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Another piece of data that came out tore that got my attention.
Thirty year fixed mortgage dropping down to six point four to four percent, the lowis since twenty twenty three.
What does that mean for real estate? What does it mean for the mortgage market? What does it mean for mortage backer securities?
Fortunately, we have an expert that does that kind of stuff here, Erica Aidelberg, Chief Morket Market Little, chief mortgage backed security strategist for Bloomberg Intelligence. She joins us here in our Bloomberg Interactive Brokers studio. So, Erica, We've got it. Seems like everybody's paying.
Attention to fed chair Pal, who's very clear. On Friday, richi'l coming down.
We're even singing in the mortgage market in terms of what you have to pay for thirty year mortgage?
What's that, dude? The mortgage backed securities.
Market, what's that? Do so it's very interesting.
As you said, the data came out today and one of the other telling parts of the data that comes out not only does the Mortgage Banker Association tell you what the mortgage rate is that you know people are taking out right now, but they also tell you about what type of mortgage loan demand they're seeing. There's the loan application indices, and at this point we are seeing.
Refinancings pick up.
They actually picked up earlier this month to the highest in two years. Still very low historically because there's not that many people with higher rate mortgages, but it's barely moving the needle for mortgage purchase loan demand, which is very telling. It means the housing market is still pretty much stuck at these levels. Whether you know it depends on who you talk to. Some people think that home buyers are just being patient. They think rates will fall
given the Defense going to cut interest rates. They may be sorry that home prices go up and it may not get easier for them. The other question is maybe it's really still a bailability issue because mortgage I'm sorry, home inventories are they're for your.
Highs and listenings have picked up but still low.
Again by historical standard, especially relative to the number of households out there. But I think it really comes down to still an affordability challenge for people who want to take out mortgages. You know, there's still barely fifty percent of barers who can really afford to take out a mortgage at this level relative to the median sized home because home prices again have just continued to go up with limited inventory.
Yeah.
Well, it's fascinating to me to think about, you know, your average consumer who's contemplating a home purchase, especially those first time buyers, how educated they really are on sort of the link between FED policy and mortgage rates. I mean, do you think that general public has become aware enough to know that maybe if I wait six months, I'll get a lower rate than if I go today.
I mean maybe if you're really in the home for a mortgage, and maybe if you're paying tention to the
USA Today headlines. But ya, six and a half six forty four is still quite expensive historically, and a lot of people who do know anything about mortgage rates is like, oh, well, my friend has a four percent mortgage rate, So I don't know if you know mortgage rates above six and a half percent is going to trigger much and especially if you're an existing home owner with a mortgage rate in the three percent range, you know, then you know it's still pretty inhibiting to think about a new home.
So I'm looking, so I'm looking at the end go function to Bloomberg Index browser. I see the Bloomberg Mortgage Backed Security Index up three.
Point seventy nine percent this year. Where do we go from here? Do you think? I mean, what's the call out there? We talk to your clients.
Well, getting back to the FED question in a way, because mortgage durations, their sensitivity to interest rates is actually based more on the longer part of the curve. We've had a pretty good rally in ten year rates, for instance, and that's really a lot of We've had a little spread tightening, but that's really what's driven a lot of
the turns for the mortgage backed Security Index. The problem is the FED doesn't control the longer end of the mortgage market, and they don't control the longer end of the interest rate market, and longer end rates tend to price in what they see going forward. Okay, so they're already pricing in a lot of the FED cuts the forward rate curve, which you know tells you kind of what market expectations are, only have longer rates falling by another ten to fifty by the end of the year,
so you know, good for mortgage returns. And one of the things that I wrote about today actually is the fact that to the extent that the yield cver is uninverting and it's getting cheaper for banks to hold their funding and buy, mortgage backed securities are more attractive. We're saying banks begin to come back into the mortgage backed
securities market and they're a key less economic buyer. So when they do that, mortgage spreads have more rooms to tighten, and that could add to mortgage returns between here and your end if that trend continues.
Yeah, I wanted to ask you about that. I noticed in one of your recent notes you pointed that out that banks MBI holdings happen rising. So that's not a sign of less demand from investors. That's more of the banks are actively holding more of these securities.
Yeah.
Banks like mortgages for a couple of reasons, and they haven't liked them very much in the past two years. They like mortgages because they have a good margin versus their deposits, for instance, that they're paying out on not so true in an inverted yield curve.
And they like them, especially when they think.
Making loans might be a little bit riskier. You know, they kind of weigh that variability between outright loans, whether it's commercial or residential loans, and mortgage backed securities. And it's also possible that with banks worried about it, but of a slowdown in the economy, that they may actually think mortgage backed securities, which are guaranteed principal and interest from Fanny and Freddie or Jinny, that those are safer bet right now than loans.
All right, Erica, thank you so much for joining us.
Erica Adelberg, she's chief mortgage back security strategist for Bloomberg Intelligence. Joining us live here on a Bloomberg Interactive broker studio, the news and in the more Burg's business today, as we have the thirty year fixed mortgage dropping to six point four to four percent, that is a lowest since twenty twenty three, so in anticipation of I guess the
FED lowering rates. So we got some confirmation of that trend on Friday out of Jackson Hole when FED Chairman J Powell was pretty clear that that was the intention of the Federal Reserve, perhaps starting as soon as the September meeting. So we're seeing some movement there in the morge backed securities market.
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I guess it's all in Nvidia all day today because we have ed Ludlow from It's like a housean Francisco. Bloomberg Technology will have a live program with Jensen Wang, the CEO of in Vidio, today six thirty pm Wall Street Time.
I believe it is the time we should almost have like an AI chat bot be the co host today exactly and just or a guest and just ask, you know, chat cheapt what's going to happen with Nvidia earnings.
Yeah, it it's really interesting how it's become such a big name and then you see a super microcomputer, which you know kind of was from a stock price performance perspective, kind of in that same breath, but it's getting taken out to the woodshed. Today's they've got some company specific problems with the other stocks down twenty three percent. Let's talk to somebody who does this stuff for a living, Shelby McFadden, investment analyst at Motley Full Asset Management. You've joined us
live here in our Bloomberg Interactive Broker studio. You get extra points for that. So Shelby, let's just step back. Mike and I were just talking about nvidio. It's kind of on the top of everybody's list. How do you think about a company like Nvidia AI. It's been it's really taken over almost the not just the tech narrative, but almost the narrative for the entire market.
Yeah.
Absolutely, I mean it's definitely been pervasive in a positive way. Right when we look at nvideo, we see a company that gets to benefit from a massive secular change coming in the market. So despite all of the extra fluff in valuation, we cannot deny that there is a sort of step change that we're witnessing here and how business is going to be done and how labor is going to be paid for if we also think about it
that way. But as active investors, we also need to consider the fact that you have to look at your timeline, you have to understand the risk that you're willing to take, and understanding that in this situation, it's not just going to be oh, let's take a look at standard deviation, right, it's taking a look at these sort of macro factors
that get involved. We're looking at something that's deeply affected by policy, something that's much more affected by their own forward looking statements, and also affected by the customers that they serve very deeply. So if we have the hyperscalers say, you know what, these projects aren't paying off. Our shareholders are not willing to tolerate this low roich that we're
delivering them on some of these projects. That then comes back and affects the videos of the world as well as their suppliers and other fabricators.
Yeah, I think That's a great point that's often lost in the discussion of in videos, that every incremental dollar of new revenue they find is a dollar of costline for some other company. And you know, when people get you know, restless about when those investments pay off, what does that mean for in videos? So I think that's, you know, a really fascinating component of this. But Shelby,
one thing I find really fascinating about in videos. I look at their history of reporting earnings, and this is one of those companies that always tends to surprise surprise. We beat estimates again this quarter, and not by small matters, you know, a twelve percent one quarter, twenty percent another quarter, thirty one percent another quarter. When you get to be the size of a video though, a three trillion dollar stock, I feel like you can't quite get away with that
like you used to. You know, how hard do they have to beat estimates to really move the needle? Now do you think like a match of estimates I feel like would be a disaster for a company like this.
Oh, you're absolutely right, because when we think about mature companies that have a sort of history of under promising and over delivering, investors sort of celebrate that. We're fine with it, especially if let's say there's a dividend, they kind of coast. But when investors are paying for your growth, that's not necessarily a luxury that you have.
And we've seen.
That with the likes of Micron sort of delivering more mature growth, a little bit more flat on their optimism about the future, and the stock price was punished for that. So we've seen what happens when that starts to taper off, the moment that that surprise gap begins to shrink. It will all depend on how rational investors are feeling that day.
Yeah, you just at a buyback announcement to it.
Exactly, our investors feeling like, you know what, I knew this was coming, I priced it in, or is it more of this is outrageous? You know this won't work for me. And then on top of that, what kind of outlook are they pointing to for the future? That's sort of the potion.
Are there other ways that you guys are thinking about getting exposure to this AI wave above and beyond Nvidia.
I think we like to pop the hood a bit more so instead of getting direct exposure via some of the megacap tech and we do have exposure there and we you know, sort of change our allocations accordingly. We look at companies that really do have an opportunity to start leveraging data in a way that they haven't before, in a way that is, if you don't start doing it this way, you may be left behind. And so
their peer group may move as a pack. But if they're sort of the top of their peer group in dipping into those new functionalities, that's where we want to be. So sometimes that tends to be in smalls, right because they have the biggest runway, if you will, comparatively. So it's a look at what sort of systems or platforms can they start using to do their business in a more efficient way, and then we get a.
Hold of those rains, you know, Shelby, I think a lot of people tend to forget on Nvidia earnings day there actually are other stocks in the stock market, yes, right, you know there are other opportunities out there. I know you've kept a close eye on the retail companies late in the game reporting earnings as you u what are some of the big takeaways there? You know, everyone is trying to sort of get a feel for the sort of macro story of where the consumer is now. Are
they trading down to the Walmarts of the world. What's your take sort of big picture wise on how the consumer is doing after reading all these retailer earnings records.
Yeah, I think the take is that staples are still king right now, and in staples, they're going to do a little bit of trade down to value. We've seen that in the retailer space, but also in the brand space within those retailers. And then when it comes to discretionary discount is what is starting to take space again. So you know, when it comes to soft lines, they're wanting to get that little bit of a froth off the top to be able to still have some fun.
But there's definitely a difference in the way that they were spending last year.
Is that relate back to sort of a draw down of the savings of the consumer? You know, we everyone built up those savings during the pandemic and now that's all gone.
Absolutely, it's the draw down. And it's also the fact that earlier in the year we had a lot of the credit zerros and banks tell us that at the lower end of credit, folks were just saying you know what, it is time to stop using extra credit. At the upper end, folks are using it and they're just saying, you know what, will spread out our payments because we're
not going to have to deal with the APR. But we do know that the savings are pretty much gone, and then there is a reluctancy to be using credit because of those high rates. So there's a little bit of punishment there to be had by brands and retailers.
I was going to ask you.
How you phil about that the retail the consumer out there, But two of your stock picks are pretty consumer oriented Starbucks and Walmart.
Yeah, Starbucks, what a wild.
Ride you shift your ceo and boom. I mean, is any ceo worth twenty five percent popping the stock?
Well, that's something that we still have to learn, right, So, and the thing about Starbucks is s it's such a fun case because in our assessment of quality at MALI Fulasset Management, the first pillar is management, culture and incentives, And so when we look at something like this, we see, Okay, he's been hired to solve a problem, and we do know that his track record is a lot of cutting and that he's done great for shareholders in doing so.
But the thing we have to also consider is what's going to be the new identity for the Starbucks customer. What's he going to contribute to that, and what's he going to contribute to culture there and the labor force. That's going to be a big task. So we love Starbucks because of their scale, their primacy, their competitive advantage, but it doesn't mean that a new CEO is going to be perfect in active management is watching how well or not he's gonna do.
Shelby, I can't let you go without asking about the hats, the old Motley Fool hats. I'm old enough to remember whenever someone from mottnany Motley Fool showed up in the media, they'd have one of those great Chester hats.
What happened?
Can we bring them back?
I mean, I've got to ask my legal team and all of my right but we I mean, we do still have them and a lot of our our merchandise. You see a sticker, anything branded is gonna have that Jester hat on it. But let me see what I can do.
All right, So you know a company like a Starbucks, what's the story on Walmart?
Here? Is that a is that just a GDP play.
The thing about Walmart is I think if you look over the past ten years, probably that's how a lot of analysts were modeling it out. But when we've looked probably since twenty twenty, really they were being treated like a growth stock for quite some time, and so we actually trimmed our allocation accordingly because our investment thesis for Walmart is not a growth stock, right, so we wanted
to sort of a trim as we needed to. But what they have started to do is they have showed that they have the power to capture things like retail media a lot faster than some of their smaller competitors. So it looked like, ah, they're just kind of asleep at the wheel. No, it's a sleeping there. So they have a lot of capacity, and they do have a pretty nice yield when the stock is trading as a GDP PLA, so it is a bit safe, but right
now it is also quite an earner. So it's a nice thing to have in our in our yield portfolio and sometimes in core.
Yeah, I mean it's kind of DIPPDENI had one point one percent Shelby mcfadd and thank you so much.
For joiningus.
Shelby Mthad, and she's an investment analyst at Motley Full Asset Management based down in Alexandria, Virginia.
But here in our New York studio, we appreciate.
That you're listening to the Bloomberg Until Diligence podcast. Catch us live weekdays at ten am Eastern on Apple Car playing Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Let's talk a little bit of retail. How about some retail earnings here.
We've got Coals after Crombie Nords from all that kind of good stuff coming Mary Ross Gilbert senior analysts for Bloomberg Intelligence covering the equity space.
Mary Ross, thanks so much for joining us here. What are you hearing from some of the retailers?
Thank you, Paul. Yeah, So, I would say mixed results coming out of retailers. So, for example, on Coals, they missed on the sales line, so the comp sales came in down about five percent and analysts were expecting down two and a half percent. But the good news was that they beat on the bottom line and they raised their earnings guidance for the year, so they're now expecting something closer to two dollars whereas before they are expecting
something less than a dollar eighty previously. So while that is good news, they do need to get the top line right sided. And with Tom Kingsbury as the CEO, and he's has an amazing track record. He's the one who took Burlington from sort of a mall based type discount retailer to an off price, fast growing company, so there's a lot of faith in him. He's bringing in a new categories that so Fara business did well. It was up low teens on a comp basis, with total
beauty sales up forty five percent. But now we need conversion and yes there's headwinds from the consumer. So then if you take it over to Abercrombie on the other side of the picture, their customer base for both brands, Hollister and the Abercrombie and Fitch brands, their household income is one hundred to one hundred and fifty thousand, not like Cohal's where you're under seventy five in household income,
and so you really have to be very discerning. So an Abercromby is executing very, very well, and that explains why they had double digit increases in comp sales. The Abercrombie brand was up twenty one percent on a comp basis, and you had a fifteen percent increase on Hollister, and that's on top of double digit increases a year ago.
And they're seeing strength early in the third quarter. They're constantly extending the categories because they know what their gen Z for the Hollister and Millennial on the Abercrombie side customers want. So that's a company that's executing very well with just great results. And then Nordstrom is sort of in that similar category, and we did see good numbers come out of them late yesterday. The sales were a little lighter than Consensus estimated. Other comp sales for Rack
were up four percent. Consensus was looking for six percent, and the full line store was up just under one percent on a comp basis, but they were looking for something more than one percent, like one point three. But they had strong full price sales. That's very encouraging and the fact that the business is actually generating positive sales something that we're not seeing really in department stores. Of course,
when we had Macy's report with disappointing numbers. So again that speaks to their hire income consumer also in that base, and of course rack total revenues were up almost nine percent. It's the off price story. Ye, you know something that we saw out of the off price last week with TJX and Ross.
You know, Mary, if I listen to everything you're saying from sort of a macro economics lens, I wonder if there's like a big theme to be taken away here, you know, excluding sort of the execution hits and misses from each company. But it sounds to me like, you know, those lower income consumers are struggling a little bit, the higher income consumers are still spending. I mean, is it
is that simple takeaway? Is that too simplified or is that really kind of the story that is emerging from the earning season for retailers.
Yeah, I think that's fair. And even you know, as we get up into the higher income they're also trying to save money too. I think that you saw that in the news out last week with walmartin Target and so a lot of them are taking advantage of the better prices there, but that also keeps them in a good position to continue spending elsewhere, you know, so for
things that are more desirable. So yes, I think clearly the lower income, lower middle income consumer and even middle income consumer is just having a hard time dealing with high food and energy prices and that's showing up in their very discerning spending. That's exactly what you're seeing.
So Mary, helping me understand what's happening with the Amercrombie stock today. It's down sixteen percent on the news. So I guess the sales boost was good but not good enough.
Yeah, it could be, but I also view it is
potentially short lived as well. So sometimes when you have reactions, for example on Coals, even though they had the big sales miss, right, you see those stocks up very strong there, But I think part of it's probably due to short covering, and you know, there's probably some optimism that with they're getting the babies r us those just started to flow in this month, so we're not really seeing the benefits of that, and they're seeing good momentum in the new
categories that they brought. We're just not seeing it convert all the way to lifting sales. But as we start to cycle looking out a year from now, which of course, we know that's really how equities and investors think they're going to be going against these easy comparisons, and it may make it easier for them to show a sales lift. But we'll see, you.
Know, Mary, I just sent my youngest two kids off to the school today. They back to school already we started early in the touching. But it got me thinking of that whole that really important back to school shopping season, especially for you know, your Abercrombie's of the world. What's
the outlook there? I mean, if you could put, you know, break out your crystal ball and tell us what the next quarter numbers are going to look like, do you think, you know, is there going to be some weakness because of all these issues you're describing.
Yeah, so it's a good question. I think once again, well we'll probably have some mixed results. But Abercromby is seeing very good reaction to some of the initial categories that they have. So for example, in Hollister, they've got their collegiate line that they've launched and it's more extended. It covers about thirty two universities if you look at it. On the Abercrombie side, they have the NFL line by Abercrombie,
and they've had that. This is the third year running now, but each year they extend it further and further because the demand is so strong, and that's sort of part of their strategy. So we are seeing I think good results there now as we start to get more media coverage of the election uncertainty we have seen in past times around this election cycle where there is that uncertainty,
it can sometimes have an impact on consumer spending. But generally, I think it's really going to come down to, you know, those that are executing and those that are skewing to a more of a premium consumer or ones with greater discretionary income fascinating out platform, whereas the lower income underperforming.
Fascinating Paul that we were also obsessed with politics, that the upcoming election can influence our spending path exactly.
We'll see how it to blaze out.
Mary Ross Gilbert, thank you so much for joining us. Mary Ross Gilbert senior Ecody analysts covering the retail space for Bloomberg Intelligence. She's based out there in Los Angeles, California. So again, some of the retailers putting us some decent numbers. Sometimes the guidance is not as good and so you get a little bit of a pullback like in Abercrombie, but that slacks up still up sixty percent year to date, so maybe just a little profit taking their.
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And we also have some great guests from the world of Global Wall Street to help us understand what's going on in the world of ETFs. One of those is Sylvia Jablonski, chief of executive Officer and Chief investment Officer of Defiance ETFs. Sylvia, thanks so much for joining us here. You know, for better or worse, the talk of the day, if not the week, has been in Nvidia From an ETF perspective, How do you guys at Defiance try to give some product opportunities for AI to your clients.
Good morning and thanks thanks for having me today.
Well, we have a bunch of them, actually we have several two times LEVERTYTF single stock products that tracks semiconductor have you know, like a two beta Broadcom to two beta super micro computers, two beta micro strategy, and so you know those definitely participate when the video flies.
And then we have an ai E t F.
Basically machine learning and supercomputing and that's and that's quantum. It has a huge position in n video and all the chip stock. So you know, there are lots of ways to get this, whether it's through single stock exposure and a video stock itself or some of the ETFs like ours out there lots of options.
H Cyphia, I wanted to ask you about those single name uh Leverage ETFs. I know you have one for Eli Lilly Broadcom micro Strategy. How big is the potential market for those? Do you think? I mean? Is is it conceivable to see half d S and P or something like that have LeVert ETFs on all these names.
You know, it's it's a fairly new phenomenon in Leverty tf so Lever and innversitytfs have been around, you know forever at this point, well over a decade and decades if you count.
The mutual phone products that I said.
Before people levered up btfs themselves but the leverage single stock has been a pretty new concept. It's just been out for you know, really the last few years, and billions of dollars have flown into that space.
You know.
The levered en video that granted Shaars has is just massive, got massive.
Out of the gates direction has some of them. And you know, we had a great test case.
We launched a two x micro strategy m STX just a few days ago and it's you know, there are some days where it's trading like one hundred million in volume already, So the upsite is certainly there from these tactical traders that know how to use them.
So I think the sky is the limit.
And you know, I think with LEVERTYTFS two, people tend to like some of the names that are more popular, right, Definitely the mag seven, Definitely the semiconductor names. So whether or not we get half of the S and P five hundred, I don't know, but I think we'll definitely get kind of like the as Belchunas who you mentioned before, likes to say hot, saucy ish names out there.
One of the names that you've got a leverage ticker on is Eli Lilly tell Us why you guys launched that product.
Yeah, so that one's actually pretty interesting because if you look at Eli Lilly's stock, you know, it's kind of just had this like nice steady, you know, very low range bound volatility, tends to be a trending you know, upward stock, and I think it's their menu of services that interests us. There's this phenomenon with the weight loss drugs. Obviously with set bounds. You know, they get credit for
kind of having one of the best ones. Their earnings call actually was one of the most positive in terms of being able to supply you know, the amount of medication needed for the demand out there, the growth that they see going forward. They have Manjaro, they have a whole bunch of like cancer trials going on, Alzheimer's trials going on, and you know, well they're like setbacks here
and there. For every drug company, it's it's one of the company that tends to have the most robust product lineup and then you know, great balance sheet, they pay a dividend, aging baby boomer population, defensive qualities.
Why not Eli Lilly, right, and why not lever it up?
Yeah, Well, obviously, Sylvi, you know, there is a lot of risk inherit in using leverage in the stock market. And I'm just curious, you know who where the demand for these is coming from. Is it from the hedge funds or the retail side. And you know, if there's a lot of retail demand, it strikes me as you know, a bit of risk for defiance as well to be providing these products to traders who might not really appreciate how risky they are. Is there any sort of way you're navigating that issue.
Yeah, that's a good question.
And I think, like you know, for the because lever and universityfs have been out for so long, there's been so much of an effort both by regulators, you know, the sec the issuers themselves, the trading brokerash platforms, things like that.
Bloomberg, you guys do a ton of this.
There's so much education out there and also just so many learning labels, right like these are daily products.
Make sure you're.
Making a decision every single day if you want to continue holding it, or if you know, if you've got your gains for the day and you're no longer bullish on a bull fund, sell it.
Things like this.
So we're very clear in the perspectus and all of our materials about you know, these are day trading tools, and retail is such a broad thing, right. I mean, I've learned this in my career. There are some retail traders out there that are as skilled as you know, the top hedge funds in the world.
Right. So to answer your question, it's a mix of everything. It's it's day.
Traders, you know, savvy, technical, tactical retail traders, it's hedge funds, large institutions, pensions.
Really runs the gamut on this and it always has.
Actually historically, I look at when I just kind of study this industry read Eric's work on the industry. Is I'm uncomfortable about the concentration. There's so there's a handful of really really big ETF houses out there, whether it's the vanguards or the state streets, and then there's just a gajillion smaller ones. Is that a healthy structure?
Do you think?
You know, it's like the mag seven of the SSC five hundred, right, the rest of us small and midcalfs or you know, trying to catch some tailwinds, We're coming up with good products. Rates falling is always a helpful thing. It's the same old thing, right. I think you have ETF shops that come out and you know, as long as we have some tenure and you know, have a good amount of product lineups and the right digligences all
that kind of thing. I think investors are willing to give products a try now, regardless of who the issuer was. That being said, you know, a company like Defiance is never going to come out and try to launch you know, a free S and P five hundred black Rock Vanguard Stage Street. I mean, it's there, they won that game, right, But I think we can be creative with products that don't exist in the marketplace yet and that there's appetite for.
And the good thing about being a smaller shop is like we can we can kind of see what all the bohemits have done and just try to, you know, kind of like figure out what's missing and put our own secret sauce on it. So I do think there's room for a whole lot of us small guys.
And you know, we're all growing.
We've all had some pretty successful launches in the last couple of years, so we'll catch up.
Yeah, Sylviya, I'm curious how you're thinking about the market overall. I mean to me, it's it's kind of a weird environment we're in right now. Everyone's bracing for somewhat aggressive Federal Reserve interest rate cuts, and yet we've got the stock market near high. I'm looking at the Nasdaq one hundred valuations, you know, p's in the thirties. It's Does it feel weird to be bullish on the equity market when the FED is about to go on an aggressive rate cutting campaign?
Yeah, it's a strange.
I think we're in a period in the markets where it's going to be, you know, where we're going to start to see some slower growth. But I don't necessarily think that, you know, the all bets are.
Off for stock appreciation.
The good news is that even when rates have been super high, corporate America has performed right. And I think a lot of the reasons you see these higher multiples is because their earnings have actually have actually matched what you know, what's been kind of like dictated on these stocks. And I think that shor and corporate earnings like, yes, jobs are you know, kind of weakening a little bit, but it's nothing to be concerned of in terms of
historical unemployment rate, retail consumers are strong. You can see that across some of the earnings. You know, wages have been pretty steady, There's lots of cash on the sidelines, and so I think that there will be this period of time in and you know, in coming months, really where the market's going to really like these rate cuts, and I think that stocks will be rewarded from it.
And then the second thing I'll say is.
I think we're going to see breath expansion right when those rates actually lower, and companies like small caps and mid caps can actually you know, have that show up in their bottom lines. I think, you know, I think you get some breath expansion there. But the MAC seven, you know, unless you think innovation and AI are dead, it's just a difference.
It's a tech heavy world. So I'm always going to buy those companies.
And to your point, even if I'm totally wrong and the market pulls back, I want to have quality companies with huge balance sheets. And again that takes me back to the MAC seven. So I don't think that story is over.
All, right, Sylvia, thank you so much for joining us. Really appreciate it.
Sylvia Tablonski, Chief executive Officer and chief Investment officer defines ETFs.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Let's switch hears here.
One of the top red stories on the Bloomberg terminal here is about a hedge fund, About the hedge fund business. No surprise, a lot of hedge fund folks have Bloomberg terminals, so they.
Read stuff about it.
Hema Parmar Joints as she is the hedge fund reporter for Bloomberg News, talk to us about two Sigma, Who is two Sigma and what's happening today with this big hedge fund.
Yes, giant hedge fund, sixty billion dollars, big quant pioneer, meaning they use computer algorithms to trade across a variety of assets. The two founders, John Ovidek and David Siegel, founded the firm twenty odd years ago, but over the years they had a rift. They didn't get along. They've been feuding for the past few years, so much so that the firm had to in their public disclosures and a regulatory filing, which is a very strange thing for
hedge fund to do. She close disclose that that the feud was so bad that it was a material risk to investors.
That's unbelievable people, But it doesn't sound like they've you know, even after they disclosed that. It doesn't seem like there was a lot of outflows out of the fund or anything. Do you think that changes with this announcement now that people realize, wait a minute, this something's really going wrong here.
I think what's interesting about a firm like this is because it's quantitative. There are so many teams. It's kind of an institution the way it's built out. It's not like if we think of a fundamental longtered equity fund where everything relies on the PM or the one person at the very top. Here, it's kind of a team structure, and it can sort of be business as usual in
some ways, even with a rift like this. So the performance has been relatively unchanged and redemptions have been relatively unchanged to you haven't seen a mass exodus of clients in the wake of news like this, which is really interesting. Because if it was many other funds, you know, you might have seen that.
How's their performance been? Has it affected their performance?
It hasn't really affected their performance. The performance has been has been I would say, unchanged up about ten percent and one of their funds this year, which is not bad, up about seven for the other. It's it's okay, it's fine.
I guess once you put those systematic strategies in place and turn the computer on, you can fight all you want. It doesn't matter. But is there any sense of what this feud is all about? Is it just a personality conflict? Do we know anything about what set the heart of it?
Yes, they disagree about a disagree on a number of different things about the firms. So it could be organizational structure, succession planning, the roles of senior executives, and it got to such a point where employees struggled to actually implement initiatives, and it could have or began to impact retention of talent. So when you're seeing the material impacts of it, which there were some, you know that may have led to them needing to publicly disclose all.
Right, So, as Hedge fund reporter for Bloomberg News, how how is the industry? Are funds flowing into the industry out of the industry. How's did it industry doing?
Yeah?
So, for for years, the industry has generally grown bigger and bigger. What's fascinating is that typically the assets are going to the biggest funds, so the bigger funds continue to get larger. If we look within the multi strategy hedge fund space with these are funds that trade across all kinds of assets and little pods of teams. That strategy has generally attracted a ton of assets, and you've seen these firms grow from twenty billion to sixty billion in just a few years.
Yeah. But in a year like this, when the stock market just keeps ripping higher, it's not necessarily the best back drop for a hedge fund, especially as you point it out a long short. Are there any sort of strategies pockets that are performing especially well, you know, trend following I imagine is doing well anything else?
Yeah, Equity funds have generally done well. Longstert equity fundamental stock pickers are up in the twenty percent so far ish, depending on the funds. Keep in mind that a lot of these guys buy tech stocks, so if they've time to correctly, have sort of like ridden the wave up, but have felt pain as well too, so it's been kind of a rocky rider. Looking at the fund, this industry is quite a fun specific space, so it depends on the strategy, the manager, the size of the vehicle,
how they handle risk. So they're depending on the appetite of the investor and how diversified they want to be. They may choose one type of fund versus the yah.
Know the two Sigma news today that you report on.
It highlights one of the risks I think investing in the space, which is this is pretty common. That is, the founders are really what you're investing in. I'm investing with Stevie Cohen at point seventy two. I'm trusting him. Is the England or a millennium. I'm investing with those people in their names. But if they leave or they get hit by a truck, that's a real issue.
It depends on the strategy. So for a stock picker for the Tiger Cubs for example, where the people at the very top really have a lot of impact on the actual investments, yes, it can matter if one of those people who are to step away for a firm like to Stigma, where a lot of the investments are sort of made many layers down, it may not impact investor sentiment to the point where it would impact redemptions or flows. That said, you do look to the very top of a firm and you want the people at
the very top to be working together. And clearly they were not working well enough for the firm to have two brand new co CEOs step in place and try to fix things and try to get everyone working better and more efficient. You don't want an inefficient firm, regardless of the strategy.
And to be sure, over Deck and Siegel aren't actually leaving the firm, right, They're just kind of stepping down from the CEO.
They're giving up the co CEO title. Will remain co chairman of the firm, which is the role.
That they have.
They are the biggest investors in the funds. They have the largest equity stake in the fund, so they do have influence. They will continue to advise and continue to help guide the direction of the firm.
Yesmah, thank you so much for joining us. Really appreciate Hima Palmer. She's hedge fund.
Reporter for bloom Bloomberg News Journeys live here in our Bloomberg studio here in midtown Manhattan.
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