what are you doing in in that uh? In that regard at box. Yeah, you know, I love the question because you guys have covered it so much in terms of just the inflationary environment, how it affects the consumer, how how it affects businesses. You know, one of the things that I think UM hasn't been said by by some of the previous guests that you guys have been on is actually how people behave in previous

kind of recessionary or inflationary environments. And that's folks trading up or trading down. So they generally trade down to dollar stores, hard discounters if they're looking for just a better deal on a whole dollar basket UM, or they trade up. So I'm sure you know, folks at Bloomberg Radio consume a lot of salts or water just like I do. And if that's the case, then you know, if you have the wherewithal, you're gonna buy that giant

hack instead of buying a single can every single day. Now, once you go in the store, Um, you're also going to trade up sometimes or trade down, you know, uh, depending on the price point for certain items. And a way you can trade down in terms of price but not quality is private brand and private brand everyone out there, if you haven't tried, not only us, but our others out there. This is not the generic brands of like

ten years ago. There has been billions of dollars invested into the manufacturing of these products, and their quality is actually quite good these days. So I'm looking at the f A function on the Bloomberg terminal, give me some um, and it shows me some of the forecasts out there from Wall Street here doesn't show you, guys turning EPs positive anytime soon. What's what's kind of your financial outlook? Has it released the profitability because that seems to be

what the market really wants these days. Yeah, yeah, Um. So we've been trying our best and and pulling in that profitability number. So in Q two, in our earnings call last year, we told folks, hey, we get it. Um, I think we could do a better job on fully

and profitability. We executed and as of our last earnings call. Um, just in one short quarter, we announced an eight eight percent rise uh in um uh in gross profit over a five basis point rise and gross margin on our retail business, and of course we have the software business, which is traditionally gross margin. And as we begin to recognize some of that revenue, I think you're just see that flow through the p n L. So it's just like every other technology company out there, we're really trying

to rein in profitability and costs. All right, A good stuff. Appreciate that. Cha Huang, CEO and co founder of A Box that's online retailer uh the New York Stock Change symbols b o x D. At a banner day last week they got funding I think uh ten or twenty million dollars in funding and the shares went up. Um. That was Monday. That was Monday. All right, good stuff. Not a bad day. Not a bad day. If you're a shareholder 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 three pt on Fall Sweeney I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio