Sonali Basak: iCapital Chief Investment Strategist Makes Podcast Debut
Summary
Investment Strategy Shift: The podcast discusses the trend of financial firms hiring media professionals like Chenali Bassik to enhance content strategies and directly engage with investors, highlighting a shift in how investment information is communicated.
Private Market Access: Bassik emphasizes the growing importance of private assets in investor portfolios and the role of firms like I Capital in providing access and education about these alternatives.
Economic Concerns: The conversation touches on potential economic impacts of a government shutdown, including disruptions to federal services and the implications for the Federal Reserve's monetary policy decisions.
AI and Labor Market: The podcast explores the impact of AI on the economy, particularly its potential to exacerbate the K-shaped economy and affect labor markets, with companies like Walmart using AI to maintain productivity while keeping headcount stable.
Market Dynamics: Discussion includes the concentration of market gains in large tech companies, the role of AI in driving these gains, and the lack of broad market participation, raising concerns about market breadth.
Interest Rates and Inflation: The podcast examines the relationship between interest rates, inflation, and economic growth, with a focus on the potential for future inflation and its impact on investment strategies.
Infrastructure Investment: Infrastructure is highlighted as a significant investment theme, with potential opportunities arising from government spending and the need for private investment in critical infrastructure projects.
Transcript
In this episode of On the Tape, I welcome Chenali Bassik, chief investment strategist at I Capital and former anchor and journalist at Bloomberg to the show. Shali is part of a change in strategy on Wall Street where major financial firms are bringing in people from the media industry to help design content strategies, promote their businesses, and reach investors more directly online and in person. And they have found the right person with Shenali. As more investors look to add private assets to their portfolios, it's crucial that someone like Chenali is there to help inform and educate them to make better investment decisions. Prior to leaving Bloomberg, Chenali launched the Bloomberg original bullish with Shanali Bassik. And while it was only a few shows, it was both entertaining and educational. We get into her personal journey and her relentless quest for knowledge as it relates to the markets. Shanali shares some of her current thoughts on the Fed, both equity and fixed income markets, and this K-shaped economy. But before we get to Shenali, it appears we are on the brink of a government shutdown. And while it has happened before, most recently in December 2018 for 35 days that carried over into early 2019, they all seem to come at different points in the economic cycle. That shutdown in 2018-19 was also partial shutdown as Congress had enacted five of the 12 appropriations bills. If you remember back in March, we averted a shutdown with a stop gap measure to fund the government through the end of September, which is the fiscal year for the government. Well, here we are. Like today, in 2013, the government shutdown was primarily focused on health care and was a full government shutdown as none of the 12 appropriation bills were enacted. The biggest issue at the moment is a focus on the extension of the Affordable Care Act subsidies that are set to expire. Something that Meredith Whitney pointed out on last week's episode of On the Tape that in addition to student loan payments could be a drag on the US consumer if not extended. While the 2013 shutdown lasted 16 days, there was notable impact. Over 800,000 federal workers were furled and the remaining workers were required to work without the certainty of when they would be paid. In addition to national parks being closed, other government and regulatory functions like mortgage applications, small business loans, government issued licenses were halted or delayed. In addition, inspection functions by both the FDA and the EPA were delayed. Things like social security, Medicare and Medicaid, air traffic control, border protection, power grid maintenance, and VA funding should all be protected as these are classified as essential services. But within each of these areas, there could be issues such as new applications for social security and Medicare being delayed and a push back from both the TSA and air traffic controllers as while deemed essential might not get paid on time. Where I'm concerned at the moment is that following the Doge cuts earlier this year and the scramble to hire back some of those workers, these agencies might be unprepared and/or understaffed to be able to deal with the effects of a shutdown to even provide some of these essential services. But guess what? The Federal Reserve meets regardless of a government shutdown because it's an independent central bank. That meeting is scheduled for October 29th. And while they might not have all the government data they need from agencies like the BLS, I would assume they would air on the side of cutting as there would be real near-term economic headwinds from a shutdown that lasts more than a few weeks. Odds are now 97% that they cut 25 basis points, up from 90% just a day ago and 76% chance up from 66 of another cut happening in December. Without further ado, please enjoy my conversation with Shenali and stick around for my week five NFL picks. Welcome to the On the Tape podcast. I'm your host Danny Moses and today I am pleased to welcome the newly appointed chief investment strategist of I Capital Chenali Bassik to the pod. Chenali, welcome to the pod. >> Thank you for having me Danny. >> So great to be here. So I met you while you were at Bloomberg, right? And you were covering the Wall Street beat and and but before we get to that, I want to go into your background, but you were always relentless. Like you always wanted the story. You always were you were everywhere, right? I were what's that? You are still I'm saying you roll a boomer. can only imagine what you're doing now at I Capital. But let's back up a little bit and talk about you were 12 years at Bloomberg. What got you into kind of financial journalism? I always find that fascinating and kind of where you ended up today. So, >> I was excited to talk about this with you because it was the financial crisis that got me into financial journalism. I couldn't understand how it felt like so much was crashing all around us, but so few people could understand what was going on. And so what if you could have someone that prepared and was able to translate and understand as many risks as possible? And I'm glad I did all that homework because then we had COVID and then we had Silicon Valley Bank and there were a lot of interesting moments in the market where really you just had to explain things really fast and figure out what was going on. >> So you're pretty young. So where were you in 2008? >> College. >> So you were in college. So you were formed by kind of that crisis. And were you studying business at the time or journalism or >> I was kind of premed but I was also studying economics. Okay. >> But you went to kind of the main hall at school and you saw a stack of Wall Street journals just a mile high and you couldn't understand why people weren't picking them up. And a lot of it was just a matter of people needing to be explained things more fluently in a language that could be discussed at the dinner table and not just in boardrooms. >> That's great. So it's kind of like an outliers. That's like a Malcolm >> Gladwell chapter right there. You were sitting there. You got So you go straight to Bloomberg after college then. Or >> I went to grad school. I went to journalism school at Northwestern. So pretty good. >> Yeah. Well, you know, somebody I was an intern at CBS and I was told Northwestern or nothing and it was going to be something that really helped in terms of getting into the journalism industry at scale. My first day interning at CBS was actually Scott Pelly's first day working at the company. So even that felt pretty historic and it's really easy to fall in love with news in a newsroom like that. >> All right. So you get to Bloomberg. >> I get to Bloomberg >> and your role is what when you start what do you what are they handing you? >> So I was a rotator and I such fun stories as a rotator because they put me in front of some really large things right on the onset. So you might remember the valiant allergan deal and Bill Aman was very involved and I was just getting started and he was calling me directly and it was a messy deal to be involved with. Uh it was around the time of the deals of Twitch and Minecraft. You remember big video game deals which is irrelevant today because of electronic to arts. Yep. >> And eventually the spot had opened up on the finance team to cover insurance companies. And I remember thinking well wait a minute this is a space that not a lot of people want to understand but given what had happened with AIG it seemed like the opportunity of a lifetime to learn all the things that I wanted to learn. >> That's amazing. And Stephanie Rule was still there, right, at the time when you started for >> I think we overlap just a little bit. >> Just a little bit, right? Because we knew her from business and she made it that that way as well. So that's really interesting. All right. So you spent years there and and by the way before we leave the Bloomberg thing before your >> Bloomberg life would get through that. So at the very end you were a producer and creator of this Bullish, right? You were hosting this show called Bullish. Um and I think you had three episodes if I'm not mistaken. >> Six. >> Oh, six. Okay. as a host and executive producer of Bullish, which was years in the making and a big experiment, but yeah, it was six episodes, all different topics in the financial industry, and it was a dream to work on. >> I saw the poker one, which obviously, you know, I'm keen to, and then I saw the one with um down in uh Miami, right, when you were talking to Ken about his move to Miami and all the other firms that have come down there into the South. Those are the >> two that was like more than an hourong interview with Ken Griffin. So, 10 minutes made it into that. He enjoyed it though. It was that was that was good. >> It was, you know, in Miami is I think where he's the the happiest, you know, if I don't put words into his mouth, >> right? He seemed happy. >> Seemed to love it there. >> All right. So, we're done with that. >> You seem to love it there. >> Yeah. Yeah. Yeah. I like it down there. You know, I Miami I could give or take, but other parts of South Florida I do like. All right. So, let's talk about your new role here. And um Anastasia had been on the on the tape podcast before and knew what her role I assume, you know, you're stepping in obviously to that role. Um but it's really interesting, right? because the trends are now where media kind of meets everything's kind of coming together like it is in all types of businesses and so you're a perfect person at the right time. Talk about how you landed there and so far how you're enjoying it. It's only been a month now. >> It's only been a month's actually on the second so we're taping this like a day before my official month anniversary. But you know when I said earlier I started covering insurance companies first. What that meant was instead of just covering AIG and the typical way insurance companies, I was covering this massive trend that was happening at the same time of private capital firms buying insurance companies up and then using that as a base of permanent capital. So really I had been covering private capital since the beginning of my career. So when I took this job and by the way when I was thinking about I I I had I had not thought I was going to leave journalism. >> Well, let me back up for those who don't know what I Capital is. maybe explain it more cuz I should have said that you're talking about private capital and they make introductions to that space. So sorry. >> So I Capital has a few very large businesses. One in which we have many of the world's largest private capital firms, alternative firms on our platform, but we also have a structured notes business that is very large as well, hundreds of billions of dollars. So we help people a huge network 115,000 more actually now wealth managers raas financial advisors really connect to that world of alternatives across public and private markets >> I mean Lawrence Kalcono has built quite a firm there right it's uh it's I just saw he raised money I believe it was we wrote about it publicly I think at a 7.5 billion dollar valuation >> that's right just above that >> it's not a long time too he's had this firm it's like 10 12 years or something like Yeah, something more than a decade, right? So, it's not it's not a young young firm in that way, but it is a firm that has grown meaningfully and has become the leader in its space and by the way is in front of a lot of major tailwinds in the industry. We're at a point where a lot of those types of assets are becoming much more available to a much wider array of investors, which makes this moment, I think, different than any other point in time. Okay. So, let's talk about that because the access to private markets and private equity that retail investors are going to be getting. You've been on the beat for a long time. You understand some people it might not suit them, but others it will. How are you in your role really, you know, underscoring that and kind of educating the investor to kind of let them make the best decisions. >> This is my favorite. I bought your present, Dan. I bought your present because I think that this chart is the most telling thing about the private markets and it is a chart on dispersion. So if you're looking at it here, you can see that it is quite large. Let me describe it to the people who can't see. And it's that if you are in global equity markets today, that average or median IRRa rather is closer to 9%. And the dispersion is not as large is what you see in private markets. I think when you look at private markets, you see a lot of headlines. And for a lot of people, it could be very, very confusing, won't it be? Because you have a lot of types of assets. You have credit, you have equity, you have real estate, you have infrastructure, but you have a few dynamics at the same time. Well, wait a minute. There are not as many public companies as there were years ago. Wait a minute. You have more private debt, private credit taking the role of where public credit used to be. But at the same time, when you look at, for example, venture capital, you can be getting, yes, on a median basis, double-digit percentage returns, but the dispersion is massive. And that's the role that I intend to play to help really parse through all of that noise and help investors understand where the best returns can be in public and private. And remember, we're not saying that private's going to be everything. Not by any means, but if you're going to move into alternatives, how are you going to do it? And where are you going to find the best types of returns across those themes? What are the big tailwinds that are entering many of those themes? Some of them are really exciting right now. And how do you get access to the top quartortile funds because those are the really the ones that you're seeing those double-digit returns outperforming the market? You're seeing alpha still there. >> And I assume that I Capital does a great job of screening to protect people from negative selection type things that would show up onto the platform that you and I both know if you put your cynical hat on might not be suitable or should have already been funded before it reached kind of >> you know the desk to a degree. So >> that's a huge part of what we do. We do have a diligence team here that looks through and parses through the funds that will be distributed on the platform and it's a really rigorous process right so yes that is a very important part of what we do here because not all these funds are created equal by any stretch of the imagination >> I would be curious on that chart I don't think it's on that chart but if I looked at those returns and then I looked at the stocks of KKR Apollo and Blackstone right who feed you know Aries feed all of these deals what their performance looks like look looks like relative I think that would be interesting because my thought process sure you find a bespoke idea certainly in a cool fund and it has a little bit of leverage in it gives you a little bit more upside but look who's producing it. If that does well then you have to assume that the parent company would do well and now that they've changed their business models for partnerships obviously just normal of course. So >> fascinating that you mentioned that because you said leverage and I think leverage was a really large part of the strategy for the last decade plus when rates were really really cheap, right? But if you talk to the most savvy managers now, they're trying to do more simple things than leverage, which is make the companies better, right? When I say simple, I mean, you know, the bread and butter of operating a company, gaining returns, and growing a business, right? portfolio companies that are expanding and navigating in this environment rather than borrowing just to generate returns. >> So, one of the things you've been talking about, I've watched you in your tweeting about has been the impact of AI on the economy and exacerbating the K-shaped economy and so forth and how companies are using it, but at the end it might be detrimental to the labor markets. Let's talk about that because I think that's a trend we're going to see here for the next several years. I think that this is one of the biggest topics that most investors have not wrapped their head around. So I just came from a lunch. It's perfect time to talk to you about this because we were talking about this dynamic. >> If you have growth that keeps expanding quite meaningfully and if you have labor markets that are let's say stagnant relative to growth, then what's the policy solution for that? Number one. Uh, number two, let's talk about the labor market more particularly because there are some funky dynamics, let's say, in the labor market because you're seeing supply shrink and you're seeing what we're calling right now that no higher no fire or low higher low fire labor market where you're not seeing it fall off a cliff. You know this better than anyone, Danny. Things can stay in a solid place until they don't. So, we're watching this dynamic really closely because we want to make sure we're still at that stable place. If you look at jobless claims, yes, uh they had been trending higher, but if you look at it seasonally adjusted, jobless claims are actually at levels that are quite normal for what you've seen quite historically and relatively low actually. And so you're not watching this labor market totally fall off a cliff. Yet, you're still not seeing really the type of growth in the labor market that you're seeing overall. So, how much, this is the big conundrum. We've seen estimates that range, but how much is AI accounting for GDP right now? How much is it accounting for productivity? And how much will that gap grow? And will it start to put more pressure on the labor market? If you look, recent grads out of college, this is another thing that a lot of economists are definitely looking at. We had a conversation with John Williams, the New York Fed president, the other day just about this. AI could account for some of that weakness coming out of college, but it can't be accounting for everything. And so what is going on in the labor market right now and how much of it is AI really hard to know the societal impacts by the way also really hard to know >> well within the stock market which is not the economy and we've been talking about that obviously at nauseium it's companies are becoming more efficient there's also companies that are in the sector that are selling AI chips so it's a double whammy positive whammy I should say but at some point at anniversaries and it becomes cyclical from secular to a degree right so you get the efficiencies okay now that's my new baseline and then they're going to probably try to figure out labor needed and I was reading you know it's amazing how you know you were in college during financial crisis and it shaped probably what people would go to business school or not go to business school what jobs were going to be available or not >> this is interesting because you have all these computer scientists right which AI is you would think would help that I'm hearing it's like eradicating because AI so that shift is going to be really interesting and that doesn't happen overnight >> right um >> it's gonna take a long time Danny think about how many companies we haven't really even seen the impacts of AI There are certainly companies, the largest companies on the planet that are definitely using AI talking about what it means for their own labor forces. You know, the story I shared over the weekend by example was Walmart, right? Where Walmart is saying that they plan to grow, but they plan to keep their headcount stable. They hope that AI will create a lot of that extra productivity, right? Uh but what about once you start? We were listening the other day. We were at an event where there was a very large technology company CEO and that CEO was talking about that three, five, 10year horizon for AI adoption. Places like healthcare where you might not even see the real benefits until three years down the road. So yeah, what does it mean for labor is still a massive question, but that kind of long tale of AI adoption is huge. um what it means for jobs coming out of college. Boy, you and I, you can answer that as well. >> I'd rather be 10 years old right now trying to figure it out than 21 years old coming out and be like, "Okay, where am I going to go?" But for Walmart, just go to that for a second to say that they see employment at least being flat. That's probably a net negative in the sense you would think that they would be growing because obviously would be open >> largest private employer in America. >> Exactly. And so I'm not sure how many of their shoppers are going to be impacted directly. You know, blue collar with trade maybe not as much, but certainly there's an impact. So I think we're in the early innings and that's been the one thing to me that's been the most fascinating is you know if you're looking at the stock market people will take the benefit of AI now as it relates to but not worry about we're still a consumer econ was 65 66% driven by the US consumer >> however yeah that consumerdriven economy is driven by wealthier consumers right >> so going back to the K shape I think that's where something's got to give here where you have what something like 85 to 95% of the United States making less than $100,000 a year. And so if you have real wages not really keeping up to that upper quartile, then what does that mean at the end of the day in terms of consumer spending power? Does it matter in terms of the market performance? And if it doesn't matter for market performance, then it matters from real world economics, right? And it does not mean that um that the economic realities are going to be consistently reflected in the stock market, aka that K-shaped economy continues in in a really large scale. You just took my next question which was literally my next question to you was how do you measure the wealth effect of the stock market and that's how it feeds on itself to the upside and it drives the economy but the scary thing is it could easily unwind and have the exact opposite effect and then to your point all of a sudden happens all at once you're looking at this thing so feels like between crypto which I want to talk to you about and and the markets in general we're back in this kind of I'm not asking you to talk about single stock ideas but the stuff that you see which I know you must be like whoa you know how it's going to end >> and you know people going to end up getting, you know, getting burnt on some of these names. We're back in full kind of 2000 mode, which, >> you know, it's interesting. I I've been listening to you talk about this and there are places where I totally agree and then there are places where I'm like, "Okay, let's talk about >> Please disagree." Yeah. Some of the places that So, yes, there has there been a lot of meme stock activity, right? You've seen in recent weeks baskets that have typically been most shorted. For example, the Goldman Sachs most shorted basket has been seeing a massive run up in in recent weeks. It's ta it's tailed off recently. Some of that exuberance slowly being popped out. Fine. You can define those places as froth. Even the Russell 2000. This is a little controversial given the love of the Russell 2000. >> I have your chart right here that you posted on the Russell 2000. >> It's incredible. Now listen, we want to love the Russell. It's an American story, but you have so many unprofitable companies in there. And if you're trading it as a tactical trade because you think rates are going to fall is one thing. If you're investing in them because you believe in earnings expansion and the one big beautiful bill maybe I think you really have to ask yourself how much earnings power there is in there because most of them are unprofitable. But listen when it comes to big tech and AI clearly the train has not stopped both in terms of capital that has come into the market as well as the capital that those firms are willing to spend. And then something interesting, we have a great chart at eye capital that shows you, let's say, the top four hyperscalers and then it has a few others, particularly recently Oracle, for example. Oracle is an interesting example because it has historically been a smaller portion of capback spending, but you're seeing players outside of the biggest hyperscalers spending more on AI. And it draws the question, can you see really a broader set of people or a broader set of companies starting to benefit from AI capex as well as AI spending? Now, Oracle, an interesting thing is they had what less than $20 billion of a bond sale the other day. They had 88 billion dollar worth of demand. >> Of course, >> so the capital is cheap is what I'm saying. So when your cost of financing is going down, the financing is this cheap, then it becomes easy for them to raise money, sustain this spending. And so I agree with you on some parts of the frothiness here. But right now, there are also equally, I think this is from me going from a journalist to a strategist now, really going away from just looking at all the downside risks and really thinking hard about what those upside risks are to that story. Um, even if you don't see the rest of the market catching up as much, >> it's amazing how your mindset changes when you're on the quote other side other side. Yeah. I mean, Oracle market cap went up, forget the demand for the debt. Yeah. >> It went up 250 billion in one day on their earnings a couple weeks ago. I mean, are you telling me that it was that misunderwitten or that somebody all all of a sudden discovered? I guess my point is that it's a great company, certainly trending in the right direction, but something's wrong with that. So was everybody wrong the day before or was every and everybody right the next day or is it somewhere in the middle and separate from Oracle for a minute the names I'm talking about which I realize are meaningless in the sense of but I think they force or create the sentiment in the markets and the risk takingaking and the risk appetites of people when they see oh my next door neighbor just bought Wolf in bankruptcy at 60 cents it closed it's at $32 today why because the technicality is related to the borrow availability which we won't get into here but my point is that that's stuff that I saw I know how it ends. And so Oracle is one thing. That's and and to your point on kind of the large tech companies, they are they are one thing. Let's put them in a bucket. They're kind of uh massive outliers for by every metric you look at. >> But what about the 493, >> right? When people talk about broadening or when people talk about rotation, I find this conversation very frustrating because can you call it a broadening of the market? when people are buying big tech names in the Russell and they're not buying the 493 nearly as much, I don't think you can, right? And when you look at the other chart that I posted the other day that got a lot of traction was when you look at the price to earnings ratios for the rest of those industries that matter for the 493. Even financials, you would think financials with the runup we've seen this year that they would be relatively expensive on a 5-year basis and they're not. They're just not. they're not uh by by PE at least. And so we have not actually seen that broad-based rally. So I hear you. Given how much the market has been concentrated into those names, the market concentration worries everybody. But with that said, I think that you have to really account for the differences that we're seeing in the way these companies are growing and the differences from 1996 to 1999, which is that these companies actually have earnings. >> Yeah. And I think market structure feeds into this narrative anyway. So it's just self-fulfilling the large market caps keeps getting bigger because you talked to you have talked in the past to those fund managers and you still are now actually in the role. So some of those do overlap with you when you've moved over to I capital, but that that is what it is and so it feeds on itself. If I'm a portfolio manager, I can't not own the biggest and it's the most liquid and get out and it to your point, it gives you the opportunity to look at value names which are being left in the dust which historically would be the Russell 2000 and names. But I think Russell value, Russell growth, you got to separate those a little bit also, I think. Correct. >> Why is no one looking at value in the S&P 500? You don't think this is a crazy thing that it's only talking about smallest of small and biggest of big and nothing in the middle? >> Yeah. Cuz it doesn't go up 250 billion market cap and you know >> it doesn't draw the headlines. So let's make them headlines. Let's make good investing headlines. >> Exactly. All right. So let's get into some other stuff because you've talked about I either we're reading each other stuff all the time because we are completely in the same in the same mindset. So government bonds and those yields versus you know investment grade corporates right which tightest you So the people take that signal to mean and they should that credit markets are fine. Yes, they are in the corporate side for sure. I think you agree. I'd much rather own double AAA corporate credit than US treasuries and I'm only going to get like 50 basis points more. But I think that's a really interesting thing going on right now in the markets. >> I think this is the story of the year. >> The longer end of the bond market, the longer term yields are >> 10 years and Yeah. >> Right. because they matter for so many reasons, right? So, I'll give give you a little more of a technical thing, but let's talk about the shutdown just really quickly because first of all, there's a lot of >> You're talking about if we shut down this evening, you're talking about >> we shut down this evening. Let's just talk about the facts, right? Because you do tend to have volatility going into a shutdown, but you tend to recoup those gains very quickly uh coming into this week. Last week, yields were higher. This week, actually, yields are lower. You've actually seen the bond market draw in a bit this year, this week, sorry. Now, the reason I think this matters is because I think that there is a little bit of a burning desire in me right now to lower the range of our outlook for the 10-year Treasury, right? Because historically there has been a correlation between rate cuts and the 10-year declining. Now, what if this time is different? I think that that is a real question because if you see a rate cutting cycle that is supposed to ease pressure on the more sensitive parts of the economy, you know, you even take PCE, we're looking at inflation. What is still contributing to inflation? Services. What inside of services is contributing to inflation? Shelter costs. Yeah. >> And so if >> your old beat insurance. Yeah. Exactly. Yeah. >> So, but even on shelter costs, if you don't see a meaningful reduction in the tenure, then do you really see that mortgage rate decline under that kind of emotional 6% level? And whether you do or don't, is it going to really unlock what is it going to do housing prices? I think the housing story, you've covered it recently on this podcast. I think it's an excellent podcast with Meredith Meredith Whitney. But, you know, what does it do ultimately to that part of the inflation story and how does that feed then through into the Fed's response to rate cuts? Uh, the US government's response to how they think about those longerterm bond yields. Uh, right now, you've heard the Treasury Secretary talk about it a lot. It's of huge focus at the highest levels of this government. But, can they do it? Can they get that lower? >> Well, even with the government shutdown, the Federal Reserve stays open because it's not a government entity, right? It's an independent central bank. So, that meeting is October 29th. And as we sit here, the one of the reasons yields have gone down is the chances for 25 base points is now 98% effectively up 10 points in the last day. And the chance for you know, you know, another cut at the end of the year went up also dramatically. So the narrative would be government shuts down, has a negative hit on the economy, but everyone knows it's quote temporary, but it forces the hand of the Fed even more and every Fed meeting we have gets closer to Pal being gone and he has like four left after this anyway, right before he's gone in May. And so people are going to trade that ahead to your point. I guess what you alluded to in the $64,000 question is if you start cutting rates too much into what you're describing still and and many people are still a stable to growing economy and whatever inflation reads may or may not be we're that's dangerous territory. So that they could lose the 10ear yield which I think is why go back to the original question I asked a few minutes ago corporate debt is trading so tight. >> Yeah. I mean listen equity valuations are high as we know and people have been looking at debt as an alternative right and given the uh the the yield levels we've been at people have been expecting low spreads there is another point I would make though about inflation which is that we've seen inflation above the Fed's target for what 5 years now and if you look at it PCE core had come in at 2.9% right and the Fed's summary of economic projections is at 3.1% so that suggests there's still room to cut even at these levels of inflation. Now, with that said about the economic data, the Fed might be open, but the Bureau of Labor Statistics, whether they'll be able to release their payrolls report on Friday, is of massive concern. And the reason it's of massive concern is because it would be another data point that would read through to the potential for rate cuts. And the market actually from last week to this week had reduced their odds of two rate cuts this year, >> right? So they had baked in firmly to and now it's a little less than that and this year by the way is a little more certain than next year. Next year is very uncertain. You know I heard Manny Roman the CEO of PIMCO the other day talking to Jonathan Pharaoh my former colleague and he said as far as just general clarity about the environment especially AI we're looking six months out. You have the Federal Reserve that can barely look six months out. How is any investor supposed to be able to look more than six months out? >> No, you're right. It's it's really hard like that's that's my point about this market has been immediate gratification. What is it going to do? Now you pull forward all these assumptions but you have to make you know you have to plan and you know through the tariffs and everything else being whether you're an investor or you're running a company right you have to make all these decisions it's really difficult >> question for you so one thing that keeps on coming up in a lot of conversations under the surface bubbling up now right is whether we face inflation again next year right uh or inflation toward the end of next year into 2027. Now if you knew that we would be if you had your crystal ball then would you trade differently today? um probably only the sense of the Fed, you know, whatever the terminal rate is going to be for the Fed where the Fed ends up would probably change a little bit and therefore all the things which you're pulling forward, whether it's housing or mortgage originations, whatever you think it's going to be, refi, helocks, all those things, it would change a little bit, probably not a lot. And again, who knows, you know, where the the data, we're not, you're right, we're not going to get data. We're going to get it in the private markets. You'll get the ADP number, >> but you're not going to get the BLS number, right? You'll hear companies talk about the quarter, right? We're I can't believe we're going to be in earnings season again in like 2 weeks. We get the financials first. So, we're going to start to get what you know, we'll start to get a little bit of that, but it will be interesting. And I wouldn't, you know, one of the things that always happens when there's something big that happens like a government shutdown, CO, which is obviously much bigger. People change the way that they behave and the way that they invest. It's a great question you asked. What would you do? What if the reliance on BLS and government statistics starts to shift and we're able to find other ways other metrics that we look at whether it's you're pulling it from 10 QS severally or ADP or other companies kind of emerge to provide better you know independent reliable data these things always tend to happen right and be like well I'm not using that anymore I'm going to go to this so it's interesting how investors behavior and consumers behavior adapt and never underestimate the US consumer like it's the one thing I've learned in my entire life it's like the bounce back of the it's unbelievable like never short over a long period of time the US consumer. >> I think that's why I'm so focused on the housing market as well. This is a really fascinated a fascinating statistic. One of my teammates had pulled out from me, Peter Rapetto. He had found a stat that showed because he was saying, "Oh, well, okay, you know, mortgage rates have come down." I'm like, "Well, how much does that really matter if people are not buying new homes?" And then he goes to me and says, "Well, wait a minute. Just the refi activity alone is freeing up $200 to $300 in everyone's pocketbooks, I think, per month, right?" And so to your point there and you know we haven't even seen the effects of the one big beautiful bill next next year. So there are tailwinds to the consumer. There certainly are uh should we continue to see rates come down in particular. But I think it's hard to argue that a lot of the benefits that you're seeing right now in the market are still weighted to those very large companies particularly the large companies that are in themes that everyone is flocking to. And by the way it's a traders market right now right which is why I asked that six-month question. People are not people are not as much as anyone would like thinking about what it would be to invest for the long term at this moment. >> Do you um care about the balance sheet of the government and the debt? Like do you think that people like me that talk about what an issue it is are just you know wasting air? No. >> I know there are people who think that. I think it's a very important topic for a lot of reasons. I think a lot of people talk about it in terms of just what it means for bond yields. I am very much watching bond yields but especially because if you think about it big institutional investors are so heavily weighted towards bonds right not equities particularly bonds >> but it's also the crowding out effect every time the government is uh spending more and more money inefficiently you do have them unable to spend money elsewhere right this is where you see that congressional push pull playing out every day but also something people have not considered during the one big beautiful bill for example is okay well wait a minute we are now shifting some of that responsibility of spending away from the states right that means states have a lot less to spend on all infrastructure really right what does that mean we have not seen that play out yet right and what that will mean in terms of broader impacts couple that with what we were talking about before in terms of that divergence between labor market growth uh the halves and the have nots k-shaped economy we haven't even seen that divergence start to build when it means that the government can't or has to back off of or can't reinvest in parts of the critical infrastructure that makes a city or a state successful. I think that that's going to be a big story in the next few years and I think that's why infrastructure for investors has been such a big theme just dams and >> guess where you can find an infrastructure fund. I'm sure you might be able to find one at I Capital. I'm going to guess that there's going to be one that's on that sheet somewhere. No, I'm in total agreement on that. That's a great place to be because it is certain that that's going to be a trend that's going to go forward. So, give me a give me your new day in the life other than, you know, thank you for coming here and spending time. I'm sure this was, you know, took up took up something else. So, I appreciate you coming in here, but give me a day in the life now what you're doing. >> Well, I don't have to wake up at 3:30 anymore, which is very nice. I get to work out now before I get started and listen to kind of what's going on on the street and get used to a new diet. It's been a new diet of reading and uh consumption. I'm client of a lot of the banks now, so I am reading everyone's research, but also um Bloomberg of course, but everything outside of Bloomberg, listening to a lot of podcasts within Bloomberg and outside of it. I think uh it's very common to, you know, I'm still friends with everyone at Bloomberg, right? So, I'm listening to podcasts constantly, but it's been interesting to kind of broaden my aperture here on um just different ways of assessing the markets. Uh but here I think when I start my day my most important part is actually my morning meeting. It is talking to my two teammates Peter and Nick and us sitting together the three of us and talking about okay what are the top questions? What are the top questions we're getting from clients? What are the top questions that we have about the markets and how do we find a framework to assess those risks upside and downside? That by far is the most important part of my day. And after that it's a lot of talking to clients. uh I get to be I guess you know so to speak on the other side now um you know I've been doing more TV appearances for example this is my first podcast since joining so thank you for having me >> but um and writing you know honestly the one thing that I've maintained is I've kept my newsletter I'm writing a whole lot and I think writing is my safe space writing is the place where I sort out and stress test all of my ideas and so it's one of the most important things I do >> well let me just read this quote from the CEO when you came aboard and we can close out with this quote. We really want to accelerate what we're doing from an educational standpoint. Obviously, as more investors move into alternative assets, it was really critical for us to find somebody to come in that had a deep understanding of what was happening in the private markets and you could connect the dots in financial media and what it means for everything else. So, I'm sure they love having you there, right? I love having you here and I look forward to what you're going to be doing and I hope you will come back on again soon and best of luck and I have a feeling at some point in your career this hosting and producing of shows is not over. I'm sure you're not going to do it, you know, in the next Well, you just started this new job, but I I still see you doing that stuff because that was great to watch as well. But thank you for coming on. >> Stay tuned, Danny. Thank you so much. I hope to be on soon. >> Week five already in the NFL. And I would note the first byee this year, Falcons, Bears, Packers, and Steelers are all off. I was two and one last week with the Eagles and Giants and I lost on an injury-riddled Commander team. One of the problems with giving picks on Tuesday. That line moved five points, but whatever. I'll take the loss. Two and one. Six and five on the season. Back over 500. Looking at a few games. All right. Broncos are going to the Eagles. They're either getting four or four and a half. The Broncos effectively had a by-week this week when they beat the Bengals. And the Eagles, yeah, they're 4-0. They don't look like a complete team. And the Broncos are two and two. Could easily be 4-0. Give me the Broncos plus the four or four and a half on the road at Philly. All right, Vikings spending a second straight week in Europe. This time playing Cleveland in London after losing to the Steelers in Dublin. You have to figure that an extra week in Europe helps the Vikings. And if you're a conspiracist, wouldn't the NFL want to reward them for doing this and help with international appeal? The line is four. And I like the Vikings. I think Carson Wentz is behind center again. He found something late in that game. And Cleveland is rumored to be starting rookie Dylan Gabriel. Either way, Flaco or Gabriel or English breakfast for the Vikings, giving the Vikings minus four in that game. Last of the three games, the Raiders getting seven at the Colts. The real Daniel Jones came out a bit last week versus the Rams. And the Raiders will be really angry after the block field goal that cost him at the end of the game versus the Bears. Give me the Raiders plus six and a half or seven on the road. Buy it up to seven if you have to to pay the extra vig. Good luck this week and I'll be back next week with more picks. Thanks for listening to the On the Tape podcast with Danny Moses. If you like what you heard, please subscribe on either Apple or Spotify to the weekly podcast and please leave a rating and review, positive only. You can also watch on the on the tape channel on YouTube and give us a thumbs up there as
Sonali Basak: iCapital Chief Investment Strategist Makes Podcast Debut
Summary
Transcript
In this episode of On the Tape, I welcome Chenali Bassik, chief investment strategist at I Capital and former anchor and journalist at Bloomberg to the show. Shali is part of a change in strategy on Wall Street where major financial firms are bringing in people from the media industry to help design content strategies, promote their businesses, and reach investors more directly online and in person. And they have found the right person with Shenali. As more investors look to add private assets to their portfolios, it's crucial that someone like Chenali is there to help inform and educate them to make better investment decisions. Prior to leaving Bloomberg, Chenali launched the Bloomberg original bullish with Shanali Bassik. And while it was only a few shows, it was both entertaining and educational. We get into her personal journey and her relentless quest for knowledge as it relates to the markets. Shanali shares some of her current thoughts on the Fed, both equity and fixed income markets, and this K-shaped economy. But before we get to Shenali, it appears we are on the brink of a government shutdown. And while it has happened before, most recently in December 2018 for 35 days that carried over into early 2019, they all seem to come at different points in the economic cycle. That shutdown in 2018-19 was also partial shutdown as Congress had enacted five of the 12 appropriations bills. If you remember back in March, we averted a shutdown with a stop gap measure to fund the government through the end of September, which is the fiscal year for the government. Well, here we are. Like today, in 2013, the government shutdown was primarily focused on health care and was a full government shutdown as none of the 12 appropriation bills were enacted. The biggest issue at the moment is a focus on the extension of the Affordable Care Act subsidies that are set to expire. Something that Meredith Whitney pointed out on last week's episode of On the Tape that in addition to student loan payments could be a drag on the US consumer if not extended. While the 2013 shutdown lasted 16 days, there was notable impact. Over 800,000 federal workers were furled and the remaining workers were required to work without the certainty of when they would be paid. In addition to national parks being closed, other government and regulatory functions like mortgage applications, small business loans, government issued licenses were halted or delayed. In addition, inspection functions by both the FDA and the EPA were delayed. Things like social security, Medicare and Medicaid, air traffic control, border protection, power grid maintenance, and VA funding should all be protected as these are classified as essential services. But within each of these areas, there could be issues such as new applications for social security and Medicare being delayed and a push back from both the TSA and air traffic controllers as while deemed essential might not get paid on time. Where I'm concerned at the moment is that following the Doge cuts earlier this year and the scramble to hire back some of those workers, these agencies might be unprepared and/or understaffed to be able to deal with the effects of a shutdown to even provide some of these essential services. But guess what? The Federal Reserve meets regardless of a government shutdown because it's an independent central bank. That meeting is scheduled for October 29th. And while they might not have all the government data they need from agencies like the BLS, I would assume they would air on the side of cutting as there would be real near-term economic headwinds from a shutdown that lasts more than a few weeks. Odds are now 97% that they cut 25 basis points, up from 90% just a day ago and 76% chance up from 66 of another cut happening in December. Without further ado, please enjoy my conversation with Shenali and stick around for my week five NFL picks. Welcome to the On the Tape podcast. I'm your host Danny Moses and today I am pleased to welcome the newly appointed chief investment strategist of I Capital Chenali Bassik to the pod. Chenali, welcome to the pod. >> Thank you for having me Danny. >> So great to be here. So I met you while you were at Bloomberg, right? And you were covering the Wall Street beat and and but before we get to that, I want to go into your background, but you were always relentless. Like you always wanted the story. You always were you were everywhere, right? I were what's that? You are still I'm saying you roll a boomer. can only imagine what you're doing now at I Capital. But let's back up a little bit and talk about you were 12 years at Bloomberg. What got you into kind of financial journalism? I always find that fascinating and kind of where you ended up today. So, >> I was excited to talk about this with you because it was the financial crisis that got me into financial journalism. I couldn't understand how it felt like so much was crashing all around us, but so few people could understand what was going on. And so what if you could have someone that prepared and was able to translate and understand as many risks as possible? And I'm glad I did all that homework because then we had COVID and then we had Silicon Valley Bank and there were a lot of interesting moments in the market where really you just had to explain things really fast and figure out what was going on. >> So you're pretty young. So where were you in 2008? >> College. >> So you were in college. So you were formed by kind of that crisis. And were you studying business at the time or journalism or >> I was kind of premed but I was also studying economics. Okay. >> But you went to kind of the main hall at school and you saw a stack of Wall Street journals just a mile high and you couldn't understand why people weren't picking them up. And a lot of it was just a matter of people needing to be explained things more fluently in a language that could be discussed at the dinner table and not just in boardrooms. >> That's great. So it's kind of like an outliers. That's like a Malcolm >> Gladwell chapter right there. You were sitting there. You got So you go straight to Bloomberg after college then. Or >> I went to grad school. I went to journalism school at Northwestern. So pretty good. >> Yeah. Well, you know, somebody I was an intern at CBS and I was told Northwestern or nothing and it was going to be something that really helped in terms of getting into the journalism industry at scale. My first day interning at CBS was actually Scott Pelly's first day working at the company. So even that felt pretty historic and it's really easy to fall in love with news in a newsroom like that. >> All right. So you get to Bloomberg. >> I get to Bloomberg >> and your role is what when you start what do you what are they handing you? >> So I was a rotator and I such fun stories as a rotator because they put me in front of some really large things right on the onset. So you might remember the valiant allergan deal and Bill Aman was very involved and I was just getting started and he was calling me directly and it was a messy deal to be involved with. Uh it was around the time of the deals of Twitch and Minecraft. You remember big video game deals which is irrelevant today because of electronic to arts. Yep. >> And eventually the spot had opened up on the finance team to cover insurance companies. And I remember thinking well wait a minute this is a space that not a lot of people want to understand but given what had happened with AIG it seemed like the opportunity of a lifetime to learn all the things that I wanted to learn. >> That's amazing. And Stephanie Rule was still there, right, at the time when you started for >> I think we overlap just a little bit. >> Just a little bit, right? Because we knew her from business and she made it that that way as well. So that's really interesting. All right. So you spent years there and and by the way before we leave the Bloomberg thing before your >> Bloomberg life would get through that. So at the very end you were a producer and creator of this Bullish, right? You were hosting this show called Bullish. Um and I think you had three episodes if I'm not mistaken. >> Six. >> Oh, six. Okay. as a host and executive producer of Bullish, which was years in the making and a big experiment, but yeah, it was six episodes, all different topics in the financial industry, and it was a dream to work on. >> I saw the poker one, which obviously, you know, I'm keen to, and then I saw the one with um down in uh Miami, right, when you were talking to Ken about his move to Miami and all the other firms that have come down there into the South. Those are the >> two that was like more than an hourong interview with Ken Griffin. So, 10 minutes made it into that. He enjoyed it though. It was that was that was good. >> It was, you know, in Miami is I think where he's the the happiest, you know, if I don't put words into his mouth, >> right? He seemed happy. >> Seemed to love it there. >> All right. So, we're done with that. >> You seem to love it there. >> Yeah. Yeah. Yeah. I like it down there. You know, I Miami I could give or take, but other parts of South Florida I do like. All right. So, let's talk about your new role here. And um Anastasia had been on the on the tape podcast before and knew what her role I assume, you know, you're stepping in obviously to that role. Um but it's really interesting, right? because the trends are now where media kind of meets everything's kind of coming together like it is in all types of businesses and so you're a perfect person at the right time. Talk about how you landed there and so far how you're enjoying it. It's only been a month now. >> It's only been a month's actually on the second so we're taping this like a day before my official month anniversary. But you know when I said earlier I started covering insurance companies first. What that meant was instead of just covering AIG and the typical way insurance companies, I was covering this massive trend that was happening at the same time of private capital firms buying insurance companies up and then using that as a base of permanent capital. So really I had been covering private capital since the beginning of my career. So when I took this job and by the way when I was thinking about I I I had I had not thought I was going to leave journalism. >> Well, let me back up for those who don't know what I Capital is. maybe explain it more cuz I should have said that you're talking about private capital and they make introductions to that space. So sorry. >> So I Capital has a few very large businesses. One in which we have many of the world's largest private capital firms, alternative firms on our platform, but we also have a structured notes business that is very large as well, hundreds of billions of dollars. So we help people a huge network 115,000 more actually now wealth managers raas financial advisors really connect to that world of alternatives across public and private markets >> I mean Lawrence Kalcono has built quite a firm there right it's uh it's I just saw he raised money I believe it was we wrote about it publicly I think at a 7.5 billion dollar valuation >> that's right just above that >> it's not a long time too he's had this firm it's like 10 12 years or something like Yeah, something more than a decade, right? So, it's not it's not a young young firm in that way, but it is a firm that has grown meaningfully and has become the leader in its space and by the way is in front of a lot of major tailwinds in the industry. We're at a point where a lot of those types of assets are becoming much more available to a much wider array of investors, which makes this moment, I think, different than any other point in time. Okay. So, let's talk about that because the access to private markets and private equity that retail investors are going to be getting. You've been on the beat for a long time. You understand some people it might not suit them, but others it will. How are you in your role really, you know, underscoring that and kind of educating the investor to kind of let them make the best decisions. >> This is my favorite. I bought your present, Dan. I bought your present because I think that this chart is the most telling thing about the private markets and it is a chart on dispersion. So if you're looking at it here, you can see that it is quite large. Let me describe it to the people who can't see. And it's that if you are in global equity markets today, that average or median IRRa rather is closer to 9%. And the dispersion is not as large is what you see in private markets. I think when you look at private markets, you see a lot of headlines. And for a lot of people, it could be very, very confusing, won't it be? Because you have a lot of types of assets. You have credit, you have equity, you have real estate, you have infrastructure, but you have a few dynamics at the same time. Well, wait a minute. There are not as many public companies as there were years ago. Wait a minute. You have more private debt, private credit taking the role of where public credit used to be. But at the same time, when you look at, for example, venture capital, you can be getting, yes, on a median basis, double-digit percentage returns, but the dispersion is massive. And that's the role that I intend to play to help really parse through all of that noise and help investors understand where the best returns can be in public and private. And remember, we're not saying that private's going to be everything. Not by any means, but if you're going to move into alternatives, how are you going to do it? And where are you going to find the best types of returns across those themes? What are the big tailwinds that are entering many of those themes? Some of them are really exciting right now. And how do you get access to the top quartortile funds because those are the really the ones that you're seeing those double-digit returns outperforming the market? You're seeing alpha still there. >> And I assume that I Capital does a great job of screening to protect people from negative selection type things that would show up onto the platform that you and I both know if you put your cynical hat on might not be suitable or should have already been funded before it reached kind of >> you know the desk to a degree. So >> that's a huge part of what we do. We do have a diligence team here that looks through and parses through the funds that will be distributed on the platform and it's a really rigorous process right so yes that is a very important part of what we do here because not all these funds are created equal by any stretch of the imagination >> I would be curious on that chart I don't think it's on that chart but if I looked at those returns and then I looked at the stocks of KKR Apollo and Blackstone right who feed you know Aries feed all of these deals what their performance looks like look looks like relative I think that would be interesting because my thought process sure you find a bespoke idea certainly in a cool fund and it has a little bit of leverage in it gives you a little bit more upside but look who's producing it. If that does well then you have to assume that the parent company would do well and now that they've changed their business models for partnerships obviously just normal of course. So >> fascinating that you mentioned that because you said leverage and I think leverage was a really large part of the strategy for the last decade plus when rates were really really cheap, right? But if you talk to the most savvy managers now, they're trying to do more simple things than leverage, which is make the companies better, right? When I say simple, I mean, you know, the bread and butter of operating a company, gaining returns, and growing a business, right? portfolio companies that are expanding and navigating in this environment rather than borrowing just to generate returns. >> So, one of the things you've been talking about, I've watched you in your tweeting about has been the impact of AI on the economy and exacerbating the K-shaped economy and so forth and how companies are using it, but at the end it might be detrimental to the labor markets. Let's talk about that because I think that's a trend we're going to see here for the next several years. I think that this is one of the biggest topics that most investors have not wrapped their head around. So I just came from a lunch. It's perfect time to talk to you about this because we were talking about this dynamic. >> If you have growth that keeps expanding quite meaningfully and if you have labor markets that are let's say stagnant relative to growth, then what's the policy solution for that? Number one. Uh, number two, let's talk about the labor market more particularly because there are some funky dynamics, let's say, in the labor market because you're seeing supply shrink and you're seeing what we're calling right now that no higher no fire or low higher low fire labor market where you're not seeing it fall off a cliff. You know this better than anyone, Danny. Things can stay in a solid place until they don't. So, we're watching this dynamic really closely because we want to make sure we're still at that stable place. If you look at jobless claims, yes, uh they had been trending higher, but if you look at it seasonally adjusted, jobless claims are actually at levels that are quite normal for what you've seen quite historically and relatively low actually. And so you're not watching this labor market totally fall off a cliff. Yet, you're still not seeing really the type of growth in the labor market that you're seeing overall. So, how much, this is the big conundrum. We've seen estimates that range, but how much is AI accounting for GDP right now? How much is it accounting for productivity? And how much will that gap grow? And will it start to put more pressure on the labor market? If you look, recent grads out of college, this is another thing that a lot of economists are definitely looking at. We had a conversation with John Williams, the New York Fed president, the other day just about this. AI could account for some of that weakness coming out of college, but it can't be accounting for everything. And so what is going on in the labor market right now and how much of it is AI really hard to know the societal impacts by the way also really hard to know >> well within the stock market which is not the economy and we've been talking about that obviously at nauseium it's companies are becoming more efficient there's also companies that are in the sector that are selling AI chips so it's a double whammy positive whammy I should say but at some point at anniversaries and it becomes cyclical from secular to a degree right so you get the efficiencies okay now that's my new baseline and then they're going to probably try to figure out labor needed and I was reading you know it's amazing how you know you were in college during financial crisis and it shaped probably what people would go to business school or not go to business school what jobs were going to be available or not >> this is interesting because you have all these computer scientists right which AI is you would think would help that I'm hearing it's like eradicating because AI so that shift is going to be really interesting and that doesn't happen overnight >> right um >> it's gonna take a long time Danny think about how many companies we haven't really even seen the impacts of AI There are certainly companies, the largest companies on the planet that are definitely using AI talking about what it means for their own labor forces. You know, the story I shared over the weekend by example was Walmart, right? Where Walmart is saying that they plan to grow, but they plan to keep their headcount stable. They hope that AI will create a lot of that extra productivity, right? Uh but what about once you start? We were listening the other day. We were at an event where there was a very large technology company CEO and that CEO was talking about that three, five, 10year horizon for AI adoption. Places like healthcare where you might not even see the real benefits until three years down the road. So yeah, what does it mean for labor is still a massive question, but that kind of long tale of AI adoption is huge. um what it means for jobs coming out of college. Boy, you and I, you can answer that as well. >> I'd rather be 10 years old right now trying to figure it out than 21 years old coming out and be like, "Okay, where am I going to go?" But for Walmart, just go to that for a second to say that they see employment at least being flat. That's probably a net negative in the sense you would think that they would be growing because obviously would be open >> largest private employer in America. >> Exactly. And so I'm not sure how many of their shoppers are going to be impacted directly. You know, blue collar with trade maybe not as much, but certainly there's an impact. So I think we're in the early innings and that's been the one thing to me that's been the most fascinating is you know if you're looking at the stock market people will take the benefit of AI now as it relates to but not worry about we're still a consumer econ was 65 66% driven by the US consumer >> however yeah that consumerdriven economy is driven by wealthier consumers right >> so going back to the K shape I think that's where something's got to give here where you have what something like 85 to 95% of the United States making less than $100,000 a year. And so if you have real wages not really keeping up to that upper quartile, then what does that mean at the end of the day in terms of consumer spending power? Does it matter in terms of the market performance? And if it doesn't matter for market performance, then it matters from real world economics, right? And it does not mean that um that the economic realities are going to be consistently reflected in the stock market, aka that K-shaped economy continues in in a really large scale. You just took my next question which was literally my next question to you was how do you measure the wealth effect of the stock market and that's how it feeds on itself to the upside and it drives the economy but the scary thing is it could easily unwind and have the exact opposite effect and then to your point all of a sudden happens all at once you're looking at this thing so feels like between crypto which I want to talk to you about and and the markets in general we're back in this kind of I'm not asking you to talk about single stock ideas but the stuff that you see which I know you must be like whoa you know how it's going to end >> and you know people going to end up getting, you know, getting burnt on some of these names. We're back in full kind of 2000 mode, which, >> you know, it's interesting. I I've been listening to you talk about this and there are places where I totally agree and then there are places where I'm like, "Okay, let's talk about >> Please disagree." Yeah. Some of the places that So, yes, there has there been a lot of meme stock activity, right? You've seen in recent weeks baskets that have typically been most shorted. For example, the Goldman Sachs most shorted basket has been seeing a massive run up in in recent weeks. It's ta it's tailed off recently. Some of that exuberance slowly being popped out. Fine. You can define those places as froth. Even the Russell 2000. This is a little controversial given the love of the Russell 2000. >> I have your chart right here that you posted on the Russell 2000. >> It's incredible. Now listen, we want to love the Russell. It's an American story, but you have so many unprofitable companies in there. And if you're trading it as a tactical trade because you think rates are going to fall is one thing. If you're investing in them because you believe in earnings expansion and the one big beautiful bill maybe I think you really have to ask yourself how much earnings power there is in there because most of them are unprofitable. But listen when it comes to big tech and AI clearly the train has not stopped both in terms of capital that has come into the market as well as the capital that those firms are willing to spend. And then something interesting, we have a great chart at eye capital that shows you, let's say, the top four hyperscalers and then it has a few others, particularly recently Oracle, for example. Oracle is an interesting example because it has historically been a smaller portion of capback spending, but you're seeing players outside of the biggest hyperscalers spending more on AI. And it draws the question, can you see really a broader set of people or a broader set of companies starting to benefit from AI capex as well as AI spending? Now, Oracle, an interesting thing is they had what less than $20 billion of a bond sale the other day. They had 88 billion dollar worth of demand. >> Of course, >> so the capital is cheap is what I'm saying. So when your cost of financing is going down, the financing is this cheap, then it becomes easy for them to raise money, sustain this spending. And so I agree with you on some parts of the frothiness here. But right now, there are also equally, I think this is from me going from a journalist to a strategist now, really going away from just looking at all the downside risks and really thinking hard about what those upside risks are to that story. Um, even if you don't see the rest of the market catching up as much, >> it's amazing how your mindset changes when you're on the quote other side other side. Yeah. I mean, Oracle market cap went up, forget the demand for the debt. Yeah. >> It went up 250 billion in one day on their earnings a couple weeks ago. I mean, are you telling me that it was that misunderwitten or that somebody all all of a sudden discovered? I guess my point is that it's a great company, certainly trending in the right direction, but something's wrong with that. So was everybody wrong the day before or was every and everybody right the next day or is it somewhere in the middle and separate from Oracle for a minute the names I'm talking about which I realize are meaningless in the sense of but I think they force or create the sentiment in the markets and the risk takingaking and the risk appetites of people when they see oh my next door neighbor just bought Wolf in bankruptcy at 60 cents it closed it's at $32 today why because the technicality is related to the borrow availability which we won't get into here but my point is that that's stuff that I saw I know how it ends. And so Oracle is one thing. That's and and to your point on kind of the large tech companies, they are they are one thing. Let's put them in a bucket. They're kind of uh massive outliers for by every metric you look at. >> But what about the 493, >> right? When people talk about broadening or when people talk about rotation, I find this conversation very frustrating because can you call it a broadening of the market? when people are buying big tech names in the Russell and they're not buying the 493 nearly as much, I don't think you can, right? And when you look at the other chart that I posted the other day that got a lot of traction was when you look at the price to earnings ratios for the rest of those industries that matter for the 493. Even financials, you would think financials with the runup we've seen this year that they would be relatively expensive on a 5-year basis and they're not. They're just not. they're not uh by by PE at least. And so we have not actually seen that broad-based rally. So I hear you. Given how much the market has been concentrated into those names, the market concentration worries everybody. But with that said, I think that you have to really account for the differences that we're seeing in the way these companies are growing and the differences from 1996 to 1999, which is that these companies actually have earnings. >> Yeah. And I think market structure feeds into this narrative anyway. So it's just self-fulfilling the large market caps keeps getting bigger because you talked to you have talked in the past to those fund managers and you still are now actually in the role. So some of those do overlap with you when you've moved over to I capital, but that that is what it is and so it feeds on itself. If I'm a portfolio manager, I can't not own the biggest and it's the most liquid and get out and it to your point, it gives you the opportunity to look at value names which are being left in the dust which historically would be the Russell 2000 and names. But I think Russell value, Russell growth, you got to separate those a little bit also, I think. Correct. >> Why is no one looking at value in the S&P 500? You don't think this is a crazy thing that it's only talking about smallest of small and biggest of big and nothing in the middle? >> Yeah. Cuz it doesn't go up 250 billion market cap and you know >> it doesn't draw the headlines. So let's make them headlines. Let's make good investing headlines. >> Exactly. All right. So let's get into some other stuff because you've talked about I either we're reading each other stuff all the time because we are completely in the same in the same mindset. So government bonds and those yields versus you know investment grade corporates right which tightest you So the people take that signal to mean and they should that credit markets are fine. Yes, they are in the corporate side for sure. I think you agree. I'd much rather own double AAA corporate credit than US treasuries and I'm only going to get like 50 basis points more. But I think that's a really interesting thing going on right now in the markets. >> I think this is the story of the year. >> The longer end of the bond market, the longer term yields are >> 10 years and Yeah. >> Right. because they matter for so many reasons, right? So, I'll give give you a little more of a technical thing, but let's talk about the shutdown just really quickly because first of all, there's a lot of >> You're talking about if we shut down this evening, you're talking about >> we shut down this evening. Let's just talk about the facts, right? Because you do tend to have volatility going into a shutdown, but you tend to recoup those gains very quickly uh coming into this week. Last week, yields were higher. This week, actually, yields are lower. You've actually seen the bond market draw in a bit this year, this week, sorry. Now, the reason I think this matters is because I think that there is a little bit of a burning desire in me right now to lower the range of our outlook for the 10-year Treasury, right? Because historically there has been a correlation between rate cuts and the 10-year declining. Now, what if this time is different? I think that that is a real question because if you see a rate cutting cycle that is supposed to ease pressure on the more sensitive parts of the economy, you know, you even take PCE, we're looking at inflation. What is still contributing to inflation? Services. What inside of services is contributing to inflation? Shelter costs. Yeah. >> And so if >> your old beat insurance. Yeah. Exactly. Yeah. >> So, but even on shelter costs, if you don't see a meaningful reduction in the tenure, then do you really see that mortgage rate decline under that kind of emotional 6% level? And whether you do or don't, is it going to really unlock what is it going to do housing prices? I think the housing story, you've covered it recently on this podcast. I think it's an excellent podcast with Meredith Meredith Whitney. But, you know, what does it do ultimately to that part of the inflation story and how does that feed then through into the Fed's response to rate cuts? Uh, the US government's response to how they think about those longerterm bond yields. Uh, right now, you've heard the Treasury Secretary talk about it a lot. It's of huge focus at the highest levels of this government. But, can they do it? Can they get that lower? >> Well, even with the government shutdown, the Federal Reserve stays open because it's not a government entity, right? It's an independent central bank. So, that meeting is October 29th. And as we sit here, the one of the reasons yields have gone down is the chances for 25 base points is now 98% effectively up 10 points in the last day. And the chance for you know, you know, another cut at the end of the year went up also dramatically. So the narrative would be government shuts down, has a negative hit on the economy, but everyone knows it's quote temporary, but it forces the hand of the Fed even more and every Fed meeting we have gets closer to Pal being gone and he has like four left after this anyway, right before he's gone in May. And so people are going to trade that ahead to your point. I guess what you alluded to in the $64,000 question is if you start cutting rates too much into what you're describing still and and many people are still a stable to growing economy and whatever inflation reads may or may not be we're that's dangerous territory. So that they could lose the 10ear yield which I think is why go back to the original question I asked a few minutes ago corporate debt is trading so tight. >> Yeah. I mean listen equity valuations are high as we know and people have been looking at debt as an alternative right and given the uh the the yield levels we've been at people have been expecting low spreads there is another point I would make though about inflation which is that we've seen inflation above the Fed's target for what 5 years now and if you look at it PCE core had come in at 2.9% right and the Fed's summary of economic projections is at 3.1% so that suggests there's still room to cut even at these levels of inflation. Now, with that said about the economic data, the Fed might be open, but the Bureau of Labor Statistics, whether they'll be able to release their payrolls report on Friday, is of massive concern. And the reason it's of massive concern is because it would be another data point that would read through to the potential for rate cuts. And the market actually from last week to this week had reduced their odds of two rate cuts this year, >> right? So they had baked in firmly to and now it's a little less than that and this year by the way is a little more certain than next year. Next year is very uncertain. You know I heard Manny Roman the CEO of PIMCO the other day talking to Jonathan Pharaoh my former colleague and he said as far as just general clarity about the environment especially AI we're looking six months out. You have the Federal Reserve that can barely look six months out. How is any investor supposed to be able to look more than six months out? >> No, you're right. It's it's really hard like that's that's my point about this market has been immediate gratification. What is it going to do? Now you pull forward all these assumptions but you have to make you know you have to plan and you know through the tariffs and everything else being whether you're an investor or you're running a company right you have to make all these decisions it's really difficult >> question for you so one thing that keeps on coming up in a lot of conversations under the surface bubbling up now right is whether we face inflation again next year right uh or inflation toward the end of next year into 2027. Now if you knew that we would be if you had your crystal ball then would you trade differently today? um probably only the sense of the Fed, you know, whatever the terminal rate is going to be for the Fed where the Fed ends up would probably change a little bit and therefore all the things which you're pulling forward, whether it's housing or mortgage originations, whatever you think it's going to be, refi, helocks, all those things, it would change a little bit, probably not a lot. And again, who knows, you know, where the the data, we're not, you're right, we're not going to get data. We're going to get it in the private markets. You'll get the ADP number, >> but you're not going to get the BLS number, right? You'll hear companies talk about the quarter, right? We're I can't believe we're going to be in earnings season again in like 2 weeks. We get the financials first. So, we're going to start to get what you know, we'll start to get a little bit of that, but it will be interesting. And I wouldn't, you know, one of the things that always happens when there's something big that happens like a government shutdown, CO, which is obviously much bigger. People change the way that they behave and the way that they invest. It's a great question you asked. What would you do? What if the reliance on BLS and government statistics starts to shift and we're able to find other ways other metrics that we look at whether it's you're pulling it from 10 QS severally or ADP or other companies kind of emerge to provide better you know independent reliable data these things always tend to happen right and be like well I'm not using that anymore I'm going to go to this so it's interesting how investors behavior and consumers behavior adapt and never underestimate the US consumer like it's the one thing I've learned in my entire life it's like the bounce back of the it's unbelievable like never short over a long period of time the US consumer. >> I think that's why I'm so focused on the housing market as well. This is a really fascinated a fascinating statistic. One of my teammates had pulled out from me, Peter Rapetto. He had found a stat that showed because he was saying, "Oh, well, okay, you know, mortgage rates have come down." I'm like, "Well, how much does that really matter if people are not buying new homes?" And then he goes to me and says, "Well, wait a minute. Just the refi activity alone is freeing up $200 to $300 in everyone's pocketbooks, I think, per month, right?" And so to your point there and you know we haven't even seen the effects of the one big beautiful bill next next year. So there are tailwinds to the consumer. There certainly are uh should we continue to see rates come down in particular. But I think it's hard to argue that a lot of the benefits that you're seeing right now in the market are still weighted to those very large companies particularly the large companies that are in themes that everyone is flocking to. And by the way it's a traders market right now right which is why I asked that six-month question. People are not people are not as much as anyone would like thinking about what it would be to invest for the long term at this moment. >> Do you um care about the balance sheet of the government and the debt? Like do you think that people like me that talk about what an issue it is are just you know wasting air? No. >> I know there are people who think that. I think it's a very important topic for a lot of reasons. I think a lot of people talk about it in terms of just what it means for bond yields. I am very much watching bond yields but especially because if you think about it big institutional investors are so heavily weighted towards bonds right not equities particularly bonds >> but it's also the crowding out effect every time the government is uh spending more and more money inefficiently you do have them unable to spend money elsewhere right this is where you see that congressional push pull playing out every day but also something people have not considered during the one big beautiful bill for example is okay well wait a minute we are now shifting some of that responsibility of spending away from the states right that means states have a lot less to spend on all infrastructure really right what does that mean we have not seen that play out yet right and what that will mean in terms of broader impacts couple that with what we were talking about before in terms of that divergence between labor market growth uh the halves and the have nots k-shaped economy we haven't even seen that divergence start to build when it means that the government can't or has to back off of or can't reinvest in parts of the critical infrastructure that makes a city or a state successful. I think that that's going to be a big story in the next few years and I think that's why infrastructure for investors has been such a big theme just dams and >> guess where you can find an infrastructure fund. I'm sure you might be able to find one at I Capital. I'm going to guess that there's going to be one that's on that sheet somewhere. No, I'm in total agreement on that. That's a great place to be because it is certain that that's going to be a trend that's going to go forward. So, give me a give me your new day in the life other than, you know, thank you for coming here and spending time. I'm sure this was, you know, took up took up something else. So, I appreciate you coming in here, but give me a day in the life now what you're doing. >> Well, I don't have to wake up at 3:30 anymore, which is very nice. I get to work out now before I get started and listen to kind of what's going on on the street and get used to a new diet. It's been a new diet of reading and uh consumption. I'm client of a lot of the banks now, so I am reading everyone's research, but also um Bloomberg of course, but everything outside of Bloomberg, listening to a lot of podcasts within Bloomberg and outside of it. I think uh it's very common to, you know, I'm still friends with everyone at Bloomberg, right? So, I'm listening to podcasts constantly, but it's been interesting to kind of broaden my aperture here on um just different ways of assessing the markets. Uh but here I think when I start my day my most important part is actually my morning meeting. It is talking to my two teammates Peter and Nick and us sitting together the three of us and talking about okay what are the top questions? What are the top questions we're getting from clients? What are the top questions that we have about the markets and how do we find a framework to assess those risks upside and downside? That by far is the most important part of my day. And after that it's a lot of talking to clients. uh I get to be I guess you know so to speak on the other side now um you know I've been doing more TV appearances for example this is my first podcast since joining so thank you for having me >> but um and writing you know honestly the one thing that I've maintained is I've kept my newsletter I'm writing a whole lot and I think writing is my safe space writing is the place where I sort out and stress test all of my ideas and so it's one of the most important things I do >> well let me just read this quote from the CEO when you came aboard and we can close out with this quote. We really want to accelerate what we're doing from an educational standpoint. Obviously, as more investors move into alternative assets, it was really critical for us to find somebody to come in that had a deep understanding of what was happening in the private markets and you could connect the dots in financial media and what it means for everything else. So, I'm sure they love having you there, right? I love having you here and I look forward to what you're going to be doing and I hope you will come back on again soon and best of luck and I have a feeling at some point in your career this hosting and producing of shows is not over. I'm sure you're not going to do it, you know, in the next Well, you just started this new job, but I I still see you doing that stuff because that was great to watch as well. But thank you for coming on. >> Stay tuned, Danny. Thank you so much. I hope to be on soon. >> Week five already in the NFL. And I would note the first byee this year, Falcons, Bears, Packers, and Steelers are all off. I was two and one last week with the Eagles and Giants and I lost on an injury-riddled Commander team. One of the problems with giving picks on Tuesday. That line moved five points, but whatever. I'll take the loss. Two and one. Six and five on the season. Back over 500. Looking at a few games. All right. Broncos are going to the Eagles. They're either getting four or four and a half. The Broncos effectively had a by-week this week when they beat the Bengals. And the Eagles, yeah, they're 4-0. They don't look like a complete team. And the Broncos are two and two. Could easily be 4-0. Give me the Broncos plus the four or four and a half on the road at Philly. All right, Vikings spending a second straight week in Europe. This time playing Cleveland in London after losing to the Steelers in Dublin. You have to figure that an extra week in Europe helps the Vikings. And if you're a conspiracist, wouldn't the NFL want to reward them for doing this and help with international appeal? The line is four. And I like the Vikings. I think Carson Wentz is behind center again. He found something late in that game. And Cleveland is rumored to be starting rookie Dylan Gabriel. Either way, Flaco or Gabriel or English breakfast for the Vikings, giving the Vikings minus four in that game. Last of the three games, the Raiders getting seven at the Colts. The real Daniel Jones came out a bit last week versus the Rams. And the Raiders will be really angry after the block field goal that cost him at the end of the game versus the Bears. Give me the Raiders plus six and a half or seven on the road. Buy it up to seven if you have to to pay the extra vig. Good luck this week and I'll be back next week with more picks. Thanks for listening to the On the Tape podcast with Danny Moses. If you like what you heard, please subscribe on either Apple or Spotify to the weekly podcast and please leave a rating and review, positive only. You can also watch on the on the tape channel on YouTube and give us a thumbs up there as