Blomberg News Mexico Business Reporter Amy Stillman discusses Elon Musk stalling the construction of a Tesla factory in northern Mexico. Ophelia Snyder, Co-Founder of 21.co, talks about a partnership with ARK Invest launching actively-managed bitcoin and ethereum futures ETFs. Jon Withaar, Head of Asian Special Situations for Pictet Asset Management, shares his thoughts on investment opportunities in Asia. And we Drive to the Close with Brooke May, Managing Partner at Evans May Wealth.
Hosts: Tim Stenovec and Jess Menton. Producer: Paul Brennan.
This is Bloomberg Business Wait 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 and Tim Stenebeck from Bloomberg Radio.
Tesla moving over sharp turn, there's settling on the Nueva Leon site in northern Mexico for its next massive car plant. Only nine months ago, politicians and executives actually hailed it as a paragon of near shoring, the idea that international companies will set up much more of their production in Mexico to be closer to the US. Tim So the company investment in the country is expected to reach about ten billion dollars over multiple phases. But construction of this factory, which had been slated to make Tesla it's cheaper next generation vehicles, is delayed due to Elon Musk's misgivings about the global economy. Other problems, including permitting delays and a dearth of infrastructure, have plagued the process. So joining us to walk us through some of these issues here. Amy Stillman is Bloomberg News Mexico business reporter, and she spoke to some locals who are now lowering their expectations as the carmaker has held off on starting construction. So Amy is joining us on Zoom from Mexico City walk us through these issues. How did we get to this point?
Amy, great?
Thank you, Jess.
Yes, well, certainly, when it was first announced that Tesla would be setting up a factory in Mexico at the start of March, people were very excited. The local politicians, you know, held it as the beacon of near shoring that you know, this is going to bring a huge amount of investment to Mexico, and it was also viewed by residents in the area as a great boon for the local economy.
Now fast forward about you know, nine.
Months or so, where we're at at now, and really there's been no activity whatsoever.
I went and visited the site.
It's essentially, you know, sort of desert along the highway with cactuses and no real construction going on. And one of the issues is is that Tesla is still yet to receive certain federal and state permits for the construction.
They have received a.
Permit for the land use, which is a very very recent phenomenon that just happened this week. But essentially there is an issue around delays to permits as well as a lack of infrastructure. Elon Muss has requested that the government help in terms of road infrastructure. There's another issue around water access as well. And then you add those issues happening in Mexico to the fact that the global economy isn't doing as well that Elon Muss doesn't see as much demand. So there's really been quite a significant change in the.
Way that Tesla has been viewing Mexico.
What would you say is the biggest factor here? Does it come from Tesla amy or is it coming from the Mexican government given that the company is looking for concessions here that perhaps the government isn't willing to just hand out.
That's a great question, and certainly it's nuanced. You have a few opposing forces.
The local state government is extremely keen on Tecla coming. In addition to that that that permit that I mentioned that was recently approved, the state government has also just said that they're going to provide one hundred and fifty three million dollar incentive for Tesla to come to, you know, to help with the road infrastructure, and also a reduction in the taxes around the payroll. You know, they've they've done a ton that the governor has done a ton in terms of advertising around the fact that Tesla is coming. At the same time, the federal government has really tried to push forward development of the south of Mexico, not the north, which is where Tesla is headed. And you know, there's been some concerns from the federal government that perhaps the investment should be in this other.
Part of Mexico where there's more poverty.
So there are some questions around whether the federal government will throw its full weight to bring Tesla over now when it comes to Elon Musk, certainly, you know, he's seemed very enthusiastic about the project. It does raise a few questions whether perhaps some of the difficulties that they've.
Seen have you know, changed his mind. He did announce in a recent.
Interview that they're going to be working on the next generation, more affordable entry level vehicle from Texas first and then Mexico because.
The plant won't be ready. So it's a little bit of both sides.
What do you think the potential repercussions for Tesla would be when it comes to production, right.
Well, I think certainly we're going to see you know, a delay with the production. You know, there were some speculation about whether the plant would be built at all. It certainly seems that you know, Tecla will continue to pursue this, that it will be constructed. But certainly the idea.
Here, what local officials have said.
In the beginning was that you know, we were going to see production start possibly in twenty twenty four next year. Now they're pushing that number back out to twenty twenty five, possibly even twenty twenty six, So that would certainly affect the rollout of this new generation vehicle. Much will obviously depend on, you know, how quickly they can can get the factory.
Up and running and give us an idea of what's at stake here. I mean, after all, auto factory is something that politicians in the US fight over against one another because the economic impact of something like this can be so huge. It's not just the people who are hired at the plant, it's the ripple effects throughout a local economy of those you know, high paying jobs. What's at stake here?
Yes, well that's certainly very much the case.
And you know, as I said, uh, the Tesla Tesla plant has really been the poster boy for this this move toward nearshoring, which is, you know, companies looking to invest closer to the US. And certainly if this plant, you know, doesn't get up and running, that.
Will look pretty poor.
It doesn't bode well for other companies that are looking to set up here. At the same time, what we've seen is a real huge influx of suppliers to Tesla that a lot of companies have come over, especially from China and other places, to be able to supply Tesla in Mexico. So they're they're starting to set up so it will be very interesting to see as well, you know, whether they're going to be able to continue with their plans.
One company in particular that I spoke with.
Yan Lun from China, you know, had said that, well, right now we're supplying to they're they're Austin factory, you know, but but we set.
Up here for the Mexico factory.
So I'm I'm sure they're also you know, highly anticipating that Tesla will get started. At the same time, you know, the residents, as I mentioned, were very excited about the rival of Tesla. There's still cautious optimism that this will help propel the local economy, help create jobs, not just in the Tesla factory, as you pointed out, but also you know, all the suppliers that are living in all of the supply chain that will require employees.
And you're speaking about those local residents, what are some of their top questions right now in the wake of all of this unraveling.
Well, certainly a big question is how soon will will Tesla get.
Up and running. I think that's that's definitely on everybody's minds. At the same.
Time, you know, there are certain questions around also, you know, the the talent, the labor pool. Residents are very excited about the opportunity to work for Tesla.
I've also spoken to some some local business owners.
Funnily enough, there are some competing businesses that are less excited. They're worried about the you know, the talent being being suctioned up by the the Tesla factory.
So there are some competing competing forces.
But certainly overall, people are people are waiting, people are excited.
They hope that that you know, more jobs will come.
Yeah, I guess the question that I have is, you know, what kind of moves the needle here. What are you watching to see whether or not this is this factory actually happens. Is it a global change and demand for EV's. It's something that we've covered a lot here, especially when it comes to American companies like gm Ford and Tesla facing waiting demand or is it something that comes from I don't know, perhaps something else. I mean, at the end of the day, Elon Musk is the one who makes this decision amy.
Of course, of course, and and I think certainly you know, there are pressures to get moving on on electric vehicle production. Tesla is not the only company you mentioned a few others that has said that they would look to EV production in Mexico. You know, we've seen a lot of big players BMW for the few others that have also you know, said that they.
Would be looking to EV production.
I think a lot of those big companies are waiting to see what happens with Techla as well, to see whether Tecla can achieve this goal.
Will they move a bit quicker.
At the same time, you've got a pretty strong competition from some Chinese players like BYD.
You know, Tesla and BYD have been neck and neck, and that.
Will certainly that will certainly play out in Mexico, where BYD has announced recent partnerships in Mexico, is selling currently selling vehicles.
Whatever whatever happens, we're going to be sure to have to check in with you. That's Amy Stillman joining us live on zoom from Mexico City. Check out her story and more on the Bloomberg terminal and at Bloomberg dot Com.
You're listening to the Bloomberg Business Week podcast. Catch us live we do you have to noons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or watch us live on YouTube.
Well, it's been a whild year for Crypto Jeazz. I think it's fair to say that at the end of every single year, but there were some things that made this year unique. There were some arrests, there were multiple bankruptcies, and then of course Sam Bankment Freed is in jail right now after being found guilty of stealing customer funds. He's awaiting sentencing in March. If any year should have out betted this sector, this one would have been it. And yet it didn't actually happen because we have this crypto comeback, brewing bitcoins value briefly surpassing forty four thousand dollars earlier this month. That's its highest point in more than a year, fueled by all this anticipation over eight possible sec approval of a Bitcoin ETF. Joining us not a dig deeper into the future of cryptos Ophelia Snyder, co founder of twenty one co, who joins us on zoom from New York City. Good to have you with us, Ophelia. How are you.
I'm very well, Thank you, Thank you for having me.
So how would you characterize the state of crypto right now? And you know, I don't want to conflate crypto and bitcoin, which a lot of people certainly do. Bitcoin is a cryptocurrency, But I think a lot of the optimism that we've seen in crypto this year has been the result of optimism over bitcoin.
So I think optimism is probably a good way of describing the current state of crypto markets. I think we've had a very long and quite transparently, quite brutal winter across the space.
I mean, you guess we're just talking about some.
Of these things, but it seems like now a lot of that has shaken out, there's a lot less regulatory uncertainty about some of the large players Coidmese, Finance, some of these large names. We're starting to see a lot less uncertainty around. You've seen a lot of the bad actors get shaken out, and we've seen the industry really consolidate and double down, and I think you're seeing now the fruits of basically eighteen months of people working on things. I think bigcoins certainly leading some of that narrative today between the having THETF and some of the interesting market dynamics that have happened there.
But I think it's broadly true across the industry.
Like you were mentioning aphilia, we're waiting on the possibility of the SEC approval of a bitcoin ETF How much of that do you think has been priced into some of these crypto coins, including bitcoin, and how much more and potential further room could there be for an asset class like that.
So I think people have to some extent priced in the expectation of an approval, but I think there's a little bit of mispricing there still, the reason being crypto doesn't really has never really seen big American style asset management money, it's ever been possible really for them to enter space.
There's been a little bit.
Of Oria money, there's been a little bit of sort of other institutional money, but it's tiny compared to you know, what is a couple of basis points on a multi trillion dollar industry. It's very different and so quantum larger than most market participants in crypto currently have ever seen in terms of what that allocation really looks like once you start to get away from pure play retail or ultra sophisticated institutions. So I think the issue is to some extent, yes, to some extent no, I think it's going to take longer to see that money come in than most people are currently expecting, but I think it will be larger than what most people are currently expecting.
What makes you say that, Aphelia, Because I'm wondering that it's not like bitcoin has been inaccessible to people at this point, and to traders, they're really looking forward to ETFs just for trading and what they can do with those. But are there really people on the side lines right now who haven't, who are interested in getting into crypto who haven't.
So think about it really simply most people don't manage their own money, right, whether that's your for A one K or your IRA, or you know, you're working with a financial advisor of some kind, or you know, your local RAA wherever that it is that you are. None of those structures have ever been able to really access this space. It's really difficult for an advisor to you know, support a client making that allocation. Historically, that's just been I'm so sorry, we can't help you.
Fry Coinbase.
It's very different when an advisor can actually make a strategic allocation, or a client can request this a strategic allocation from their advisor, the very different structure to that. So it's not people waiting on the sidelines per se. It's just most people's money is tied up in other ways. And you know, I set up my entire company with the goal of helping my mom get into the space. She started talk to me about this in twenty fourteen, saying, you know, there's this really cool thing called bitcoin.
Have you heard of it? I have no idea what you're talking about it, but.
He's the one who told you about it. Yeah, that's a that's pretty amazing.
Yeah, tell us a little more about that, because that's not typically something we hear.
Right, My mom's brilliant and came to me one day and said, MERK spent too much money on hedging, and global monetary policy is too reliant on an assumption of geopolitical stability to work long term. We need an alternative. It's going to help ensure better cross border trading and be a long term tool for economic stability and peace. Have you heard of a thing called bitcoin? Like, I have no idea what you're talking about, but okay, And that's actually how I started looking at crypto. But my mom, interestingly, despite completely getting the point both on the monetary policy perspective as well as on the floor X side, she never actually made the allocation.
The reason she didn't make.
The allocation is that there is no way within her existing financial infrastructure, you know, the way she does her tax reporting, the way she works with her advisors, that was going to make it possible for her to come into the space, at least not in a way that she felt comfortable with, both from a technology perspective, but also like purely from an infrastructure perspective, And that applies to both a lot of individuals but also applies to.
Things like funds. It's really hard.
To trade in custody of crypto from a fiduciary perspective, like the level of engagement that you need with your infrastructure, and I know that is a permanently unsexy thing to think about, but tax reporting and custodial and trading infrastructure is a huge part of what these fiduciaries need to provide, and they need to provide it to a certain level. And it's a completely different piece of infrastructure. It's not as simple as well, you want it, we can sell it to you. There's always been a bunch of gates to this, and we've certainly seen that in Europe, where you know, we've been operating for the last five years and selling quite frankly similar.
Products to what's being contemplated in the US.
And we see a lot of our clients being people for whom you know, buying direct physical is just either not what they want to do or.
Not an option.
Well, talk to us about regulation because that's still pending in Washington and the risks because there's still a lot of skepticism when it comes to institutional adoption for crypto.
Yes there is, and I think that it is changing. You know, when I when I started talking to large institutions about crypto and blockchain and bitcoin five years ago, everyone looked at me like I was completely out of my mind and that this was just not something didn't make any sense. Are you one hundred percent sure that you know this exists?
How?
How can you even have a digital asset? What does that mean?
You know, there were a lot more questions on basic viability and whether or not we were just nuts. I think that is no longer the case. I don't think really the doubts around you know, whether or not this asset's going to exist, going to continue to be built out. The value of watching two institutions, the value of smart contracts to institutions, and I think that's especially true in terms of ethereum.
And you're starting to see, you.
Know, large asset managers bring tokenization projects forward. You're starting to see more utility and cross border payments. You're starting to see real use cases and everything from financial services.
To video games.
And I think that's really exciting and it's changed the dialogue because now there's a real thematic here, and there's a real proven use case that's not solely contained to the crypto world.
Well, really appreciate you joining us this after noon. That's Ophilia Snyder, co founder of twenty one Code, joining us on zoom from New York City again. To get crypto on the Bloomberg terminal prices, just get up the dashboard ceryp go on the Bloomberg terminal. Bitcoin now at about forty and forty four dollars.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Well.
The MSCI Asia Pacific Index rallied nearly three percent this week. It was led higher by Australian, Korean, and Chinese shares as tech stalks climbed. Bonds rallied through the region, including in Japan and Indonesia.
It's a sign that.
Global investors are becoming comfortable with risk your assets this after being cautious on investing in Asia over the past decade. As the investors do with deglobalization and slower economic growth in the region. Joining us now in the Bloomberg Interactor Broker studio is somebody we check in with every few months. John Whihar is head of Asians Asia Special Situations for Pick Day Asset Management, usually based in Singapore, but when he comes to the US we like to get him in the Bloomberg Interactive Broker's studio. It's good to see you.
How are you great?
Thank you, how are you doing well?
Things? What brings you to New York every few months?
A couple of things, Meeting investors, talking to investors, research, touching base with brokers and lost those kinds of things. So, yeah, always a good trip. And I lived here for a while, so a bit.
Of social How has the tone or the reception been this trip versus last time you were here a few months ago, because a lot has changed since then.
You know, a lot's changed, But one thing that hasn't changed is the sentiment around China. So sentiment around China is pretty bad. It's pretty low, and we certainly haven't seen a tick up there yet. I think there's quite a lot of apathy. Positioning is about as bad as I've ever seen it, And so you know, I think we're sort of waiting for that to defy itself.
Is it uninvestable China?
I don't think it's uninvestable. I don't think that at all. I mean, hey, it's still in the world's second largst economy, second large stock market, So I don't think uninvestable is the right way. But there are risks and certainly if you look at macroeconomically what's happening there, there are challenges that are giving pause for thought for investors.
So recently though, what sort of driving things when you have a backdrop of the past decade that has been so tough for equities in Asia.
Look, I think the main thing that investors really want to understand is the geopolitical and that's obviously also the hardest as well. It's very unpredictable, and so you know, when investors are trying to frame their investment views around Asia, obviously you start with China and you try to understand what risks are from the geopolitical perspective. And I think that's still something that people don't understand. It's hard to unpack. It's changing very quickly, and as a result, with the macro backdrop also being challenged, people are saying, we're sort of happy it's sit on the sidelines at the moment.
What it's twenty five look like? I mean, what are the opportunities that you're presenting right now to clients? Where do you see room to run?
Look, I think the first thing to say is that China is not dead by any means. There are opportunities in China. As I said, you know, we are talking about a very large economy and we are talking about a lot of consumers there. So there are opportunities, and certainly we agree that you know, you, Paul, we need a little bit more nuanced in the way that you do invest in China rather than perhaps just directionally. But the story of twenty to four will most likely be Japan as simple as that. Japan. We're seeing a lot of regular reform happening in Japan right now, listing rules around the TSC focused on your price to book improvement ROI, these kinds of things, and so you know, there's a lot happening in Japan that that's happening from the ground up level, from the corporate level. That is really exciting people because we're starting to see a cheap market and market that's historically cheap. Finally, unlocking value with the corporate level, Is.
It hard to convince investors to allocate enough to Asia given that there has been in recent years such a history of our performance when it comes to us, Actually.
Exactly exactly right, I mean that is that's the bug bear.
I mean, that's got to be one of your biggest one.
Hundred percent, one hundred percent. Look at the end of the day, why if it don't break wide and you don't fix it. I mean, if you look at what's happening right now in the US markets, I mean, why would you Why would you take money out of the US markets?
Really make your job easier?
It doesn't make my job any easier, but also it creates that creates opportunities as well. So there's still value opportunities out there. There's still a lot of events driven situations that are interested to us. You get stocks that do large buybacks or take over as MBOs, these kinds of things. There are opportunities there regardless of who's involved. So you know that's interesting to us, and that's why you are seeing these high loves of transactions because of that apathetic market.
What are some of the top questions and concerns that you hear from your clients.
I think in regards to Japan, the question that you always get is why is it different this time? We've seen these instances before, as we know around aber Nomics twenty fourteen saw the market move up brevery sharply, not just to give a pullback a few months afterwards. So there is that level of skepticism. But ironically that skepticism exists both from international investors and the local investors themselves. But it's worth noting that the regulators in the Tokyo Stock Exchange METI and even Kausheta sign himself, the PM, they're very focused on making it different this time, and so they're approaching They're approaching it from an angle of corporate form, creating companies that are that are more robust, balance sheets that are more streamlined, and ultimately focusing on shaholder engagement, shoholder returns and ultimately efficient markets.
John, when do you think you'll come back here and sit down with us and say, the last year in China was a very good year.
I mean, I hope it's next year, but like ultimately it's it's really difficult to tell.
I think is the government setting it up for that, for that for twenty twenty four to be that. Are they doing the right kind of reforms? Are they doing the kind of stimulus?
Great question. I don't think we're seeing that yet. I don't think that's clear.
I think they're really targeted.
It has been very targeted. There's been there has been loosen but ultimately we have not seen this, you know quotation fingers a bazooka stimulus that people have been waiting for, and that may be a red herring itself, so you know, we're all waiting. I think ultimately what we'd really love to see is the throwing of geopolitical relations, the thawing of the of the standoff that we've seen, but it's just difficult to see with you know, eleven months out from an election. This is an election talking point, so you know, I mean, we're ever hopeful, evergreen, But you know, I don't think, you know, I don't think there's anything immediate that gives us anything that to be spactaically bullsh about, at least directionally other than positioning, I should.
Say, right, and especially when you're talking about sort of different conflicts where they're thinking about when it comes to the US versus what's going on with Beijing. What about when it comes to those repercussions, particularly with industries like chip makers, technology stocks, which really took off this year after getting so hit hard last year. How do you view that, particularly when it comes to Asia equities.
Yeah, so, I mean, look, we really are seeing a bipolarization of the world and technology along with that. So it's it's very very clear. The big beneficiaries of this whole sort of decoupling have been the US chip companies, Taiwanese companies as well, obviously TSMC, and then as a derivative to that, the Japanese technology guys as well. So we are seeing we are seeing winners and we are seeing losers from that. But you know, it's not just the American hip guys that are that are winning here, it is the others as well. It's it's it's the Taiwanese, the Japanese as well. And not to mention, you know, we've got a lot of investment in semiconductors and technology into Southeast Asia as well, So you look at places like Malaysia that's becoming a kind of a semi hub as well. There's a lot of investment going south. And then obviously the big grill in the room is India have a lot of growth happening and you're not necessarily in the semiconductor space, but a lot of a lot of growth happening in You're.
A lot of investors helping. It's the next China.
I mean, you know, the GDP print was brilliant, so GEDI prooping the other day.
But you know, John, we love it when you join us. We got to run.
John Whittier is head of Asian Special Situations for PEA Day Asset Management, joining us here in.
The Blueberg Interactive at broker's studio.
M Marco.
A journal.
Bet you let me drive?
Oh no, no, no, no, honey, please, I'll travel.
I want to drive.
It's the question.
This is the drive to the clothes.
We'll bach other down on Bluemberg Radio.
Well here we are hard to believe.
It's already close to the end of another week and it's another week of green.
Look at that so much green.
Yeah, the SEB five hundred, It is on track for it's seventh straight week of gains. That if it holds, which it looks like it will, would be its longest winning streak going all the way back to two thousand seventeen.
Yeah, look at that.
We'll see if it will see if what happens next week. Let's go to our drive of the closed guest. We got Brook May, managing partner at Evans May Wealth, joining us on a zoom from Carmel, Indiana.
Good to have you with us, Brooke. How are you well?
Thank you?
How are you doing pretty well?
Did this rally starting back in October on October twenty seventh, up about fifteen percent on the S and p fford since then?
Did this catch you off guard.
A little bit?
We were optimistic going in to your end. It tends to be a good time for the market. November and December tend to be the to of the best months, so weren't completely cough guard, but fifteen percent, that's more than we expected.
Brooke.
Whenever I spoke with you in the last couple of weeks, you were talking about leading into this FED decision earlier this week, that the FED fears that any signal from policy makers that area could be coming may cause another big rally and asset prices. And we got a big rally there. But what's your take on the way that tones of Pal's tone was in this particular speech, because a lot of people were thinking he would push back harder against that, but not quite as much ended up as people and investors were thinking.
Yeah, I was in that hawkish camp. I thought that the comments were going to be airing on the side of caution to ensure that we didn't get that asset price elevation that that we we saw. So his comments, you know, indicating that rate hikes will be coming, obviously, the market responded favorably. He didn't say when, though, And I think that a lot of good poisterres have started to price in the first quarter, and I don't think that'll be the case unless we see unemployment tick above four percent.
I think that I don't think.
I don't think that is going to cut rates in the first quarter unless unemployment goes above four percent, I don't.
I think they're going to take the opportunity to be patient. We're clearly now on that path to two percent, which is the phrase that they had been using for several quarters. We're on the path at this point, there's no question. And so are they going to wait until we get to two percent? Probably not, but they're going to have the ability to be patient if unemployment stays sub four percent, and right now, with the economy looking the way that it is, it's very possible.
So given that that's your thought, do you think that the markets are kind of over their skis when it comes to expectations for rate cuts.
Yes, I do, but that doesn't mean that we're expecting or forecasting a crash or a significant pullback in the market right now. Any type of pullback we're going to see as by a buying opportunity. When we look out to the end of twenty twenty four, our price target is fifty two hundred to fifty four hundred on the SMP, which a few weeks ago seemed like a stretch, but with the rally we've had, that's really lated in to fourteen percent upside from here. So if we see the earnings growth that we're expecting, we think that we'll see earnings of eleven percent from this year to next year. At nineteen times forward earnings, it's reasonable that we could get there. When we look at Q three earnings announcements, companies, they were able to prove that they can navigate a higher interest rate environment they've had two years to prepare, so we think that that'll continue where earnings are a little better than expected, and therefore the market will continue to rally.
When it comes to some of those buying opportunities, how are you advising clients to position? What are you telling them to buy, what are you telling them to sell?
We don't think you can be sector specific or really even asset class specific right now. We want to we're taking kind of a bottoms up perspective. We're looking at individual companies one by one. As you can see, the Russell two thousand has really rallied the last few weeks, and if you peel it back and look at Russell two thousand companies, about about thirty percent of their debt is at variable rates, so they're not necessarily and the clear yet, especially considering that only sixty percent of Rustle two thousand companies are actually profitable. So we're going to be very selective. It doesn't mean we wouldn't buy small caps in this environment. We think that they're that environment is improving, but we're going to look at the fundamentals for each company, and we want companies that have low leverage and strong balance sheets. Really good free cash flow.
How are you looking at fixed income right now?
And I just want to bring our Bloomberg audience a headline across the Bloomberg terminal. Moments ago, the Treasury thirty year yield falling below four percent, the lowest since July. So we're seeing yields fall at the long end of the curve, but move higher today at the short end.
Of the curve.
Still that the drop in yields that we've seen in such a short time has been pretty remarkable. How are you watching the bond market?
It really has been remarkable is a great word to describe it. We got excited about bonds five six weeks ago, whenever that was a good time.
We are equity biased.
Over eighty percent of our portfolio is allocated to equities. Our clients are high net worth and ultra high net worth, and oftentimes they've been investors for decades, so they're comfortable with that volatility, and we've over allocated.
In that space.
But a few weeks ago we said, you know what, it's time to buy some bonds because we could get really good yields on municipals and high quality corporates. Now we're kind of back to a level that we've been seeing, you know, over the last few years or so, so we're not as excited. But for our clients that do have a small allocation to bonds, we think that they'll have decent returns over the next few years.
We've seen the ten yured treasury yield come down a percentage point since October nineteenth, that's when it briefly crossed above five But at what point Because clearly this has been supportive for equities as we've seen yields come down dramatically, But in your view, when it comes to fixed income, at what threshold are you watching to where yields are coming down so quickly that it's more of a concern about potentially the economy.
Yeah, the bond market tends to be a great leaning indicator, oftentimes better than the stock market for what's to come. And right now we think the tenure treasure will be in a trading range from three point eight to four point five percent, and so if we see a significant drop below three point eight percent, that would be telling that there might be some issues right around the corner. But right now, at these levels, we feel like it's not signaling that anything of a significant magnitude is going to occur in the near term.
How much do equity markets have to drop for you to see it buying opportunity in the next few weeks?
Three percent, five percent. We're a bigger We tend to be fully invested.
You said, you said you are fully invested.
We are, we are we We tend to stay fully invested. We keep minimal amounts of cash on the sidelines. But for clients that are depositing money or wanting to dollar cost average in, we're telling them right now, you know, let's not wait any pullback at all. Let's go ahead and get invested because you can't time it, and we think the next six, twelve, eighteen months are are going to be really good for the market.
Brook May, thanks for joining us and taking the time this afternoon. Really do appreciate it. Brooke May is managing partner Evans May Wealth. She joins us this afternoon on assume this is.
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