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Microsoft Is One of Best Tech Turnarounds In Last 20 Years · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you
0:05
Speaker 1: along with my co host Lisa Brahma Waits. Each day
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Speaker 1: we bring you the most noteworthy and useful interviews for
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Speaker 1: you and your money. Whether at the grocery store or
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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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Speaker 1: podcast or wherever you listen to podcasts, as well as
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Speaker 1: at Bloomberg dot com. We're driving a conversation for one
0:21
Speaker 1: of the big names that reported earnings last night. Lisa
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Speaker 1: was Facebook coming in with some numbers that came in
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Speaker 1: a little bit below expectations, particularly as it relates to
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Speaker 1: the top line revenue growth and maybe a little bit
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Speaker 1: higher expenses. So that stock is off about six point
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Speaker 1: four percent today and the otherwise, you know, pretty strong
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Speaker 1: earnings tape for big tech. Let's be real clear. Facebook
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Speaker 1: did not have bad earnings. They just didn't have amazing earnings.
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Speaker 1: They beat estimates uh by less than one percent, which
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Speaker 1: was a problem for them. And this sort of highlights
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Speaker 1: this key driver of big tech, which is the expectation
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Speaker 1: that this incredible exponential growth will continue. They're being penalized
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Speaker 1: for not having that necessarily, and still there are things
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Speaker 1: like Instagram and the fact that you could potentially check out,
1:04
Speaker 1: as Barriott Hols was talking about, they could potentially drive growth,
1:08
Speaker 1: And we were talking with David Garrity about how the
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Speaker 1: campaign spending that will inevitably be ramping up heading into
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Speaker 1: the elections will actually help fuel Facebook. So amid all
1:18
Speaker 1: of that, it still wasn't enough to get anything more
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Speaker 1: than what you know, we saw the expenses had expenses
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Speaker 1: up thirty percent, a little bit more than expected. So
1:27
Speaker 1: the company is investing in the company. A lot of
1:29
Speaker 1: it is for it's an anticipation of the election. They've
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Speaker 1: been ramping up. They're spending on trying to make sure
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Speaker 1: they have the right content, uh, that the content is
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Speaker 1: appropriate content that the you know, as we come up
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Speaker 1: to the election, that they don't have those same issues
1:43
Speaker 1: with election manipulation that we had in the last election.
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Speaker 1: So they're spending a lot of money there that's ramping
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Speaker 1: up the expenses just at a time when the revenue
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Speaker 1: growth here in this quarter was the slowest they've reported
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Speaker 1: as a public company. But I think most investors feel like, uh,
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Speaker 1: the long term secular trends of digital advertise sing really
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Speaker 1: support the likes of not only Facebook, but Google and
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Speaker 1: the others that rely upon digital advertising. So longer term,
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Speaker 1: you still have Instagram, you still a messenger, maybe WhatsApp
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Speaker 1: to some degree, lots of revenue levers that this company
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Speaker 1: can can pull. Yeah, And to be clear, Facebook shares
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Speaker 1: a year to date or at one point seven percent,
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Speaker 1: even with today's eight percent plunge. Given the fact that
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Speaker 1: the shares have just been on a tear, let's get
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Speaker 1: Dan eves opinion on both Facebook and also what to
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Speaker 1: look ahead with Amazon, and then this this company called
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Speaker 1: Tesla that seems to be absolutely on an absolute tear.
2:32
Speaker 1: Danives is the equit analystic web Bush Security is the
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Speaker 1: biggest bull in Tesla and the biggest bull I should say,
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Speaker 1: excuse me on Apple, and you've been right on that.
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Speaker 1: Also seeing positive signs in Tesla. What are you looking
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Speaker 1: at in Facebook is the main reason for today's tumble.
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Speaker 1: I think I think the stock just got over at
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Speaker 1: skis coming into the quarter. I view it is just
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Speaker 1: a speed bump. I mean this is a stock of
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Speaker 1: my opinion continues to go higher two and fifty in
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Speaker 1: terms of our target it and I view it is
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Speaker 1: one where anytime these fang names get hit. In our opinion,
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Speaker 1: there's a buying opportunities because we believe ultimately thirty percent
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Speaker 1: higher you know, for large cap tech the rest of
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Speaker 1: the year. So let's switch gears to Tesla. The stock
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Speaker 1: is just extrading up eleven point five today, all time
3:20
Speaker 1: high up. It's more than doubled over the last year. Dan,
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Speaker 1: I guess you know, this has always been a fight
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Speaker 1: between the bulls and the bears on this name, but
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Speaker 1: it looks like the bulls are are winning this fight
3:31
Speaker 1: right now. Yeah, and I view it as a game
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Speaker 1: changer quarter in terms of inflection around demand, especially going
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Speaker 1: to thousand and twenty in China, and also profitability because
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Speaker 1: right now it's gonna be a self funding model going forward,
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Speaker 1: could be twin hours earnings power in three years. So
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Speaker 1: I do view this is just a massive inflection point.
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Speaker 1: That's from a stock perspective in terms of where it's
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Speaker 1: your trade. That's going to continue to be a debate,
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Speaker 1: but we believe right now the China of thesis both
4:01
Speaker 1: cases work three a share, which is how we get
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Speaker 1: to a thousand dollars in terms of bookcase toy at
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Speaker 1: hours and earning his power. How is it that Tesla
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Speaker 1: is the second most valuable auto manufactory manufacturer in the world,
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Speaker 1: considering that it's footprint is vastly smaller of the general
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Speaker 1: motors and Fords of the world. Sure and next, and
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Speaker 1: I hear that every day, I mean for for years
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Speaker 1: right from investors is in an automotive company or technology company.
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Speaker 1: And that's why, first of all, I'll viewed as a
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Speaker 1: disruptive technology coming in terms of a multiple in terms
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Speaker 1: of what it deserves, but in terms of the footprint
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Speaker 1: relative to others. It comes down to e V demand
4:39
Speaker 1: two and a half percent global, We've we've gone eight
4:42
Speaker 1: percent in the next four years. You start to put
4:45
Speaker 1: that through. That's why right now, in terms of looking
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Speaker 1: out how to continues to be the court ev play
4:50
Speaker 1: and penetration rates are so low. I look at a decade,
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Speaker 1: I think one of every ten cars is going to
4:56
Speaker 1: be easy. And I think that's why right now you're
4:58
Speaker 1: seeing it reflecting the stock as this becomes really a
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Speaker 1: parabolic and flashing point to some extent similar to what
5:07
Speaker 1: you know. I think we start even with the iPhone
5:09
Speaker 1: in two thousand and seven and the smartphone industry in
5:12
Speaker 1: terms of what's happening evy. So Dan, let's say the
5:15
Speaker 1: market for electro vehicles does develop, you know, very quickly,
5:20
Speaker 1: can they even make the cars to satisfy that demand
5:22
Speaker 1: or won't a General Motives or a Toyota or one
5:24
Speaker 1: of the people that already have big factories set up
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Speaker 1: fill that demand. Yeah, and that's really been the shadow
5:31
Speaker 1: that that was going to happen thus far. If you
5:35
Speaker 1: look at it, they've not just had to moot in
5:38
Speaker 1: terms of tests, so they've continued to expand production Shanghai
5:42
Speaker 1: that you have. But when Bruin coming up this year
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Speaker 1: and production you there'll be a million cars per year.
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Speaker 1: If you look at traditional auto manufacturers both in the
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Speaker 1: US and even internationally, been slow, slow to the gate
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Speaker 1: in terms of production, in terms of releasing cars as
5:58
Speaker 1: well as one that could com with Tusla just from
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Speaker 1: an e V perspective in terms of mileage and battery relations.
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Speaker 1: So I think that's why right now it continues to
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Speaker 1: be test Tesla and must swirld and everyone else is
6:12
Speaker 1: paying rent. In terms of the EV market, of course,
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Speaker 1: there is this question about profitability per unit, and that's
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Speaker 1: been coming down dramatically. It remains to be seen how
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Speaker 1: profitable Elon Musk can be as he tries to dominate
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Speaker 1: the electric vehicle market, especially because it really hasn't been
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Speaker 1: taking off as much as people had expected globally when
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Speaker 1: it comes to consumers preference, I'm wondering, does that concern
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Speaker 1: you the profitability aspect of this, Yeah, and that I
6:37
Speaker 1: mean you obviously it's a great point because if you
6:39
Speaker 1: go back to three quarters ago, let's go, when the
6:42
Speaker 1: stocks to to fifty, the big issues are going to
6:45
Speaker 1: need to raise capital. They're not profitable, so they do
6:48
Speaker 1: raise capital in terms of the convert and then profitability
6:52
Speaker 1: starts in terms of the cuts and they're able to
6:54
Speaker 1: get the volume and show the profit. So that's why
6:57
Speaker 1: right now that's going to continue to be you know,
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Speaker 1: a big question mark. But if you look at what
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Speaker 1: they're approving now, you could get to twenty hours or
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Speaker 1: earnings power two years earlier than expected. And that's a
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Speaker 1: self funding model takes the capital raise off the table.
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Speaker 1: And I think that's really what you're seeing reflecting the
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Speaker 1: stock right now, is that there could be speed bumps
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Speaker 1: along the way, but as of right right now, it
7:22
Speaker 1: looks like you know, may homes like performance. Hey, Dan,
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Speaker 1: let's talk about another tech company that's hitting all time
7:27
Speaker 1: high today. Microsoft course, Uh, Mike, Microsoft had good numbers
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Speaker 1: last night. What were your key takeaways there, because I'm
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Speaker 1: hearing some really good things about the cloud business. Yeah,
7:37
Speaker 1: I mean, I think this is one I wouldn't quote
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Speaker 1: under the radar, but if you look what the Dell
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Speaker 1: has done Microsoft Golden Touch in terms of the cloud transformation,
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Speaker 1: as your growth beet by a thousand BIPs, and I
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Speaker 1: think what you're starting to see now is share shift
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Speaker 1: from Amazon a w asked to Microsoft in terms of
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Speaker 1: the next phase of cloud. Seven hundred billion that we've
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Speaker 1: is going to be spent. I think Microsoft is going
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Speaker 1: to be the winner. You saw that numbers, you start
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Speaker 1: reflecting gotten it's a rereading in terms of what's happened
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Speaker 1: the stock and really a metamorphosis and probably one of
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Speaker 1: the best tech turnaround, if not the best, in the
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Speaker 1: last twenty years. How does that factor into what we're
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Speaker 1: gonna see today potentially out of Amazon with AWS. Yeah,
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Speaker 1: I mean, right now, it's gonna be a comparison because
8:22
Speaker 1: if you look at Amazon, even though growth rates are
8:25
Speaker 1: swelling and it's it's not necessary apples to apples. If
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Speaker 1: there's any sort of ding on a w S. It
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Speaker 1: just further solidifies the thesis that Microsoft's gaining versus Bezos
8:36
Speaker 1: and Amazon. And it all comes down even though there's
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Speaker 1: a lot of noise. Jedi biggest cloud deal ever, Pentagon,
8:43
Speaker 1: who wanted Microsoft that trophy sitting in Redmond. It's been
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Speaker 1: a major black guy from Bezos and a w S.
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Speaker 1: That's right tonight. Need to prove to the street that
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Speaker 1: they're not losing share versus Microsoft, because all the other
8:56
Speaker 1: indications are if you look at numbers and everything, all
8:59
Speaker 1: the work we do, they are so down. That's kind
9:01
Speaker 1: of where I wanted to go. How do you differentiate
9:04
Speaker 1: a lay person like myself between Azure, which is owned
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Speaker 1: by Microsoft, and AWS, which is owned by Amazon. Aren't
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Speaker 1: they just like servers somewhere out in the desert or something? Yeah?
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Speaker 1: And what And I think at the first phase of cloud,
9:17
Speaker 1: that's what That's what it was. It was Amazon just
9:20
Speaker 1: parabolic expansion on cloud. They owned it. In terms of
9:23
Speaker 1: a WS has been a big key part of the
9:26
Speaker 1: valuation of Amazon. But now it's happening is enterprise Microsoft's backyard.
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Speaker 1: Those companies are moving the cloud only of workloads during
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Speaker 1: the cloud today going to next three years. Microsoft right
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Speaker 1: now they're turf Is, they moved to Azure. They are
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Speaker 1: extremely well positioned and better position to Windows Enterprise Deals
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Speaker 1: Verse WS and then miles behind his Google trailing in
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Speaker 1: third place with g g P. I'm just wondering, if
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Speaker 1: you take a holistic look at what we've seen so
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Speaker 1: far at a big tech in the earnings for fourth quarter,
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Speaker 1: are we seeing enough to justify the rally that we
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Speaker 1: saw last year. I just sort of propel it forward
10:06
Speaker 1: to be the leading category yet again in the SMP
10:08
Speaker 1: and the NASTAC this year. Yeah. I think if you
10:11
Speaker 1: when you strip away all the noise and forget just
10:14
Speaker 1: the headlines in terms of near term coronavirus and everything else,
10:18
Speaker 1: you look at earnings earnings Untech I viewed as major
10:23
Speaker 1: fuel on the engine because you look at where there's
10:25
Speaker 1: parabox spending going on software in the cloud, look at
10:28
Speaker 1: the five G supercycle thesis with Apple, and then I
10:32
Speaker 1: think you have strong numbers out of Amazon tonight. Now
10:35
Speaker 1: there could be little things here with You saw it
10:37
Speaker 1: in Netflix, you saw it with Facebook. I've viewed as
10:40
Speaker 1: a short term issues and I continue to view it
10:44
Speaker 1: as tax is going to continue to lead the charge,
10:46
Speaker 1: which is why we continue to be overweight and think
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Speaker 1: we still have eighteen months left a lease in this
10:52
Speaker 1: both thesis for attack. Hey, Dan, thanks so much for
10:56
Speaker 1: being with us. We love having you on Talking Tech.
10:58
Speaker 1: You've been very consistent with that Bowl call, particularly with
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Speaker 1: the Apple Yeah, absolutely right, Dan. I'ves managing director Equity
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Speaker 1: Research for what Bush Securities, joining us on the phone
11:06
Speaker 1: from New York City. The great migration to e t
11:12
Speaker 1: S has been treated off and in tandem with the
11:14
Speaker 1: shift towards index funding, index funds and just generally trying
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Speaker 1: to avoid active management. But is that really the path
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Speaker 1: forward for the E t F industry? Joining us now,
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Speaker 1: Ryan Sullivan, Senior vice president of Global e t F
11:27
Speaker 1: S at Brown Brothers Harriman, based in Boston. Ryan, thank
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Speaker 1: you so much for being with us. I want to
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Speaker 1: start with this idea of the migration of assets to
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Speaker 1: e t F s. How much is this just a
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Speaker 1: general push towards indexing and how much is this something
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Speaker 1: specific with e t F rapper Paul Lisa. Hey, great
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Speaker 1: to be here. Thanks for the time. You know, I
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Speaker 1: think what we're seeing here this this great migration that
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Speaker 1: you talked about We've been seeing this really take shape
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Speaker 1: over the last few years. Uh, you're you're spot on.
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Speaker 1: I think historically E t F are really seen as
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Speaker 1: just a delivery mechanism for for passive investment strategies and indexing.
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Speaker 1: But over the last five, six, seven years, we've seen
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Speaker 1: this influx of you know, traditional active managers across the
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Speaker 1: globe really adopt the E t F rapper and seek
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Speaker 1: to drive uh, you know, more specialized, more actively managed strategies,
12:17
Speaker 1: and that's taken shape in both the domestic and international
12:20
Speaker 1: equity strategies, fixed income UH. And now this year in
12:23
Speaker 1: our seventh annual et F investor survey, we're seeing a
12:27
Speaker 1: lot more demand for active e t F. So the
12:29
Speaker 1: share in particular, UH six of US investors said they
12:33
Speaker 1: wanted to increase their allocations in to actively managed strategies
12:38
Speaker 1: in the E t F rapper. So we think this
12:40
Speaker 1: is really just the beginning of this tilt where et
12:43
Speaker 1: F are seeing as a viable rapper for a number
12:46
Speaker 1: of different types of investment strategies. I'm glad you mentioned
12:49
Speaker 1: acted e t F because to me, that's an oxymoron.
12:51
Speaker 1: What is an active et F? I thought an E
12:54
Speaker 1: T F by definition, is it's passive. Well, yeah, it's
12:57
Speaker 1: Historically again, they had always the strategies within the rapper
13:00
Speaker 1: had really sought to track a benchmark, to track an index. Uh. Here,
13:03
Speaker 1: what we're seeing is that active strategies work just fine
13:08
Speaker 1: in this particular rapper. Uh. Traditionally, and for all the
13:11
Speaker 1: e t fs that exist today, whether they're active or passive,
13:15
Speaker 1: they do need to disclose their holdings on a daily basis.
13:18
Speaker 1: That does make the E t F rapper a little
13:19
Speaker 1: bit unique and one of the ways that differs some
13:21
Speaker 1: other investment products that usually disclose the portfolio on a
13:24
Speaker 1: lag Uh So, right now, active ets do need to
13:28
Speaker 1: disclose that portfolio. Obviously, some asset managers are okay with that.
13:31
Speaker 1: On fixed income in particular, works very well on that rapper. However,
13:36
Speaker 1: you know, over the years, a lot of equity managers
13:38
Speaker 1: were concerned about that opening them up for front running
13:41
Speaker 1: in their portfolio if they were disclosing their trades each day.
13:44
Speaker 1: This year, just before the holidays, we saw some approvals
13:48
Speaker 1: from the SEC here in the States to approve new
13:51
Speaker 1: types of active E t F structures. Uh. So, you've
13:54
Speaker 1: got managers like Fidelity, Presidian T Row Price, Blue Tractor,
14:00
Speaker 1: and the New York Stock Exchange all offering a new
14:03
Speaker 1: structure that would seek to kind of mirror the disclosure
14:06
Speaker 1: policies of a traditional mutual fund, uh so delaying the
14:09
Speaker 1: release in the publication of the fund's portfolio, but still
14:12
Speaker 1: putting that in the e t F rapper. So again,
14:15
Speaker 1: it's going to the this notion that e t S
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Speaker 1: the evolution of this market is now really enveloping all
14:21
Speaker 1: different types of investment strategies. So what's the point of
14:24
Speaker 1: going to an e t F and a mutual fund. Well,
14:26
Speaker 1: there's a few structural benefits that the e t F
14:30
Speaker 1: can offer when compared to some other other investment products.
14:33
Speaker 1: So one and I think this is typically well understood
14:36
Speaker 1: for for folks kind of looking at the e d
14:38
Speaker 1: F market. There's been a lot of mentions and media
14:40
Speaker 1: headlines around the so called fee wars going on in
14:43
Speaker 1: the e t F space. So certainly on one end
14:45
Speaker 1: of the spectrum, you've got very inexpensive, very cheap beta
14:48
Speaker 1: solutions from some of the biggest managers in the planet.
14:51
Speaker 1: But that low cost is driven by some structural elements
14:55
Speaker 1: within the e t F rapper. There's elements like the
14:58
Speaker 1: cost of the transfer agent. This is near and dear
15:00
Speaker 1: to our heart at Brown Brothers, where we really support
15:02
Speaker 1: the plumbing behind these funds. So the role of the
15:04
Speaker 1: transfer agent is a bit less onerous, uh. Within E
15:08
Speaker 1: t F and the mutual funds, that can present some
15:09
Speaker 1: cost savings and one of the ways that they help
15:12
Speaker 1: keep the expense for ratio of the fund lower than
15:14
Speaker 1: other investment products. And I would say the other biggest
15:17
Speaker 1: benefit in the US is the tax efficiency that e
15:19
Speaker 1: t s really drive, uh, the the use of in
15:22
Speaker 1: kind trading between the e t F and the funds
15:25
Speaker 1: authorized participants, where the portfolio and the e t F
15:28
Speaker 1: shares are exchanged in kind. That's a tax exempt transaction
15:32
Speaker 1: here in the States, and that really drives a lot
15:34
Speaker 1: of tax efficiency in terms of reducing capital gains to
15:36
Speaker 1: E t S investors. So, Ryan, one of the things
15:39
Speaker 1: that we hear more and more about in terms of
15:41
Speaker 1: investment strategies is focusing on E s G, Environmental, social,
15:45
Speaker 1: and governance. Are we seeing Are you seeing flows into
15:49
Speaker 1: E s G E t F s. We're starting to
15:52
Speaker 1: see them. Yes, this is something we've been tracking year
15:55
Speaker 1: on year and our survey in terms of the demand
15:57
Speaker 1: for E s G products. I think you've got two
16:00
Speaker 1: things kind of coming uh and slowly emerging and taking
16:03
Speaker 1: shape here in the States. We we've definitely seen stated
16:06
Speaker 1: demand for these products. Uh. You know, it's it's it's
16:09
Speaker 1: something that investors over the years have all said that
16:12
Speaker 1: they plan to increase their allocations. And we finally got
16:15
Speaker 1: upwards of about six of US investors planning to increase
16:19
Speaker 1: E s G allocations across the board, so somewhat product agnostic,
16:24
Speaker 1: but about six saying they planned to increase those allocations
16:27
Speaker 1: over the next five years. I think a couple of
16:29
Speaker 1: things are at play here behind that one. Increasingly, we're
16:32
Speaker 1: seeing public pensions, UH, insurance companies, larger institutional asset managers
16:38
Speaker 1: really setting floors for minimum allocations to E s G
16:43
Speaker 1: oriented investment strategies. And we think that's a trend that
16:46
Speaker 1: will likely continue in those floors, those uh, those those
16:49
Speaker 1: minimum allocations will only come up in that institutional community.
16:53
Speaker 1: And I think on the other hand, on the retail side,
16:55
Speaker 1: you've got this large demographic shift that is just beginning
16:58
Speaker 1: to kind of take shape with the wealth transfer to
17:01
Speaker 1: the millennial generation. And as this audience continues to attract
17:05
Speaker 1: assets as they build capital. That will take time to
17:07
Speaker 1: be clear, but they have such stated preference of you know,
17:12
Speaker 1: investing according to their values that we think that will
17:15
Speaker 1: be another driver for s G T. S. Hey, Ryan,
17:17
Speaker 1: thanks so much for joining us. We really appreciate your
17:20
Speaker 1: thoughts there, Ryan Sullivan, Senior Vice President of Global Exchange
17:23
Speaker 1: Traded Fund Services, A Brown Brothers Harriman based in Boston,
17:25
Speaker 1: joining us on the phone. But we are joined by
17:31
Speaker 1: our own oracle here, Barry rid Holts, who we can
17:34
Speaker 1: just say go and he'll go. Barry rid Holts, Bloomber
17:36
Speaker 1: opinion columnists and host of Masters and Business on Bloomberg Radio.
17:39
Speaker 1: Also of course, the founder, chairman and chief investment officer
17:43
Speaker 1: of rid Holts Wealth Management, joining us here in Interactive
17:46
Speaker 1: Broker Studios. I want to really focus in on the
17:48
Speaker 1: consumer that has been the main driver of the U
17:50
Speaker 1: S economy. A big question has been how much longer
17:54
Speaker 1: can that continue? And what is the potential ramification of
17:58
Speaker 1: the strong consumer on the entire retail sector. I want
18:01
Speaker 1: to start with the data we guy out this morning.
18:03
Speaker 1: Consumer spending decelerated to a one point eight percent pace.
18:07
Speaker 1: This is below projections and the weakest since the first quarter.
18:11
Speaker 1: Do you view this as a potentially concerning sign of
18:14
Speaker 1: a weakening consumer. You know, you can't just take one
18:19
Speaker 1: monthly report and extrapolated too much of a conclusion. Remember
18:24
Speaker 1: this year, the holiday season was very strong, up four
18:26
Speaker 1: point one percent year of a year. That's very powerful
18:29
Speaker 1: set of numbers. Just keep in mind that versen were
18:34
Speaker 1: easy comparables. Remember Q we had a lot of recession fears.
18:40
Speaker 1: The market had sold off about so maybe people throttled
18:43
Speaker 1: back a little bit last year and this past Christmas
18:47
Speaker 1: they made up for a little bit. So when you
18:49
Speaker 1: look at the broader picture, uh, you know, still growing,
18:54
Speaker 1: but a little softer than expected. That's mostly noise. It's
18:57
Speaker 1: too difficult to say, oh, we're one instead of to
19:00
Speaker 1: two it's over because look, the landscape is littered with
19:04
Speaker 1: the bodies of economists predicting the demise of the U S. Consumer.
19:08
Speaker 1: It so far, it just hasn't happened. The consumer has
19:12
Speaker 1: been driving this economy. Do you feel like that can continue?
19:17
Speaker 1: Because we're still seeing weakness and manufacturing barrier. Business investment
19:20
Speaker 1: is not great. It's really been hanging on the consumer.
19:23
Speaker 1: So the fascinating thing about retail and consumer is there's
19:28
Speaker 1: so many cross currents happening at once. It's such a
19:32
Speaker 1: noisy environment. It's really difficult to draw and paint broad conclusions.
19:39
Speaker 1: So we know we've been going through a retail apocalypse
19:42
Speaker 1: for a decade. The United States wildly um over retailed
19:48
Speaker 1: compared to other countries like the UK or France or Japan.
19:52
Speaker 1: We just have seven square feet per person versus five
19:56
Speaker 1: and three and two elsewhere. So we're gonna con tinue
20:00
Speaker 1: to see retail stores closed, and we continue to see
20:03
Speaker 1: nine year of your growth nineteen point eight year your
20:07
Speaker 1: growth in online retail stores. Not only is that a
20:12
Speaker 1: big number, it's accelerating versus previous years. So I think
20:17
Speaker 1: this internet thingy is gonna be big one day, and
20:19
Speaker 1: it's going to continue to grow at just an astonishing pace.
20:23
Speaker 1: Online retail is now about fifteen percent of retail, up
20:27
Speaker 1: from about a third of that a decade and change ago.
20:31
Speaker 1: We will eventually start the plateau, but there are no
20:34
Speaker 1: signs that's coming anytime soon. So in all these crazy crosscurrents,
20:38
Speaker 1: looking at one month of retail sales and saying, oh,
20:41
Speaker 1: that's it for the consumer really difficult. So let's talk
20:44
Speaker 1: about the Internet thingy and talk about what a strong
20:47
Speaker 1: consumer means for this thingy that seems to be taking
20:51
Speaker 1: over it. It's technical terms. By the way, I wish
20:54
Speaker 1: that we had a camera showing all of the hand motions,
20:56
Speaker 1: the idea that you know that he says, you know,
20:58
Speaker 1: painted broadbrush. He's he's literally painting that broad brush acrosta across.
21:02
Speaker 1: If only there was a camera, right, we just haven't
21:07
Speaker 1: turned it on. Okay, So what are you looking at
21:09
Speaker 1: in terms of the disruption in so so the first
21:13
Speaker 1: generation of disruptors, the Amazons of the world, the Ebays,
21:17
Speaker 1: They've become very comfortable and I would never call Amazon complacent.
21:21
Speaker 1: They seem to be very savvy. Um, Jeff Bezos wants
21:25
Speaker 1: to run the world. So you know, I use Amazon
21:28
Speaker 1: Subscribe and Save and Amazon Prime, and I used to
21:31
Speaker 1: go to Target once a month, and now if I
21:33
Speaker 1: go twice a year. It's a lot because every month,
21:36
Speaker 1: automatically the dog food, the paper, towels, the toilet pay,
21:39
Speaker 1: all the stuff that would kill my Sunday morning, it
21:42
Speaker 1: just shows up like magic. It's fantastic. But I'm a
21:47
Speaker 1: different generation. And if you're under thirty, your mobile first,
21:51
Speaker 1: you are very excited about all of the Facebook properties
21:55
Speaker 1: like Instagram, and Instagram is rapidly becoming not just an
22:01
Speaker 1: influencer like it was a few years ago, but Instagram
22:04
Speaker 1: checkout is becoming this way that you see a pair
22:08
Speaker 1: of sneakers on Instagram that you like and you click
22:11
Speaker 1: on it, and Instagram facilitates that transaction. It's become too
22:17
Speaker 1: easy to make purchases. Keep in mind, this is the
22:21
Speaker 1: fastest growing part of Facebook, and the old joke about
22:24
Speaker 1: Facebook as well, it's become where my mom and grandma are.
22:28
Speaker 1: Instagram is where the youth are, and that arguably is
22:32
Speaker 1: the future. So that's something that I'm paying close attention to.
22:35
Speaker 1: The Graham or I g as a kid. That's called alright,
22:39
Speaker 1: instant stock. Actually, you know, Facebook down about seven percent
22:44
Speaker 1: today on some of those disappointing numbers from last night,
22:47
Speaker 1: but the company did call out that Instagram check out
22:50
Speaker 1: as a growth driver. So one of the things when
22:52
Speaker 1: we talk about retail, and we talked to retail analysts,
22:55
Speaker 1: they say that, you know, the US is still overstored
22:57
Speaker 1: and we still got to close that a bunch more stores.
23:00
Speaker 1: Is that kind of you believe? I believe that we're
23:02
Speaker 1: still over even with all the closure. Absolutely, so when
23:08
Speaker 1: you gotta you gotta be a little more um thoughtful
23:12
Speaker 1: about looking at the stores that are either like Sears
23:15
Speaker 1: and Kmart, are the walking dead. Nobody's told them they're dead.
23:19
Speaker 1: Someone will eventually tap them on the shoulders. Um Cole's J. C.
23:27
Speaker 1: Penny go down that whole list of sort of older
23:31
Speaker 1: style department stores, especially in light of not just the
23:38
Speaker 1: general psychological understanding that people derive more satisfaction and happiness
23:43
Speaker 1: out of experiences than consumer purchases, but that's the philosophy
23:47
Speaker 1: that really have seemed to be embraced by the millennial generation.
23:50
Speaker 1: And so the struggle that we've seen a lot of
23:53
Speaker 1: retail is how do we make experience part of our
23:56
Speaker 1: sales process? And some really successful retailers have come up
24:00
Speaker 1: with ways to do that same with the direct consumer sales.
24:04
Speaker 1: When when we look at things like albert sneakers or
24:09
Speaker 1: go down the list of the new niche products that
24:11
Speaker 1: are all being sold direct consumer instead of needing a
24:15
Speaker 1: big retail department store to sell it. Uh, that's a
24:18
Speaker 1: substantial challenge to the Macy's of the world. Well, if
24:23
Speaker 1: you are a millennial or someone who's under thirty and
24:25
Speaker 1: you feel like you've been pigeonholed by Barry rid Holts
24:28
Speaker 1: with vast generalizations. Please do right to him p R
24:31
Speaker 1: I T H O L t Z three at Bloomberg
24:34
Speaker 1: dot net. Uh. He's wonderful. He will continue to talk
24:38
Speaker 1: with you and tell you why you should be all
24:41
Speaker 1: about the Graham or perhaps more about experiences than Thanks.
24:44
Speaker 1: Barrit Hols, Bloomberg opinion columnist and host of Masters in
24:46
Speaker 1: Business on Bloomberg Radio, Founder, chairman, chief investment officer of
24:50
Speaker 1: rid Holts Wealth Management, and oracle of Bloomberg Markets a M.
24:54
Speaker 1: Thank you so much for being with us. Well, the
24:59
Speaker 1: spread of the coronavirus is impacting financial markets far and wide,
25:03
Speaker 1: and that includes the commodities markets as well, including the medals.
25:06
Speaker 1: To get a sense of what's going on there. We
25:07
Speaker 1: welcome Will Rynd, founder and see you have Granite shares
25:11
Speaker 1: joining us here in our Bloomberg Interactive Brooker Studio. Well,
25:13
Speaker 1: thanks so much for joining us. Let's start with gold
25:16
Speaker 1: gold up again today. I'm looking at the chart. It's
25:19
Speaker 1: a good chart. If you're long gold, gives your sense
25:22
Speaker 1: of how gold has been trading as it relates to
25:25
Speaker 1: kind of things going on in the marketplace, including the coronavirus. Well, thanks,
25:29
Speaker 1: Paul um as you already know. I mean, this year
25:32
Speaker 1: has been a good environment for golds. If it wasn't
25:34
Speaker 1: already a good time for people to buy gold, I
25:37
Speaker 1: think that this whole situation with the coronavirus has just
25:40
Speaker 1: made it even more acute for investors looking for some
25:44
Speaker 1: kind of hedge or some kind of response to the confusion. Now,
25:49
Speaker 1: all right, hold on a second, full disclosure. You happen
25:52
Speaker 1: to run a gold fund, right, Okay, alright, let's be
25:56
Speaker 1: real honest. Okay, So you know, this sort of comes
25:59
Speaker 1: to a question to know how you invest in gold,
26:01
Speaker 1: because you can have a position of whether gold is
26:03
Speaker 1: going to go up from here, and a lot of
26:04
Speaker 1: people do have that. So yes, you're probably talking your book,
26:07
Speaker 1: but also there are a lot of people who actually
26:09
Speaker 1: back that given where we are in the economic cycle
26:11
Speaker 1: and given some of the macroeconomic concerns. But going forward,
26:15
Speaker 1: is there a difference in how people access this market? Yeah,
26:19
Speaker 1: so I think, like I said, before this coronavirus thing happened,
26:23
Speaker 1: you know, you've got central banks increasing their balance sheet,
26:26
Speaker 1: interest rates coming down, so that was already the environment
26:28
Speaker 1: that you know, a lot of people needed to feel
26:31
Speaker 1: more confident about buying gold, and in some respects there
26:34
Speaker 1: was a little bit analogous to when gold made in
26:36
Speaker 1: all time high. You're you know, quantizative easing happening, UM
26:40
Speaker 1: dollar going down, UM interest rates obviously coming down at
26:44
Speaker 1: the real interest rates going negative. So a lot of
26:46
Speaker 1: those components are alive and well today. I think the
26:49
Speaker 1: other part of it, which you know, is probably dissipated
26:52
Speaker 1: a little bit, at least until um the last week
26:55
Speaker 1: or so has been fears of some kind of correction
26:58
Speaker 1: in the market. I think there was a kind gone
27:00
Speaker 1: away a little bit um and people have focused more
27:02
Speaker 1: on just expanding the balance sheet and looking for for
27:05
Speaker 1: some kind of hedge to that. How about some of
27:08
Speaker 1: the other precious metals, Have we seen a similar move
27:11
Speaker 1: that we've seen in gold in others we have in
27:14
Speaker 1: many ways we've seen some pretty outsized moves and some
27:18
Speaker 1: of the other metals. So as some of some of
27:20
Speaker 1: the listeners might know, palladium has been a really kind
27:23
Speaker 1: of incredible story. UM that went from a metal which
27:27
Speaker 1: was really kind of unloved over the last few years
27:30
Speaker 1: to a pretty severe supply shortage in the market, which
27:34
Speaker 1: is propelled those prices up to two thousand, two hundred
27:37
Speaker 1: dollars nownce. So most people we were shocked when the
27:40
Speaker 1: price of palladium went past gold, but then it's now
27:43
Speaker 1: accelerated to more than two thousand dollars announced um. Similarly,
27:48
Speaker 1: the price of silver has gone up as well um
27:50
Speaker 1: And I think the one that everyone's watching at the
27:52
Speaker 1: moment is platinum, because the price of platinum has started
27:55
Speaker 1: to move, but that's been kind of the laggered in
27:57
Speaker 1: the precious metal space, but trading it over a thousand
28:01
Speaker 1: dollars announced less than palladium, and both of those metals,
28:04
Speaker 1: by the way, the key demand source and catalytic converters
28:08
Speaker 1: for cars, so cleaning the emissions of cars, and there's
28:10
Speaker 1: a substitute herbal effect, So for all those automakers that
28:14
Speaker 1: use palladium as the primary metal for the catalyst, you
28:18
Speaker 1: can substitute that with platinum. And so people are looking
28:20
Speaker 1: at that. How much a driver of the price of
28:23
Speaker 1: gold has sexual bank buying pin um. It's certainly been important,
28:27
Speaker 1: but it's been pretty consistent for a long time now
28:30
Speaker 1: in the market, so I don't want to discount it
28:34
Speaker 1: in any way, But it's been kind of consistent. Technological
28:39
Speaker 1: buying has been pretty steady, about ten percent of demand paranum.
28:43
Speaker 1: Jewelry also has been pretty steady, And if anything, jewelry
28:46
Speaker 1: has increased because it's linked to GDP, So when people
28:50
Speaker 1: feel wealthier around the world, they tend to use some
28:53
Speaker 1: of that money in gold. Jewelry wise trades almost like
28:56
Speaker 1: a luxury good. The marginal investor. That that's the most
29:00
Speaker 1: important thing in my mind for the price of gold.
29:02
Speaker 1: So when you get the investors coming in, that's the
29:05
Speaker 1: sort of the swing, the swing in the demand curve.
29:09
Speaker 1: And so when you start to see investors coming in
29:11
Speaker 1: and buying or gold, I think that's the thing that's
29:13
Speaker 1: the most meaningful in terms of the price. So gold
29:16
Speaker 1: and some of the other precious metals trading well. Uh Copper,
29:19
Speaker 1: on the other hand, twelve days in a row, I
29:22
Speaker 1: think trading down. If I remember UH lowers since seen
29:27
Speaker 1: what's the story behind copper? Yeah, horrendous story. If if
29:29
Speaker 1: the precious metals are the kind of the darling of
29:31
Speaker 1: the commodity space, then the ugly sister has got to
29:34
Speaker 1: be copper, and certainly any kind of major commodities linked
29:38
Speaker 1: primarily to China, so very simply that the copper stories
29:43
Speaker 1: intrinsically linked to China because China is the biggest buyer
29:47
Speaker 1: of copper, and so that story is very much linked.
29:50
Speaker 1: So the bad news and the Chinese economy means, all
29:54
Speaker 1: things being equal, less demand for copper. So it's it's
29:56
Speaker 1: not had a good good running. So as we watch
29:59
Speaker 1: battles sell off. More broadly, I mean the London medal
30:01
Speaker 1: exchange is actually poised for its worst monthly decline since
30:05
Speaker 1: two thousand and fifteen, a lot of people are ratcheting
30:08
Speaker 1: back inflation expectations, and once upon a time gold was
30:12
Speaker 1: a hedge against inflation. How does that factor into the
30:15
Speaker 1: picture now if we don't get inflation and if ultimately
30:19
Speaker 1: you get interest rates going even lower, yeah, I think
30:23
Speaker 1: probably the lesson over the last decade is, you know,
30:26
Speaker 1: certainly when gold price is made in all time high,
30:28
Speaker 1: you know, back in two thousand and eleven, I think
30:30
Speaker 1: a lot of people felt like all the quantitative easing
30:33
Speaker 1: that was being put into the market, the interest rate
30:36
Speaker 1: reductions that we saw from central banks all around the world,
30:39
Speaker 1: would result and runaway inflation, and that was one good
30:44
Speaker 1: reason to own gold. Obviously that didn't happen, and the
30:47
Speaker 1: price of gold accelerated for for other reasons, which is
30:50
Speaker 1: primarily fear over some kind of inflation re expectation, but
30:56
Speaker 1: more often the opportunity cost of gold. The interest rates
31:02
Speaker 1: came down significantly, So I think, you know, inflation is
31:05
Speaker 1: certainly on some people's mind right now, but it's not
31:08
Speaker 1: the main reason I think that people are buying gold.
31:10
Speaker 1: I think that people were trying to position themselves more
31:13
Speaker 1: defensively for a correction in the market. Well, Ryan, thank
31:16
Speaker 1: you so much for being with us. Thank you well.
31:18
Speaker 1: Ryan is founder and chief executive officer of Credit Shares
31:21
Speaker 1: based in New York, the Granite Shares Gold Trust I'm
31:23
Speaker 1: looking at right now at million dollars of assets. Center
31:26
Speaker 1: Management has returned more than nine percent nearly in the
31:30
Speaker 1: past twelve months, and it's up about four percent so
31:34
Speaker 1: far year to date. Thanks for listening to the Bloomberg
31:38
Speaker 1: P and L podcast. You can subscribe and listen to
31:40
Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.
31:44
Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
31:46
Speaker 1: Abram Woyd's I'm on Twitter at Lisa Abramo. It's one
31:49
Speaker 1: before the podcast. You can always catch us worldwide on
31:52
Speaker 1: Bloomberg Radio