Bloomberg Markets Full Show (05/12/2022)

Bloomberg Markets Full Show (05/12/2022)

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More than halfway through the trading day in New York stocks down dollar up and crypto in focus. I'm creating souped up Bloomberg Markets starts right now. Let's just dive into those markets very quickly. Stocks like you said they are down to the tune about six tenths of one percent. The dollar is stronger and this is important as we see yields come down a little bit. The 10 year yield to eighty six down five basis points. I would say this is the fourth day this week that we're seeing yields lower and yet the dollar is still stronger a little bit weaker but stronger relative to some of the other G10 currencies. Remember

commodities lower as well. How much of this is a risk off story. For more let's just dive right in with Bloomberg senior markets editor Mike Regan. Mike thank you as always for joining us. I'm curious about this macro situation. We've seen this nonstop selling really year to date but I have to ask how much of this can actually be weaved together by fundamentals. Well certainly

the inflation numbers Kristie are not behaving the way anyone wanted to. It does look like maybe CPI and even PPA possibly peaked in March. But the question is whether do they they peak and they're going to descend rapidly or sort of plateau out at levels you know that are still way too high for the Federal Reserve to be comfortable with. So you know anyone looking for that sort of sign of peak inflation didn't really get it this week. You know PPF numbers this morning sort of backing that up. So you know it's really a matter of the Fed is full steam ahead with their campaign to to raise interest rates and downshift the balance sheet on one the balance sheet. And I think that is just going to continue to weigh on risk assets until there are signs that the Fed is willing to back off a little bit whether it be that the financial conditions tighten so much that the risk of of raising rates further is too too much for them or whether they think they have had an impact on inflation and its time is up. But for now it's just nothing that really allows people to get too comfortable with risky assets and the crypto market

obviously how much the contagion is affecting the stock market and other markets is debatable. But certainly there probably is contagion that's happening and probably more to come that we don't know about yet. At least that's the concern I think on a lot of people's minds. Mike could you sell that together for us. Because isn't the crypto market. I mean how many players that are involved in these broader markets. Fortunately the affects market actually huge treasury market an enormous stock market

are actually have that exposure to crypto. So can you kind of connect the dots for us of why crypto would be the macro indicator for the rest of these assets follow. Well you know there's obviously the easy to point to examples of a company like Tesla that has a lot of bitcoin on its balance sheet. Micro strategy that has been aggressively brought buying crypto for its treasury. You know the new sort of players in the game Coinbase Robin Hood who were pretty directly exposed to crypto. So you start adding up those little micro exposures and it starts to get noticeable. And then in the hedge fund world there are certainly you know people that are playing with crypto and in other markets. One thing really interesting market

slide blog post from Alex Harris this week pointing out this big jump in front end yields earlier in the week. And that was right when crypto was really collapsing pretty hard. Granted the stock market was too so kind of hand in hand. But you know the thinking being that well if you are sort of exposed to leverage and margin calls and either crypto or equities or any risk assets those front end cash like treasury instruments are what you're gonna unload first. So you know it's really hard to pick it apart and determine exactly what contagion is causing what. But it certainly is on top of mind of a lot of people that you know we don't really know exactly where the crypto contagion and exposure lies. But the worry is the assumption is that it's there and you know it will start showing up. The thing with contagion obviously is it starts showing up in unexpected places

like that front end of the treasury curve. So certainly front and center in a lot of people's eyes as far as what is at least part of the contribution to this volatility. And a lot of alter there is a lot of that driven by the dollar. I would argue. Bloomberg's Mike Regan a pleasure as always. Well will the global market selling off. Traders pointing to the chaos in crypto. As Mike pointed out a focal point of their concern terror. Developers now halting new transactions to avoid further damage to its block chain. To break it all down I'm pleased to say as Bloomberg's David Pan who covers digital currencies.

David walk me through terror. I admittedly am a novice when it comes to crypto currencies. But why is this stable coin so important. Yes. So Terra Terra is one of the two generally types of stable coins. We have tether and USD see who are impacted by traditional. Like fiat currencies like the US dollars. And then you have to auger risk. I'll go unstable points and wait. Tether Sorry Tyra is one of the leading our goals stable points. So rather than backed by the US dollars it is backed by algorithm of trading and treasuries the management. So like it people are incentivized to

keep the pack to maintain the pack by you know by making arbitrage is like two. It's kind of like a floating floating pack Florida for the state. Well you know it's fascinating because they're called stable coins. They haven't been very stable lately have they. I think trading on once they 70 cents on the dollar. I'm curious why that peg collapses. We see this. And if we've seen in effect currencies law that sometimes has to do with a country specific story. But for Tara and I want to say

crypto currencies broadly. Can you explain the dollar peg and the ripple effects there. Sure. So I think there I mean the whole family of all those staple coins they each each of them they have their unique mechanism to maintain the pack for Taro. I think the reason why Terra has been like you know going down so sharply. One of the reasons is because it resembles the suffering currency mechanism. Like for example we were saying before in the past like the talent you talent their

local currency was packed to the U.S. dollar and they're like you. You've got all of this hedge funds whoever has the deepest the pocket of the most liquidity. And they'll be able to kind of like threaten the central bank and then just you know so that they can make huge like multi billion billions of dollars of money out of it out of the trade. So I think it's a similar situation for terror because terror is the way it works is like it is back to that point. And and so so that this. I think that's the main reason why we are seeing people worsening. It has been packed up so quickly. Well very quickly I have to ask

you what reverse is this. What makes terror coin and tether stable coins again and really worthy of the stable in the stable coin. So there there are few solutions. One of them a one of the most obvious ones is the you know the person behind this project A. Com. He has been seeking external capital from other institutional investors. And so with that you know he can buy

more bitcoin. We're like to inject a more capital to keep the pack. Fascinating stuff. Bloomberg's David Pan really my go to for all things crypto currencies. We thank you as always for joining us. Time now for Bloomberg's First World News. Here's Mark Crumpton. Mark Christie thank you. House Speaker Nancy Pelosi says lawmakers next week will consider a bill on gasoline price gouging if passed. President Biden would have the authority to declare an emergency that would make the sale of

gasoline at quote excessive prices illegal. Families are struggling to pay higher prices at the pump. Oil and gas companies are reporting record profits. The seven largest oil companies announcing IBEX that could total 41 billion dollars this year alone. Again and again we see gas prices rise. And when the cost of oil goes get dropped oil prices drop and price gouging needs to be stopped. During her weekly press conference Speaker Pelosi also addressed the Roe vs. Wade issue saying Republicans are quote mobilizing around a dangerous extremist agenda to criminalize all forms of

reproductive health and quote the British economy unexpectedly contracted in March. GROSS domestic product fell one tenth of one percent from February as the costs of living squeeze forced consumers to cut back spending. That's throwing down on the Bank of England's ability to keep raising interest rates as well as putting pressure on Prime Minister Boris Johnson's government to respond. And the UK and the European Union failed to resolve their differences over Northern Ireland's trading arrangements today. That could lead to a diplomatic crisis and a potential trade dispute. The UK says the current arrangements result in

Northern Ireland being treated differently than mainland Britain and the UK may have to act on its own. The EU says unilateral action is not acceptable. Policy makers at the Federal Reserve faced pressure for more aggressive action after a hotter than expected inflation report. So far though officials are sticking with their strategy to raise interest rates by a half percentage point at each of their next two meetings. St. Louis Fed President James Bullard told Yahoo Finance that the high point moves are a good benchmark for now. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty

100 hundred journalists and analysts in over 120 countries. I Mark Crumpton. This is Bloomberg. This this Bloomberg Markets. I'm pretty Gupta. Air B and B has announced what it's calling its biggest change in a decade and includes a new way to search new consumer protections for guests. Bloomberg Technology anchor Emily Chang is standing by

with CEO Brian Chesky. Emily take it away. Katie thank you. And Brian thank you so much for joining us. So great to have you. This new way of searching makes it so much easier to discover things you never would have thought of. I thought oh AMG was the coolest category. And then I discovered castles in France for 100 dollars a night. Why did you think that now was the right time to change completely change the way you search. Well because travel has probably changed more than it ever has since World War Two because because of the pandemic. Now millions of people don't have to go back to an office five days a week.

And because of that it means they're more flexible. They can go away for the summer. They can go away for three day weekends. People can travel a lot more places for a lot more time. And we realize that the way you search online for the twenty five years hasn't changed. It's a big box a search box and ask you where are you going. The most people are flexible where to go and they can't think to type in all hundred thousand places on Air BMV. And we thought the world has changed travel's change. It's time for Air B and B to change and show you a whole world of possibilities. Now you can search by castles by Frank Lloyd Wright homes. You can search by you know like all different types of places. You can search by vineyards golfing whatever

interest you are. I think there's a whole new way to search for travel. Now there's a new 24 hour help line to try to meet that hotel lover of customer service that Airbnb has kind of been lacking. How many people did you have to hire to make this work and what kind of resources have you had to build up on the back end. Yeah

I mean we it's a little hard to know exactly how many people because we hire people based on how big the demand will be this summer. But we have staffed up but we do think it's a great investment. What we are offering is a new product called about called Air Cover Its End and protection for every guest. So in the unlikely event a host cancels the Emmys not as described Airbnb. We will handle it. You can call us. We'll get you an equivalent home or an upgrade or refund you. We have a whole operation to try to take care of this. The idea is he doesn't have a front desk. We're trying to provide the next best thing to provide that consistency of service. Now Bloomberg has spoken to some hosts who are worried that guests are going to take advantage of this. Some folks you know they're talking about listing their own properties elsewhere starting

their own booking platforms. How are you addressing this tension with hosts and how much resistance have you gotten. We have not actually gotten meaningful resistance at all. Hosts are very happy. And I'll tell you why because air cover is also offered to hosts. We launch it last November. Every host on air B and B gets a million dollars damage protection a million dollar property damage liability protection. And this is something we offer for free air cover for guests is something that Airbnb

takes on. We take on this financial burden to provide this protection so that a host doesn't have to. This is very important. When we talked last week you said Airbnb is still expecting a big travel summer but inflation is still hot above estimates yet again this month. And when you look at your average daily rates for the third quarter they were almost 40 percent higher than they were back in 2019. Our customers really get to spend more to travel when

they're choosing between travel and gas and groceries. Well first of all the reason that the price per night went up was mostly because people are booking more expensive Caribbean days. So before the pandemic a lot of people were traveling by themselves or a one person. They were booking one two bedroom homes. Now they're booking much bigger homes to travel with families and groups. And there's been a mix shift from Asia to North American Europe. And these are higher price per nights. That's the primary contribution for the increase of price. You

are correct though. A lot of people aren't going to be able to travel and build afford to travel. But another thing Airbnb was started during the Great Recession in 2008 and people used Airbnb because it wasn't a more affordable way to travel after two years of people not being leave their home. Many people. I think they want to get out. And this is going to be a travel rebound unlike anything we've ever seen before. Still even though you're projecting this travel rebound you've got air B and B shares down to new lows. And I'm so curious how you're watching this broader market turmoil. What's your take on this. I'm not watching the broader market turmoil. And I would hope shareholders know that I'm obsessed over every single day are the inputs to the stock price not the stock price. I think that's the very best thing for shareholders. So my job

is to make sure we have the best service. We have enough hosts. They're prepared for the great travel season. That's why I'm going to worry about we're going to play a long game. And I think the long term shareholders will really benefit from that. I wonder how this impacts retention and recruiting that we're actually seeing a lot of companies that really soared in the pandemic struggling Coinbase Robinhood as well. Do you think this could impact hiring at all or the mood in silicon. I mean we're actually completely overwhelmed with hiring. We're completely overwhelmed. Two weeks ago we announce that Airbnb the employees can live and work anywhere in the world. And if you move wherever you want in the country we're not going low

your pay. Since we made that announcement more than 1 million people visit our jobs and careers page. We only have six thousand people at the company. So I do think that there might be some broader kind of considerations by area. Maybe we have quite a lot of interest in. I don't think that will change. So Twitter just announced a hiring freeze and cutting costs potentially rescinding some offers for a different reason. And I wonder with this. On top of other companies pausing hiring. If

this could be a moment of opportunity for you. Do you see this as a chance to attract be a magnet for new talent. I mean a lot of people are reaching out to us from other big tech companies maybe because a lot of tech companies are asking people to go back to office three days a week or maybe because of not hiring as many. But make no mistake Airbnb is stepping on the gas this summer. How are you stepping on the gas in China. We're seeing ongoing Covid lockdowns there. I know it's been a priority for you in years past. What trends are you seeing in a pack and when do you expect them to recover. You know our China business has primarily been people in China leaving China obviously crossing a border. So it's cross-border travel going to other countries. Japan was a really popular corridor South Korea. They're going

to like Europe. They're going to other places because of the situation in China. In Covid there's not a huge amount of outbound business right now. And so our business in China is not super robust. And it's gonna be probably a while. It's really going to track with the health crisis. Now you're calling this your summer release and I'm so curious how often we're gonna be seeing new releases from you crypto payments. I know it's something that users have been asking for and you've been serving them. How optimistic are you about crypto. I mean we're seeing it get caught up in the broader

market turmoil as well. And will they definitely be part of Airbnb these future one day. We're gonna do two releases a year every May. We're gonna do a summer release. You know we do it in May May spring but it's in time for the summer travel season. And then in November we're gonna do a winter release and winter starts in December. So

we'll do a month before winter. So we'll do it. You expect some. A lot of updates this November but I'm not going to comment on crypto except to say we've been looking at it ever since I pulled Twitter and crypto payments was the number one requested feature on Twitter. Meantime I know how much a priority design is for you especially seeing this redesign today. You've been working with Johnny Ive. How involved was he in this redesign and what have you learned

from him so far. I've learned so much from him. He inspired a lot of thinking. But I think that what I'll say is that Johnny's work is coming in the future. Mostly what you saw today was our internal teams. You have been living and working on Air B and B now for the last several months yourself along with your dog healthy. What have

you and Sophie learned so far. What have been your favorite stays. Oh we got Sophie. There is. There she is. Yes Sophie. Her name is Sophie Supernova CAC. She admits more energy than a collapsing star. And she you know I mean here's what I've learned Emily. The longer you're away from home the more you want to be in a home and the more you want your home to feel like the home you live in. You know when you're working at your home you want really great wife and you want to be verified. You want the kitchen to be stocked. You want enough things to cook. You want a lot of the amenities. You want to be in a great neighborhood. You want to walk around in. It really reinforced a lot of the ideas that we end up pushing out yesterday including

the idea that people are more flexible. Like for example I went to Ann Arbor Michigan. I've never been there before. But the reason I went was because there's a Frank Lloyd Wright house. And I would have never discovered it if I had a type Ann Arbor and a map because I probably wasn't going to I probably wouldn't have type that in. So I think that people are gonna discover a whole world of possibilities. You don't just have to go to Rome. You don't have to go to Vegas. You don't go to Miami or L.A. There's a hundred thousand communities all over the world and there's a whole world of possibilities. I think people are just

waiting to discover. So where are you and Sophie going next. We're gonna be your top priorities for the rest of this year on Air B and B. While we're we're here obviously in New York right now we're taking work. We're open to ideas. So if you have ideas where we're ready to we're ready to open. Well we're a little disappointed that you didn't bring Sophie into the studio today. Next time you appreciate him too. Afraid next time. I mean in Airbnb. CEO Brian Chesky thank you so much for joining us. Thank you so much. Well Emily Chang fantastic interview. And Brian Chesky we appreciate you as always. Let's

get to some breaking news here. The House GOP leader McCarthy subpoenaed by a panel probing January 6 and not just Kevin McCarthy alone. You also have representatives Jim Jordan Scott Perry Andy Biggs and Mo Brooks all subpoenaed by the congressional panel investigating the events of January 6 the riot at the U.S. Capitol. Of course we will bring you more news as we get it for now. This is Bloomberg. This is Bloomberg Markets. I'm pretty good Bill if this is something that caught my eye something that no one seems to be

talking about but it's a huge huge deal the Mexican rate decision and inflation in Latin America we know that the Bank of Mexico poised to make another 50 basis point rate hike. At least that's the expectation. In just about 35 minutes we'll keep our eye on that. But for now I want to show you what the inflation picture looks like in Latin America since going all the way back to 2020. Inflation hit Latin America first. Think about it. Food prices energy prices is going to hit those emerging markets first. And you can see what kind of move it's been there. If you're looking at eight point three percent year over year inflation from the United States the base effects really coming into play here. Check out what you're seeing from some of these

other companies or countries excuse me Brazil for example up twelve point one percent in Mexico boasting seven point seven year over year inflation. What this tells you is what are the ramifications the ripple effects for food costs. We're in for a lot of Latin Americans who don't actually have the disposable income that Americans that Europeans do. That's going to be something to keep in mind as well as the fact of what the implications are of dollar's strength and simply a lot of the companies that are looking to move their supply chains to Mexico. These are all questions that I'm sure will be addressed in just 35 minutes. Keep an eye out for banks to go rate decision. It's coming up for now. This is Bloomberg. I'm John Erlichman. Welcome to Bloomberg Markets. And I'm Christi Gupta. Let's dive into those markets a risk off session. When you're looking at the S&P 500 you're also seeing a bid going into bond. So the risk off move it continues across the

board. But really what I have my eye on is that currency strength. You are starting to see the dollar and the Mexican peso actually flat right now. Despite dollar strength against them the major currencies we're going to keep an eye on that as the Bank of Mexico has their next rate decision in just about 30 minutes. And lastly the boomer commanding index down three tenths of one percent. Commodities broadly food metal oil all taking a little bit of a breather today John.

And pretty hard to avoid those volatile technology stocks. And even though some of the most beaten up names are coming off their lows we are seeing sizable pressure for some of the biggest names in the business including Apple today which officially moved into bear territory joining the likes of Microsoft and Video and Google's parent alphabet. All those stocks down at least to two and a half percent on the session so far Kristie. And we continue to see pressure on those tech stocks. Yesterday we spoke exclusively with Brett Winton director of research at Aachen Invest to get his thoughts on the sell off. You either believe that this decade is gonna be one of

technological innovation or you don't. It's clear that right now the market is not pricing assets based on their fundamentals. Asset prices are being whipped around by asset flows between between asset classes by allocators. And so from our perspective you're getting amazing sale prices in innovation assets. And we know that Ark invests in some stocks that are down 70 80 percent in some cases this year. The market is also now starting to focus on the biggest names in technology. I alluded to Apple its shares taking a hit to the tune of about 20 percent off its peak in January. So joining other tech names in Bear territory there's certainly have been a lot of concerns about the supply chain realities for this company. Just like others out there.

Let's get some more on the Apple selloff and the broader tech landscape. Tom Forte is an analyst with D.A. Davidson and also joining us Bloomberg shown at Ludlow. Tom I'll start with you because as I alluded to the first part of this selling pressure in tech started with smaller companies with sky high valuations. But with Apple you're talking about a massive business that is

also starting to see weakness in its stock price. Does it suggest to you that that love affair is starting to fade for the largest or what was the largest company in the world. Thanks for the question John. The way I think about it is when it comes to technology stocks in general. Right now the tide is going out and the tide is going out and it's affecting not just the small and medium sized market caps that you were referring to before. Down 50 75 90 percent. It's also getting the big bonus. It's

hitting Amazon. It's hitting Apple. It's hitting mattered. Alphabet Netflix. And I do think that when you look at Apple and that four to eight billion dollar negative impact in the June quarter from supply chain challenges and they shut down China that's significant. That's more than the six. It's actually more than six billion impact in the December quarter and the December quarter seasonally its biggest quarter. So challenging times for Apple shares right now. And let's get you into this conversation here because it wasn't too long ago that the stock market broadly was trading on operating margins. How many how much of a loss could actually get passed on to the consumer. Now sees we trading on

valuations. Where does Apple fall on that spectrum. Yeah. I mean for me this is the point right. We're 22 times forward earnings of Apple. We look at the Nasdaq 100 broadly. We've come down from twenty nine times forward earnings in November which was a record down to around 20 21 times forward earnings. The direction of travel and the narrative around the Fed and rates

is just not clear yet. Right. We haven't really talked about where we find a bottom. And what I find so interesting about Apple is that a lot of the selling that we've seen you know John talked about that 22 percent drawdown from peak to trough that we've seen since January. A lot of that selling has been in the last five days. It had some immunity to what we saw on those longer duration software largely stocks in the Nasdaq 100 that have been feeling the brunt of this period. And now Apple is

catching up. And I asked the question to Tom where do we change direction. What makes us feel confident on a company like Apple again. Tom I just want to ask you an analyst question in terms of the communication that you're having with a company are you finding as we see this sell off across industry is right now that there is going to be a deeper dialogue with Wall Street to make the case. Obviously they they wanted to make sure that we knew you alluded to that supply chain concern that that was coming. But are you anticipating even more conversations with the company than normal. No I think in the regular cadence I think then the question will become when they report the June quarter how

should we think about supply chain disruption for the September quarter. The good news is that a lot of the companies rely on the manufacturing capacity that went dark is now up and running again. But I do worry about this broader softened technology shares in general. And I do think that the Fed is trying to thread the needle when it comes to raising rates to lower inflation while maintaining full employment while potentially trying to avoid a recession. So I do think that the second half

this year can be challenging for technology stocks in general including Apple. Tom the last time you were on our show we were talking about Apple earnings and you asked me a question I asked you a question about Netflix in particular and you said that perhaps some of the streaming pain can be attributed to Apple plus the streaming success. We've since heard I just as recently as yesterday about Disney's streaming success were there warning about some of the conditions for the back half of the year. I have to ask is Apple subject to the same conditions. Sure. So

generally speaking I think where you're seeing a white paper on the current state of over the top is that the U.S. market for subscription video on demand services has since saturation. So I think you're seeing a lot of instances where consumers subscribe to a couple and then just rotate based on which is showing the new show at the time. I do think that emerges though. Winning the best picture with Kodak is putting some incremental pressure on Netflix and perhaps less so. But also some incremental pressure on Disney lost in what looks like a saturated U.S. market for subscription video on demand.

And let me bring you back into the conversation I was asking Tom about whether the communication with the company starts to change. Does anything change in Silicon Valley. I mean we had Google's big developers event this week right. I wonder if the tone starts to change for these big technology companies when it's hard to ignore these concerns about the economy about the consumer and obviously what's happening on Wall Street. Yeah. There's the fundamentals conversation right. We've had guests all day long on Bloomberg Television say you want to look for companies with healthy enviable balance sheet where they find growth in any environment. And Apple kind of fits that description right. I think we are. If you strip out the narrative around the Fed and rates we want to hear about innovation. We want to hear about how these companies continue to grow outside of the pandemic. You know so many of the things that are for example tailwinds to some companies in the Rio reopening are offset by the recession. Risk is a headwind. And Apple has proven that there are pockets of strength in China for

example. It really. The Mac with its new in-house chip resonated with buyers for the first time. So continue to follow Mark Gurman on the Bloomberg terminal right. What are the new products innovations that are coming and how would that impact consumer sentiment for the rest of the year. Outside of the macro picture. Tom quickly I have to ask this final question and build on Ed's point about that innovation. We also heard that Apple is about to retire its iPod Touch. I have fond memories of my very first Apple product back in the day. But I have to ask about simply

this design cycle. Does that mean as you retire the iPod Touch. Are there going to be perhaps a speeding up of the design cycle or slowing down for that matter. Well what I think about is good news is that Apple has a regular cadence of new product announcements. Gives them an opportunity to communicate with both consumers and investors that they are continuing to innovate. For example there should be an iPhone 4 or 14 later this year. Consistently new iPad laptops things that generation. I sort of think that innovation will stop. But I also do share some fond memories of my old Macs. So I share your pain and the

discontinuation the iPod. It really hits home but luckily I still have it. Maybe I can sell it one day as a collector's item. To Tom Forte from D.A. Davidson and Bloomberg's Ed Ludlow we thank you as always. Fascinating stuff when it comes to Apple coming up. We stick though with the volatility in the markets and turn to specs. Banks said to be stepping away a bit from

them following a regulatory crackdown. We have the details next. This is Bloomberg. This is Bloomberg Markets. I'm creating Gupta with John Erlichman. Some of Wall Street's biggest banks are scaling back or ending their involvement with Sparks after the S.E.C. issued new guidelines. For more let's bring in Bloomberg's Wall Street correspondent Sonali Basak Only. Walk us through it. Yeah.

Let's talk about what's happened in the price action today. A few days after some of the biggest of the heat had started to come down with the banks pulling out of the stock market. We saw some major us back deals actually announced pretty. So what you see is intraday this D backing index is actually rising once again. But if you look at the longer term trajectory here you are seeing that these back and DAX down more than 60 percent over a year. So a lot of facts that have not worked out for a lot of investors. If you look at the back volumes have also come down dramatically. So if you looked at the first quarter of last year almost 140 billion dollars worth of Sachs announced really supposed to be the next big way to go public. But that volume has also subsided dramatically as banks and

investors get a little nervous about the rules in the US around House DAX will work moving forward especially in regard to that forward guidance Kitty. No doubt those FCC rules and just looking back Chanel at how lucrative this ended up being for some of those banks I know you had been tracking that over the last couple of years. Yeah I remember when the sparks were blowing up so were the IPO market and you had underwriting fees really rising a lot for those banks. And then also remember both ways that you had them. Also striking a lot of deals though advisory fees. On the other end Spark sponsors also made a lot

of money as well because they do get paid when a deal gets done though more sparks now are aligning those numbers to performance. So we'll see how the market changes moving forward. Clearly it's not over yet John. Well shall I I'll pick it up from here. Stick with us though because we have a very special guest to really dive into that conversation Matthew Shaw. Brian joins me here. He is the co-founder. And I'm hoping of saying this right taking our capital. Hopefully he does join us. The conversation is very involved and back. Walk us through what you're making of a lot of these high beta plays really taking a tumble. Yeah no I mean thanks for having us. It's interesting that we have this chance

to discuss these sparks and the dis backing we just announced in Europe in the middle of market changes in the in the US. So I like to say that Sparks is a great technology that may have been sold to the wrong investors who went up to the bad companies. And that's maybe why effectively we had the situation in the in the US and hopefully we're bringing a little limit of the silver lining to this whole situation. Just announced these four billion backing in a in Europe and given the overall ECM market and the markets in general. I'm actually very positive and optimistic. Then Spike will come back in favor as a turnkey

solution for people looking to access the public markets. Matthew there's so much talk right now about the banks pulling back from the market. Yeah you did. Just days ago announce a four billion dollar transaction and more than four billion dollar transaction in the stack that involves you. Bernard Arnault who is also a big deal maker at the moment bringing this behind the surface here. What are the banks saying as they bake in some of these potential guidelines and rules moving forward from the S.E.C.. Yeah. No I was about to say effectively the S.E.C. came out and it's very much U.S. specific. I mean obviously that's where you had the highest level of issuance last year. We decided to kill ISE. You know we had a nice one

ready to go you know last year. And would you say to pivot to Europe. Obviously Europe is a home market. We did you know we should to spikes there. Then we should once back in up in Singapore and actually find it you know fairly ironic in a good way that we're about to announce these Trump transaction combining with AFL entertainment as you said no. 4 billion

transaction. It's a real company. 3 billion revenue. 600 million of BDA. It's the one of the world largest producer of TV content and betting like you know. Please Peaky Blinders. You know I'm sure that you would know that you know from from Netflix. And and my point is that there is this this avenue and banks are very well aware of that that there is another new and alternative avenue in the turmoil that we are going through in the market to find these alternative to access the equity capital market. So you know Shomali the the banks here I think are welcoming announced like that with the announcement like the one we made last week. I'm expecting more to come in the US. We know that's what's happening. It's certainly a beta healthy.

There was a lot of excesses. Maybe we though as I said you know maybe the wrong investors a bit of fast money. Well we tried to do you know not transaction is to bring long term family offices private investors. I mean private in a sense entrepreneurs who could value the merits of this of this transaction. So again hopefully a silver lining to the euro's spike markets.

But you just want to clarify if there is still banking interest but some of our Bloomberg reporting suggests that the cities and Goldman Sachs and Bank of America or the world are distancing themselves which banks we're talking about here. Well you know the spark is you know you've got two legs to a spark right. First you raised the money on the public market and you need some underwriters. Right. So you've got to an investment bank helping you doing that. And they're being paid for that. Right. Like any other ECM in the right. And then at the back end you know you've got the D backing what they call the business

combination which is effectively this private company was going to merged into the public publicly traded vehicles and then the banks get paired. You know I would say the second leg here. My understanding is that effectively what the regulatory is trying to prevent is a conflict of interest. That would be can you help a sponsor raising money and then you find him a target. You know that sparks we're blamed for these cheap option. Not to say free option. That's open source we're going after. And that's what

they were trying to prevent. Now you know if you work with one given bank obviously all of the investment bank would be very happy to you know to do so many to find some alternative to this to the pipeline. They're working on that. So I'm you know I'm expecting a different set of banks now you know to work together that we'll have to redo the economics. But that's you know their issue. It's not the sponsor issue. And where I leave it also I think it's critical. And that's what we've tried to demonstrate with Pegasus. Is the skin in the game the alignment of interest you know the way there's been way too many talk you know about this alignment of interest on these very spark. For example we disposals Ben Alonzo and his team particular capital and all the

CEO. We invested close to 100 million dollars in this file. Yes we have just less than a minute here. I'm wondering if you're making some commentary on the broader market here because you are taking a company public into very choppy waters. Are you concerned that there's another leg down in the market here. Listen I mean we have started what I would qualify you know the beginning of a new cycle. You know I'm trying to stay away from all the the noise on the tech side on the on the digital assets

side. I'm looking at the defendant fundamentals of what he's doing. You know a business as I said to locate orals as investors. First of all interest rates we've talked at length about that. I think that what has changed since we last spoke is that now the credit market is also widening very significantly both on the investment grade on the high yield. And so even moving away from the beagle views I'm just talking the days to day day to day financing of the real economy. So it's it came as a shock. Sometimes I'm surprised that people were surprised. You know we've been operating in a negative interest rate environment. You know in many places between Europe investment grade which were trading at negative you. That

was an abnormal environment. And now that we are obviously getting more in a normalized policy. I actually think it will be a more healthy market for investors to do the rational analysis of any given situation. So can there be another leg down. I mean certainly if interest keep keep rising that's one thing. But a more focus on the credit market. You know I'm a leveraged finance banker by background family and credit markets. I've always been a leading indicator of what's happening in the market. And I think this aspect has been a little bit underestimated. We all know that's been a lot of leverage put into the system over the past 10 years. The auto factor with 18 monetary policies and that's the one where we should be

certainly focusing on metric. Thanks for your time. Metro Shery Ahn joining us and our thanks as well to Sonali Basak as we continue to watch the Spark market. And just to reiterate one of our headlines the S&P moving towards session lows after already coming down about 18 percent from its recent peak. So now down one and a half percent intraday. We'll be watching. We'll be right back. This Bloomberg.

Well there's a live look at the S&P 500 at session lows right now down more than one and a half percent at this hour and making its way towards an official bear. We came into this trading day down about 18 percent. We will keep you posted on that for what it's worth. We wanted to bring you the producer price index story. We kicked off the day with the inflation realities. We saw those numbers coming in for final demand up 11 percent. And right now you've got a lot of CEOs that are

navigating the headwinds. Here's some perspective from the chief executive of Siemens. We see impact eventual impact in our numbers on Q2 coming from Shanghai locked down. You know this is a complete look don't know for five weeks. So they asked us we'll start ramping up again our manufacturing sites which is good. On the other side we see if we have a bottleneck in the supply chain 30 percent of the ships waiting to be unloaded are sitting in front of Shanghai. So we have a supply chain topic too. And that can have an affect really on how fast we can ramp up and compensate for this lock down in Shanghai. Well John as those chip shortages that are really across the

board I mean we really have to keep an eye on these producer prices really that are not just dealing with some of these energy companies some of these automakers but in a lot of these companies that can no longer perhaps pass on the costs to a lot of these consumers. Absolutely. As we watch those margins under pressure and we continue to watch what's happened not just in the bond market but also that S&P 500 near session lows for critic Gupta. I'm John Erlichman. This is Bloomberg.

2022-05-14 03:10

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