Is Beyoncé Recession-Proof?

what most people considered to be a bear market. But what's interesting is that what we're once considered the most innovative companies and really the most profitable stocks to own, are faring much worse. The NASDAC one hundred, for example, is down almost So what exactly is it about our current environment with red hot inflation and a sprint higher in interest rate that is kryptonite for innovative niece and

what will take to make those types of stocks market leaders? Again, we're going to get into it with the chief investment officer for public equities at a major Wall Street acid management firm. But first, Beltano, I have to say, I hope you did not go around last week telling everyone your high school nickname. Did you know? I haven't? Okay? Good? Because as you know, that is a hot commodity and

podcast land. I think we've already gotten a few more reviews on Apple podcast by holding out the promise of your high school nickname. So I think if we get to three and fifty ratings, we'll reveal it. Does that sound good? So you're holding out one, You're you're letting this drag out a little bit longer. Absolutely, yeah, Okay, Well just let the record show and let the listeners show that this was your idea to hold them hostage.

They know that, not mine. Yes, no, that I think it's well known that any crazy scheme, any gimmick on this show is usually my terrible idea, but it works, and I will say it works. And uh so, go on your Apple podcast app and give us a rating. I'm not saying it has to be five stars, but you know, hey, that's the highest rating. And give micro rating and write us a review, right, maybe even suggest new nicknames for us. Whatever it takes, well, we'll take it.

But that's the way that we sort of spread the word about the podcast. Uh and and give listeners who are just finding it on Apple a little hint at what kind of show it is and how well received. We're not well received it is. I don't know. I don't know. We'll find out. Well, we'll see how well this idea of yours to hold listeners hostage work. In the meantime, I'm hoping we can hear from our guest

this week, Katie Koch. She's the chief investment Officer of public equity at Goldman Sachs Asset Management, is joining us this week. Katie, thank you so much for coming back on the show. Oh, it's my pleasure to be here. Thanks for having us. She came back and we didn't even make her reveal any nicknames. Who's did you? Just to start, we have this stat your team had sent

us over. They said that you manage something like twenty billion dollars of tech slash innovation assets and yet at the same time, we know that growth has been underforming year today. So I was hoping you could talk to us about this and tell us how you're thinking about it. Sure. Absolutely, um, I will say. When I knew I needed to do this podcast today, I wanted to start with some advice

to you guys. I think the podcast is called what Goes Up, and it's it's a short less you might want to you might want to rename it for for the dear term, but at a very serious note, um it Uh. We are big believers on investing client capital

into the innovation space. I did just want to impress upon something that we've been saying for the last several years, which is that we think when people step into these innovation themes and we can unpack them in more detail, they really needed to really need to be committed for the long term. I don't I don't think any of these things are tactical traits generally. I think it's really tough the time to markets, but I think it's particularly

true and a lot of these high innovation areas. So I do want to say that at the outset that we think it's strategic, not tactical. Um. The second thing that I would say is that I do think that the dislocation has been very severe, particularly in public markets. UM.

Just you had asked earlier why that is. I mean, the very basic explanation for that is that growth assets, the cash flows or the furthest out, so they're kind of the longest duration assets, if you will, and they're the most hurt when it looks like rates are going to rise, which is obviously the environment we're in UM and so that was that's a big leg down of most of the pain that's been experienced in in tech UM and they're everything is correlated effectively to one UM

and so that's been a painful absolute return experience. But we think people who are already in these assets should have patients around it because eventually growth it will will be in a world where growth is scarce UM and and these assets should rerate on the back of that. And if you don't think you have enough exposure to this part of the market, I think the recent correction actually provides some really compelling entry points to get exposure to technology as a as a secular theme. So that's

kind of how I would think about it. Tech is down at the moment, but it's not out. Don't give up on it. And I'm very happy to go into more detail in terms of why we think it's going to work from here and what we like. That would be great, Katie. I'd love to unpack that some more. But I will say one thing that is going up is interest rates, so we can talk about and that's true and inflation of course too. There are some things going up, just just not a lot in the innovation

space today, but there in lies the opportunity. I guess I think I think blood pressure among portfolio management. But I wanted to sort of get your ache on what is so toxic about inflation and rising interest rates, specifically for those long duration tech companies that that you mentioned. I mean, we'll often here, sort of from the macro level,

a couple of reasons why rising rates are so bad. Obviously, you know, if a company is heavy, heavily levered up and has you know, to take on new debt, you know, rolling over debt into higher interest rates, that that's an obvious one. Also, you know, just the risk free rate of the market and treasuries going higher sort of as you point out, you know, is is really kind of

dangerous for those long duration assets. But yeah, I look at the SMP five hundred at least as a whole, and it seems like, you know, the leverage, the balance sheets are are healthy, healthier than past years based on most metrics. Now, your your debt to prize value or your your debt to earnings ratios at any sort of debt to fill in the blank ratio seems to be fairly healthy. So is this all about that risk free rate.

You know, we can finally get three percent in treasuries, and the assumption being that you know inflations, one day, knock on what, we'll go back to two percent and we'll get a positive reralio. Is that the main catalyst? Do you think? I think that certainly plays a part in what's happening here. Again, as rates go up, these cash flows are further out. It puts pressure downward pressure on these stocks. But it's not that in isolation. UM. I'd say a second issue is just where evaluations were.

So valuations for broad equity markets UM were in their high ninety percentile most expensive relative to history. You you mentioned that the outset that equity markets have correct its seventeen percent from the highs. Roughly it moves around a little bit, but that's about true. And valuations are still in their ninety most expensive percentile. So there's only two things that can really drive equity markets, which is multiples

and learnings. And the multiples were already quite I demanding mostly good news, and actually what we've gotten this mostly bad news. So I think the valuations are certainly part of it. So you have this this long duration issue of cash flows working against you. You have the multiple was too high, arguably broadly and intech specifically. And then I think, you know, related to a lot of this is the inflationary pressures and this dawning realization that the

central bank put is gone. Um. In other words, the market kind of got used to the reality that when things were difficult, the central bank would come in and cut rates. But if they're actually forming another performing another important test, which is trying to control and inflation, they're less likely to do that in the absence of a major recession. And so it's a combination of all of those issues that are really weighing down on this part of the market. But if you want to step in here,

because I think actually, ultimately this is a deeply secular opportunity. UM. I had mentioned this to you guys, but the CEO of Microsoft u uh Statta Dallas that on his call he was being pushed on this very issue, the macro environment stuff. How are you going to operate through this? And he kind of gave an answer that was I don't focus so much on that day to day because over the next decade, tech is a percentage of GDP. GDP spend rather is going to double. So there's an

incredible opportunity. And we know that company managements all over the world are kind of continue to invest in innovation just to survive and also to take market share, and so this these things will work and they're gonna work really, really well. Um, it's just at the moment we have that has been dislocated. And as I said earlier, I would think about that as an opportunity if you have, if you have patient capital to come in and step in here, um and and buy some of these assets.

I just think you have to be balanced. It's not I have very little conviction on that on a twenty four hour, one week, even a couple of months view. I think it will work out over the long term, but you have to be patient and you have to be balanced about it. We are not, in my view, going to have v shaped recovery like people might be a recent data point in people's mind given the pandemic,

but that's not what we're set up for here. We're kind of set up for the hard work of hopefully stabilizing the multiple and these companies delivering earnings, and so in my view, there will be strong recoveries and return opportunities from here. UM, but it's going to take longer for for that to be realized. Can you, Katie, maybe narrow down that list for us? So what specifically are you looking at, what are you finding attractive and maybe

what are you guys buying right now? So areas themes that we've focused on, just because we're talking about innovation now. I mean the way we do will do this is we think about how is the world's going to change over the next decade, what are the big themes and then obviously trying to pick the right companies within those themes. So the themes that we're focused on here is the energy transition. UM. We also so this is you know

climate for example. UM. We also are interested in the future of tex so the technology companies be on the banks down the market cap around the world. UM. We like the future disruptive future of of healthcare UM and how that's going to change the world. Uh, the consumer, particularly the millennial and Gen Z consumer. And then we're invested in the real estate and infrastructure that will underpin

all of that. So those are some of the major themes. UM. I wanted to come back to this point on on balance, and then we can dig into any of those in more detail. But I do think it is prudent. We always believe this to be prudent. This is the reason some of our thermatic strategies have have done better than the peer group. It's always prudent to have some balance in these strategies. So, yes, we like these themes, but we don't have to just be in companies that are

growth at any price. We can own more expensive innovative companies, for example, software a snowflake which still trades at twenty times on e V two sales. These are bills despite

the correction rich multiples, but they're high growth companies. We can own that in the future of tech alongside, for example, something in the semi space which trades that much more reasonable valuations discount to where it's been relative to the last ten years in certain instances, and get that balance in the portfolio between the high growth names um and and some of those more value or cyclical oriented names.

And we do that really across every theme. In healthcare, we own some of the medical device companies which are more valuation grounded, and then we own stuff in the genomic space, which is obviously very high growth oriented. So we focus on the themes picked the companies and try and have a balance within those themes of those high growth companies along with some of the more cyclically exposed

value oriented names as well. You Know what I find interesting when we talk about innovation, uh and what stocks will benefit from that is we've almost had sort of the opposite problem with those you know, you mentioned the big fang companies you know. To me, you know, and these companies just got so huge, you know, Apple at what two and two and a half trillion whatever it is at the moment. To me, Apple is kind of

uh struggling with innovation these days. You know, you've got you've got the iPhone, you wait for that sort of iPhone replacement cycle. You've got the mac uh, You've got the services revenue is strong, um, but the promise of sort of more innovation from from saying Apple, you know, there was talk of them getting in the TVs or automo electric vehicles. Um. And not just to pick on Apple, but I feel like Amazon might be struggling with the

same thing. You know. Here, Amazon started by disrupting the book industry, went on to disrupt every sort of retail industry there is then I found a lot of growth in the cloud business, but I feel like for you know, a lot of these big companies, Facebook included, um, they've

sort of reached saturation. So you know, the question is, when you're looking for innovation, does it really necessarily require going down the ladder as far as market size and finding you know, undiscovered sort of small cap stocks were you know, is there a case to be made of any of these companies sort of being leaders in innovation? Again, I guess the one, you know, the one alluring thing everyone likes to talk about is the metaverse, you know, withcebook.

I'm not sure anyone's buying that though you know the the growth potential there, But how do you think about that? I know this is a very long winned winted question, which is my specialty, but how do you how do you think about that notion of you know, the size factor of a stock as it relates to their potential

to innovate and disrupt? Well, I mean, it's a it's a hugely It may have been a long question, but it's an important one too because these companies dominate a lot of a lot of the market, right so we have one percent of the number of companies taking up still despite all of the movement out there, more than the market cap, I will say, in a sign of the times, UM, Apple is actually no longer the world's

most viable company. That changed if we exactly UM. But big picture here's I want to make a couple of big picture comments briefly about those top dominant companies and kind of where we see them going from here, and then I'm going to end with an argument that like, yeah, I do think you need to own stuff well beyond them and around the world, but in those in those companies themselves, they you made up. You made the comment around UM saturation. I mean, it's one way of looking

at They're also facing some regulatory challenges to UM. But just looking at the long arc of history, if we look at the ten largest companies twenty years ago UM and then compare them to the ten today, there's actually only two companies that are still on that list, Microsoft one of them. UM. The other eight went on to destroy close to four hundred billion dollars of market cap during a great bull market for equities. So I kind of look at it and think a lot about and

our team does the creative destruction. How difficult it is for those companies to stay persistently amongst the largest companies in the world for some of the reasons that you just outlined in terms of the challenges that they are facing. So that is a reason we think people need to diversify away from those companies to find the future winners that will be able, that that are going to show up on that list, because obviously that's one of the

great ways to create wealth. I would just balance those comments. Um, we do own some of those large incumbents, not all of them, but we take positions in some of them because you can't forget, particularly an environment like this, how

incredibly strong the balance sheets of these companies are. And when you're sitting in thirty fifty hundred in some cases more billion dollars of cash on the balance sheet, that gives you clearly the ability to navigate an uncertain environment, but also the ability to buy or invest in the

next big thing you talked about metaverse wolves. Facebook can do that because they're highly free cash flow generative, and they have thirty billion dollars of cash on the balance sheet, and they were able to get into the next property which was UM you know, for example, Instagram, because they

were able to buy that. So I just think you've got to take into account that they have a lot of firepower UM to navigate a difficult environment and also to get on the right side of innovation and disruption. The question is whether or not they have the management team UM and the execution capability to continue to do that. And it's true vent true over time that not all of them do it. So you've got to be selective about that. Pick your spots and those big companies, but

definitely diversify U into the future leaders UM. And then in addition to that, looking around the world because UM, because of the ubiquity of cloud and five G, a lot of these companies are going to be actually found outside of Silicon Valley and outside the US. It's the markets not showing us that right now because some of those companies are are facing a lot of pressure on a day to day basis, but they are going to

be disruptive and they may be the future winners. And that growth, by the way, is actually very much on sale. The growth rates are higher clearly outside of the big incumbents. And right now, if you took the highest quintile growth and the lowest quintile growth. It has the tightest valuation compression that we've had in a very very long time. In other words, you don't right now have to pay a big premium to get into the growthier parts of tech.

And I'll end by saying there's lots of stuff we like and are excited about outside of the things, including stemmies, which we talked about briefly, software, and then also cyber which we haven't mentioned, but we think is an incredible space with actually a big tail one because of the current geopolitical tension. Katie, I remember when COVID first broke out a couple of years ago, you and I ended up talking and you told me all about the names

that you were looking at. You know, you mentioned, you know, the future of things, and you were talking about this post COVID world, and back then you said you had been looking at companies that were heavily discounted, and you were looking also at back to workplace leading childcare names focused on services, spending and stuff that's fun. I think you had said, so what do you what do you make of of those types of companies at this point? Yeah,

So people like to have fun. That's a pretty pretty persistent theme through different economic cycles, and that we like things in the real economy. Um, And having fun is related to the consumer the right now. Data on the consumer is very strong. We ingest credit card data all

day every day like many of our peers. In addition to running a fundamental business, if we're talking about a lot here, I have the privilege of also running a quant business where we ingest a lot of that data and I can tell you across all metrics, the consumer, particularly the US consumer, looks very strong. Um. We are preparing portfolios for a world in which that consumer may weaken because of some of the macro stresses that we've already talked about here, inflation being at the top of

the top of that list. Um. And so what does that mean as it relates to some of the ideas that you just brought up, and also this concept of having fun. If you're in the right part of having fun, it can actually be recession resistant. So there's parts of the consumer basket the come under pressure during a recession, and and and travel for example, might be one of those.

But we like affordable experiences because we do think that this millennial preference for experience over things is incredibly persistent UM, and so we lean into those experiences, but more affordable experiences in the event that the macro environment deteriorates. And so, for example, we have exposure to concert companies both here in the US as well as in Europe. UM. So in the US we own Live Nation, for example, because Beyonce is the ultimately recession resistant UM and and maybe

that's so many things, but that too. But then in addition to that would be a category like beauty UM, which can do well when times are good and also shows a lot of resilience UM even if you get into an economic correction. So we do own parts of the real economy for sure. That comes back to having balance in the portfolio. On the consumer rights say, we do have exposure, but we're trying to make sure that we are eyes wide open about some of the downward

pressure they may face down the road. Beyonce is recession resistant. I think we found our headline there for the specific on that is that like just to to give data, So it sounds like a flipping comment, but this company Live Nation, if you looked at ticket sales back and oh eight UM they actually never went went negative. Uh So the consumer will will spend in a recession, you just have to be they'll be quite selective in terms

of what they spend on. And then the other thing I would the other thing I would say, just from being an importance of being global, is that another place where you can find some interesting consumer names or or even consumer names around the world with exposure to this um would be China, which is obviously in a very tough situation at the moment, which has been reflected into equity prices, with effectively a third of the productive capacity.

How there's different ways of looking at it. But of China being closed that is putting pressure on supply chains, which is obviously coming through in the CPI print. But it also the consumer has then quite weak clearly since many of them are under zero COVID policy lockdowns. I don't I'm not a macro person, and I don't think we have a big edge on calling near term macro um. I am highly convicted that China will once again reopen.

That's one thing I can say with great degree of certainty, because it's not possible to run an economy that way long term, and it would create instability, and we're hoping to see more movement towards that as we reach the twentieth Party Congress in the fall. And I think you can buy assets here in the US as well as assets in China that are overly discounted for something that we know is eventually going to work out, which is

that the economy will reopen. So, for example, luxury Goods sector and LVM Major or a Montclair are names that we own that we think are being overly discounted UM and that because we know that the Chinese consumer will come back, we actually had the pattern recognition on that established because we've seen the consumer globally come back and

buy in the luxury space UM after previous lockdowns. And actually luxury is also somewhat counterintuitively has some protection and recessions too, because that segment of the consumer um gets gets gets let's hit. So all the sort of delisting concerns and the sort of trade tensions, the lingering trade tis, they don't they don't scare you away from China at all.

I think those are real concerns. There's there's the lockdown, there's the potential for d listings, there's the regulation, the tech regulation, and then there's the broader US sign no tensions UM, but was kind of talked about the lockdown. I'm hoping that we don't go to de listings, but if we do, we have the ability to buy these companies on the Hong Kong Exchange, as do most investors. So I think there'll be a tough transition period, but

it will work itself out. UM. I think the tech regulation, we we actually have a lot of clarity on what that's gonna look like. And the U s Sino or Western Sino tensions, they're going to be there for a while, but the question is whether or not that that's imputed in valuations. And at the moment this is in some areas a fifty discount to the US, so there's a

lot of margin of safety there. And then I just say one more thing UM about investing in in China, UM, which is that the government is actually quite clear about what their priorities are UM and the reality is that once they announced those it gets discounted into markets immediately because they have the ability, unlike in the US, to actually implement those policies immediately. So if you pay attention to what they're saying you can actually get on the

right side of this regulation. So I'll just end with you know, another example of something in China, and we own. We've told you why we like software already. Uh, we do like it as a space very famous Robert Smith quote software is better than first lean debt because they're so essential to the running of companies. That's true in the US, it's true in China. We own a company called king D Software are an essential software for many

small medium enterprises in in China. We know the government is going to support small medium enterprises, particularly coming out of this lockdown. Uh. And we know that the government is very supportive of digitalization again, particularly of small businesses. So this is a tech company that's not going to get most likely not going to get caught in the crossfairs um of regulation, compounding at a very high rate and looking extremely attractive to its own history and the

software sector broadly. So again challenges a lot of it discounted in selectively, one can can find opportunities. Yeah. I also have some interesting news this week where China basically came out and said that all state enterprises need to start buying domestic computers and software that that's certainly uh, certainly gonnapen up some opportunities I would imagine, yeah, that I would pick up on that and saying that's a very important point. This is obviously a sign of deglobalization UM.

And we are believers that the tech ecosystem is going to build out. We already have the Splinternet, but other parts of the tech ecosystem, including the semi supply chain and hardware, are going to build out separately and shine than they are in the US. And so the US is also going to invest more in supply chain security of chips. It's a it's a national security issue. We at the moment cannot manufacture at the leading edge UM for chips in the US. That is that's unacceptable really

from a from a national security perspective. And so this country is going to invest a lot in in building out that supply chain. That's by the way, ultimately inflationary UM, but it does create some opportunities. And so one thing that we are invested in across many of our portfolios is that local is a rebuilding now to the semi supply chain, and we own for example, the semi equipment manufacturers. It's a way to benefit from that um and I'd end up by saying you can, you can be, you

can do two things. You can say, wow, this is really scary China is building out this totally separate ecosystem. Or you can say, well, it's the world's second largest economy. It's a very big equity market, and I want to own a piece of that for my clients too, because there's going to be a lot of investment happening there.

We obviously choose to believe the ladder, but try and be very selective about what to own and what prices to buy it At Katie, just to bring things back to the US, there was something that really struck me in one of the notes you had sent us over before the podcast, and I actually ended up writing wow in my notes on your note, and it said, while we have a very difficult set up, returns will be

lower the next ten years. And you said, I'm not entering the nineteen seventies, but we need to be aggressive in finding opportunities. So can you talk about that and this idea that things will not be so great in the next decade. Yeah, I guess that is kind of a wow comment. What do you what do you say it that way, but but it is. It is what I believe to be true and something I really want people to reflect on as they manage their own personal wealth.

When you look at we I kind of think about through the lens of the sixty forty portfolio to sixty stocks UM forty bonds. And I say that because that's generally how most people around the world are are kind of allocated. And that's been a phenomenal asset to own through the last cycle that has returned eight percent real return. So after inflation returns, you compound that eight percent annually.

I mean, you guys know, that's incredibly powerful and and and great news, particularly for people on a fixed income. That return was more like five percent over the last hundred years and about negative nine percent year to date UM. And so my point is that a lot of returns were pulled forward into the previous ten years, which suggests the next ten years returns are going to be harder

to come by. And I think people need to be prepared for that environment as they plan for their retirement, as they think about what they're going to spend UM and I think they need to prepare for it by being more active in their portfolio and seeking out those returns UM. And that leads us back to you know, so what do you do you should be In our view, if we are going to have inflation, we would recommend people be overweight equities relative to fixed income and then

the equities bucket. Um. Again, I want to acknowledge my biases here as an active manager, but clearly these like tremendous dislocation and market creates really interesting entry points and opportunities for active managers to hopefully do a lot better than that passive portfolio UM. And I don't think that we're set up for the lost decade of the nineteen seventies.

There's a lot of reasons it is actually different this time, including I won't go through the whole list, but for example, employments and in a much stronger place U where inflations nowhere near um as high as it was then, and we have more of the tools to tackle it, more

central and more independent central banks globally, etcetera. But it is going to be a return It is going to be rather a decade of lower returns, and you're not just gonna be able to sit and own passive assets and hope it all works out, you're going to have to take more control of of of your destiny, and we're working with a lot of people to do that,

particularly in their equity portfolios. Okaty. I know at Goldman Sachs Asset Management, you spend a lot of time sort of listening to what c c e O s and CFOs have to say. Uh, you know what their plans are. Um. You know, unlike myself, they probably return your calls when when you when you call them. Quite a quite a luxury you have there. But I'm curious, is there sort of UM quantify CEO CFO sentiment right now? Are they scared? Are they looking for opportunities? What's kind of the vibe

out there from the C suite? As far as you can sell UM, I would say it's cautious. So they do return our calls. That's one of the benefits of of of being at Goldman SAX and having to pay I think my phone might be broken. I'm not sure because so I appreciate you asking that. And we are really delighted that we get great access to management teams on behalf of our clients, and I think we do get good data points and I go back to what

I was just saying that I think they're cautious. And you see that because again the market as we started down seventeen percent since the highest, did we have a bad earning season? No, it was actually very good earnings. So again the right now data is suggesting the fundamentals are quite strong and healthy. But you asked a very

important question, which is what is sentiment look like? And and sentiment is is is more challenge than that, And that's also reflected in guidance being lower because these cycle tested management teams, which are obviously the ones who try and commit capital to you know, they've seen this movie before and they know that we're entering a more difficult

operating environment. And I think the best if people want to really get insight into what a great management team is kind of thinking and saying, and how they're trying to prepare themselves um for this operating environment, they should read Dara, the CEO of um Uber's letter to his employees about what this environment will look like, how they're going to have to operate differently, that they can't just go out and talk about how big the market opportunity

if there's not profitable excuse me if they're not profitable because investors don't care, and you just like imputing some of that realism into the way that you're running a business. Um, that's what we see a lot of management teams doing. And the ones who want to commit capital to that have been through this before, that know how to work through this grind, that have that have raised capital when

it was available, not when they needed to. Um, that know how to motivate, people, that know how to leave, people that know how to run the company in a way that will be received well by investors, which will obviously help stock prices. That that's that's that's what we're hearing and what we want to see from from great management teams. And I just want to end by saying, UM, we never you know it's that when returns are absolute negative. UM, for sure, we that is not what we're trying to

do here. We're trying to help our clients retire with dignity and security. And as I said earlier, it moves in cycles and feels very confident will come back. But moments like this where stock prices are dislocated on top of the operating environment being very challenging, this is very

very rich for differentiation. There are some companies that are publicly listed that may not survive what's happening right now, and obviously we want to avoid those uh and and we will uh And then you want to find um allocate to to the ones that will differentiate, you know, try and store through the pretenders versus the contenders, if you will. And that's what we're spending a lot of time doing on behalf of our clients. I actually had wanted to ask you what you make of this idea

that the market is sniffing out. These sort of worrisome developments are worrisome signals in the micro data. So we talked about you know, FED and inflation, some of the bigger concerns. But I know I wrote about this interview a non stick coding CEO had given Humblemark TV where he was saying, the way his orders are coming in,

it just looks like recessionary behavior. So what do you make of these sort of micro signals that are flashing morning signs for micro signals very very important, and that is what we spent a lot of time with management teams doing. And I think they can be quite predictive about where the economic cycles going, and there are ways to consume that, uh now through big data, and we do get access to a lot of that so near

term orders, etcetera. Um, but some of it you do get just from speaking to management teams and you generally will start to see, um, the pain show up there first. I would just say it's a little bit conflated right now because of all the supply chain issues we've had, so you can't you have to be very careful about looking at the data because it's quite lumpy. But I do think the micro signals are important. Um, absolutely, Katie.

I know you also like private markets, and I want to ask you what's attractive to you in the private Sure we we are believers at Goldman's access that management that clients should have if they are able to get invested to both public as well as private markets. That that that is absolutely true. UM. I would say at the moment, great news for people that are interested in public markets. The challenges have have been imputed into stock prices,

so market down, seventeen, tech down, MidCap software down. It has a lot of the worries have been reflected in stock prices. In contrast, a lot of these private assets only took down a mark in the first quarter of down ten percent, And if you look at what you can buy in public markets right now, it's effectively a fifty discount to what UH private companies were raising last year. So I just make the point that the valuations are

arguably more attractive now and like versus private markets. Um. The second point I would make is that I think there's really interesting assets that are really only available in public markets. Things that are capital and intensive, for example, and that would include semis, which we've already talked about.

But if you want to own best in class semis, you do need to look in public markets for those, and that semis are, of course the based infrastructure for all of the innovation we talked about today, are going to grow up multiples of GDP and are mostly available in public markets. I would say there's companies that are highly regulated in the utility space that look interesting. Those are interesting assets to own if we do have a more inflationary environment, and they're also if you pick the

right ones. Then the leaders in climate transition, which we've identified as a very important theme over the next decade,

mostly available in public markets. And then finally, UM, you know, you can avoid binary outcomes in public markets by owning um different parts of the supply chain and owning more diversified baskets UH and putting those together on the supply chain point, I just say, we really let we talked about the future of healthcare being interesting, and then specifically we love the development's happening in genomics and UM huge

amount of opportunity in the biologic space. We do own those drug companies, I'm happy to come back to that. But we also own a company called West Pharmaceuticals that makes the rubber stoppers for biologic drugs UH in the small and MidCap space. So there's just such a in the public markets. You just get such a strong array of companies all across the supply chain that enables you to have more latitude in the way you can implement

UM implement some of these themes. So own both but public markets on sale now and also a lot of reasons to to make sure that you have capital invested. There are things that exist in public markets that that don't necessarily exist in private markets. The rubber stoppers for test tube, so that's got to be recession proof too. I like I like that one. UH, I'm gonna look into them. Yeah, they have a seventy percent market share

globally in that space. And as you can imagine, there's they have the barriers to entry because it's there's regulatory issues because they interact with the drug. Um, they have to be the packaging actually has to be f d A approved, and yes it should be resistant somewhat in a recession, I would agree with you. And also a beneficiary of our continued booster right right, That's that's pretty fascinated. I know, I think we're gonna be getting boosters every

six months. It seems like, Katie, it's been refreshing to talk to you. I think we've gone almost a half an hour here and no one has even said the word crypto, which is is very refreshing. But you know, obviously is the other big story going on is just this you know, blood bath and crypto markets Bitcoin down, and obviously crypto has become pretty influential to the stock market, whether it be you know, Tesla and micro Strategy adding

it to their balance sheets and their treasuries. Were you know, years ago, a company could add blockchain to its name and see it's stockpop um. You know, the chip makers, which I know you followed pretty closely. Uh, you know certain chipmakers got a big boost from all the minding going on. How are you thinking about or are you thinking about it at all? Now? Given this you know, big retransmant in crypto prices. Is it sort of the type of sector you just avoid and let the dust

fall where may? Or is it you know, is there opportunities there? How do you how are you sort of thinking the way crypto complain into equity markets? Uh? If at all? Well, as you guys know, there's actually not a lot of pure play publicly listed ways to get exposure to crypto, so it's actually not a space we spent a lot of time on um, particularly with regards to the coins themselves, because they're just they're not part

of our investable universe. UM. I will say, um, and I know you've heard people say this before, so it's not going to sound particularly brave, but I do believe it to be quite true, UM that the blockchain technology and opinion that is highly disruptive, and it's something that we spend a lot of time thinking about, and we expressed it through our positioning in the payment space. So if you look at financials broadly as a category. UM. The way we're positioned there is that we still like

the big banks UM. It turns out it's a good business model to loan money UM and and hopefully uh get the loans paid back UM and have high net interest margins when rates are going up. These are actually good assets to own, and again they offer some diversity to portfolios and an environment where growth not performing. So we continue to like the best in class banks UM. And then on the other side and the more growth

oriented space. We're actually avoiding a lot of the lot of the fintech space UM because writ large, because it's obviously clearly highly competitive is and also these companies and management teams many of them haven't worked through a credit cycle before, which gives us pause. UM. But we do like, however, some of the payment companies UM and so and some of them actually are you going to be leaders in blockchain disruption? And so that's really where we expressed that

thesis in our portfolios. Katie, you talk about having fun, UM. I don't know if you realize this. Valdonna's idea of fun is watching grammar videos, videos about Grammar and her other her other fun thing to do is to read a story I've already edited and look for typos. That's kind of her, So you can figure out a way to monitor is those two things of all ears. But for the podcast, the way we have fun is uh talking at the craziest things we've seen in markets this week.

Uh proud tradition. So I think it's time to pivot, pivot to the crazy. There's been no shortage of crazy things, uh, Katie, So hope hopefully you you found something to uh the dazzle with us. I think your clients this is this. The pressure is on Katie. Your clients really want to know the craziest thing you saw. But we'll start with Uldonna Vildana. What's the craziest thing you saw this week? I think I'm gonna go with the obvious. And I actually had a couple of listeners reach out and and

flag it to me as well. And I know you had been looking at it, Mike and I had been looking at it, and you and I ended up writing about it together. But I want to give a shout out to Brian reich Half and at Dr Einstein, who both sent over that the Horde whole. Tara Luna the buckle to me, Brian Ha's, I mean a super interesting threat about how it actually how that stable coin became unpegged and everything that had happened there, and then also

Dr Einstein and apologies. But I don't know his actual name, so we're just going with with his Twitter handle. But he he was mentioning how it felt, you know, I think it was worth something like he said, thirty billion dollars and then it felt to just a tremendous, tremendous amount over just a couple of days. So that's that, by far, is the craziest thing. Yeah, it really is, Luna. I think the Queen was worth a hundred and sixteen

in early April. It's now worth a hundred and sixteen dollars now it's worth I don't know, eighty five cents the last time I checked. And loyal listeners may remember we actually did an interview with do Quan, who was the guy behind all of this, about I think about a year and a half ago. So if you scroll through your podcasts you might be able to find that one um and he talks about stable coins and synthetic

equities and everything else they're working on. Absolutely yeah, absolutely. Uh, fascinating story and really kind of kind of scary when you think of um how big that project had gotten. I think Tera after Ethereum was like the second biggest blockchain for a while there. So um, a lot to play out in that story. Uh, Katie, how about you, did you see anything crazy in markets this week? I mean, yeah, that that that question. I have a lot of answers

to a lot of a lot of crazy things. I mean I think the thing that we one interesting thing and that we're that I want to highlight is that, um, I would be weary of people at say look at things and say to you, oh, this is a great opportunity to buy this because it's as cheap as it's been in five years, or it's as cheap as it's

been in ten years. Because if we've entered an environment where capital is not free again, and that there's inflation shin and the central thanks going to be fighting it, it may actually not matter to compare evaluations now versus five years ago, but there are putting that context out there. There are still things that look really interesting from evaluation perspective through different types of metrics, and so one that stands out to me is what's happening right now in

the biotech space. UM. So something that interests me is that if you look at XBI as an example, UM, this is the small and mid cap biotech e t f UM. It's market cap is now the whole et f UM a little bit less than five billion dollars. If you take that, compare it to cash on the balance sheet of large pharma companies. So just take the top twelve largest pharma companies globally. They have six hundred

billion dollars of cash on their balance sheet. So cash on balance sheet of big pharma companies is actually larger than the market cap of small MidCap biotech UM. And the last time we got anywhere near those types of extremes was actually in two thousands fifteen, which was the last bottom for biotech. So again, not very skills at calling things over days or weeks or even months, but it would suggest to me, if the part of the market that you're looking to get involved in, those valuations

are very meaningful and I think quite supportive. Does that suggest at all that some of those big, bigger biotech firms might go on a little bit of a shopping spree. You know and and snatch up some of those smaller firms. Being acquisitive has been quite helpful to some large form of companies because they need to stay on the leading edge of innovation, and obviously some of that innovation is

happening in this small space. So it is possible, um, that you will actually see some takeouts, and in fact we we seen a couple um or and also intentions to do that in the last few weeks. So the answers yes, and I think that that level of firepower suggests that there's some floor to these companies. Now, the reality is some of these biotech companies, when you know, I can keep going on and on and saying how some of them are trading for less than cash and

the balance sheet are less than cash. Let's their enterprise value, um, etcetera. They are burning cash. I mean, that's what they do. They spend a lot of cash trying to get these drugs to the market. But they're not all they're not all going under, They're not all worth less than the cash on their balance sheet. So I think, um, there there is opportunity there, and it does suggest a floor. Anyway,

I will pivot now to my craziest thing. As Vildona will tell you, Katie, I'm a I'm a big fan of the art market, especially the crazy art market, if you will. And uh, I like art when it has a message. So this brings us to a story from the Irish time. There are times there's a young Irish artist named Shane Berkery, thirty years old. He decided to paint a picture of a nude Vladimir Putin. Um and why, you may ask, would he paint a nude Vladimir Putin? And he said, Uh, wanted it to be a reminder

that this person is also just a man. And I guess it's just to highlight how absurd it is that so many people are dying and lives are being destroyed because of decisions he makes. So his solution was to paint Putin in the buff and then they auctioned it off in an auction to benefit the Red Crosses efforts in Ukraine. So that obviously gives us Fildonna an opportunity here to play the prices, right, what do you suppose the winning bid for a nude painting of Vladimir Putin

went for and in auction in Ireland. Listeners can see me, but I'm totally rolling my eyes as as you do, as I should be. I'll go with it's got to be low, right unless you can never count the oligarch bit. But I'm not. I'm keeping a poker face not saying either. I'm gonna go with dollars and that's that's like, I think that's okay, Well it's it's in British pounds, so i'd have to I'd have to look up the exchange rate.

But thousand, thirty five thousands of British pounds, Katie, this is the time to impress your clients here with your skills. I think a half hour you guys talking about markets and someone will be impressed by manswer to this. I'm in the wrong business, but you get you get the luxury of price's right rules. So I felt that is saying thirty five thousand. You know it's if she goes over, she she's wrong. So you could you know, okay, you could be gonna say, oh, I can do that, I

can do the one dollar. You could Okay, you never know what some oligarch might might did. I don't know. I'm not I'm not I'm not sure. I'm gonna. I'm not gonna editorialize at all, but all of my thoughts are captured in one dollar. That is why jealous of that. I went with that. I wish I went with that. That is why she's the c I O. Your clients will be impressed, katounds which still seems high, but uh, nothing like the spender of vill Donna was ready to

bid on on that. I was thinking of the oligon. Yeah it's true, but they their money is all tied up. They can't they can't access and spend it. So um, that was a weird one as it was. Yes, yeah, that wasn't I take I take that as a compliment, right, No, not super weird. Alright, Katie, I promise you that's the most awkward segment of the podcast. So no, but I also feel like you kind of cheated because you were supposed to like give your fun fact, but you made it a test for us. I don't know that. I

always cheat, always cheat. Okay, that's how long super long questions that take like twenty minutes to ask and cheating on crazy? Well, I you know, I think I was born to be a game show host. So I'm just as me, just kind of you know, throw that out there, trying prices right ever needs Bob Barker retires, he must have retired already, but anyway, just throw that out there. I'm um, no, but is there? Most importantly, what's like if you said this is the price is right? You

took your fact, you made it into a contest. I want it sounds like, so, what's the prize like? Right right? The respected admiration of all of the what shows up listeners and an invitation an invitation employee please join us again because it's always, uh, such a treat to get your insights Katie and hear what you guys are up to at Goldman Sachs Asset Management, a small Wall Street firm that maybe maybe one or two listeners have heard of.

I don't know. I want to. I really appreciate you guys having me here, and I just want to leave people with the message that I know this is a very difficult market environment. We're working very hard for our clients. Don't panic, it doesn't pay. It's very difficult to time markets, you know, stay invested, and um, we'll get to the other side of this, just like every other correction that we've had and been able to manage through, so appreciate the chance to be on here and share that message

with people. Thank you so much for your time, Katie, really appreciate it. Thank you, Katie. Bye, guys, What Goes Up. We'll be back next week and so then you can find us on the Bloomberg Terminal, website and app or wherever you get your podcast. We love it if you took the time to rate and review the show on Apple Podcasts, so more listeners can find us. And you can find us on Twitter, follow me at reag Anonymous, Bildanna hierarch is at Bildonna Hirich. You can also follow

Bloomberg Podcasts at Podcasts. What Goes Up is produced by Stacy Wang. The head of Bloomberg podcast is Francesco Levie. Thanks for listening. To see you next time.