December 6, 2024 • 34 mins
Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg News International Economics & Policy Correspondent Michael McKee and Becky Frankiewicz, President North America at ManpowerGroup, break down the November jobs report, trends in the labor market and what the Fed will do with the data. Bloomberg News Senior Editor Michael Shepard reports on TikTok’s Chinese parent company facing a ban in the US next month as a result of a federal appeals court ruling on Friday. Dorothy Walter, Partner and CFO at Alpine Investors and Bloomberg News Senior Editor Nina Trentmann discuss deal making and M&A for PE firms. And we Drive to the Close with Megan Horneman, Chief Investment Officer at Verdence Capital Advisors.
Hosts: Tim Stenovec and Nora Mulinda. Producer: Paul Brennan.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg business
Week Inside from the reporters and editors who bring you
America's most trusted business magazine, plus global business, finance and
tech news. The Bloomberg Business Week Podcast with Carol Messer
(00:23):
and Tim Stenebek from Bloomberg Radio.
Speaker 2 (00:27):
US hiring picking up in November and the unemployment rate
increasing pointed to a moderating at labor market rather than
one that's significantly deteriorating. As the numbers look. Nonfarm payrolls
rising two hundred and twenty seven thousand last month. That
follows an upwardly revised thirty six thousand gain in October,
according to the Bureau of Labor Statistics this morning, smoothing
out volatility, payrolls growth over the past three months average
(00:49):
one hundred and seventy three thousand. It's a step down
from the robust pace scene earlier this year. We got
with us Michael McKee, Bloomberg News International Economics and Policy correspondent.
Also joining us Becky Frankowitz, chief commercial Officer and President
of North America for Manpower Group. It is one of
the largest staffing firms in the world. Mike here in
the Bloomberg Business Week studio, Becky joining us from Milwaukee. Mike,
(01:10):
quite a different report than we saw for the month
of October, which was revised higher. Does it pretty much
solidify what the Fed does later this month?
Speaker 3 (01:19):
No, I wouldn't say it solidifies it. It gives the
Fed no reason to not do it, but.
Speaker 2 (01:25):
Hold on no reason to not cut risksk There we go.
Speaker 3 (01:28):
If we'd seen a really high number, and if unemployment
had gone off even more, then you might have seen
the Fed have second thoughts. We still have inflation numbers
next week that could cause the Fed to have second thoughts,
So we're not out of the words. It's not a
guarantee at this point. But this was not a terrible thing.
The interesting thing in these numbers was the revisions and
(01:49):
the fact that we didn't see a huge hurricane rebound.
So you take away the revisions and you end up
basically with a number in terms of job creation in
line with roughly what we've been seeing for the last
three to six months. A little bit slower, but still
fairly strong. And while the unemployment rate went up to
(02:13):
a strong four point two, almost four point three, it's
still below where the Fed thought we would be in December.
So you know, it's not a great number, but not
a terrible.
Speaker 2 (02:25):
I didn't hear you say goldilocks.
Speaker 3 (02:28):
You know, it's hard to use that term because you're
trying to pick a moment in time.
Speaker 4 (02:33):
It's also.
Speaker 3 (02:36):
We're at the time of year when these numbers sort
of get volatile, different because they get affected by a
lot of things. For example, we saw retail hiring fall
by twenty eight thousand. What's with that because this is
the holiday season, it's a shorter holiday season. Retailers probably
hired not as many people, but the seasonal fact that
(03:00):
the government uses expected a big hire, so they pushed
down the number more and it comes out as a
negative number. But it's I'm sure it's not really negative.
We didn't see people get fired from the retailers during November, So.
Speaker 5 (03:15):
Mike, some sources have said that this is somewhat strong report,
but not a consistently strong report. Can you just speak
a little bit more to the details in terms of
what you're seeing in terms of unemployment.
Speaker 3 (03:26):
Well, the interesting things about unemployment is it's hitting different
sectors of the society differently. It's hitting the unskilled more
than the skilled. Black unemployment went up significantly, and white
unemployment stays. It went up, but it stays below four percent.
(03:48):
So you're kind of getting a picture of a last in,
first out economy from the unemployment numbers. Now that said,
none of them are terrible. We're out of line with
historical precedent. It's just that you're not seeing a movement
in a positive direction for the most part. And the
jobs that were created. The areas where we saw big
(04:11):
job creation were in healthcare, which we've seen for quite
some time, leisure and hospitality, restaurants. It's top of year
when everybody wants to go out. So we're not seeing
any kind of big change in factory jobs. We had
more factory jobs, but not a huge gain. Not seeing
tech jobs grow a lot, which maybe we will in
(04:33):
the future, but right now, a strong enough report, but
it's not showing that the economy is bursting at the seams.
Speaker 2 (04:41):
Becky Franklins, I want to bring you in here. Becky's
chief commercial officer and president over at Manpower Group. It's
one of the largest staffing firms in the world. We
got the BLS data, but you have this other dashboard
of data that you see when it comes to hiring,
where are you seeing strength? And I think, perhaps more interestingly,
where are you seeing weakness? Right now?
Speaker 4 (04:58):
Yeah, so thank you. I'll pivot off something Mike just said.
I would say it was a strong report in very
specific areas. And so what I mean by that is
overall it looks pretty strong, but when you dig in,
it is very concentrated in the areas that Mike mention, hospitality, leisure, government,
those kind of spaces. Basically most other places it's holding
(05:21):
like it or its weakness. And so in the report,
that's what we saw. When we look at our real
time demand, which is what you alluded to, Tim, we're
looking at things like.
Speaker 6 (05:29):
Longer time to hire.
Speaker 4 (05:31):
You know, that's a trend we're seeing underlying the economy.
So in November we've gone from thirty nine days on
average time to hire to forty nine days. That makes
workers unhappy, ghosting starts happening, that creates friction blue collar labor,
which Mike mentioned as well. The demand, the real time
demand is down nine percent in blue collar labor with
(05:52):
truck drivers, which you know we've mentioned as a top
job in demand historically, truck driver demand in new jobs
down forty five, So we're seeing some underlying weakness that
you have to dig into versus looking at just the
headline number, which again I would say was strong in
very specific areas well.
Speaker 5 (06:09):
Becky, we've talked a lot about different landings in the past, right,
soft landing, hard landing, no landing, everyone's just hoping that
we land What is your latest read on what type
of landing is even in the cards today?
Speaker 4 (06:20):
After this data, I think we're still kind of sailing
into a landing. I wouldn't say it's going to be
smooth or hard, it's going to be slow. It appears
that it's going to be quite slow. The first quarter
of next year, by the real time demand data we're
seeing is going to be soft. We're having to rethink
retail hiring again discussed, but usually we'd see retail seasonality
(06:42):
come and now carry through the first quarter. In terms
of a decline, we saw big increases September October. We
haven't seen the increases follow through through November December, and
so I think we're going to see an uneven recovery
in the first half. And again I think instead of
softer hard, going to be quite a continued slow is
what I would.
Speaker 2 (07:03):
Say, Hey, Mike, we got the data from the BLS today,
so that's we're sort of over at that hump when
it comes to understanding where the economy is. When you
look forward to what the FED still gets ahead of
its next meeting, what is the next key data point
that we need to be have on our radar.
Speaker 3 (07:18):
And next Wednesday we get CPI and that's going to
be the major number for the FED. PPI will also
give them some clues. On Thursday, the day before the
FED meeting, is retail sales, and we'll see how it
fits together with hiring and wages and whether people are
still spending money. It's just the retail stuff, not the
(07:39):
services stuff. But we'll get an idea of what we
saw at the end of November. I refuse to use
the term Black Friday spending because that's just a made
up thing. But why do you say that, Well, it
used to be years ago the strongest selling day of
the year, But the idea that it represents what's going
(07:59):
to happen over Christmas Hanukkah season is not at all correct.
We've seen holiday shopping move into October. We've seen people
wait until December's sales to actually spend money. What economists
generally do is take the spending numbers for November and
(08:20):
December and average them out. Okay, and we make a
big deal out of this as if it's some sort
of sign post, but it's not really.
Speaker 2 (08:28):
I feel like, also, I don't know what you do
in ara, but it's like with a smartphone and with
e commerce, you're just shopping when you need to shop.
Speaker 5 (08:37):
Of course, and it's like your fingertips.
Speaker 2 (08:39):
The days of doorbusters are totally over. Yeah, it's like
it's a different world.
Speaker 5 (08:43):
It used to be fears of people walking and trampling
people during Black Friday. It's like, oh my gosh, it's
going to be so crazy. And now here we are,
we're just going to our phones waiting for cyber Monday,
travel Tuesday. I mean, Becky, is this something that you
also see? And especially as we're thinking about the holiday season,
how are we viewing employment and just the labor market
more broadly.
Speaker 4 (09:03):
Yeah, so, for sure, as we go into the holidays,
we've seen holiday hiring come and go. That's behind us
now as we sit here at the first of the month,
which historically would not be the case, Why is that happening? Yes,
shopping at your fingertips, Yes, omni channel shopping, so I
might run into a store. I'm going to do a
lot online from my phone, you know, sitting at work
on my laptop. Those kind of things are happening, which
(09:25):
actually smooths the season a bit. I think what we
have to watch as we close the year is what
the Fed will do. I have a little different view
than Mike on that. I would say that this jobs
report would give reason to hold. I think the Fed
will still act because that's baked into assumptions in the market,
and I hope in that action that stimulates more growth
(09:46):
as we go into the first quarter. Again, that's not
what we're seeing in the real time demand today.
Speaker 2 (09:51):
Big thank you too, Bloomberg News International Economics and Policy
correspondent Michael McKee here in our studio. Also Becky Franko,
it's chief commercial Officer and at president north of the
MAA America for a Manpower Group.
Speaker 1 (10:03):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm Eastern Listen
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Speaker 2 (10:16):
Let's switch at gears a little bit, because the Chinese
parent company of TikTok faces a ban in the US
if it doesn't meet a January nineteenth deadline to sell
the video sharing app. It's the result of a federal
appeals court ruling. On Friday, a three judge panel in
Washington unanimously upheld a new US law enacted to protect
national security and user privacy, ruling that it didn't violate
free speech protections under the Constitution's First Amendment. We got
(10:39):
with us Michael Sheppard, senior editor for Technology and Strategic
Industries for Bloomberg News. He joins us from our Washington
DC bureau. Just in the last hour or so, we
have heard from TikTok. They're planning on taking this to
the next step, which, Michael is the US Supreme Court.
What could happen there?
Speaker 7 (10:56):
Well, it's a great question, Tim, because TikTok has signaled
all along that they view this new law, and even
as the legislation was coming together, they viewed this whole
move as unconstitutional. They see it as an essence censorship
of their users across the US. They have one hundred
and seventy million at last count in this country. It's
(11:20):
a big market for them, and they see this law
as restricting their ability to not only do business, but
for their clients, their customers, to express themselves. We all
know how TikTok has been this outlet for so many people,
especially young people, through the pandemic. Will the Supreme Court
be sympathetic to that argument is really the main question.
(11:43):
The three judge panels ruling today was unanimous. The panel
is made up of two Republicans and one Democrat in
their ruling today, and the Supreme Court may not be
any more sympathetic than the lower court was today.
Speaker 5 (12:00):
Well, Mike, I mean, of course with this band, it's
not good for TikTok or byte Dance. But of course
this can really help some US companies like Snapchat or
maybe if we think about Instagram, I mean, these are
some companies that will really benefit.
Speaker 2 (12:13):
Alphabet me meta platform shares are went to a record
highs exactly.
Speaker 5 (12:17):
Maybe people are going to be going to Instagram reels
instead of TikTok. But what does this mean for the
companies that spend so much of their money putting their
ad spend on TikTok?
Speaker 7 (12:26):
Well, Nor, I'm really glad you asked that question because
this is a big business issue there. TikTok has had
this growing advertising presence here in the US, and it
is also trying to develop a retail platform, a vehicle
through which users can make purchases through the app. So
there is a lot of stake here and as you said,
(12:47):
its competitors are feasting on the moment right now. And
will you know it is something that actually the people
who crafted the legislation, the Justice Department and its arguments
to the and even the judges who ruled today acknowledge that. Look,
we would be really sad to see TikTok go if
it's not sold. We don't want to see a ban necessarily,
(13:10):
but if that actually happens, there are other destinations for
those users, So we might see some of those advertising
dollars and some of that other business shift to these
other places unless we see a sale.
Speaker 5 (13:22):
Well, Mike, how quickly are we expecting a decision?
Speaker 7 (13:26):
Well, they have to first actually make the sir petition
to the court. We haven't seen evidence that they filed yet.
And Matt Shuttleheim of Bloomberg Bloomberg Intelligence, one of our
analysts here does not expect the Court to act on
an emergency basis to overturn this, so it will be
(13:47):
really interesting to see how the justices handle it. Do
they take the case and then put it on pause
and put the law on pause until they rule. Remember
they're in session till June or early July. This could
take a while. They also may just decline the petition
all together and let the law stand. So it's unclear
(14:08):
how quickly they would act. It may not be before
the end of this year, but we would certainly expect
them to respond in some fashion before the January nineteenth
deadline by which Bite Dance must sell TikTok.
Speaker 2 (14:22):
Does President Elect Trump when he takes office on January twentieth,
does he have any influence over the fate of TikTok
because he changed his tune And perhaps one of the
reasons we're talking about this now is because of what
he did during his first term as president, when he
was the initial person who raised the idea to sell
its US assets.
Speaker 7 (14:40):
Well, you're right, Tim, and this is just an incredible
tournament for the President elect. During the campaign, he reversed
his position seeking a ban on TikTok. In part, he
was camp using TikTok as a way to appeal to
younger voters, but he also sees TikTok as a competitor
to metaplatfor forms Facebook, which, as you remember, kicked Donald
(15:04):
Trump off after the January sixth Capital Insurrection by his supporters.
Now that may be mitigated a little bit by Mark
Zuckerberg's recent visit tomor a Lago and his dinner with
the President elect. But at the same time, we haven't
seen or heard from Donald Trump on this specific issue
(15:24):
since the ruling came down, so we'll be all years
for anything that may come up on truth social about
his position. And now whether he can alter enforcement of
the law is another great question. There's not a lot
of leeway or wiggle room for the Justice Department to
simply take a pass on doing its job and following
(15:45):
the code of law. We could see, however, the President elect, perhaps,
if he still wants to see this band reversed, go
to allies in Congress to see if maybe there is
a way to get the law revisited on Capitol Hill.
Speaker 2 (15:58):
That's a good point. Michael Shepherde, Editor for Technology and
Strategic industries for Bloomberg News. Down there in our Washington,
DC bureau.
Speaker 1 (16:06):
You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 2 (16:25):
Let's talk a little M and A when it comes
to private equity because Donald Trump's return to the White
House is predicted to see the ground for more big
ticket mergers and acquisitions, and deal makers expect new appointees
at federal agencies under Trump to bring a friendly approach
to MNA. We've heard a lot about that over the
last month. The outlook for private equity and other deal
making in twenty twenty five is the focus of this
(16:46):
week's CFO briefing newsletter. We've got with us Nina Trentman,
senior editor at Bloomberg News. She joins us along with
Dorothy Walter, partner and CFO at the private equity firm
Alpine Investors. Nina's here in the studio. Dorothy out there
in San Francisco, you can sin up for the Bloomberg
CFO Briefing newsletter at Bloomberg dot com slash CFO Briefing.
You know, I do want to start with you and
(17:07):
just get an idea from you. How your sources have
been thinking about the shift that we could see, that
they could see come January twenty twenty five under the
new administration.
Speaker 6 (17:16):
Yeah, thank you very much.
Speaker 8 (17:18):
Yeah, it was certainly interesting to see in conversations this week,
including with Doherty but also with other CFOs, to see
that people I think overall are more optimistic for deal making,
but they're not necessarily sort of expecting all help to
break loose. So I think the expectation is, yes, more
deal making, potentially helped by lower interest rates, potentially also
helped by less regulatory scrutiny that we might be seeing
(17:42):
under the new administration. So I think an improvement from
this year, and I guess we'll see where that leads us.
Speaker 5 (17:49):
I mean, this year was pretty dry when we think
about M and A. I mean, people have really been
waiting for us to see the floodgates open and see
some activity happen. As you're speaking to sources, what is
the prediction is it going to be a slow run
up into twenty twenty five.
Speaker 9 (18:02):
Yeah.
Speaker 8 (18:03):
I spoke to Ernst and Young this week and they
were saying, specifically on the private equity front, that we
should see sort of here in the US about four
hundred and forty deals, which would be an improvement of
about fifteen sixteen percent.
Speaker 6 (18:15):
Over this year's levels.
Speaker 8 (18:17):
Interesting I thought was this that they pointed out, Well,
the US is a bit of a leading indicator with
regards to M and A. So if you see more
deals here and more deals not just being announced but
actually being completed, that that could also then lead to
some more enthusiasm around the world. And I'm sure Dorothy
that you can tell.
Speaker 6 (18:34):
Us more on this.
Speaker 2 (18:34):
Yeah, I want to bring in Dorothy Walter, partner and
CFO at the private equity firm Alphine Investors out there
in San Francisco.
Speaker 6 (18:40):
How how are you.
Speaker 2 (18:41):
Thinking about this change at the top when it comes
to the top of the ticket and thinking about another
Trump administration Because for the last few years, a lot
of the folks we've talked to when it comes to
M and A, they've essentially said it's the higher rates
that have have sort of put a hamper on it.
Damper on I'm wondering what you're thinking for twenty twenty five.
(19:02):
Is it going to be rates or is it going
to be regulatory issues.
Speaker 9 (19:06):
I think it's a combination of both. And nice to
be here with you all. You know, we've heard all
the dire news, all the you know, thirty percent count
of deals down year over.
Speaker 6 (19:15):
Year in the United States.
Speaker 9 (19:17):
It's it's looking bad, but then there's so many bright
spots as well. Right, transactions and ten billion dollars of
value and more are up year over year. Average deal
size is up year over year. Megacap sponsors are very
active in the market, which we're certainly keeping a pulse
on those deals, twenty five of them happening year to date.
(19:37):
And on the IPO side, we have some bright spots
on the horizon. HG just announced potentially thinking about taking
Bisma public after holding that company for a super long time,
and so we're pretty optimistic. We think some some bright
horizons are coming.
Speaker 8 (19:53):
Dorothy to talk to us a little bit about Alpine sort
of the the investments that you're looking for. I know
that you've been pretty active on the on the deal
making from this here already. Talk to us a little
bit about that.
Speaker 6 (20:04):
Yeah, that's right.
Speaker 9 (20:05):
I mean, while those stats overall for the United States
deal making our down year every year, Alpine's been up
year every year. We've closed over one hundred and sixty
deals this year and come in And the reason is
is we just hunt in a different pool than other sponsors.
We don't let the game define us. We define the
game we want to play. For our platform deals, we
(20:27):
transition management one hundred percent of the time, which means
that we can look in different pools. Over eighty percent
of our deals over the past five years have been
proprietarily sourced and that allows us to really try and
set a different tone for the market.
Speaker 5 (20:45):
Dorothy, Are there any sectors or industries in particular that
people are thinking are more primed, more fertile ground for
some transaction activity as we head into next year?
Speaker 9 (20:55):
Certainly industrial, certainly Tech. Mean, with where the elections are going,
some of those headlines, those are pretty hot right now,
It's yet to be seen. You know where regulatory changes
are going to take us, like r VBAC Anylon going
to be effective at their Department of Governmental Efficiency efforts,
who knows? And then with those efforts, how is that
(21:17):
going to impact different sectors that might become hot or
not hot.
Speaker 6 (21:20):
For example.
Speaker 8 (21:22):
I think one thing, of course, will be interesting to
watch also, Dorothy, and maybe you can comment on that,
is this, how do deal makers think about the environment
for deals, not just on the regulatory side, but also
what will the market confidence look like? Because of course
some of the deals will also happen if the environment
looks good and if there's a positive sentiment around that.
Speaker 6 (21:41):
Talk to us a little bit about that.
Speaker 9 (21:44):
Yeah, I think like sentiment does play a lot into it.
I mean, we've been through a lot in headlines over
the past two years with various wars and macro uncertainty,
and so while I don't necessarily think that will all
be resolved, we think that the increased investments by this
(22:05):
new administration are going to really allow us to have
more confidence in general support in the US for business sentiment.
Speaker 2 (22:13):
Overall, What does the landscape look like for opportunities, Like
when you look out there to see companies that you
think look like ones that you'd actually add to your portfolio,
what are the characteristics that they have.
Speaker 9 (22:26):
A lot of them are recession resistant. So we really
look at those top the top line trends over time,
make sure that that's very strong. As I said, if
we're replacing management, we're often talking to we're cultivating relationships
with these company founders over many years, right, and so
understanding what it is that they've been through to build
that company, where they think the future of that company is,
(22:47):
and then making sure again that that top line is
strong enough to withstand and management transition, and that also
those customer relationships are strong enough, right, And so I
think we think a lot about those pieces. We also
think about frag met to deep markets where M and
A can play a big piece. And so one of
the things that we've been talking about M and A volumes,
I mean, let's look at the lower end of the market.
(23:09):
There's still a lot of smaller deals trading and five
ten million epittata space that can supplement a strategy for
a company.
Speaker 6 (23:17):
They can build out different product lines.
Speaker 9 (23:18):
They can build out new green fielding, new geographies, right,
And so those are some of the aspects that we
look at that make deals attractive for us, and where
Alpine can bring its value creation playbook to play, whether
that's on M and A, whether that's on various other
value creation levers we bring.
Speaker 5 (23:38):
So how are private equity firms thinking about potential M
and A transactions in twenty twenty five if the federal
Reserve doesn't cut as much as people are expecting.
Speaker 9 (23:48):
It's been, you know, it's been interesting for us just
looking at the dynamics and private credit markets, So looking
at for example, black Rock's recent acquisition of HPS and
how that's creating this real imbalance and demanded supply and
the provision of credit. And so while rates are certainly
one thing, the availability of debt is another thing that
(24:08):
we should be really talking about. Alpine looks at things
such as like our DDTL loan terms, EBITDAD definitions, those
types of things to gain competitiveness in the market. And
really for strong, top quality assets, we're seeing quite a
lot of demand out there and very little supply, and
so what that means is continued ability to make deals
(24:29):
where you have some of those compelled, compelling characteristics.
Speaker 7 (24:32):
That I just shared.
Speaker 8 (24:33):
Dorothy will have to wrap up shortly, but just talk
to us one second about valuations.
Speaker 6 (24:39):
Have have those come down?
Speaker 9 (24:43):
You know, you can't say with broad strokes. There are
certain industries that have certainly been very impacted, whether it's
by governmental regulation, whether it's by other macro headwinds I think,
and then there's others that have benefit and that have seen,
you know, been able to ride through COVID and continue wave.
And so I would say valuations you really have to
(25:05):
poke at them, and you have to know when you're
talking to your sponsors that you've invested with, like how
are they approaching those because you know, some of those
public market benchmarks are pretty old by now, and so
we're waiting for we're waiting for a public market to
open up again to start to establish some some new
benchmarks for us.
Speaker 2 (25:22):
Dorothy Walter, partner and CFO at the private equity firm
Alpine Investors out there in San Francisco, along with Nina Treptman,
senior editor at Bloomberg News, she writes the CFO Briefing newsletter.
Sign up for it now just head on over to
Bloomberg dot com slash CFO Briefing.
Speaker 6 (25:39):
Bromco the journal.
Speaker 2 (25:44):
Bet you let me drive?
Speaker 7 (25:45):
Oh no, no, no, no, please, honey, please, I.
Speaker 9 (25:52):
Want to.
Speaker 3 (25:55):
It's a good question.
Speaker 1 (26:00):
Is the drive to the clothes that.
Speaker 8 (26:02):
Pong commuting well by around Hilda.
Speaker 1 (26:04):
Doong on Bloomberg Radio.
Speaker 2 (26:08):
It is about that time. Look at that eighteen minutes
roughly until the close of US trading on this Friday afternoon.
Taking a look at the S and P five hundred
up to close to two tents of one percent, off
the best levels of the day, but still in the green.
The Nasdaq hire by seven tents of one percent, also
around its best levels of the day. I should say
about that the Dow is down three tenths of one percent.
(26:30):
Look at that. It is time to drive to the clothes.
Let's bring in Megan Horneman. She is chief investment officer
over at Verde's Capital Advisor. She joins us from Hunt Valley, Maryland. Meghan,
how are you now?
Speaker 6 (26:41):
Are you good? Thank you?
Speaker 2 (26:42):
Yeah, we're doing pretty well. Sort of trying to figure
out what what twenty twenty five looks like a lot
of folks now thinking about Okay, well, if the S
and P five hundred was up more than twenty percent
in twenty three and twenty four, what is twenty five
going to look like. There's a lot of kind of
factors at play with the new administration coming in, people
thinking differently about interest rates. What are you thinking?
Speaker 7 (27:04):
So?
Speaker 10 (27:04):
I think we could start with interest rates, especially since
We got that jobs report today and that was one
of the final pieces of information aside from the inflation
data that the FED needs.
Speaker 6 (27:13):
For their next meeting.
Speaker 10 (27:14):
And I think from an interest rate perspective, it doesn't
change the fact that the federill cut interest rates in December,
but it does make twenty twenty five look a little
bit less certain, and that's because the inflation continues to
be the sticky story there. It's something we've been talking
about that the sticky part of inflation. So whether it's housing,
whether you look at the wage number that we got today, services,
(27:36):
all of this is still problematic for the FED and
it's something that they can't control. So we were a
little concerned and they went with the fifty basis points
in September. This is something that was a little aggressive
in our opinion, and the biggest risk was it reigniting inflation.
And what we're seeing right now is in the inflation
progress is basically stalled. So this is going to take
It's obviously pulled some of the rate hikes off the
(27:58):
table for.
Speaker 6 (27:58):
Next year right now.
Speaker 10 (27:59):
We think the will be cut in December and then
a pause and reassess the situation see how it goes
into into twenty twenty five. From an equity perspective, I
think that twenty twenty five is it can be a
positive year, but don't expect these double digit types of returns.
Speaker 6 (28:15):
Expect more muted returns next year.
Speaker 10 (28:18):
And that's because we think the earning situation, the earnings
environment is just it's pricing in way too much optimism
for the economic situation next year. And I think the
economic situation is going to be a bit weaker than
we've seen and that's going to put some pressure on
the earnings growth.
Speaker 6 (28:33):
So we are a little bit cautious.
Speaker 10 (28:35):
Going into twenty twenty five from an earnings perspective, I
mean equity perspective. Remember that it's also the third year
of a bull market that does tend to be one
of the weaker years in the bull market los esteem there,
and it's the first year of a presidential term, which
history tells us that's actually the most chance that you
get during a presidential term for recessions. So I think
(28:55):
that the equities just expect more muted returns next year.
Speaker 5 (29:00):
It's interesting that you just bring up President Donald Trump,
the new elect here. I mean, we did see the
Russell two thousand, posting its best return this year on
optimism about Trump's campaign promises. Is now the time for
small caps? As we look at twenty twenty five.
Speaker 10 (29:15):
Most small caps are from evaluation perspective, more attractive than
the large cap space. But this run that we've seen
in the small caps is totally ignoring the fact that
they can be interest rates sensitive.
Speaker 6 (29:27):
And we just talked about how the Fed's not gonna
be able to.
Speaker 10 (29:29):
Cut interest rates, and there's a risk that the interest
rates could move higher, not necessarily the Fed funds, but
because of inflation, you could see higher interest rates.
Speaker 6 (29:36):
So this is.
Speaker 10 (29:37):
Something that it doesn't they're taking too much, I think
into the small caps. It's looking too much into the
hopes for economic optimism and then being that they're more
domestically oriented, they can do better.
Speaker 6 (29:51):
If we start talking about tariffs. But it's totally.
Speaker 10 (29:54):
Ignoring the valuations right now. Are ignoring this negative fundamentals
that we see here from the small cap perspective. So
I think you have a better entry point for small caps.
Speaker 2 (30:02):
What are the red flags out there? I mean, I'm
talking to folks there, friends of mine who were around
during the nineteen nineties, and they look out across the
landscape right now, and you know they've seen the cycles
there and they say, I'm starting to think that the
valuations we're seeing we're not quite at like you know,
the pets, dot com and web ban era. But I'm
(30:25):
a little concerned about valuations that I'm seeing. How do
you look at that?
Speaker 6 (30:31):
I agree completely.
Speaker 10 (30:32):
I mean, we're looking at twenty six twenty seven times
earnings for the SMP five hundred.
Speaker 6 (30:36):
That's a significant.
Speaker 10 (30:37):
Amount of valuation or pe expansion that we've seen this year.
Can that continue for another year? I'm not so sure.
When you look at that, it's pricing in perfection in
our opinion. It may not be exactly at the dot
com bubble levels, but you are looking at equity valuations
that are stretched. So it's pricing in this very optimism
optimistic outlook for not only economic growth of soft landing,
(31:01):
but also that the FED can just continue to cut
interest rates. And I don't know that they can continue
to do that into next year.
Speaker 5 (31:08):
I mean, there's so much data that we're tracking, especially
as we think about the FED and when it may
cut and how many times they may cut going into
twenty twenty five. What are you really focused on. Is
there any particular data point that you are keeping an
eye on as we're going through these next few weeks
into the end of the year.
Speaker 10 (31:26):
One of the things that we obviously the headline inflation
numbers are always important, but also look at some of
the underlying inflation numbers in things like the ISM Manufacturing
or the ISM Services Index. That ISM Services index has
a price is paid component and that came out this
weekend that was higher again, So this is something that
you're seeing in those inflation service inflation numbers, and that's
(31:47):
a concern for us. So we look at some of
those underlying inflation indicators. The other ones are consumer inflation expectations,
and we saw today that the one year consumer inflation
expectations jumped up again. This is concerning for US as
well from an inflation standpoint. I think that's what the
FED is going to be looking at as they try
and assess what to do next year.
Speaker 2 (32:05):
So how does that look, How does that, I don't know,
look at when you see the incoming administration. And we
talked a lot about this this week with Jay Powell
and what we heard from j Powell earlier this week.
But if you do have an administration that comes in
and ends up following through with what it talked about
on the campaign trail, including deporting millions of people who
(32:28):
are here undocumented and also implementing tariffs. Do you see
the inflation picture changing?
Speaker 10 (32:35):
I think there's upside risks there to inflation from a
tariff perspective, and the and the estimates really range broadly
for that what that may be. And let's see what
he comes in with when he actually does come into office,
and what those tariffs may look like.
Speaker 6 (32:50):
We have kind of a playbook of what happened.
Speaker 10 (32:52):
In twenty seventeen and eighteen, and we didn't see a
very big impact from those tariffs in inflation. But we
are in a very different in place regime now than
we were back when President Trump's first term. So it's
the Feds walking a very fine line and they can't
control that from the government standpoints. I think it puts
some upside risks there to inflation.
Speaker 2 (33:11):
Hey, Megan, for I let you go. You get new
cash right now? How are you deploying at just thirty seconds?
Speaker 10 (33:16):
I'm looking at municipal bonds I'm going into next year
from a taxable equivalent yield perspective, they're attractive, and I
think that you'll see even with the Tax Cuts and
Jobs Act that's expected to sunset, I think we don't.
We're not looking for much lower taxes here anytime.
Speaker 6 (33:32):
Soon, especially with the deficit situation.
Speaker 10 (33:33):
So I think that municipals show have a good opportunity
right now, all right.
Speaker 2 (33:37):
Megan Horneman, chief investment officer over at Verden's Capital Advisors,
joining us from Hunt Valley, Maryland this afternoon. Meghan, always
get to check in. Have a great weekend.
Speaker 1 (33:46):
This is the Bloomberg Business Week Podcast, a little on Apple, Spotify,
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Week Inside from the reporters and editors who bring you
America's most trusted business magazine, plus global business, finance and
tech news. The Bloomberg Business Week Podcast with Carol Messer
(00:23):
and Tim Stenebek from Bloomberg Radio.
Speaker 2 (00:27):
US hiring picking up in November and the unemployment rate
increasing pointed to a moderating at labor market rather than
one that's significantly deteriorating. As the numbers look. Nonfarm payrolls
rising two hundred and twenty seven thousand last month. That
follows an upwardly revised thirty six thousand gain in October,
according to the Bureau of Labor Statistics this morning, smoothing
out volatility, payrolls growth over the past three months average
(00:49):
one hundred and seventy three thousand. It's a step down
from the robust pace scene earlier this year. We got
with us Michael McKee, Bloomberg News International Economics and Policy correspondent.
Also joining us Becky Frankowitz, chief commercial Officer and President
of North America for Manpower Group. It is one of
the largest staffing firms in the world. Mike here in
the Bloomberg Business Week studio, Becky joining us from Milwaukee. Mike,
(01:10):
quite a different report than we saw for the month
of October, which was revised higher. Does it pretty much
solidify what the Fed does later this month?
Speaker 3 (01:19):
No, I wouldn't say it solidifies it. It gives the
Fed no reason to not do it, but.
Speaker 2 (01:25):
Hold on no reason to not cut risksk There we go.
Speaker 3 (01:28):
If we'd seen a really high number, and if unemployment
had gone off even more, then you might have seen
the Fed have second thoughts. We still have inflation numbers
next week that could cause the Fed to have second thoughts,
So we're not out of the words. It's not a
guarantee at this point. But this was not a terrible thing.
The interesting thing in these numbers was the revisions and
(01:49):
the fact that we didn't see a huge hurricane rebound.
So you take away the revisions and you end up
basically with a number in terms of job creation in
line with roughly what we've been seeing for the last
three to six months. A little bit slower, but still
fairly strong. And while the unemployment rate went up to
(02:13):
a strong four point two, almost four point three, it's
still below where the Fed thought we would be in December.
So you know, it's not a great number, but not
a terrible.
Speaker 2 (02:25):
I didn't hear you say goldilocks.
Speaker 3 (02:28):
You know, it's hard to use that term because you're
trying to pick a moment in time.
Speaker 4 (02:33):
It's also.
Speaker 3 (02:36):
We're at the time of year when these numbers sort
of get volatile, different because they get affected by a
lot of things. For example, we saw retail hiring fall
by twenty eight thousand. What's with that because this is
the holiday season, it's a shorter holiday season. Retailers probably
hired not as many people, but the seasonal fact that
(03:00):
the government uses expected a big hire, so they pushed
down the number more and it comes out as a
negative number. But it's I'm sure it's not really negative.
We didn't see people get fired from the retailers during November, So.
Speaker 5 (03:15):
Mike, some sources have said that this is somewhat strong report,
but not a consistently strong report. Can you just speak
a little bit more to the details in terms of
what you're seeing in terms of unemployment.
Speaker 3 (03:26):
Well, the interesting things about unemployment is it's hitting different
sectors of the society differently. It's hitting the unskilled more
than the skilled. Black unemployment went up significantly, and white
unemployment stays. It went up, but it stays below four percent.
(03:48):
So you're kind of getting a picture of a last in,
first out economy from the unemployment numbers. Now that said,
none of them are terrible. We're out of line with
historical precedent. It's just that you're not seeing a movement
in a positive direction for the most part. And the
jobs that were created. The areas where we saw big
(04:11):
job creation were in healthcare, which we've seen for quite
some time, leisure and hospitality, restaurants. It's top of year
when everybody wants to go out. So we're not seeing
any kind of big change in factory jobs. We had
more factory jobs, but not a huge gain. Not seeing
tech jobs grow a lot, which maybe we will in
(04:33):
the future, but right now, a strong enough report, but
it's not showing that the economy is bursting at the seams.
Speaker 2 (04:41):
Becky Franklins, I want to bring you in here. Becky's
chief commercial officer and president over at Manpower Group. It's
one of the largest staffing firms in the world. We
got the BLS data, but you have this other dashboard
of data that you see when it comes to hiring,
where are you seeing strength? And I think, perhaps more interestingly,
where are you seeing weakness? Right now?
Speaker 4 (04:58):
Yeah, so thank you. I'll pivot off something Mike just said.
I would say it was a strong report in very
specific areas. And so what I mean by that is
overall it looks pretty strong, but when you dig in,
it is very concentrated in the areas that Mike mention, hospitality, leisure, government,
those kind of spaces. Basically most other places it's holding
(05:21):
like it or its weakness. And so in the report,
that's what we saw. When we look at our real
time demand, which is what you alluded to, Tim, we're
looking at things like.
Speaker 6 (05:29):
Longer time to hire.
Speaker 4 (05:31):
You know, that's a trend we're seeing underlying the economy.
So in November we've gone from thirty nine days on
average time to hire to forty nine days. That makes
workers unhappy, ghosting starts happening, that creates friction blue collar labor,
which Mike mentioned as well. The demand, the real time
demand is down nine percent in blue collar labor with
(05:52):
truck drivers, which you know we've mentioned as a top
job in demand historically, truck driver demand in new jobs
down forty five, So we're seeing some underlying weakness that
you have to dig into versus looking at just the
headline number, which again I would say was strong in
very specific areas well.
Speaker 5 (06:09):
Becky, we've talked a lot about different landings in the past, right,
soft landing, hard landing, no landing, everyone's just hoping that
we land What is your latest read on what type
of landing is even in the cards today?
Speaker 4 (06:20):
After this data, I think we're still kind of sailing
into a landing. I wouldn't say it's going to be
smooth or hard, it's going to be slow. It appears
that it's going to be quite slow. The first quarter
of next year, by the real time demand data we're
seeing is going to be soft. We're having to rethink
retail hiring again discussed, but usually we'd see retail seasonality
(06:42):
come and now carry through the first quarter. In terms
of a decline, we saw big increases September October. We
haven't seen the increases follow through through November December, and
so I think we're going to see an uneven recovery
in the first half. And again I think instead of
softer hard, going to be quite a continued slow is
what I would.
Speaker 2 (07:03):
Say, Hey, Mike, we got the data from the BLS today,
so that's we're sort of over at that hump when
it comes to understanding where the economy is. When you
look forward to what the FED still gets ahead of
its next meeting, what is the next key data point
that we need to be have on our radar.
Speaker 3 (07:18):
And next Wednesday we get CPI and that's going to
be the major number for the FED. PPI will also
give them some clues. On Thursday, the day before the
FED meeting, is retail sales, and we'll see how it
fits together with hiring and wages and whether people are
still spending money. It's just the retail stuff, not the
(07:39):
services stuff. But we'll get an idea of what we
saw at the end of November. I refuse to use
the term Black Friday spending because that's just a made
up thing. But why do you say that, Well, it
used to be years ago the strongest selling day of
the year, But the idea that it represents what's going
(07:59):
to happen over Christmas Hanukkah season is not at all correct.
We've seen holiday shopping move into October. We've seen people
wait until December's sales to actually spend money. What economists
generally do is take the spending numbers for November and
(08:20):
December and average them out. Okay, and we make a
big deal out of this as if it's some sort
of sign post, but it's not really.
Speaker 2 (08:28):
I feel like, also, I don't know what you do
in ara, but it's like with a smartphone and with
e commerce, you're just shopping when you need to shop.
Speaker 5 (08:37):
Of course, and it's like your fingertips.
Speaker 2 (08:39):
The days of doorbusters are totally over. Yeah, it's like
it's a different world.
Speaker 5 (08:43):
It used to be fears of people walking and trampling
people during Black Friday. It's like, oh my gosh, it's
going to be so crazy. And now here we are,
we're just going to our phones waiting for cyber Monday,
travel Tuesday. I mean, Becky, is this something that you
also see? And especially as we're thinking about the holiday season,
how are we viewing employment and just the labor market
more broadly.
Speaker 4 (09:03):
Yeah, so, for sure, as we go into the holidays,
we've seen holiday hiring come and go. That's behind us
now as we sit here at the first of the month,
which historically would not be the case, Why is that happening? Yes,
shopping at your fingertips, Yes, omni channel shopping, so I
might run into a store. I'm going to do a
lot online from my phone, you know, sitting at work
on my laptop. Those kind of things are happening, which
(09:25):
actually smooths the season a bit. I think what we
have to watch as we close the year is what
the Fed will do. I have a little different view
than Mike on that. I would say that this jobs
report would give reason to hold. I think the Fed
will still act because that's baked into assumptions in the market,
and I hope in that action that stimulates more growth
(09:46):
as we go into the first quarter. Again, that's not
what we're seeing in the real time demand today.
Speaker 2 (09:51):
Big thank you too, Bloomberg News International Economics and Policy
correspondent Michael McKee here in our studio. Also Becky Franko,
it's chief commercial Officer and at president north of the
MAA America for a Manpower Group.
Speaker 1 (10:03):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm Eastern Listen
on Apple car Play and and Broud Auto with a
Bloomberg Business app or watch us live on YouTube.
Speaker 2 (10:16):
Let's switch at gears a little bit, because the Chinese
parent company of TikTok faces a ban in the US
if it doesn't meet a January nineteenth deadline to sell
the video sharing app. It's the result of a federal
appeals court ruling. On Friday, a three judge panel in
Washington unanimously upheld a new US law enacted to protect
national security and user privacy, ruling that it didn't violate
free speech protections under the Constitution's First Amendment. We got
(10:39):
with us Michael Sheppard, senior editor for Technology and Strategic
Industries for Bloomberg News. He joins us from our Washington
DC bureau. Just in the last hour or so, we
have heard from TikTok. They're planning on taking this to
the next step, which, Michael is the US Supreme Court.
What could happen there?
Speaker 7 (10:56):
Well, it's a great question, Tim, because TikTok has signaled
all along that they view this new law, and even
as the legislation was coming together, they viewed this whole
move as unconstitutional. They see it as an essence censorship
of their users across the US. They have one hundred
and seventy million at last count in this country. It's
(11:20):
a big market for them, and they see this law
as restricting their ability to not only do business, but
for their clients, their customers, to express themselves. We all
know how TikTok has been this outlet for so many people,
especially young people, through the pandemic. Will the Supreme Court
be sympathetic to that argument is really the main question.
(11:43):
The three judge panels ruling today was unanimous. The panel
is made up of two Republicans and one Democrat in
their ruling today, and the Supreme Court may not be
any more sympathetic than the lower court was today.
Speaker 5 (12:00):
Well, Mike, I mean, of course with this band, it's
not good for TikTok or byte Dance. But of course
this can really help some US companies like Snapchat or
maybe if we think about Instagram, I mean, these are
some companies that will really benefit.
Speaker 2 (12:13):
Alphabet me meta platform shares are went to a record
highs exactly.
Speaker 5 (12:17):
Maybe people are going to be going to Instagram reels
instead of TikTok. But what does this mean for the
companies that spend so much of their money putting their
ad spend on TikTok?
Speaker 7 (12:26):
Well, Nor, I'm really glad you asked that question because
this is a big business issue there. TikTok has had
this growing advertising presence here in the US, and it
is also trying to develop a retail platform, a vehicle
through which users can make purchases through the app. So
there is a lot of stake here and as you said,
(12:47):
its competitors are feasting on the moment right now. And
will you know it is something that actually the people
who crafted the legislation, the Justice Department and its arguments
to the and even the judges who ruled today acknowledge that. Look,
we would be really sad to see TikTok go if
it's not sold. We don't want to see a ban necessarily,
(13:10):
but if that actually happens, there are other destinations for
those users, So we might see some of those advertising
dollars and some of that other business shift to these
other places unless we see a sale.
Speaker 5 (13:22):
Well, Mike, how quickly are we expecting a decision?
Speaker 7 (13:26):
Well, they have to first actually make the sir petition
to the court. We haven't seen evidence that they filed yet.
And Matt Shuttleheim of Bloomberg Bloomberg Intelligence, one of our
analysts here does not expect the Court to act on
an emergency basis to overturn this, so it will be
(13:47):
really interesting to see how the justices handle it. Do
they take the case and then put it on pause
and put the law on pause until they rule. Remember
they're in session till June or early July. This could
take a while. They also may just decline the petition
all together and let the law stand. So it's unclear
(14:08):
how quickly they would act. It may not be before
the end of this year, but we would certainly expect
them to respond in some fashion before the January nineteenth
deadline by which Bite Dance must sell TikTok.
Speaker 2 (14:22):
Does President Elect Trump when he takes office on January twentieth,
does he have any influence over the fate of TikTok
because he changed his tune And perhaps one of the
reasons we're talking about this now is because of what
he did during his first term as president, when he
was the initial person who raised the idea to sell
its US assets.
Speaker 7 (14:40):
Well, you're right, Tim, and this is just an incredible
tournament for the President elect. During the campaign, he reversed
his position seeking a ban on TikTok. In part, he
was camp using TikTok as a way to appeal to
younger voters, but he also sees TikTok as a competitor
to metaplatfor forms Facebook, which, as you remember, kicked Donald
(15:04):
Trump off after the January sixth Capital Insurrection by his supporters.
Now that may be mitigated a little bit by Mark
Zuckerberg's recent visit tomor a Lago and his dinner with
the President elect. But at the same time, we haven't
seen or heard from Donald Trump on this specific issue
(15:24):
since the ruling came down, so we'll be all years
for anything that may come up on truth social about
his position. And now whether he can alter enforcement of
the law is another great question. There's not a lot
of leeway or wiggle room for the Justice Department to
simply take a pass on doing its job and following
(15:45):
the code of law. We could see, however, the President elect, perhaps,
if he still wants to see this band reversed, go
to allies in Congress to see if maybe there is
a way to get the law revisited on Capitol Hill.
Speaker 2 (15:58):
That's a good point. Michael Shepherde, Editor for Technology and
Strategic industries for Bloomberg News. Down there in our Washington,
DC bureau.
Speaker 1 (16:06):
You're listening to the Bloomberg Business Week podcast. Listen live
each weekday starting at two pm Eastern on applecar Play
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York station, Just say Alexa Play Bloomberg eleven thirty.
Speaker 2 (16:25):
Let's talk a little M and A when it comes
to private equity because Donald Trump's return to the White
House is predicted to see the ground for more big
ticket mergers and acquisitions, and deal makers expect new appointees
at federal agencies under Trump to bring a friendly approach
to MNA. We've heard a lot about that over the
last month. The outlook for private equity and other deal
making in twenty twenty five is the focus of this
(16:46):
week's CFO briefing newsletter. We've got with us Nina Trentman,
senior editor at Bloomberg News. She joins us along with
Dorothy Walter, partner and CFO at the private equity firm
Alpine Investors. Nina's here in the studio. Dorothy out there
in San Francisco, you can sin up for the Bloomberg
CFO Briefing newsletter at Bloomberg dot com slash CFO Briefing.
You know, I do want to start with you and
(17:07):
just get an idea from you. How your sources have
been thinking about the shift that we could see, that
they could see come January twenty twenty five under the
new administration.
Speaker 6 (17:16):
Yeah, thank you very much.
Speaker 8 (17:18):
Yeah, it was certainly interesting to see in conversations this week,
including with Doherty but also with other CFOs, to see
that people I think overall are more optimistic for deal making,
but they're not necessarily sort of expecting all help to
break loose. So I think the expectation is, yes, more
deal making, potentially helped by lower interest rates, potentially also
helped by less regulatory scrutiny that we might be seeing
(17:42):
under the new administration. So I think an improvement from
this year, and I guess we'll see where that leads us.
Speaker 5 (17:49):
I mean, this year was pretty dry when we think
about M and A. I mean, people have really been
waiting for us to see the floodgates open and see
some activity happen. As you're speaking to sources, what is
the prediction is it going to be a slow run
up into twenty twenty five.
Speaker 9 (18:02):
Yeah.
Speaker 8 (18:03):
I spoke to Ernst and Young this week and they
were saying, specifically on the private equity front, that we
should see sort of here in the US about four
hundred and forty deals, which would be an improvement of
about fifteen sixteen percent.
Speaker 6 (18:15):
Over this year's levels.
Speaker 8 (18:17):
Interesting I thought was this that they pointed out, Well,
the US is a bit of a leading indicator with
regards to M and A. So if you see more
deals here and more deals not just being announced but
actually being completed, that that could also then lead to
some more enthusiasm around the world. And I'm sure Dorothy
that you can tell.
Speaker 6 (18:34):
Us more on this.
Speaker 2 (18:34):
Yeah, I want to bring in Dorothy Walter, partner and
CFO at the private equity firm Alphine Investors out there
in San Francisco.
Speaker 6 (18:40):
How how are you.
Speaker 2 (18:41):
Thinking about this change at the top when it comes
to the top of the ticket and thinking about another
Trump administration Because for the last few years, a lot
of the folks we've talked to when it comes to
M and A, they've essentially said it's the higher rates
that have have sort of put a hamper on it.
Damper on I'm wondering what you're thinking for twenty twenty five.
(19:02):
Is it going to be rates or is it going
to be regulatory issues.
Speaker 9 (19:06):
I think it's a combination of both. And nice to
be here with you all. You know, we've heard all
the dire news, all the you know, thirty percent count
of deals down year over.
Speaker 6 (19:15):
Year in the United States.
Speaker 9 (19:17):
It's it's looking bad, but then there's so many bright
spots as well. Right, transactions and ten billion dollars of
value and more are up year over year. Average deal
size is up year over year. Megacap sponsors are very
active in the market, which we're certainly keeping a pulse
on those deals, twenty five of them happening year to date.
(19:37):
And on the IPO side, we have some bright spots
on the horizon. HG just announced potentially thinking about taking
Bisma public after holding that company for a super long time,
and so we're pretty optimistic. We think some some bright
horizons are coming.
Speaker 8 (19:53):
Dorothy to talk to us a little bit about Alpine sort
of the the investments that you're looking for. I know
that you've been pretty active on the on the deal
making from this here already. Talk to us a little
bit about that.
Speaker 6 (20:04):
Yeah, that's right.
Speaker 9 (20:05):
I mean, while those stats overall for the United States
deal making our down year every year, Alpine's been up
year every year. We've closed over one hundred and sixty
deals this year and come in And the reason is
is we just hunt in a different pool than other sponsors.
We don't let the game define us. We define the
game we want to play. For our platform deals, we
(20:27):
transition management one hundred percent of the time, which means
that we can look in different pools. Over eighty percent
of our deals over the past five years have been
proprietarily sourced and that allows us to really try and
set a different tone for the market.
Speaker 5 (20:45):
Dorothy, Are there any sectors or industries in particular that
people are thinking are more primed, more fertile ground for
some transaction activity as we head into next year?
Speaker 9 (20:55):
Certainly industrial, certainly Tech. Mean, with where the elections are going,
some of those headlines, those are pretty hot right now,
It's yet to be seen. You know where regulatory changes
are going to take us, like r VBAC Anylon going
to be effective at their Department of Governmental Efficiency efforts,
who knows? And then with those efforts, how is that
(21:17):
going to impact different sectors that might become hot or
not hot.
Speaker 6 (21:20):
For example.
Speaker 8 (21:22):
I think one thing, of course, will be interesting to
watch also, Dorothy, and maybe you can comment on that,
is this, how do deal makers think about the environment
for deals, not just on the regulatory side, but also
what will the market confidence look like? Because of course
some of the deals will also happen if the environment
looks good and if there's a positive sentiment around that.
Speaker 6 (21:41):
Talk to us a little bit about that.
Speaker 9 (21:44):
Yeah, I think like sentiment does play a lot into it.
I mean, we've been through a lot in headlines over
the past two years with various wars and macro uncertainty,
and so while I don't necessarily think that will all
be resolved, we think that the increased investments by this
(22:05):
new administration are going to really allow us to have
more confidence in general support in the US for business sentiment.
Speaker 2 (22:13):
Overall, What does the landscape look like for opportunities, Like
when you look out there to see companies that you
think look like ones that you'd actually add to your portfolio,
what are the characteristics that they have.
Speaker 9 (22:26):
A lot of them are recession resistant. So we really
look at those top the top line trends over time,
make sure that that's very strong. As I said, if
we're replacing management, we're often talking to we're cultivating relationships
with these company founders over many years, right, and so
understanding what it is that they've been through to build
that company, where they think the future of that company is,
(22:47):
and then making sure again that that top line is
strong enough to withstand and management transition, and that also
those customer relationships are strong enough, right, And so I
think we think a lot about those pieces. We also
think about frag met to deep markets where M and
A can play a big piece. And so one of
the things that we've been talking about M and A volumes,
I mean, let's look at the lower end of the market.
(23:09):
There's still a lot of smaller deals trading and five
ten million epittata space that can supplement a strategy for
a company.
Speaker 6 (23:17):
They can build out different product lines.
Speaker 9 (23:18):
They can build out new green fielding, new geographies, right,
And so those are some of the aspects that we
look at that make deals attractive for us, and where
Alpine can bring its value creation playbook to play, whether
that's on M and A, whether that's on various other
value creation levers we bring.
Speaker 5 (23:38):
So how are private equity firms thinking about potential M
and A transactions in twenty twenty five if the federal
Reserve doesn't cut as much as people are expecting.
Speaker 9 (23:48):
It's been, you know, it's been interesting for us just
looking at the dynamics and private credit markets, So looking
at for example, black Rock's recent acquisition of HPS and
how that's creating this real imbalance and demanded supply and
the provision of credit. And so while rates are certainly
one thing, the availability of debt is another thing that
(24:08):
we should be really talking about. Alpine looks at things
such as like our DDTL loan terms, EBITDAD definitions, those
types of things to gain competitiveness in the market. And
really for strong, top quality assets, we're seeing quite a
lot of demand out there and very little supply, and
so what that means is continued ability to make deals
(24:29):
where you have some of those compelled, compelling characteristics.
Speaker 7 (24:32):
That I just shared.
Speaker 8 (24:33):
Dorothy will have to wrap up shortly, but just talk
to us one second about valuations.
Speaker 6 (24:39):
Have have those come down?
Speaker 9 (24:43):
You know, you can't say with broad strokes. There are
certain industries that have certainly been very impacted, whether it's
by governmental regulation, whether it's by other macro headwinds I think,
and then there's others that have benefit and that have seen,
you know, been able to ride through COVID and continue wave.
And so I would say valuations you really have to
(25:05):
poke at them, and you have to know when you're
talking to your sponsors that you've invested with, like how
are they approaching those because you know, some of those
public market benchmarks are pretty old by now, and so
we're waiting for we're waiting for a public market to
open up again to start to establish some some new
benchmarks for us.
Speaker 2 (25:22):
Dorothy Walter, partner and CFO at the private equity firm
Alpine Investors out there in San Francisco, along with Nina Treptman,
senior editor at Bloomberg News, she writes the CFO Briefing newsletter.
Sign up for it now just head on over to
Bloomberg dot com slash CFO Briefing.
Speaker 6 (25:39):
Bromco the journal.
Speaker 2 (25:44):
Bet you let me drive?
Speaker 7 (25:45):
Oh no, no, no, no, please, honey, please, I.
Speaker 9 (25:52):
Want to.
Speaker 3 (25:55):
It's a good question.
Speaker 1 (26:00):
Is the drive to the clothes that.
Speaker 8 (26:02):
Pong commuting well by around Hilda.
Speaker 1 (26:04):
Doong on Bloomberg Radio.
Speaker 2 (26:08):
It is about that time. Look at that eighteen minutes
roughly until the close of US trading on this Friday afternoon.
Taking a look at the S and P five hundred
up to close to two tents of one percent, off
the best levels of the day, but still in the green.
The Nasdaq hire by seven tents of one percent, also
around its best levels of the day. I should say
about that the Dow is down three tenths of one percent.
(26:30):
Look at that. It is time to drive to the clothes.
Let's bring in Megan Horneman. She is chief investment officer
over at Verde's Capital Advisor. She joins us from Hunt Valley, Maryland. Meghan,
how are you now?
Speaker 6 (26:41):
Are you good? Thank you?
Speaker 2 (26:42):
Yeah, we're doing pretty well. Sort of trying to figure
out what what twenty twenty five looks like a lot
of folks now thinking about Okay, well, if the S
and P five hundred was up more than twenty percent
in twenty three and twenty four, what is twenty five
going to look like. There's a lot of kind of
factors at play with the new administration coming in, people
thinking differently about interest rates. What are you thinking?
Speaker 7 (27:04):
So?
Speaker 10 (27:04):
I think we could start with interest rates, especially since
We got that jobs report today and that was one
of the final pieces of information aside from the inflation
data that the FED needs.
Speaker 6 (27:13):
For their next meeting.
Speaker 10 (27:14):
And I think from an interest rate perspective, it doesn't
change the fact that the federill cut interest rates in December,
but it does make twenty twenty five look a little
bit less certain, and that's because the inflation continues to
be the sticky story there. It's something we've been talking
about that the sticky part of inflation. So whether it's housing,
whether you look at the wage number that we got today, services,
(27:36):
all of this is still problematic for the FED and
it's something that they can't control. So we were a
little concerned and they went with the fifty basis points
in September. This is something that was a little aggressive
in our opinion, and the biggest risk was it reigniting inflation.
And what we're seeing right now is in the inflation
progress is basically stalled. So this is going to take
It's obviously pulled some of the rate hikes off the
(27:58):
table for.
Speaker 6 (27:58):
Next year right now.
Speaker 10 (27:59):
We think the will be cut in December and then
a pause and reassess the situation see how it goes
into into twenty twenty five. From an equity perspective, I
think that twenty twenty five is it can be a
positive year, but don't expect these double digit types of returns.
Speaker 6 (28:15):
Expect more muted returns next year.
Speaker 10 (28:18):
And that's because we think the earning situation, the earnings
environment is just it's pricing in way too much optimism
for the economic situation next year. And I think the
economic situation is going to be a bit weaker than
we've seen and that's going to put some pressure on
the earnings growth.
Speaker 6 (28:33):
So we are a little bit cautious.
Speaker 10 (28:35):
Going into twenty twenty five from an earnings perspective, I
mean equity perspective. Remember that it's also the third year
of a bull market that does tend to be one
of the weaker years in the bull market los esteem there,
and it's the first year of a presidential term, which
history tells us that's actually the most chance that you
get during a presidential term for recessions. So I think
(28:55):
that the equities just expect more muted returns next year.
Speaker 5 (29:00):
It's interesting that you just bring up President Donald Trump,
the new elect here. I mean, we did see the
Russell two thousand, posting its best return this year on
optimism about Trump's campaign promises. Is now the time for
small caps? As we look at twenty twenty five.
Speaker 10 (29:15):
Most small caps are from evaluation perspective, more attractive than
the large cap space. But this run that we've seen
in the small caps is totally ignoring the fact that
they can be interest rates sensitive.
Speaker 6 (29:27):
And we just talked about how the Fed's not gonna
be able to.
Speaker 10 (29:29):
Cut interest rates, and there's a risk that the interest
rates could move higher, not necessarily the Fed funds, but
because of inflation, you could see higher interest rates.
Speaker 6 (29:36):
So this is.
Speaker 10 (29:37):
Something that it doesn't they're taking too much, I think
into the small caps. It's looking too much into the
hopes for economic optimism and then being that they're more
domestically oriented, they can do better.
Speaker 6 (29:51):
If we start talking about tariffs. But it's totally.
Speaker 10 (29:54):
Ignoring the valuations right now. Are ignoring this negative fundamentals
that we see here from the small cap perspective. So
I think you have a better entry point for small caps.
Speaker 2 (30:02):
What are the red flags out there? I mean, I'm
talking to folks there, friends of mine who were around
during the nineteen nineties, and they look out across the
landscape right now, and you know they've seen the cycles
there and they say, I'm starting to think that the
valuations we're seeing we're not quite at like you know,
the pets, dot com and web ban era. But I'm
(30:25):
a little concerned about valuations that I'm seeing. How do
you look at that?
Speaker 6 (30:31):
I agree completely.
Speaker 10 (30:32):
I mean, we're looking at twenty six twenty seven times
earnings for the SMP five hundred.
Speaker 6 (30:36):
That's a significant.
Speaker 10 (30:37):
Amount of valuation or pe expansion that we've seen this year.
Can that continue for another year? I'm not so sure.
When you look at that, it's pricing in perfection in
our opinion. It may not be exactly at the dot
com bubble levels, but you are looking at equity valuations
that are stretched. So it's pricing in this very optimism
optimistic outlook for not only economic growth of soft landing,
(31:01):
but also that the FED can just continue to cut
interest rates. And I don't know that they can continue
to do that into next year.
Speaker 5 (31:08):
I mean, there's so much data that we're tracking, especially
as we think about the FED and when it may
cut and how many times they may cut going into
twenty twenty five. What are you really focused on. Is
there any particular data point that you are keeping an
eye on as we're going through these next few weeks
into the end of the year.
Speaker 10 (31:26):
One of the things that we obviously the headline inflation
numbers are always important, but also look at some of
the underlying inflation numbers in things like the ISM Manufacturing
or the ISM Services Index. That ISM Services index has
a price is paid component and that came out this
weekend that was higher again, So this is something that
you're seeing in those inflation service inflation numbers, and that's
(31:47):
a concern for us. So we look at some of
those underlying inflation indicators. The other ones are consumer inflation expectations,
and we saw today that the one year consumer inflation
expectations jumped up again. This is concerning for US as
well from an inflation standpoint. I think that's what the
FED is going to be looking at as they try
and assess what to do next year.
Speaker 2 (32:05):
So how does that look, How does that, I don't know,
look at when you see the incoming administration. And we
talked a lot about this this week with Jay Powell
and what we heard from j Powell earlier this week.
But if you do have an administration that comes in
and ends up following through with what it talked about
on the campaign trail, including deporting millions of people who
(32:28):
are here undocumented and also implementing tariffs. Do you see
the inflation picture changing?
Speaker 10 (32:35):
I think there's upside risks there to inflation from a
tariff perspective, and the and the estimates really range broadly
for that what that may be. And let's see what
he comes in with when he actually does come into office,
and what those tariffs may look like.
Speaker 6 (32:50):
We have kind of a playbook of what happened.
Speaker 10 (32:52):
In twenty seventeen and eighteen, and we didn't see a
very big impact from those tariffs in inflation. But we
are in a very different in place regime now than
we were back when President Trump's first term. So it's
the Feds walking a very fine line and they can't
control that from the government standpoints. I think it puts
some upside risks there to inflation.
Speaker 2 (33:11):
Hey, Megan, for I let you go. You get new
cash right now? How are you deploying at just thirty seconds?
Speaker 10 (33:16):
I'm looking at municipal bonds I'm going into next year
from a taxable equivalent yield perspective, they're attractive, and I
think that you'll see even with the Tax Cuts and
Jobs Act that's expected to sunset, I think we don't.
We're not looking for much lower taxes here anytime.
Speaker 6 (33:32):
Soon, especially with the deficit situation.
Speaker 10 (33:33):
So I think that municipals show have a good opportunity
right now, all right.
Speaker 2 (33:37):
Megan Horneman, chief investment officer over at Verden's Capital Advisors,
joining us from Hunt Valley, Maryland this afternoon. Meghan, always
get to check in. Have a great weekend.
Speaker 1 (33:46):
This is the Bloomberg Business Week Podcast, a little on Apple, Spotify,
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afternoons from two to five pm Eastern PLU, Bloomberg dot Com,
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