Ukraine, Inflation, ETFs, and Adobe (Podcast)

I don't know Kevin, and I thought I knew everyone at BI. That's because he just recently joined. He's at twenty nine year Navy vetter. Whoa, I mean, what's up with that? Kevin? Twenty nine years? Thank you for your service. Yeah, thank you for your service. But twenty nine years, I mean, you got it. You had to be the old guy, right, Yeah. I couldn't figure out what I was gonna do when I grew up. Kevin, You're you've been in this defense game a long time in the Navy, with experience in

security strategy. You've got so much experience. When you look back on this last year in Ukraine, what are some of your key takeaways? Yeah, I tell you it's it's really sad. You know, we here, we are one year into the conflict, and this is a you know, a war of choice by by mister Putin just to satisfy his zone ego, kind of restore the borders of what he sees as the former Soviet Empire, and he's caused,

you know, untold suffering on the country of Ukraine. We're talking about one trillion dollars in potential infrastructure repairs that have to be done to the country, Over eight million refugees, primarily in Poland and Germany, five million displaced persons, you know, thousands of deaths, Yeah, hundreds of thousands of deaths on both sides, all for really a war of choice, completely unnecessary, just tragic. But my question, Kevin is who could possibly

see an end to this? I've seen, I've read so many stories over the past few days about how this war is going to end, what it's going to take for this war to end, and I just can't imagine one year into it, people are willing to write that we were in Vietnam for at least seven or eight years, right, right, we were in Afghanistan for thirteen years. Now they're different they're all different situations. But Russia was in Afghanistan for

nine years during their conflict. Why would anybody think, especially with Vladimir Putin, who acts to you know, somewhere between you know, a megalomaniac dictator and a cornered animal, why would anyone think he has any reason to get out other than total loss for him. Yeah, I think that's the difficulty here. I mean this is this is definitely

a choice by Putin to have invaded Ukraine. I think there's some difficulty associated with the US geopolitical position and that of our Western allies that we didn't really be more forceful in twenty fourteen during the annexation of Crimea.

I think that's set a precedent. Unfortunately, the precedent here that is most important, and what I think is most important for the international community, is upholding this standard that we're not going to allow countries to forcibly change borders, to force their will on others by using military force. That's an Interestion state, I think is galvanized Europe. I think it's very positive to see NATO coming together the you know, Finland and Sweden about ready to join NATO.

Turkey willing to reintertalks. That's positive. But as far as what convinces Putin to a band of this, he has to fundamentally be defeated on the battlefield first and foremost. He needs to be defeated personally. I can't imagine that he backs away from this until he's thrown out of office or dies. Yeah, I think this is going to be very difficult. If you look at mister Putin, he seems to have secured his power base. He's definitely an oligarch,

you know, he's a dictator authoritarian government. Absent some sort of popular revolt, it's going to be very difficult to remove him from power. So the only way to stop this invasion is mister Putin's internal calculation has to be that he can no longer achieve his results, and that means the West really has to provide for Ukrainians defense, and Ukraine must secure their borders and repel the Russian

from their territorial kevin Land space. What role do you think China should play, will play, could play in the netcoming year. Yeah, that's a great question. This is you know, this is a very important international political contest. We have authoritarian regimes out there revisionist powers who are wanting to use force to achieve their national will. The West, the international community has to stand up to that. When you look at China ran to a lesser extent in North Korea.

The West has to galvanize international support to punish those sort of behaviors. I think it's positive development that China has so far not provided obstensibly lethal aid, but it would be. It would be. One of the things I think we need to see is China step up to the plate and be a little bit more proactive besides just offering a piece plan, be more proactive in pushing back against Russia, both in the United Nations Security Council

and sort of internationally public diplomacy. Peace boys. Hey, Kevin, we also have Maria todayo joining us. She's Bloomberg Television. She is reporting today live from Kiev. Lets live from Kiev. Let's bring Maria in. Maria, thank you so much for joining us. Um. I know you've spent a lot of time in Kiev, in Poland on trains interacting with Ukrainians. What's the mood today one year in what is their level of resolve? Hopefully we have Maria, but sometimes she's

in war zone. Yeah, no, it doesn't sound well. First of all, your microphones off, okay, thank you. And second of all, we're we don't have Maria now. She is in the capitol and it is Fortress city, so it doesn't I don't think that we have any kind of war zone issues, but we do have your typical global telecommunications problems. Producer Eric mullis as we got her back. Maria.

You have been after I think a seventeen hour train reporting live from the capital of Ukraine, Kiev, and Paul was wondering, you know, the people that you talk to on the train, the people that you talk to in the streets, what's what's there feeling? One Ye're in yes, and listen. I have to apologize because I know the lines are dropping, but really this is also part of it, is the reality of it. And we're not even using

our real phones here pretty much for security essentially. I think, to me, what is just incredible of the story is, you know, you get on this train from Poland and then you're making your way to Ukraine, and then at one point I catch myself thinking, wow, it's one am in the morning. This train is full. You know, you're in this little carriage with four other people, and then it just hits you. You know, we're all women here. And then at that point you ask why are you

going there to this women? And then what's your situation? And then they tell you, well, I'm either going to see a relative where I'm going back to my husband, or I had to come to Poland because there is no visa process in Ukraine. And that's when it really hid to the men cannot leave. It's the women that are going in and out to their country. A lot of these world husbands are fighting or they expect that they will be called to some extent to fight this year,

particularly in the spring. And then you get to Ukraine and the reality hit too. You see the first man actually that you interact for many hours, or all dressed in military year. They ask for your papers for passports, they let you in, and then of course from that point on you start to see the scenery. As you enter kivs Bucha. We don't know the massacre that happened there. Then you go into Rapine, which is just outside and there was active fighting there, and that's when you really

realize the Russians were just so close to Kiev. Then you see the airports that they had to blow up. Remember the initial plan from the Russians was to take hold of the airports and helicopter people from Belarus into Ukraine. And that's the reality of the war. I think yesterday for us on PubL the reality check. You see it firsthand, and you're on this train and the train next to you it's ready to send the weapons. And this is a train that's really next to you as you're making

your way into Ukraine for seventeen hours. The airspace obviously shut now for a year because of the missile strikes. I think for today we heard already from Pricedent Lanski, who was given out medals in the morning, to the army again repeating the reason why we'll starts standing a year later is because of our army and they have beat in blood. So that I'm here, Slanski's here, is the press that we're all here reporting this. It's because of the huge fight that the army has put up

with a lot of weapons from the West. Sure, but the reality is the soldiers that are dying there. And the one thing that also really caught my eyes when you look at Ukrainian TV the way they present this is not the one year mark. It's not the one year anniversary. What they say is one year now to victory. All right, Maria Today, reporting live from Kiev. I know you spoke with the mayor this morning, Vitali Klitschko, So I want to talk to you about that later. We

can get you back on the program. And then Kevin Brand he is Defense Policy and Bloomberg Intelligence, We're going to get you back as well, because this is obviously such an important issue geo politically, and we definitely want to get all caught up on the one year anniversary of this tragic war. How do we keep supplying Ukraine? It seems like they're just going through munitions as you

would expect. Do we and the West have the capability to continue to replenish their bullets and shells and tanks and all that kind of stuff. Well, I think for the short term absolutely, you know, we really don't have

a choice in this matter. It's sort of an existential threat to Ukraine, and really the only thing that's bolstering their defense forces is the Western weapons that are flowing in, including some of the former Soviet Bloc countries that still have some Eastern former Soviet sort of slide weapons that we're able to do to kind of keep them in

the game. But that's the critical thing as we look forward at this, you know, barring a return of the Russian advance or that if they're able to get better and moved into territory, what we really have to prepare for is the Ukrainian counter offensive, which is probably going to kick off later to spring, and so the importance of getting those arms and weapons into Ukraine and get them trained up ready to use them before that spring offensive kicks off is kind of the number one problem

right now. I imagine that the US military just has amazing capabilities in terms of supply chain management, and we have the tools to get everything there right I mean, we have more aircraft carriers and anybody else than everybody else in the world combined, I believe. So is that what's happening right now? Are we utilizing the Army and the Navy to get them the gear that they need as quickly as possible. Well, I think you've got a

combination of a couple things. So we're energizing the contractor base. There's lots of security assistance dollars that are on contract right now to get industry to ramp up production both

to resupply the US arsenal. Plus we'll also have the ability to move weapons from the US arsenal these presidential drawdowns that you've heard about, and move actually US weapons stocks in through the supply chain and get those two Ukraine, not to mention what's already the NATO countries are providing, So there's enough arms and ammunitions to keep Ukraine's supply, but we are starting to dip down into US and

NATO inventories. How concerned are you, Kevin about I mean, this is clearly a well in some ways, it's a proxy war between Russia and NATO. Right, How concerned are you that that escalates into a hot war because I feel like we've been watching China, but it looks like this could be an an active threat that happens even

even sooner. No, this is serious concern. I think everyone is watching that closely, and there's always a risk of escalation when you get in and Russia has been clearly signaling that they're unhappy with what the West is doing. But you know, I think the West has made its position clear. This is about the defense of Ukraine. This is about Russia's unprovoked aggression against Ukraine, the violation of territory borders, and this is what the international community stands

up for. Right non interference in the international affairs of others, no forceful movement of borders by use of military force. And so these are core international principles that are at stake here, and the West really does need to step up, Kevin, I guess in terms of stepping up, the next big, big leap would be providing air cover, air force jets F sixteens. What are the pros and cons that you think our leaders are weighing right now, and how do

you think that's what we'll play out? Well, I think you hit the nail on the head earlier. There's always a risk of escalation. You know, what sort of weapon systems do we bring? What is Russer's response to that? I think we've had sort of an incremental approach to this, increasing arms, longer range, arms, more lethal aid. I think

air support is next. When you think about a Ukrainian offensive that's upcoming, you really have to have a combination of infantry supported by armor, artillery and air support, not just unmanned airs and sort of reconnaissance because golos you need to have tact fighters that can provide close air support to those troops. So I think it's inevitable. The question is just a matter of time before the West commits to that. Do we always have to pre announce

this stuff? Is that a part of, you know, avoiding escalation? We say we're going to do it, we float that balloon, and then we eventually do. Or is it possible that we give them give the Ukrainians fighter jets to use in the offensive without telling anybody and upping the element of surprise. It's possible, But you know, these sort of deliberations are so complex. Inside the National Security Council, they're weighing the pros and cons are looking at the risk

of escalation. It's very, very hard to hide these moves. So even if we didn't announce them publicly, which I think would be a mistake, but even if we didn't, Russia would clearly know that we're doing it. The information

would get out. So I think it's really the deliberate process by which the NSC and the White House, the Administration needs to go through, work with our NATO partners, and then term of what the best air assets to provide are from an intelligence perspective, Kevin, how do you what do you believe or how good do you think our capabilities are in that part of the world. And

are we providing intelligence support for the Ukrainians? Absolutely, I think that's one of the key things that we're actually providing the Ukrainians besides the arms in Western is that intelligence support. I mean, they clearly know the adversary better

than any of us. They're on the ground, they're there, But the non technical means that we have the satellite sort of surveillance, the overflight capability that we have the UAVs, we are providing pretty critical intelligence that helps them tactically and operationally make decisions on the ground as to where they need to defend, where Russia is massing troops, where they need to reallocate resources. And I think that's absolutely

critical to Ukraine's defense. You got your master's National Security policy from the National War College US Naval War College. How much did they talk about China then and how much of a threat do you think China is now? Because I know an Air Force general recently said we could have war with them in twenty twenty five. Absolutely, so China, China and Russia. I mean China to the most part has been sort of the premiere up and coming long term strategic competitor for the United States least

going back fifteen twenty years in military parlance. The national security establishment really focused on that more recently in the last ten years. But absolutely that's the up and coming challenge that we've got from a great power competition perspective. Hey, Kevin, we're fortune once again have Maria todayo joining us live from Kiev, so we want to go to her. Maria, thanks so much for you know, dialing, and we know it's hectic there. I believe you recently sat down with

the mayor of Fatal. Yeah, the mayor of Kiev. Could you tell us just gives a little color about what you learn from your discussion. Yeah, and he was here this morning with us a clitch car. Obviously, you know

the two others. At this point, they've become something of a popular icon here and they have been also in a number of European countries because they speak for German, and they have it pretty smart in fact, to reach out to Germany and speak in Germany and reach out to the German media because they knew that a lot of the weapons, the key to unlock the heavy weapons

would be in Berlin. Which also speaks to the fact that when you look overall at the Ukrainian government and Zelenski's doing this in real time, he was doing a

press conference a lot of international media. When you look at the foreign minister who's speaking today at the United Nations, it's almost this new generation of Ukrainian politicians who get very well that they need to have a big media presence and that they need to gather message across and this was something that for Zelenski was obvious for day one. If they wanted to really survive, they needed to make

this a global story. And it has been now for a year now we are seeing pictures presences like the cell the cell phone call has dropped, and as Maria told us, you know, she and U producer Oliver Krook traveled into Ukraine. They had to uh leave their actual you know, personal cell phones and business cell phones at the border, so they took in m communication devices that are not necessarily reliable. Hopefully we can get her back.

But she was talking about the importance of you know, the clich goes have have been huge Kevin in in building support as well as obviously Zelenski. Do you think that that support still is the popular support still um as big as it was when this war started a year ago? Has it waned at all? No? You know, it's always difficult to tell, and that's always a risk that you lose popular support and backing and that you know, the implications go with that in a democratic uh, you know,

environment is difficult in order to maintain support. But I would say, actually, what we've seen as a strengthening the uniting of NATO and the uniting of Europe behind this and behind the international principles involved. So I actually look at this as a very positive sort of step forward. And Kevin, realistically, what do other NATO countries, what can they provide? What are they providing? How much can we as a you know, really depend upon them for real material? Yeah?

So I think there's two things. There's one, there's the international support, the aligning of NATO sort of the getting back to basics as to what the alliance is for, and that's absolutely critical. The second thing is this stepping up in the defense budgets the nations across the NATO are coming back to their two percent pledges. They're plussing up their defense budgets. That's great for the Alliance. The third thing, though, to your point directly, is they have

tons of arms and ammunition available, especially small arms. That is critical for the infantry sup fight infantry fight. They have the ability to provide non technical means. They have the ability to provide logistic support. They have the ability to provide humanitarian support. All that comes together, I think and provides a very important backing for Ukraine. All Right, we have Maria today, O back. I believe Maria, if you're there, talk to us about the push for fighter jets.

I know that Ukraine has been not only behind obviously publicly, but also behind the scenes on a daily basis trying to get air support. Yeah. Absolutely. And you know, Matt, when you listen to the Ukrainian FOREM Minister at the Midriku level, who's just before the United Nations, he says, Ukraine when this board started had a checklist almost of the seven things that they needed, the seven type of weapons that they needed, and he says, at this point

we've crossed six. The red lines have been crossed repeatedly. Remember there was major fear of tanks. And funnily enough, they're now making their way from Poland into Ukraine. And it's funny. When I was on the train, see that in the train to Poland to Ukraine, there's another lane, huge lane where all of this equipment is just crossing the border. And that's when it really hits you that this is real and these weapons are massive. They're enormous.

Seeing the one thing they need is alluded to is the fighter jets. This is still an open debate and Ukrainians will say the rational for this is that they want to make a big push to get back essentially the twenty percent around the country that Russia right now controls and the east and going down to the south. And to do that, they argue, you need to have a position from the ear that allows your soldiers to move in freely and obviously with less of confrontation with

trips on the ground. And they also say the long range missiles also do that. They provide cover and support two soldiers that are on the ground. It's very difficult to make inroads if you don't have the backup from aviation and the long range missiles this is an ongoing story, but they continue to push for it. And if you look at the track record, you know, Matt I would not be surprised if they get them again. They had

seven things they wanted, they have six for the time being. Hey, Maria, can you give us the latest what you're hearing from government officials about casualties, casualty rates, expectations. Kind of because we're again one year into this. Look, this is the biggest secret and you understand why for Ukrainians to put out a number of dead soldiers, to put out a total number of population that here we all know the number is probably great and it is a big number.

And this is the secrecy that goes on in every war in US is Ukraine, in any war, the act of government will do everything that I can to make sure that those numbers be precisive for that effective moral. Understandably, we've lost Maria yet again. So it's just kind of what we've become accustomed to in Kiev because communications there

are very tenuous at best. Um, Kevin, as we just heard from Maria, you know, the the you know, the the push is to get some aircraft in there, so um, you know, we'll have to see how that plays out. But we just want to thank Kevin Brand, defense policy annalyst for Bloomberg Intelligence, joining us on the phone from marsh in DC and Maria TODAYO on the ground in Kiev was some on the ground reporting. We appreciate both there and again, Matt, this one year anniversary of the

invasion by Russia of Ukraine. Yeah, and it's interesting to also hear from Maria not only about travel into Kiev and the mood on the ground there, but about the push for more weaponry and the armor that she sees rolling in, and to hear from Kevin as well about the counter offensive that we expect to come in the not too distant future. That's what the armors rolling in

there for. And I guess the question now is how much damage they can do and how quickly they can do it in order to hurt the Russian offensive and to hurt Russian morale. But the market is certainly saying, all right, this inflation is here. It's a little bit hotter than we thought. That means fed's going to be potentially higher for longer, and that's kind of what we're seeing in the market here. The snp off one points percent the two year treasury again, we've touched four point

eight two percent. We're now at four point seven nine percent on the two year. Let's bring in somebody who does this stuff for a living. Alex Schalloff, cohead of investment Strategies at Bernstein Private Wealth Management. Alex, thanks so much for joining us here. God, we've looked back on twenty twenty two. It was ugly. I don't care where you are. Equities, fixed income, tough time, tough time to make money. Here we are in twenty twenty three, started

off a little bit pretty darn good in January. What are you telling your clients these days? I think, good morning, guys. I think we're probably a little bit ahead of ourselves with where we were in January, and I think people can acknowledge that it seemed as though nothing had changed from twelve thirty one through one thirty one, and in the month we had outstanding returns in stocks and bonds.

So our clients were scratching their heads, just like we were, saying, this doesn't feel right, and we're probably a little bit ahead of ourselves. The good news is, like you said in twenty twenty two, it's really hard to make money in stocks and bonds. But when you moved outside of traditional markets, there was a lot of opportunity and frankly, a lot of money to be made. So where and is that still a good trade? Yeah? The alternative space

is still a trade. And when we say alternatives, we think about real estate, we think about private equity, private lending. Even hedge funds made money last year. So even hedge funds made money. I love it. Even Head even those guys made money. Remember when they were the masters of the universe. Yea, listen, it's weird. I'm in Los Angeles. I got a blizzard warning this morning, so the world

is not normal. We just have to acknowledge that. But look, you could make if you were able to take some illiquidity on, you could make a lot more money than was available in the public markets. And that continues today. When I see markets read today, what that says is there's a lot of anxiety out there. There's uncertainty, and when people want their money every single moment of the day and you're willing to say, you know what, I don't need it tomorrow or next week or even next month. Yeah,

there's an interesting trade there. So where do we go here. I mean, you know, the sixty forty portfolio did not work last year. So you talk your clients, are you are you heavier in risk assets? Here are you saying, hey boy, we can actually make some money in the fist income space. You can park your money into your paper and get four point eight percent. Where are you kind of pushing people these days? Are leading them? Well, it comes back to this idea of alternative investments, of

having things outside of traditional stocks and bonds. So again, private equity, private debt a big part of our solution and it's worked. But if somebody says, look, I am looking for that traditional portfolio. I need access to my to liquidity for spending, there's an interesting opportunity that exists today in municipal bonds for sure. You know you talked about treasuries generating more yield. I would look because most

to our clients are at the highest marginal bracket. They want that tax free income, and in exists today immunis. We saw a nice move in January, giving them some back this month. But again that's normal. And if all you're concerned about is cash flow in the yield, it's juicy today. So Alex in terms of the alternatives, again, how out there on the risk premium do you get. Are you out there buying timber for your clients or is it more private equity hedge fund type stuff. You

could do both. I mean, I think right down the middle of the fairway core type of cash flow centric real estate is interesting. We're about to see a significant shake up in the commercial real estate market given what's gone on in rates and just having some dry powder there to take advantage of it. I don't think you need to do anything exotic or special to win there.

I think in private equity it's really you know, we've done a good job of staying out of venture just because we felt like it was frothy the last couple of years. Now it's interesting prices have started to correct there, and so I think, you look, you don't need to overreach to win in the private markets today. There's a lot of opportunity in terms of what you expect from on the inflation front, what you expect from the Fed. We got it hotter than expected PCE core deflator this

morning year over year four point seven percent. We were looking for four point three percent, and that's up from the four point six percent we had last month. That's even up from the revised up from the four point four percent. Anyway, it just looks like inflation is not cooling down at the rate that this market expected. What does that mean the Fed has to do well. I think everyone's been saying this morning, it's higher for longer.

I don't think that's a surprise. Really. What's interesting is the narrative change from hard landing versus soft landing to now potentially no landing. I think, on the positive side, this is an economy that's moving. You know, you can't get a restaurant reservation, you can't get a hotel reservation, you can't get a concert ticket. You know, you can't get an ev there's a there's still is a massive

amount of demand. You can't get a Dodge Challenger, Hellcat, Red Eye, right, go old school, that's right, each wealth. But look that the point is people are spending, and you know, we can sit around in a restaurant waiting for a table and say, wow, this is a real recession here. I can't get a table for you know, it's gonna take me seven weeks, and I can get a table at nine thirty on a Monday night. I mean,

people are really spending. So I don't think it's reasonable for any of us to expect that inflation levels are going to come down in the near future, but they're going to trend lower over time. And look, the real question. I know people within bursting or asking this, And a colleague was on the counterpart on television this morning, just talking about this idea that while it doesn't look like it's going to bend today, it will bend in the future.

And so it's maybe it's not the first half of the year, and maybe it's Q three and Q four frankly where we start to see some relief. But as long as the economy is steaming as it is, then we can get through here again with a no landing scenario. It's a it's a new idea. So do we do the economics team at Bernstein, have they taken the recession

risk kind of off the table? No? No, no, Actually they're in our base case, which is fifty percent of the outcomes that we see in our forecast, we've got a mild recession, and then our bear case, another twenty five percent likelihood is more moderate recession. So I'd actually say this is new. This is new. Our our forecast still calls base case that will be in a mild recession.

But it'll be one of those recessions where you really don't know if you're in or if you're out, And then a year later they'll come back and say, oh, remember Q four twenty two and Q one twenty three. Yeah, guys, we actually were in recession. So it's it's not going to feel like a normal recession. It's gonna be one of the weirdest recessions will be in. But no, the

base case is still a mild recession. Alex got a question from a listener writing in, and I hope you're not friends with anybody on the f OMC because that could taint your answer. So do you feel like the FED has the guts to surprise the market with an intermeding hike or MBS sales or will the market front run the FED in perpetuity? Wow, I think all of us have learned a lesson around FED guessing we're all hoping that cherre Powell doesn't have the will to crush

the US economy and that they do break early. But but the MBS side is interesting. But we've had the reduction and balance sheet going on in the background. Two years ago, that was a huge deal. Everyone was saying, when is it going to happen, How is it going to happen? And quietly it has been happening, and that's

something that's been lost. But if I were to answer the question directly, because that's what we try to do answer questions, I would say, I think the FED is We think the FED is likely to pause before inflation certainly gets to that two percent long run number. Alex, you mentioned you're in Los Angeles. There weather issues aside, and I did see some video of some snow by

the Hollywood sign, which I've never seen before. What's the feeling in the LA market are in terms of the economy, in terms of the outlook that that type of thing. It is much like the rest of the country. It's it's the economy is working. The parking garage and the office buildings are full. People are coming back to the office. There are not as many cranes as there are in Miami, but there's a lot of construction activity. New home sales continue to be tight. There's not a lot of inventory.

Some of it's related to California in the PROP thirteen. But frankly, you know, there's so much home equity today that didn't exist in prior periods pre recession in the past, that the housing market is quite strong again on that lack of inventory. So, you know, California, there's been lots and lots of calls for it to be over, the story to be over, the people leaving because of taxes, you know, again back to restaurant reservations. I wish people

would leave. It's moving, all right. Alex kuran On, get out of here, Get out of Austin, Texas. Alex Chalaf, Co, head of Investment Strategies at Bernstein Private Wealth Management. We have a killer panel in here in the Bloomberg Interactive Broker studio. Listeners may know that I have with Katie Greifeld and Eric Palcunas an ETF program. Wait, what day do we do that? We do that on Mondays, sometimes on Wednesdays. That's right, Mondays and Wednesdays, sometimes even Thursdays.

I think it's happened in the past. But anyway, one PM in the afternoon and one of my favorite guests just joined me and Katie in the studio, Joanna Glegis joins Us. She's a co founder of bond Blocks, one of I think the really innovative ETF providers that I guess appeared out of the blue last year. Not out of the blue, right, Joanna, because you've had experienced a

couple of the biggest ECF firms in the world. But all right, so let's talk first of all about what you're seeing in the flows and you focus your products. You have nineteen ETFs focused really on the fixed income world and nobody else does that, and then you cut them into different slices so you can see what's happening in high yield, what's happening and ig What are you

seeing right now? Yeah, so I think, as you would imagine, we're seeing a lot of flow and interest on the shorter end of the curve, especially in treasuries, so that and also in short credit funds are taking on flow just in the last few weeks. But it's kind of depends on what week you're talking about, because in the beginning of the year, maybe if you looked back ninety days, you saw a big risk SCNE trade in high yield, and so some of that we saw some coming off

last week. I think the markets are just trying to absorb and ETFs are always are great poor to call to see where people are moving around in their risk. But we see, you know, mostly you're seeing things coming in on the shorter end and on the you know, less risky side. What's going to happen next week? Do

you think if it is a week by week. I mean, it feels like just in the last few hours we had so many hawkish data points, hawkish noises coming from FED members, etc. Yeah, I mean, I will pull out my crystal ball and tell you right now exactly what's going to happen next week. But we tend to focus

on structurally what's going on in fixed income. And that's why bomb Blocks was launched, is because we felt like these markets, these modern markets are going to be so different from the last ten years, in the last couple decades and going forward. When we think about next week, this week, the beginning of January, we're just thinking about exposures for clients, and so it's it's not something we

try to make a call on. We try to give people, you know, exposures into credit and exposures onto onto treasuries for them to play duration credit risk. And I don't think that. In talking to clients, you know, everybody's looking to make a call for the bottom or a call for this week or next week. It's just been too hard to predictives and too volatile for people to It

really has been at the short end. I look at X one has the X one and x HL I have the biggest flows right, which is YEP year to date, which is what one year duration is six month duration YEP, so one year duration and six months duration. They're precise duration tools, and I think that that's been really resonating

with clients in this market. And since it looks like the FED and we just were looking at some data that like the market is now pricing in more rate hikes than the FED is until we hear more from them. But like going forward, clients have looked at the shorter end but also wanting to manage and control their duration exposures very precisely. Duration has been your highest inflow products really, I mean it's way above and beyond triple C or

high yield. If I look at the top five in terms of your to date flows, it's one, six months, two years, five years, seven years. So investors are really using the duration products are really using in duration products, and they're going on different points of the curve, which we find really interesting, and they're able to reflect their

views across the products set. But you know, it's just this simple notion that, like it is not twenty twenty two interest rates moved four hundred and twenty five basis points last year. The curve has moved. There's so much you can do, at least in the treasury market right now, and people are taking advantage of it. We launched these in September and they immediately start to resonate with clients. So obviously the duration products really a hit. You have

nineteen funds and it's really interesting. It covers a broad swath of fixed income markets. It's not just treasuries. You have an emerging markets fund which has done really well. Then you have the rating specific and the sector specific funds over the past year. Because you've been in business for about a year now, are there any funds any areas that have struggled in ways you didn't expect why?

I think all the volatilility last year and the correlation between equities and fixed income was just really hard for everyone to absorb the first half of the year, you know, we saw a lot of de risking, and then towards the fourth quarter, we saw people and our clients talking about getting back into credit, and so, you know, everywhere

was hard last year. What's so interesting this year is that one thing we heard consistently last year is I'm waiting for a certain spread in credit to happen before I come back in and it didn't materialize at you know, levels of distress that people were expecting. So you know, think about like GFC and other times in the pandemic. You know, you're you're going to upwards of a thousand basis points if spread in high yield or other areas

in credit, and that didn't materialize. We're still like hovering around five five hundred basis points. And so we found it's interesting that clients have sort of had to realize that calling the bottom here or waiting for that distress, that that's starting to lessen and alleviate in their in

their opinion. So for twenty twenty three, I mean, granted the last few weeks had sort of extended the concern, we're sort of we have more information that maybe the deeper session and the fundamentals of companies are stronger than we think and there's a lot of resilience. So that's one thing we think didn't go the way we thought it would last year, where clients were looking for a much deeper distress levels than appeared. Paul, she has a crystal ball out. You can ask her anything you want.

I want to ask her, is are you seeing flows into high yield? Because the reason I ask is, you know the recession call. It seems to be still out there, but maybe not as strong as it was a few months ago. Maybe it all depends on what the Fed does, right, because even if we like we just talked to Alex shall Off and he says, you know what, you can't get a dinner reservation until seven weeks out, nine thirty on a Monday. There's no way you're getting an EV

without paying a premium. And I can't even get my Dodge Challenger. So this economy is hot, but that just means the Fed has to keep raising rates and hold higher for longer. So would you be calling for the eventual recession. I've just been listening to it for the most part, Pala says. But the eventual recession could hit harder, could hit harder. So I mean, does that mean you're not seeing people wanting to get into these high yield

funds that you have. Yeah, so I think that there's there are certain trades where we're seeing risks come back into portfolios. I think what we will see is that people will build their high yield portfolios and their cutit portfolios differently than they have in the past. Maybe they don't go as broad they general high yeld index or a high old ETF has ten eleven percent of triple C maybe you want to be more precise there. But we like to also focus on the industry sectors in

high old because they're very different. There's a thousand basis points of difference in the highest performance sector last year and the worst performance sector last year. That was energy and healthcare. And today, you know, we think when we can be really positive construction constructive on industries that have cash flow now and are less focused on growth than having cash flow now. So that's energy, industrials, financials, and so we just you shouldn't look fixed income as a

big swath. You should be looking for opportunities introsectors of fixed income, and then obviously in credit look into industry sectors ratings. There's lots of opportunity and differentiation, good stuff. We could talk ETFs. That's why you guys have a show about etips because you could just go into this topic. Well currently thirty minutes currently TVD. I'm looking at a little bit of expansion. Are you looking at an expansion?

All right? Well, if you're looking for it, Johanna Gaylagos, Uh, Diegos, I'm sorry, co founder Joins is it? How do your parents say it? Diegos? Yeah, I'm going, oh, okay, that's good. I like that Spanish. Yeah. Katie Greifeld, that's easy. I've been down with that for a long time. No problems there, joining us talking about ETF's great stuff. Bond blocks is the company, join us a co founder there, we'll talk tech talk, MNA have the regulators. They're coming down on

some of these big deals. It's tough to get some of these deals done. So we want to bring in gen Rye. She covers all anti trust stuff for Bloomberg Intelligence. Is the expert here, and I want to talk about some of these bigger deals. Adobe Figma that's a twenty billion dollar deal. We've got Microsoft and Activision. So Jen talk to us about how the regulators, the DJ the Federal Trade Commission, how are they looking at big tech deals?

Can you get a deal done today? You know it's going to be a really rough year, I think for tech and other industries too, but right the focus is tech. I think the regulators today are trying to make up for lost time. I think they believe they allowed far too many transactions in the last ten years or so to clear through, either all the way through or with some sort of a divestment to settle the case, and that what's happened is we've created these giant companies with

just too much power and too much dominance today. So you know, they're trying to make up for lost time. They're looking at these deals really carefully. They're going to be more interventionist, they're less likely to settle, and they're a lot more likely to challenge deals even if they have a hard roading chord. I mean, it seems like they can regulators can stop deals, but I wonder if

they had the power that they once did. If I'm correct, the last big breakup we saw was mob Bell and I mean we were kids then, right, So eighty four have they done anything like that since because they seem to have designs on Google in that right, in that sense absolutely so they almost did with Microsoft, that would have been them next occasion, right, that was in the

nineteen nineties early two thousand. They actually did get a lower court order for Microsoft to break itself apart, but then the appellate court reversed some things, put question on that remedy and it settled, ultimately settled, and that didn't happen. So that was the last time they came close. I think the DOJ right now is really gunning for Google.

You know, they have two lawsuits there maybe another there actually could be two others that come from the DOJ, and I think they're really gunning for some sort of an order that businesses are broken off. It doesn't mean they're going to win that, You're right, It's really hard to win something like that in court. It's a drastic remedy, and sometimes there are less drastic remedies that can fix

the problem. Was it very different back then? You I mean knowing that we were, you know, all playing you know, four square kickball time. Was it a different environment where government had more power than giant corporations because it seems like now the opposite is true. I think the treatment of antitrust laws changed over the years. Right. Earlier in time, antitrust was more interventionist. The way the judges would interpret the law when cases were brought by private parties or

by the government was less business friendly. But then doctrine

developed over time by economists. It's sort of called the Chicago school because a lot of the thought came from the University of Chicago that we needed to look at efficiencies a little bit differently, and that sometimes deals can be pro competitive and efficient because of what they do for those companies and products that could be brought to market, more innovation, things like that, And judges started to adopt that kind of philosophy and became much more business friendly.

So over time it became harder in court to try to prove that there's actually anti competitive harm being caused either by a company acting on its own or by

a merger. All right, So to excid that we have a higher degree of antitrust scrutiny here is that a function of the administration in the White House such that in two years time, if we get a Republican administration, it'll just go the other way again, absolutely, and we absolutely have a push by this administration to do something about the economy, and part of that something is to

bolster antitrust enforcement. It could change, absolutely, but I will say this that there is a lot of bipartisan interest in sort of curbing the power of some of the dominant big tech platforms. So it's not necessarily a given that if with the next administration as a Republican one in the anti trust leadership flips to Republicans, that this

push won't continue, at least to some extent. How much does I mean, I'm a cynic when it comes to so I sort of have the view that these companies fund all of the congressmen and senators campaigns, and as a result, they have these politicians in their pockets. You know, I think that there's quite a bit of truth to

that statement. I happen to be a cynic also, But you know, there was a lot of momentum for some new laws, antitrust laws that would have targeted and regulated big tech platforms, and there was a lot of lobbying money put in by some big companies against that, and nothing happened. When a lot of people thought something would happen last year. It's interesting that they're so. You know, lately there's been a lot of talk about what are these old Supreme Court justices know about tech? And I

think that's pretty fascinating. But it's interesting that they would go after Microsoft for activision, Like, what are these old judges or old regulators know about video games? Why do they care about Call of Duty? I know it's a big number, right, but who cares if somebody has all the video games? It's funny you should say that. I spoke on a panel about this, and none of the panelists had ever played Call of Duty, so we thought,

maybe we're not the best. You know, isn't there a great story by the way of a couple of justices I think Briar was one and Elena Kayden playing Call of Duty. They had someone set up the video game and bring it down to their quarters. I think Briar said it was disgusting and he couldn't believe anybody liked it,

and Kayden was like, I want to play more. Right. Well, you know, the thing is that the agencies are really focused on certain kinds of mergers right now, and one of them is called vertical right, and Microsoft represents that it's where the two companies don't necessarily compete, but they have a relationship in this supply chain. Right, So Microsoft has consoles, they're sort of a distributor, so to speak, of these video games, and Activision makes the games, and

that is a vertical deal. So it's one of the focuses of the agencies right now. And I think this was a case where they thought this is a good one for us to sort of exercise that kind of theory of harm. Well, you know, one of the ones that's you're dear to my heart that I couldn't believe got approved is Live Nation and Ticketmaster. I mean, you take the biggest concert promoter in the world, right and you put it together the largest ticketing organization in the world.

And now, you know, people were saying, I even heard President Biden talking about it. You know, I'm going to do something to take care of those fees. Somebody has to do something. Somebody. Let me tell you something a little inside baseball, right Paul worked on that deal, and he and the bankers that were on it said, just you know, we were surprised that it got We were

surprised that it got approved. So well, you know, as an X former anti trust lawyer, when we saw the banker's documents sometimes it really caused us to shake our head because the banker documents can cause a lot of trouble, yeah, when you're trying to defend a deal. But that kind of those are the issue. I mean, if you could argue they should be broken up, right, but there's nobody really thinks they're going to be broken up because again,

it's so hard. Now, this is a perfect example of what I was talking about at the beginning of this segment. This is part of the regret. You know, that is one of the deals that likely the DJ today regrets that it allowed to go through even with the consent agreement. And I believe they're still investigating today and they very well could bring a lawsuit to try to break it up. But you know, they're facing a judge who knows what judge that they're going to go in front. And it

is a difficult path to do something like that. It's the DJ or the FTC the harder one to deal with. Interesting, right now, I think they're really aligned. Okay, at one point I would have said FTC, but I think now they're really aligned. They're doing things the same way. They're equally as aggressive. Right now, Okay, great stuff. Here's Matt. Here's another great thing about Bloomberg Intelligence. We have world

class analys to cover litigation. And so when you got a big deal and you're worried and you're you're invested in Microsoft and you really want to know this deal is going to go through, don't talk about financial analysts like me want I know, you go to Jen Rie and she's the expert. And Bloomberg Intelligence had the foresight to make sure that we had these kinds of experts available for our clients. 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