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General Motors, Big Tech, GE, and Spotify · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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0:21
Speaker 1: I tell you this auto strike just it ain't going
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Speaker 1: away here. It seems like it's getting even worse. The
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Speaker 1: UAW just came across the Bloomberg terminal around ten to
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Speaker 1: fifteen Wall Street time. The UAW says five thousand members
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Speaker 1: at GM Arlington Assembly join strike. So this is kind
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Speaker 1: of going the wrong way, and it got to the
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Speaker 1: point now where General Motors today I have to putt
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Speaker 1: out some good numbers removes guidance because of the strike.
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Speaker 1: So I don't know what's going on there. But I
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Speaker 1: know who does know, Kevin Tyne, and he's a senior
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Speaker 1: automotive analyst for Bloomberg Intelligence. He joined just via zoom
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Speaker 1: from our Princeton office. Kevin, tell us what GM said today,
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Speaker 1: you know about the strike and how it's impacting their
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Speaker 1: I guess operations.
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Speaker 3: Yeah, well, look that was strike started late late in
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Speaker 3: the third quarter, so it would be the impact. I
1:07
Speaker 3: mean every day of the fourth quarter so far has
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Speaker 3: been impacted by the strike. But you know, the backwards
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Speaker 3: looking results were actually pretty good, better than expected, and
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Speaker 3: just show the profitability that the company can produce and
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Speaker 3: the you know, removing some guidance. There is just an
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Speaker 3: issue of not flaunting that you're going to make fourteen
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Speaker 3: billion when you're trying to negotiate with the union. But
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Speaker 3: you know, it could mean it's close, right that this
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Speaker 3: is the final turns of the screw that kind of
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Speaker 3: gets the manufacturer to give what the union thinks they deserve.
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Speaker 3: I think they're probably close on the wage, the increase,
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Speaker 3: the percentage, and probably the ratification bonus. I think it's
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Speaker 3: all the sort of secondary issues there in terms of
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Speaker 3: headcount capacity, you know, new product plants and things like that,
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Speaker 3: that are the sticking points this late in the negotiations.
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Speaker 4: Why are only some plants on strike?
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Speaker 3: Well, you know, it looks bad for everyone, and it's
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Speaker 3: very difficult to put out that many workers, right because
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Speaker 3: then they go to the strike fund and then you
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Speaker 3: completely shut down everything. And I think it's just counterproductive
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Speaker 3: to say, you know, we're not going to produce anything
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Speaker 3: at all, then you're putting the host in real danger.
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Speaker 1: All right, So, Kevin, I guess the big issue, as
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Speaker 1: I understand it, is, you know, as the industry, I
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Speaker 1: guess he continues its evolution in the EV front, there's
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Speaker 1: a real question as to how many jobs are going
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Speaker 1: to be needed and where those jobs are going to be,
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Speaker 1: and they're going to be different types of jobs, to
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Speaker 1: the point where I guess the companies are saying, hey,
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Speaker 1: we can't guarantee X number of positions because quite frankly,
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Speaker 1: we don't know what positions we're going to need. Is
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Speaker 1: that kind of where we are? And if so, I
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Speaker 1: don't know how you resolve that.
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Speaker 3: Yeah, And look in the other issue too, is that
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Speaker 3: as labor costs increase for those union shops, they're only
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Speaker 3: GM Ford and STILLANTIS brands. So even if there were
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Speaker 3: no EV transition, the domestic manufacturers and their brands are
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Speaker 3: going to be less competitive against even you know, Honda
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Speaker 3: in Ohio, or Nissan and Tennessee or any of the
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Speaker 3: plants down in the South that are not unionized. Never
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Speaker 3: mind the EV manufacturers who are not unionized.
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Speaker 1: As well.
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Speaker 3: So you know, there's the EV transition is part of it.
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Speaker 3: But the manufacturers have been very profitable on internal combustion,
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Speaker 3: but by making fewer vehicles. So I think that's where
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Speaker 3: the capacity and the headcount uncertainty comes in as well,
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Speaker 3: where you're saying, you know, yes, we're making money, but
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Speaker 3: we're doing it on fewer units. We can't be behold
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Speaker 3: into these capacity you know, in footprint requirements going forward
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Speaker 3: when we don't know that we're actually going to need
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Speaker 3: that much.
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Speaker 4: What are the UAW members being paid and what are
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Speaker 4: they asking for?
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Speaker 3: Yeah, so you know, when you look at it all
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Speaker 3: in as the cost to the manufacturer, it's probably in
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Speaker 3: the sixty dollars per hour range, and it'll go up
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Speaker 3: into the nineties and maybe even higher depending where the
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Speaker 3: contract is ultimately done.
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Speaker 4: You know.
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Speaker 3: And then you compare that all in to the transplants
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Speaker 3: of European or Asian manufacturers or EV manufacturers and there there,
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Speaker 3: you know, the cost to the company is significantly less,
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Speaker 3: you know, And that's what probably needs to be reconciled
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Speaker 3: and what the domestic manufacturers are saying, Look, if you
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Speaker 3: want to increase your membership, you can't just keep coming
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Speaker 3: back to us, right, you take your twenty five percent
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Speaker 3: increase and go show it to some of these other
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Speaker 3: manufacturers and try and build your base that way, because
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Speaker 3: we don't have much more to give.
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Speaker 1: So, Kevin, when we do get a resolution, is it
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Speaker 1: going to be are we just assuming that it's going
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Speaker 1: to apply to all three of the big three automakers?
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Speaker 5: Oops?
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Speaker 1: Kevin hears uh, I think we lost Kevin. All right,
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Speaker 1: Well that was my big smart question the day, and
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Speaker 1: we need to know. I think we lost the audio
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Speaker 1: with Kevin, so we'll have to go back to that.
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Speaker 1: But again, you know, it's serious here for these automakers
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Speaker 1: because you know, I mean Jim again pulling its guidance.
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Speaker 1: But as Kevin said, maybe that just might be a
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Speaker 1: negotiating tactic here. You don't want to say, oh, yeah,
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Speaker 1: we we reiterate our profit guidance of fourteen billion dollars
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Speaker 1: or something like that when you're trying to plead, you know,
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Speaker 1: and trending to negotiate salaries.
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Speaker 4: And especially given what we were talking about earlier, GM
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Speaker 4: beating a third quarter estimates despite losing two hundred million
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Speaker 4: dollars from the walkout during that quarterly period. But then
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Speaker 4: also what it means for when it comes to a
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Speaker 4: automaker like that that has been rethinking its growth plans
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Speaker 4: for EV sales because those sales have plug in have
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Speaker 4: been actually slower than anticipated. So a lot of different
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Speaker 4: moving pieces there.
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Speaker 1: All right, let's go back to Kevin Tyne and we
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Speaker 1: got them back, We got the audio back. So Kevin,
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Speaker 1: my question was, just, when we do get an agreement,
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Speaker 1: is it going to apply to all three automakers just
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Speaker 1: kind of automatically?
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Speaker 3: Yeah, Well, typically what would happen. Historically you'd have negotiation
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Speaker 3: between the union and one manufacturer, usually the most financially sound,
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Speaker 3: and then the other deals fall into place. This has
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Speaker 3: been unique in that the union has been negotiating with
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Speaker 3: all three at the same time. So yeah, this one
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Speaker 3: would probably happen amongst all three and one shot, and
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Speaker 3: then it'll just be a matter of catching up on
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Speaker 3: production over the subsequent quarters going into twenty twenty four.
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Speaker 6: Yeah, as far as looking ahead and what could all
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Speaker 6: this play out, what exactly do you think would be
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Speaker 6: the remaining timetable for how long this actually.
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Speaker 4: Could continue on for?
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Speaker 3: Yeah, I think it's close, you know, I think people
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Speaker 3: look at it like this is a lot of pressure
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Speaker 3: on the manufacturers, and it certainly is, but it's also
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Speaker 3: pressure on the union as well. You know, you have
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Speaker 3: a lot of people that aren't earning what they're used
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Speaker 3: to earning, and they're in the strike fund, and everybody,
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Speaker 3: I think wants to move forward. So I would say
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Speaker 3: we're probably closer. And this is based on nothing than
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Speaker 3: just what we're hearing in the rhetoric is that it's
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Speaker 3: probably closer than it isn't, And I think it's the
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Speaker 3: wage number is probably there, and then it's just some
7:31
Speaker 3: of these other secondary issues that just need to be
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Speaker 3: hammered out in terms of details, because manufacturers, again, they
7:38
Speaker 3: want that flexibility to say, what this industry looks like
7:42
Speaker 3: in three four years from now may not be what
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Speaker 3: it is today, and we need the flexibility to rationalize
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Speaker 3: cost if that's the case.
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Speaker 1: Hey, Kevin, A big picture. I just replaced the twenty
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Speaker 1: fourteen BMW with the stick shift, and I got the
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Speaker 1: twenty twenty four BMW X three, extraordinarily happy. Didn't even
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Speaker 1: think about getting ev because it was such the premium price.
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Speaker 1: So is the world rethinking, Are you guys as industry
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Speaker 1: rethinking what the ultimate end market is for evs, I mean,
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Speaker 1: it seems like it's not as strong as I maybe
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Speaker 1: once thought.
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Speaker 3: Yeah, I think so. And that's playing out in a
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Speaker 3: lot of different ways. You know, dealers were you know,
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Speaker 3: the manufacturers are going to the dealers and saying, look,
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Speaker 3: you need to fit your outfit your stores for this,
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Speaker 3: and now they're kind of holding back a little bit,
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Speaker 3: and the dealers are waiting it out and not being
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Speaker 3: the first ones to move. But I think if the
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Speaker 3: demand and profitability profile of EV doesn't improve significantly through
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Speaker 3: twenty twenty four, and we've already seen it, right, Ford
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Speaker 3: pushed out its building its battery plan, General Motors put
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Speaker 3: another year on the timeline. I think if not by
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Speaker 3: the end of next year, there will be some of
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Speaker 3: those one hundred percent by twenty thirty five, and the
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Speaker 3: longer term goals are going to start to be walked
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Speaker 3: back because the addressable market might not be what it
8:59
Speaker 3: seemed to be when it was first going. And ultimately,
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Speaker 3: when you look at it, you know, on the one hand,
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Speaker 3: you have everybody saying how Tesla dominates an EV, but
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Speaker 3: if demand goes away, you know, then you're questioning really
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Speaker 3: everybody else, Right, If there's no demand for Tesla. What
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Speaker 3: is the demand for a forty V or GMEV, which
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Speaker 3: don't even exist yet in any kind of volume.
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Speaker 1: Yep, very interesting. It seems like the market's changing a
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Speaker 1: little bit. And again I went internal combustion engine in
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Speaker 1: old school. Kevin Tony, thanks so much for joining us.
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Speaker 1: Kevin is the senior automotive analysts for Bloomberg Intelligence. He's
9:34
Speaker 1: a sconce down in our Princeton, New Jersey headquarters. Down there,
9:38
Speaker 1: great lunches down there by the way.
9:40
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9:56
Speaker 1: I want to continue talking about these markets here because
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Speaker 1: again we are right in the middle of earnings. We've
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Speaker 1: got yields moving all over the place, kind of, as
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Speaker 1: Gina said, kind of dictating the market to a certain degree.
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Speaker 1: Let's bringing Liz Young, she's head of investment strategy at
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Speaker 1: so Far and Liz, thanks so much for joining us.
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Speaker 1: I know you cut your teeth on small caps. And
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Speaker 1: Gina Martin Adams and Bloomberg Intelligence was just talk about
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Speaker 1: kind of the tough headwinds they face. How do you
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Speaker 1: think about the small cap space right here?
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Speaker 8: Yeah, Hi, thanks for having me.
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Speaker 9: So I did cut my teeth as a small cap analyst,
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Speaker 9: and I have a soft spot in my heart for them,
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Speaker 9: and it does pain me at a time like this
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Speaker 9: to say, I just don't think that.
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Speaker 8: They're a goodbye yet.
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Speaker 9: And you look at where we are in the economic
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Speaker 9: cycle and where yields are. Many small cap companies, because
10:45
Speaker 9: they're new and because they're growing, need financing in order
10:48
Speaker 9: to produce that growth. So as yield rise, as borrowing
10:52
Speaker 9: costs rise, and capital is constricted, small cap companies feel
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Speaker 9: that much more than large cap companies do, who can
10:59
Speaker 9: usually find announce their growth internally. So small caps are
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Speaker 9: probably feeling the pain of capital constriction much more. Also,
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Speaker 9: just where you are in the economic cycle, I still
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Speaker 9: think there are many many signals telling us that we
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Speaker 9: are late cycle. Small caps tend to outperform in early cycle,
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Speaker 9: so we would need to finish late cycle, get through
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Speaker 9: probably a bit of a slowdown, and then restart the
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Speaker 9: early part of the cycle, which I just do not
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Speaker 9: think is where we are today.
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Speaker 4: What are small cap stocks in the technology sector telling
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Speaker 4: us at this point, because typically if they're holding up better,
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Speaker 4: that couldn't mean brighter times ahead for small caps or
11:36
Speaker 4: we see any indication of that right now.
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Speaker 9: Well, I think sectors as a whole. As you move
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Speaker 9: down the market cap spectrum, the makeup is very different.
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Speaker 8: So technology is one of those.
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Speaker 9: Obviously you're not seeing big tech stocks, and the behavior
11:51
Speaker 9: that we're seeing in big tech stocks, you're not going
11:53
Speaker 9: to see that in the small cap space. Generally speaking,
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Speaker 9: in small cap tech, you're seeing things that are down
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Speaker 9: the supply chain, so they're making components or maybe they're
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Speaker 9: early software companies, so they're still going to be quite
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Speaker 9: sensitive to moves in the market and probably quite sensitive
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Speaker 9: to yields as well. Small cap is actually quite dominated
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Speaker 9: by things like healthcare, and the differences in industry makeup
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Speaker 9: of healthcare can affect the performance of small caps tremendously.
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Speaker 9: As you move down the market cap spectrum, beta in
12:24
Speaker 9: general is increased, so I would be careful in a
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Speaker 9: rising rate environment, I would be careful with really growthy names,
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Speaker 9: particularly in the small cap space, and generally speaking, even
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Speaker 9: when you do enter that early cycle behavior, and small
12:39
Speaker 9: caps tend to outperform. What usually tends to outperform is
12:43
Speaker 9: small cap value because a lot of those are dominated
12:46
Speaker 9: by the financial space. So it really does make a
12:50
Speaker 9: difference when you look at the sector makeup of different
12:52
Speaker 9: size categories, and investors should keep that in mind as
12:56
Speaker 9: we move through these different parts of the business cycle.
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Speaker 1: Hey, Lis, I wonder just kind of stepping back here,
13:01
Speaker 1: you know, in a world where you've got you know
13:03
Speaker 1: that the ten year at four point eight seven to
13:05
Speaker 1: thirty year, boy, it's at five percent. Haven't seen that
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Speaker 1: in a while, and of course a two year at
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Speaker 1: five point one percent and that kind of world, can
13:12
Speaker 1: equities perform?
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Speaker 8: Well, so far they've done okay.
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Speaker 9: I mean we've seen we've seen yields be pretty volatile
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Speaker 9: all year since the end of July, so that local
13:25
Speaker 9: equities top in July July thirty first. Obviously we saw
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Speaker 9: quite a swift rise in the ten year since that point,
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Speaker 9: and equity saw a down draft. That's logically and rationally
13:35
Speaker 9: how I think it should work. You should see some
13:38
Speaker 9: pressure on valuations as yields rise. So I think that
13:41
Speaker 9: that's actually been a pretty rational change in tone in
13:45
Speaker 9: the market, and it's been quite orderly, I mean the drawdown,
13:49
Speaker 9: although it feels like it's been prolonged because we were
13:52
Speaker 9: used to such a strong up up movement in the
13:54
Speaker 9: beginning of the year. It feels long, but it really
13:57
Speaker 9: has not been that.
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Speaker 8: Long, nor has it been that terrible.
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Speaker 9: I mean, it hit maybe seven and a half percent
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Speaker 9: down on the SMP at worst, so not even in
14:05
Speaker 9: correction territory. Now, as yields stay high, I think that's
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Speaker 9: where valuations really come into question. And as we go
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Speaker 9: through Q three earning season, obviously looking out into Q
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Speaker 9: four and into twenty twenty four, expectations are really high,
14:20
Speaker 9: and I think the market is priced for those expectations
14:24
Speaker 9: to come true. So as we get more information from
14:27
Speaker 9: CEO th than guidance, if we find out that those
14:30
Speaker 9: earnings are not realistic to achieve, we're probably going to
14:34
Speaker 9: see more pressure on valuations, and yields are not necessarily
14:38
Speaker 9: helping that story. So I don't think that stocks can
14:41
Speaker 9: maintain these valuations if we keep yields this high for
14:44
Speaker 9: a very very long period of time. But it's not
14:47
Speaker 9: going to happen in a broad swath across the market.
14:50
Speaker 9: You're going to see probably discerning choices in each sector
14:54
Speaker 9: of companies that are less sensitive to rates doing better.
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Speaker 4: What's the make or break lef in the ten year
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Speaker 4: treasury yield to where there would be a potentially bigger
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Speaker 4: calibration in the broader US stock market.
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Speaker 9: I don't know that there's necessarily a level that's going
15:12
Speaker 9: to send it all one direction or another. Five percent
15:15
Speaker 9: was clearly a very mental threshold for people.
15:18
Speaker 8: I still think that that's probably the case.
15:22
Speaker 9: There's still people out there calling for six percent and
15:24
Speaker 9: maybe even seven percent and higher. So I think when
15:28
Speaker 9: you look at it from the investor standpoint, you have
15:31
Speaker 9: individual investors or retail investors who are going to be
15:34
Speaker 9: more sensitive to hearing about mortgage rates going up. So
15:37
Speaker 9: as mortgage rates crept towards eight percent, I think that
15:39
Speaker 9: gave people a lot of pause about whether or not
15:42
Speaker 9: they wanted to be throwing all their money at risk assets.
15:45
Speaker 9: And then you've got institutional investors and money managers who
15:50
Speaker 9: are watching yields and the inversion much more closely, and
15:53
Speaker 9: they're watching the cost of capital much more closely. So
15:56
Speaker 9: the ten year treasury at five percent or above gives
15:59
Speaker 9: them a little bit more consternation. So I don't think
16:02
Speaker 9: that there's a magic number that you know, oh my gosh,
16:05
Speaker 9: if we get to that, everything changes. But as it
16:08
Speaker 9: gets higher, it does get more difficult to sustain.
16:12
Speaker 8: And as you have corporate debt coming due next year.
16:15
Speaker 9: In the year after, many corporations have to renew their debt,
16:18
Speaker 9: and those corporations took that debt out when rates.
16:21
Speaker 8: Were much lower.
16:22
Speaker 9: So I think we're slowly going to hear about things
16:25
Speaker 9: being unsustainable at this level of rates. I'm not entirely
16:28
Speaker 9: sold that we're going to be able to stay this
16:30
Speaker 9: high for very, very long, because I just don't think
16:33
Speaker 9: the economy can withstand it.
16:35
Speaker 1: Hey, Liz, Tech is going to take center stage here
16:38
Speaker 1: after the close today with Microsoft and Alphabet. How do
16:41
Speaker 1: you guys think about tech right here?
16:45
Speaker 9: Tech is definitely going to take center stage this week,
16:48
Speaker 9: and I think everybody's going to be watching and listening.
16:50
Speaker 8: I would say this tech has.
16:52
Speaker 9: Been the darling this year, and almost as if it
16:57
Speaker 9: can do well in any environment. If rates are going up,
16:59
Speaker 9: it's suppose to do well. If they're going down, it's
17:01
Speaker 9: supposed to do well. Sideways, up, down. Everything has been
17:05
Speaker 9: true at certain points that's not typically how an asset
17:09
Speaker 9: class will work. So I think we're going to start
17:12
Speaker 9: seeing separation, especially among big tech and we talk about them,
17:17
Speaker 9: whether you want to call them the Magnificent seven or
17:19
Speaker 9: just big tech stocks in general. We talk about them
17:22
Speaker 9: as a homogeneous asset class, but they're really not, and
17:25
Speaker 9: many of them are dependent on different parts of the consumer,
17:28
Speaker 9: on different parts of the economy, and I think we're
17:31
Speaker 9: going to start seeing some divergence in performance among those
17:35
Speaker 9: names where it's not just okay, you win because you're
17:38
Speaker 9: in that big tech basket. So this week, I think
17:41
Speaker 9: is really important, not just for the results, because interestingly,
17:46
Speaker 9: as earnings have come in so far, we're seeing even
17:49
Speaker 9: companies that have beat still be punished.
17:51
Speaker 8: So it's not just about the results.
17:53
Speaker 9: It's about the sentiment and the commentary that comes out
17:56
Speaker 9: of those companies, because that's what we'll send the market
17:58
Speaker 9: in a different direction.
18:00
Speaker 1: Thank you so much for joining us. We really appreciate
18:01
Speaker 1: getting some of your time. Liz Young. She's head of
18:04
Speaker 1: investment strategy at SOFI.
18:07
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18:26
Speaker 1: Sony Challa joins us. She is a portfolio manager partner
18:31
Speaker 1: at times Square Capital Management located guess where Jess, Time Square.
18:36
Speaker 1: How about that go figure some good naming rights there,
18:38
Speaker 1: So no, thanks so much for joining us. You're live
18:40
Speaker 1: here in on our Bloomberg Interactive Broker studio, so we
18:42
Speaker 1: appreciate you making the time here. What you call on
18:46
Speaker 1: technology here, boy, I hear some big, big numbers in
18:49
Speaker 1: terms of Capex the cloud, and then the kids are
18:51
Speaker 1: talking about this thing, AI. How do you put that
18:55
Speaker 1: all together and have a tech call?
18:57
Speaker 10: Yeah?
18:57
Speaker 11: Sure, I would say the investor sentiment positioning is broadly
19:01
Speaker 11: cautious as we head into Q three earning season, as
19:05
Speaker 11: there's angst building around twenty twenty four outlooks and whether
19:09
Speaker 11: we will get a Q four budget flush. If we
19:12
Speaker 11: look at channel checks and alternative data providers, they're painting
19:17
Speaker 11: a conflicting message on the health of IT spending environment.
19:21
Speaker 5: And I would.
19:22
Speaker 11: Describe the visibility as clear as mud at this point.
19:27
Speaker 11: And what I would say is that today's tonight's earnings
19:32
Speaker 11: calls from the megacaps like Google and Microsoft will give
19:37
Speaker 11: us a better understanding of whether the public cloud consumption
19:41
Speaker 11: headwinds or abating or not, and the trajectory of the
19:45
Speaker 11: hyperscale or capex into twenty twenty four. You know, the
19:51
Speaker 11: thing is that if you rewind to the start of
19:55
Speaker 11: twenty twenty three, as cost of capital has risen, you know,
20:01
Speaker 11: all these companies went on an endeavor to become financially fit.
20:05
Speaker 5: So we've seen.
20:06
Speaker 11: Significant positive earnings and free cash revisions upwards. Margin expansions
20:13
Speaker 11: have taken place, but what has been pressured is the
20:17
Speaker 11: net revenue retention rates as expansions have slowed as customers
20:21
Speaker 11: have cut back on spending and optimized their budgets with these.
20:28
Speaker 5: Big megacaps and other software providers.
20:31
Speaker 11: So the question is going forward into twenty twenty four
20:35
Speaker 11: with genai products from all these software companies ramping, whether
20:40
Speaker 11: that will serve as an incremental monetization driver into twenty
20:46
Speaker 11: four to drive you know, better revenue growth, especially given
20:51
Speaker 11: that the macro environment continues to be broadly stable and
20:55
Speaker 11: the comps are going to be easier into twenty twenty four.
21:00
Speaker 11: Point I would highlight on this front is that we
21:04
Speaker 11: should not overlook the lapping of the precipitous decline in
21:08
Speaker 11: ventor capital funding that started in two Q of last year.
21:13
Speaker 11: If you look at the trailing twelvemonth VC funding, it
21:17
Speaker 11: is sitting at two hundred and sixty two billion, which
21:20
Speaker 11: is down a little over fifty percent year of a
21:23
Speaker 11: year from five hundred and thirty.
21:25
Speaker 5: Eight billion last year.
21:27
Speaker 11: And the biggest negative step step down occurred between Q
21:31
Speaker 11: two and Q three.
21:32
Speaker 5: Of last year.
21:33
Speaker 11: And you know, assuming a certain percentage of these VC
21:38
Speaker 11: funds end up as public cloud revenues, the drag from
21:41
Speaker 11: that collapse in VC funding exactly a year ago, by
21:45
Speaker 11: our estimate, is, you know, is a drag of about
21:48
Speaker 11: ten percent of public cloud revenues.
21:51
Speaker 5: So I think the.
21:51
Speaker 11: Comps are are easing into into the back half. So
21:56
Speaker 11: that's the backdrop, and you know, we're very interested to
21:59
Speaker 11: see how the revenues flow are reported tonight.
22:05
Speaker 4: Something I'm keeping a close eye on is buybacks because
22:08
Speaker 4: we know that technology companies in particular have been a
22:11
Speaker 4: key pillar of support when you think about the broader
22:14
Speaker 4: stock market in last year with those buybacks being at
22:16
Speaker 4: a record, but they did slow in the first half
22:18
Speaker 4: of the year. As technology companies, obviously we're going through
22:21
Speaker 4: a lot of cost cutting efforts. What are you expecting
22:24
Speaker 4: to hear on that front from some of these big
22:26
Speaker 4: tech companies.
22:27
Speaker 11: Yeah, we expect capital allocation to be an important top
22:33
Speaker 11: and going forward, given the cost of capital is higher,
22:36
Speaker 11: and so I think expect a similar strategy going forward
22:42
Speaker 11: in terms of buybacks as.
22:45
Speaker 5: Free cash flows have ramped up.
22:47
Speaker 11: I do expect, I do expect a balance between investments
22:52
Speaker 11: and buybacks, and I don't expect any major surprises on
22:58
Speaker 11: that front going forward.
23:00
Speaker 1: So now, for the first half of the year, we
23:02
Speaker 1: all learned a new term AI, and every company that
23:06
Speaker 1: reported earnings for two or three quarters, whether they may
23:08
Speaker 1: dog food or where they may, you know, missiles talked
23:11
Speaker 1: about how AI is transforming their business in the supercharge
23:15
Speaker 1: at Kroger Croker when they's McDonald's. What is AI to
23:22
Speaker 1: you and is it incremental to spending?
23:25
Speaker 5: Yes, it's an interesting uh.
23:29
Speaker 11: You know initially when uh, if you look at the
23:32
Speaker 11: equity performance between me and July, we got we were
23:36
Speaker 11: in the hype cycle of AI, and in general, I
23:40
Speaker 11: would say investors generally overestimate the impact of new technologies
23:45
Speaker 11: like jen ai and the near term, but under estimate
23:49
Speaker 11: the longer term impact. So what is jen A I definitely,
23:53
Speaker 11: I think, you know, we've been, as part of our
23:56
Speaker 11: ongoing due diligence, talk to a lot of customers. We've
24:00
Speaker 11: spoken to leaders of IT departments at big financial institutions, industrials,
24:07
Speaker 11: and healthcare companies, and there is definitely a view internally
24:13
Speaker 11: that GENI could be a meaningful productivity enhancer, and all
24:19
Speaker 11: these companies are exploring different GENI use cases within their organizations.
24:26
Speaker 11: Our senses that the first use cases for GENI are
24:32
Speaker 11: probably going to be internal use cases to improve productivity improvement,
24:39
Speaker 11: be it in a call center agent, for a marketing professional,
24:44
Speaker 11: for a software developer. These tools, anecdotally, what we've heard,
24:49
Speaker 11: increased productivity by twenty five to thirty percent, so they're
24:53
Speaker 11: definitely pretty impactful. There's a lot of interest within organizations,
24:58
Speaker 11: but they're also mindful and want to understand the data
25:04
Speaker 11: privacy issues around GENI, security issues around GENI, and the cost,
25:12
Speaker 11: you know, the cost of implementing JENI. So they're moving
25:15
Speaker 11: thoughtfully and conservatively. That's why I said we overestimate the
25:19
Speaker 11: impact of the near term but underestimate the longer term impact.
25:24
Speaker 11: So as GENI products from software vendorors become generally, you know,
25:29
Speaker 11: more generally available. Microsoft's is coming out on November first,
25:33
Speaker 11: for example, a lot of these tools will be rolled out.
25:38
Speaker 11: Then the enterprises will, you know, decide whether it makes
25:42
Speaker 11: sense for them at the cost at the price points.
25:45
Speaker 5: That they're being delivered.
25:47
Speaker 11: But from our vantage point, it's more of twenty twenty
25:51
Speaker 11: four twenty twenty five revenue growth.
25:53
Speaker 4: Through did we only have about a minute left. But
25:56
Speaker 4: if you are able to join the earnings call for
25:59
Speaker 4: Microsoft or Alphabet, what question would you ask for each company?
26:03
Speaker 11: Yeah, the number one question is what is happening on
26:09
Speaker 11: the consumption optimized optimization? Have customers optimize the spend or
26:17
Speaker 11: is there more to go on that front? And the
26:19
Speaker 11: second is the trajectory of the capex spending. You know,
26:25
Speaker 11: that's an important tell for future demand that may be
26:28
Speaker 11: coming on the GENI front.
26:30
Speaker 1: Because the expect I mean the understanding or a least
26:32
Speaker 1: my understanding is jen Ai is incremental to existing budgets.
26:37
Speaker 1: Is that true in your mind?
26:39
Speaker 11: So there will be definitely repurposing off budgets, So savings
26:45
Speaker 11: in some parts of the budget will be repurposed to JENNI.
26:49
Speaker 5: But you know, I do believe that.
26:53
Speaker 11: You know, our conversations are suggesting that the IT budgets
26:57
Speaker 11: are looking to go up mid to high single percentage
27:00
Speaker 11: points in twenty twenty four. So and part of that
27:04
Speaker 11: is Jenny I related. And that view is that budget
27:08
Speaker 11: outlook is slightly better than what we've seen in twenty
27:11
Speaker 11: twenty three.
27:11
Speaker 1: Okay, very good. We'll certainly be paying attention to the
27:15
Speaker 1: Microsoft and to the Google numbers after the closed tonight.
27:18
Speaker 1: So neutrala partner and portfolio manager at Times Square Capital Management,
27:24
Speaker 1: timely discussion here as we get ready to kick off
27:26
Speaker 1: some big, big tech earnings.
27:29
Speaker 7: You're listening to the Team Ken's live program Bloomberg Markets
27:33
Speaker 7: weekdays at ten am Eastern on Bloomberg dot com, the
27:36
Speaker 7: iHeartRadio app, and the Bloomberg Business app, or listen on
27:39
Speaker 7: demand wherever you get your podcasts.
27:44
Speaker 1: Ank Rate dot Com US homeworkers thirty year fixed seven
27:48
Speaker 1: point ninety eight percent. Just extraordinary. That is the high
27:52
Speaker 1: since March of two thousand.
27:54
Speaker 5: Wow.
27:54
Speaker 1: Makes me feel less dumb for my six percent mortgage
27:58
Speaker 1: I got back in March of this year. I did
28:00
Speaker 1: feel a little like a knucklehead back then. Six percent,
28:03
Speaker 1: but not too bad. But that can't be good for
28:05
Speaker 1: like the housing market overall. Let's check in with somebody
28:07
Speaker 1: who knows this stuff, Brad Dilman, Chief Economists, RPM Living
28:12
Speaker 1: is the firm. Hey, Brad, we got a mortgage RDE
28:14
Speaker 1: up there at eight percent on the thirty year fixed man,
28:17
Speaker 1: what's that mean for the residential real estate market?
28:21
Speaker 12: Well, I think we can see that in the existing
28:22
Speaker 12: home sales.
28:23
Speaker 13: Right If that number is now at four million seasonally annualized,
28:26
Speaker 13: that's pretty ugly that we got to go back to
28:28
Speaker 13: the Great Recession to see a figure that bad.
28:30
Speaker 12: So it translates into low volume, that's for sure.
28:33
Speaker 4: And we're going to get a batch of housing data
28:36
Speaker 4: throughout this week, so starting tomorrow will have us new
28:39
Speaker 4: home sales for the month of September. When we did
28:43
Speaker 4: get August data, it did fall to a five month low.
28:46
Speaker 4: What are you thinking that we'll end up seeing from
28:49
Speaker 4: this data tomorrow?
28:51
Speaker 13: I think the the consensus figure I had in front
28:53
Speaker 13: of me was six eighty six.
28:55
Speaker 12: I think we may actually beat that.
28:56
Speaker 13: AT's say, six hundred eighty six thousand seasonally, just at annualized,
28:59
Speaker 13: I think it will come in seven hundred, but I
29:00
Speaker 13: think it'll have a little bit more strength to it.
29:03
Speaker 13: New home sales obviously came down from their peak, but
29:05
Speaker 13: you know, if you compare them to pre COVID era,
29:08
Speaker 13: they're still pretty strong.
29:10
Speaker 4: Also, though, another data point that will get later this week,
29:13
Speaker 4: which is important to look at the future direction when
29:15
Speaker 4: it comes to the housing market is also when you're
29:17
Speaker 4: looking at housing starts and building permits, and when you're
29:20
Speaker 4: looking at pending home sales. Obviously a leading indicator of
29:23
Speaker 4: existing home sales, given typically they're going to go under
29:25
Speaker 4: contract a month or two before they're end up being sold.
29:29
Speaker 4: What are you seeing on that end, and is that
29:31
Speaker 4: showing any sort of promising signs? More broadly for the
29:34
Speaker 4: housing market, You know, I.
29:36
Speaker 13: Really look at the builders when I think about this,
29:38
Speaker 13: and what I saw with them was really in the
29:39
Speaker 13: last ninety days or so, the reporting of a material
29:42
Speaker 13: slowdown in community traffic that's very clearly tied to the
29:46
Speaker 13: recent move in the ten year treasury rate. I think
29:48
Speaker 13: when we look at the existing home sales side and
29:50
Speaker 13: pending home sales and how that may move. We really
29:52
Speaker 13: end up with a question of geography here, and it
29:54
Speaker 13: translates to what we see on the rental market too.
29:56
Speaker 12: The areas that are really strong thing.
29:57
Speaker 13: It's Madison, Wisconsin, Maha, Nebraska, Urbana, Champagne, Illinois. It's markets
30:03
Speaker 13: that really haven't been in the spotlight in terms of
30:05
Speaker 13: housing in quite some time. And these may be the
30:07
Speaker 13: kinds of areas that actually lead even in this high
30:10
Speaker 13: interest rate environment.
30:11
Speaker 1: So, Bret, I've heard, I've heard from real estate folks
30:15
Speaker 1: like yourselves that there's just not enough housing in the
30:17
Speaker 1: United States And A Tory, how did that happen? If
30:21
Speaker 1: that's even true? And I mean, b how do you
30:24
Speaker 1: fix it?
30:26
Speaker 12: So A, Yeah, I think it is true.
30:28
Speaker 13: My own analysis shows that we're under built by about
30:30
Speaker 13: six hundred and fifty thousand units right now. How that
30:33
Speaker 13: happened really goes all the way back to the Great
30:35
Speaker 13: Recession and really our efforts to stimulate home prices for
30:38
Speaker 13: about five years by.
30:39
Speaker 12: Increasing affordability on the margin.
30:42
Speaker 13: Back then, it resulted in less affordability and subsequent time
30:45
Speaker 13: periods and therefore lower construction volume, particularly in single family
30:48
Speaker 13: where it took more savings and migration to affordability for
30:52
Speaker 13: people to own. Now we are closing this gap. The
30:55
Speaker 13: degree to which we're underbuilt has been made up four
30:57
Speaker 13: in two parts. One has been that we have seen
31:00
Speaker 13: a de facto housing supply stimulus in terms of COVID
31:03
Speaker 13: era response. We saw fiction moratoria translates to high rank
31:06
Speaker 13: growth and that into high multifamily starts. And then of
31:08
Speaker 13: course the really low interest rates that we had back
31:10
Speaker 13: then in terms of mortgages translating to home price appreciation,
31:13
Speaker 13: which translated into a lot of single family starts. We're
31:16
Speaker 13: closing this gap. I think we're under built by six
31:18
Speaker 13: hundred and fifty thousand units today. Let's put that in context.
31:21
Speaker 13: There's nearly one point seven million housing units under construction
31:24
Speaker 13: right now, so that means we've just by today's figures. Yeah,
31:27
Speaker 13: you've got to figure in obsolescence and such. But if
31:29
Speaker 13: we finished everything that's under construction right now, we'd be
31:32
Speaker 13: overbuilt by a million units.
31:34
Speaker 4: What about when it comes to particular home builders, because
31:37
Speaker 4: dear Horton Lenard, they have a particular demographic when it
31:40
Speaker 4: comes to that, But when it comes to housing affordability
31:43
Speaker 4: for lower income demographics, what builders do you think are
31:47
Speaker 4: out there that could help this particular segment of the population.
31:51
Speaker 13: I just think it's going to be smaller builders, some
31:53
Speaker 13: of which may not even be publicly traded, right These
31:55
Speaker 13: are going to be folks who are in these much
31:56
Speaker 13: smaller markets that actually have a pretty.
31:58
Speaker 12: Good land basis.
32:00
Speaker 13: If we look at the big builders that focus on
32:01
Speaker 13: that move up buyer, that's really where a lot of
32:03
Speaker 13: the pain is right now. These people can't sell their
32:06
Speaker 13: existing home at an attractive enough price really because of
32:09
Speaker 13: mortgage rates, and then they can't turn around and get
32:11
Speaker 13: the discounts that they'd really need into the home that
32:13
Speaker 13: they would move into.
32:14
Speaker 12: So the move up buyers really hurt.
32:15
Speaker 13: Right now, we're seeing a little bit of a shift
32:17
Speaker 13: i'd say to you know, call it C locations, not
32:20
Speaker 13: so much in the D locations anymore, but a shift
32:22
Speaker 13: back in to see a focus on kind of smaller
32:25
Speaker 13: and higher quality product that really might kind of reflect
32:29
Speaker 13: a bumping down effect when it comes to ownership. We
32:32
Speaker 13: can flip that to the rental side, where it looks
32:34
Speaker 13: like supply, you know, is siphoning demand from Class B
32:37
Speaker 13: and providing a lot of alternatives now for renters who
32:40
Speaker 13: look to more affordable but still quality options.
32:43
Speaker 1: Are you? Are you down in Atlanta, Bread?
32:46
Speaker 12: No, I'm in Clintonville, Wisconsin.
32:48
Speaker 1: Clinton.
32:49
Speaker 12: I'm remote.
32:50
Speaker 13: I work for a company that's based out of Austin,
32:52
Speaker 13: and I spend time there, but I'm in rural Wisconsin,
32:54
Speaker 13: which is where the wife is from.
32:56
Speaker 1: Clinton. Where's Clinton, Wisconsin?
32:58
Speaker 12: Clintonville is about forty five five minutes west of Green Bay.
33:01
Speaker 12: They make fire trucks out here.
33:03
Speaker 1: So how's the winter treating you so far?
33:05
Speaker 12: It's not too bad. Yeah, I got a little bit
33:07
Speaker 12: of a storm right now, but.
33:07
Speaker 8: It's actually a beautiful fall.
33:09
Speaker 13: But may we talk in a few months when it's
33:11
Speaker 13: you know, dark at four o'clock contea?
33:13
Speaker 4: Right?
33:13
Speaker 10: All right?
33:13
Speaker 1: If I want so, if I want to buy a
33:15
Speaker 1: four bedroom fairly new construction, Clintonville, Wisconsin, what's that going
33:19
Speaker 1: to run me?
33:21
Speaker 12: Well, there's not too much supply out here, I'll tell
33:22
Speaker 12: you that.
33:23
Speaker 13: But you know, we I think we can say that,
33:25
Speaker 13: you know, on the on the new home side, prices
33:28
Speaker 13: are down from their peak.
33:29
Speaker 12: I would think if you wanted to build.
33:30
Speaker 13: In rural America, if you wanted to go build, and
33:33
Speaker 13: you know Urbana Champaign, which is is rural enough for
33:35
Speaker 13: anybody who's sitting in New York or a major metropolitan
33:37
Speaker 13: area and you want your four bedroom house.
33:40
Speaker 12: That's really nice. You've been looking anywhere from three fifty
33:42
Speaker 12: to four to fifty.
33:43
Speaker 4: Do you talk to brokers often and if so, what
33:46
Speaker 4: are they telling you about what they're hearing anecdotally from
33:49
Speaker 4: potential buyers.
33:51
Speaker 13: You know, I don't talk to brokers personally. I'm a
33:53
Speaker 13: data guy, right, so I see through this in data
33:55
Speaker 13: and reading reports.
33:56
Speaker 12: But what I am hearing from the home builders.
33:58
Speaker 13: Has been this really this decline in community trap that
34:00
Speaker 13: you know, the builders have been buying down rate for people.
34:03
Speaker 12: They're really getting to the end of that. They're not
34:05
Speaker 12: wanting to cut their asking price yet, and so they're
34:08
Speaker 12: turning around.
34:08
Speaker 13: They're trying to make up margin by basically going after
34:11
Speaker 13: the trade so labor and materials cost and trying to
34:13
Speaker 13: get concessions on that front.
34:16
Speaker 1: Dude, you're not kidding, man. I just popped up Clintonville
34:18
Speaker 1: on the Google Maps. You are west of Green Bay,
34:23
Speaker 1: northwest of Appleton. That, dude, you are like the center
34:27
Speaker 1: of American No, no question, right, what's it? How's life
34:30
Speaker 1: out there?
34:31
Speaker 13: Oh?
34:32
Speaker 12: I've only been out here for about a month and
34:33
Speaker 12: a half in California.
34:35
Speaker 13: I was in Seattle, I was in Boston, I was
34:38
Speaker 13: in London, and then I was in Atlanta.
34:40
Speaker 12: All for me, it's the holy region of the country,
34:42
Speaker 12: and it's.
34:42
Speaker 4: Still neat all right, look at less about like the economy, Like,
34:45
Speaker 4: what are you seeing out there?
34:47
Speaker 12: Some growth? Right, you know, an area like this. HA
34:50
Speaker 12: had a tough time coming out.
34:51
Speaker 13: Of the Great Recession for quite a long time, and
34:53
Speaker 13: I'd say really around twenty eighteen twenty or nineteen or
34:56
Speaker 13: so things started to pick up awesome, and then of
34:58
Speaker 13: course the pandemic led to enough remote work and then
35:01
Speaker 13: some continued growth out here. You know, out here though
35:03
Speaker 13: it's a lot of farming, it's manufacturing, right, We build
35:05
Speaker 13: fire trucks and a little.
35:07
Speaker 12: Bit in terms of wind turbines and things like this.
35:09
Speaker 1: Awesome, all right, Brad, Great chatting with you. Great getting
35:13
Speaker 1: the local color from Clintonville, Wisconsin. Bradilman, he's the chief
35:16
Speaker 1: economist RPM Living.
35:18
Speaker 7: You're listening to the tape Cat's are live program Bloomberg
35:21
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
35:25
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business app.
35:28
Speaker 7: You can also listen live on Amazon Alexa from our
35:31
Speaker 7: flagship New York station, Just Say Alexa, play Bloomberg eleven.
35:35
Speaker 1: Thirty, Coley Smith plus twenty live here in our Bloomberg
35:39
Speaker 1: Interactor Broker Studio Earnings Here, we're all been focusing on
35:42
Speaker 1: the tech earnings coming out after the close. We had
35:44
Speaker 1: some good industrial earnings out three M and Gee Boast
35:48
Speaker 1: had some pretty good numbers, boosted the profit outlook. The
35:50
Speaker 1: stocks are up five or six percent. We said we
35:52
Speaker 1: got to get Brook Sutherland in here. She is the
35:54
Speaker 1: Bloomberg opinion person who covers industrial America like no one else. Hey, Brook,
36:00
Speaker 1: I don't know, it seems like industrial America is doing Okay,
36:02
Speaker 1: what are your takeaways from three M? Do you know
36:05
Speaker 1: what THREEM stands for? This is an awkward mining and
36:10
Speaker 1: manufacturing three M? And GE?
36:12
Speaker 14: What G stands for General Alegen?
36:15
Speaker 1: There you go, got one of us exactly what your
36:17
Speaker 1: takeaway brooks from some of these companies here.
36:19
Speaker 15: Sure, So there's unique stories happening at both GE and
36:23
Speaker 15: three M, and so you know at GE it's really
36:26
Speaker 15: a story of just the aerospace market is continuing to
36:29
Speaker 15: boom and there is a supply problem there rather than
36:33
Speaker 15: a demand problem that the airlines of the world air
36:36
Speaker 15: lessers want more aircraft, more jet engines than these companies
36:40
Speaker 15: can produce, and demand is really fair to robust still.
36:43
Speaker 1: So GE, do you not have the supply chain product
36:47
Speaker 1: in I guess the stuff to make them, or you're
36:49
Speaker 1: just a capacity.
36:51
Speaker 15: It's a little bit of both. And so what was
36:53
Speaker 15: interesting in the US is that while we extended payroll
36:56
Speaker 15: aid to the airlines during the pandemic, we did not
36:59
Speaker 15: do that the aircraft manufacturers, and so all of these
37:02
Speaker 15: companies slashed their workforces very aggressively, and then when they
37:07
Speaker 15: tried to rehire them, they found that that was more
37:10
Speaker 15: difficult than they thought it was going to be. That
37:12
Speaker 15: a number of people had sort of retired. There was
37:14
Speaker 15: obviously a lot of competition for skilled labor. That is
37:17
Speaker 15: particularly true this labor shortage issue at the smaller supplier.
37:22
Speaker 15: So if you're a company like GE, your ability to
37:25
Speaker 15: compete for top talent is better than somebody further down
37:28
Speaker 15: the line. But of course GE depends on these smaller
37:31
Speaker 15: suppliers to be able to churn out jet engines. I
37:33
Speaker 15: talked with Larry Cole this morning actually, and the CEO
37:36
Speaker 15: of GE and talked about how they're still seeing supply
37:39
Speaker 15: chain constraints and the delinquent trees were up in the
37:42
Speaker 15: third quarter relative to the second quarter. They're working hand
37:45
Speaker 15: in hand with their supply chain to try to really
37:47
Speaker 15: ramp up output, but it is it's challenging.
37:50
Speaker 14: How much has a story of materials versus labor issues.
37:55
Speaker 15: I think it's more on the labor front at this point.
37:58
Speaker 15: That's really where the constraints are.
38:00
Speaker 1: All right, So three M what's the story there? Three
38:03
Speaker 1: at the Saint Palm, Minnesota, great town by the way,
38:05
Speaker 1: if you.
38:05
Speaker 15: Haven't been, it is it is not a demand story.
38:10
Speaker 15: At three AM to the same extent as what we're
38:11
Speaker 15: seeing in GE, they actually cut their organic sales growth
38:15
Speaker 15: outlook for the year. They're continuing to see a lot
38:18
Speaker 15: of weakness and consumer markets, electronics, some spottiness in industrials
38:22
Speaker 15: amid a slow down in Europe, and you know, less
38:26
Speaker 15: robust performance in China than I think a lot of
38:28
Speaker 15: companies were hoping for. As we came out of the
38:29
Speaker 15: other end of the COVID lockdowns there, they did raise
38:33
Speaker 15: their profit guidance and that reflects very aggressive cost cutting
38:36
Speaker 15: actions that they're taking. Now, this is not the first
38:39
Speaker 15: restructuring effort by three AM under any stress of the imagination,
38:42
Speaker 15: but this one does appeal appear, excuse me, to have
38:45
Speaker 15: a little bit more heft to it where it is
38:48
Speaker 15: actually showing up on the bottom line. One of the
38:50
Speaker 15: long standing complaints that analysts have had about three M
38:53
Speaker 15: is that it announces is restructuring programs and then we
38:55
Speaker 15: just never really see any kind of impact. That it
39:00
Speaker 15: appears to be different this time around, and I think
39:02
Speaker 15: that's why you're seeing some enthusiasm around the stuff today.
39:04
Speaker 14: Well, tell us a little bit about the restructuring efforts
39:07
Speaker 14: that three M has made. I got a little loss
39:09
Speaker 14: trying to get ready for this to see just how
39:11
Speaker 14: many job cuts they've made and what kinds of different
39:14
Speaker 14: stages it's come in. So if you could give us
39:16
Speaker 14: a little bit of the backstory there, sure, it's been.
39:19
Speaker 15: Going on for a few years now. I mean, the
39:22
Speaker 15: bigger issue with three M, apart from arguably a bloated
39:25
Speaker 15: cost structure, is that they have these legacy liabilities hanging
39:29
Speaker 15: over their head that involve Forever Chemicals or pfas and
39:33
Speaker 15: also ear plugs that they sold to the military that
39:36
Speaker 15: veterans have alleged contributed to hearing loss. So those have
39:40
Speaker 15: really been weighing on the company because they were somewhat
39:43
Speaker 15: open ended. It was not really clear what was going
39:45
Speaker 15: to happen. Now three M does have a settlement for
39:49
Speaker 15: the public water claims related to PFAS that which is
39:52
Speaker 15: working its way through the court, and it also has
39:54
Speaker 15: a settlement for the combat arms the ear plugs issue,
39:57
Speaker 15: which is also going to work its way through the system.
40:00
Speaker 15: So they've made progress in certain terms of clearing out
40:02
Speaker 15: some of these legacy issues, but there are still some
40:05
Speaker 15: p fast items outstanding that I think will continue to
40:08
Speaker 15: make this a tricky stock to own for investors because
40:11
Speaker 15: you're not really just betting on industrial markets or costcut.
40:14
Speaker 1: That's what I was just going to ask you about,
40:15
Speaker 1: because I'm looking at the stock price performance in three
40:17
Speaker 1: M is down about twenty five percent year today, but
40:19
Speaker 1: GE is up about seventy five percent year to date.
40:22
Speaker 1: So when I think of GE, I'm back. I go
40:24
Speaker 1: back to the day's when it was everything it was
40:27
Speaker 1: GE was the economy, including the financial system. Obviously, they've
40:31
Speaker 1: paired it down dramatically over the last ten fifteen years.
40:35
Speaker 1: Is Larry Colp to see are they done. Do we
40:37
Speaker 1: have the new ge ors. There's still stuff to sell
40:41
Speaker 1: or spend offers.
40:41
Speaker 15: So their plan is to spin off ge Vernova, which
40:44
Speaker 15: will be the energy businesses, so that's their gas turbines,
40:47
Speaker 15: but also the renewable energy the wind turbine businesses. They
40:50
Speaker 15: said today that that is going to happen in the
40:53
Speaker 15: second quarter of twenty twenty four, which is around the
40:56
Speaker 15: sort of general timefirme that they've given before, but a
40:58
Speaker 15: little bit more specific in detail. And then once that happens,
41:03
Speaker 15: you're mostly done as far as the streamlining process. It's
41:07
Speaker 15: an aerospace and defense company with some legacy insurance liabilities
41:11
Speaker 15: that they likely will want to sort out sooner rather
41:14
Speaker 15: than later, just to really clean up the story. And
41:17
Speaker 15: then I think the conversation really shifts to do you
41:19
Speaker 15: start looking at acquisitions really, which is crazy to think
41:23
Speaker 15: about after you know, the dark days of ge and
41:26
Speaker 15: cash flow burn and all of that. But the balance
41:28
Speaker 15: sheet is in a much better place.
41:29
Speaker 1: And I'm just I was just going to point that out.
41:31
Speaker 1: You talk about the balance sheet, I'm looking for on
41:32
Speaker 1: my FA function and back in twenty nineteen they had
41:34
Speaker 1: ninety four billion of debt. That's down to like twenty
41:36
Speaker 1: three twenty four billion of debt.
41:38
Speaker 15: That's pretty good, right, because they've sold off all these
41:40
Speaker 15: businesses and so they've been able to bring in money
41:42
Speaker 15: and really ship away at that debt load, and that
41:45
Speaker 15: puts the company in position where we can't have these
41:47
Speaker 15: conversations about you know, what kinds of acquisitions might make sense.
41:51
Speaker 15: You know, GE will be once they've spun off the
41:54
Speaker 15: energy business. It will be somewhat unique in that the
41:56
Speaker 15: aerospace business will be highly focused on engines. You don't
42:01
Speaker 15: really have a comparable raytheon of course produces the GTF
42:05
Speaker 15: out of its Pratt and Whitney unit, but they have
42:07
Speaker 15: a much more robust defense business. So that raises a
42:10
Speaker 15: question of would g you want to get, you know,
42:12
Speaker 15: deeper into defense or are there other parts of aerospace
42:14
Speaker 15: that might be appealing to the company, whether that's avionics
42:17
Speaker 15: or other types of aircraft parts.
42:19
Speaker 14: This is all really impressive for Larry Culp, you'd think, right,
42:23
Speaker 14: I mean, look at like the story that he's inherited. Obviously,
42:27
Speaker 14: like there's been a bit of turnover at the top,
42:29
Speaker 14: but he's been really you know, the man of the
42:31
Speaker 14: past couple of years here at the top of the
42:34
Speaker 14: GE ladder. I mean, what kind of legacies that mean
42:36
Speaker 14: for him? And like all that he has done to
42:38
Speaker 14: turn this company around. I mean I used to cover
42:41
Speaker 14: it back when the bonds were not trading so well.
42:43
Speaker 14: I mean, this is like you were saying now, the
42:45
Speaker 14: deleveraging story has been incredible, but it's got to be
42:48
Speaker 14: like I mean, he's got to be like CEO of
42:50
Speaker 14: the century.
42:51
Speaker 15: Sure, he's certainly being paid a lot of money to
42:53
Speaker 15: do this, but he really has accomplished a lot at GE,
42:57
Speaker 15: and it's really been impressive to see. It's been a
43:01
Speaker 15: long process with some stops and starts, but to make
43:04
Speaker 15: this kind of progress on the debt load particularly gives
43:06
Speaker 15: GE a future that really just was not, you know,
43:09
Speaker 15: conceivable a few years ago. And I think that's really
43:11
Speaker 15: to Larry's credit.
43:12
Speaker 1: Yeah, and to even have the discussion, which I can't
43:14
Speaker 1: remember the last time we didn't with G about growing.
43:17
Speaker 1: I mean it's been almost twenty years. I mean, I
43:20
Speaker 1: think since Jack Welch left it's been at a The
43:24
Speaker 1: conversation has been.
43:25
Speaker 15: Folks, and well, they did some acquisitions in the in
43:28
Speaker 15: the era that didn't work out so much kind of
43:31
Speaker 15: but yes, correct.
43:32
Speaker 1: All right, brook thanks so much for joining us. Brooks Souther.
43:34
Speaker 1: Then she's a columnist for Bloomberg Opinion, covering all the
43:37
Speaker 1: industrial America, some great companies, some great industries. She covers
43:40
Speaker 1: the deal. She kind of does it. Also, we appreciate
43:41
Speaker 1: getting a few minutes of Brooks time here in our
43:43
Speaker 1: Bloomberg Interactive Broker Studio.
43:45
Speaker 7: You're listening to the tape Cat's are live program Bloomberg
43:48
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43:52
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43:55
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44:04
Speaker 1: Right now, people want to talk big, big media. We're
44:07
Speaker 1: talking music, can talk Hollywood and all that kind of stuff.
44:10
Speaker 1: There's lots to talk about, and we go to our
44:12
Speaker 1: go to analyst, Keitha Ranganathan. She is the media analyst
44:15
Speaker 1: for Bloomberg Intelligence, joining us via zoom from the headquarters
44:19
Speaker 1: of BIATDN in Princeton, New Jersey. Keitha, let's start with Spotify.
44:22
Speaker 1: Good story, some good numbers. Tell us what we got
44:25
Speaker 1: from our friends at Spotify.
44:27
Speaker 10: Yeah, excellent story. Paul at Spotify when they reported their
44:30
Speaker 10: three Q today, so they beat on almost every metric
44:33
Speaker 10: that we were looking at. User numbers came in really strong,
44:37
Speaker 10: premium subscriber momentum will continue into four Q. They said
44:41
Speaker 10: that they expect their monthly active users to reach the
44:43
Speaker 10: six hundred million mark by the end of this year.
44:46
Speaker 10: They're targeting about a billion in the next three to
44:49
Speaker 10: four years time. But I think most important for this
44:52
Speaker 10: story was really the inflection in the profitability metric. I mean,
44:55
Speaker 10: this is this is a streaming company that has plenty
44:58
Speaker 10: of subscribers. Before, for some reason, they haven't been really
45:01
Speaker 10: able to generate profits and that really kind of goes
45:05
Speaker 10: to their business model. But for the first time in
45:07
Speaker 10: two years, they actually generated a nice surprise profit, which
45:11
Speaker 10: is I think what is really driving most of that
45:13
Speaker 10: stock reaction today and.
45:14
Speaker 14: Tell us, Githa, is that profitability because Spotify was raising
45:19
Speaker 14: prices in the period or like more to the strength
45:22
Speaker 14: of the business that you're talking about.
45:25
Speaker 10: That's a great point. Yes, they did raise prices, and
45:28
Speaker 10: I think what it tells us in terms of their
45:31
Speaker 10: you know, not just their the operating income number, but
45:35
Speaker 10: the fact that they were able to gain subscribers even
45:37
Speaker 10: as they increased prices, it just tells us that they
45:38
Speaker 10: have a lot of pricing power. There's obviously a lot
45:41
Speaker 10: of stickiness for the product. But in terms of the
45:43
Speaker 10: margin story itself, they have really been looking at cost
45:47
Speaker 10: discipline very very carefully, and so they have been able
45:50
Speaker 10: to finally cut down on their marketing spend. They've been
45:53
Speaker 10: able to cut down on personnel costs, which is what
45:55
Speaker 10: drove that operating profit as well as a slight mode
46:00
Speaker 10: margin expansion.
46:01
Speaker 1: All right, Githa, you cover everything. We can go many
46:05
Speaker 1: different directions. Right now, we're going to switch gears and
46:07
Speaker 1: go to Hollywood. The actors. What's going on? They're still
46:11
Speaker 1: on strike, don't they know? They don't live in the
46:13
Speaker 1: real world. What's going on with the actors?
46:15
Speaker 10: Yeah, I mean, you know, a few days ago, actually
46:18
Speaker 10: maybe a couple of weeks ago, you know that they
46:20
Speaker 10: you know, they had been talking to the studios, but
46:21
Speaker 10: then everything kind of hit a stalemate again when they
46:24
Speaker 10: basically said that they wanted a viewership bonus. I think
46:28
Speaker 10: they said the industry basically said it would cost them
46:30
Speaker 10: something like about a billion dollars and I think that
46:33
Speaker 10: was kind of a no go. We had, you know,
46:35
Speaker 10: the Netflix CEO kind of talk about it at the
46:37
Speaker 10: Bloomberg screen Time conference, and that's where kind of things
46:40
Speaker 10: have have been left out so that it's supposed to restart,
46:44
Speaker 10: I think today, but we'll see where it goes. In
46:46
Speaker 10: the meantime, studios are really kind of facing a difficult situation.
46:50
Speaker 10: There's a lot of uncertainty in terms of the twenty
46:52
Speaker 10: twenty four content slate. We just saw that Paramount pushed
46:55
Speaker 10: out Mission Impossible eight by a whole year now to
46:58
Speaker 10: twenty twenty five. You know, we know Disney pushed out
47:01
Speaker 10: Dead Poultry. So yeah, the film slate, especially for twenty
47:04
Speaker 10: twenty four looks really really shaky.
47:06
Speaker 13: Paul.
47:07
Speaker 14: Can you tell us either what the studios and the
47:11
Speaker 14: actors want that is maybe if it's different, or how
47:15
Speaker 14: does it compare to the writer's strike that has already resolved.
47:20
Speaker 10: Yeah, so, you know, with the writer's strike, of course,
47:22
Speaker 10: a lot of it was in terms of remuneration. A
47:24
Speaker 10: lot of it was in terms of transparency in terms
47:27
Speaker 10: of viewership metrics, and I think the studios have promised
47:30
Speaker 10: to do better both in terms of paying them as
47:33
Speaker 10: far as residuals are concerned, as far as releasing you know,
47:36
Speaker 10: some of the viewership numbers, as well as some more
47:38
Speaker 10: guardrails around kind of the use of AI. I think
47:42
Speaker 10: what the with the actors, it's a little bit of
47:43
Speaker 10: a different situation though. First of all, there are four
47:46
Speaker 10: times the number of actors that there are writers, and
47:48
Speaker 10: so the whole calculus kind of changes from an economics perspective,
47:52
Speaker 10: and it's going to be pretty onerous for the studios
47:55
Speaker 10: to kind of accept all of the actors' conditions. And
47:58
Speaker 10: so that's where I think there is you know, a
48:01
Speaker 10: lot of you know, the differences of opinion kind of
48:04
Speaker 10: creeping up on top of that. I think the actors
48:06
Speaker 10: are getting I don't know if greedy is the right
48:10
Speaker 10: word to use, but they definitely want a lot more
48:12
Speaker 10: so for shows that are being viewed, probably more often
48:16
Speaker 10: they want, you know, what the studios are calling this
48:19
Speaker 10: viewership bonus kind of a payment is almost like a
48:22
Speaker 10: little bit of a tax. That's how you know, death
48:24
Speaker 10: Serrando's kind of called it. So they're not happy with that.
48:28
Speaker 10: So we'll have to see, I mean, somebody has to
48:30
Speaker 10: cave there has to be some compromise.
48:32
Speaker 1: All right, pivot yet again, Disney they're looking to kind
48:37
Speaker 1: of I don't know restructures are right word, but certainly
48:40
Speaker 1: looking at all their assets. And one of the big
48:42
Speaker 1: assets is their satellite business in India, which I think
48:46
Speaker 1: they got from the Fox acquisition. I'm not sure talk
48:49
Speaker 1: to us about what's going on there that there's a
48:51
Speaker 1: story that they may be looking to sell some or
48:53
Speaker 1: all of it.
48:54
Speaker 10: You know, you're absolutely right. So when they paid the
48:56
Speaker 10: seventy one billion dollars for a huge chunk of the
48:58
Speaker 10: Fox assets, a big part of that actually Star India
49:01
Speaker 10: and Star India is really a collection of plenty of
49:04
Speaker 10: local TV networks, about sixty TV channels and a very
49:08
Speaker 10: very robust streaming service which was called hot Star. And
49:11
Speaker 10: this was really one of the crown jewels that Disney
49:13
Speaker 10: thought they got when they kind of acquired when they
49:16
Speaker 10: made that acquisition, because Hotstar really had a lot of
49:19
Speaker 10: users on its streaming platform, over about one hundred hundred
49:23
Speaker 10: and fifty million, and so it kind of really helped
49:25
Speaker 10: them juice that Disney plus subscriber number because they were
49:27
Speaker 10: selling it as Disney plus Hotstar. And so when subscriber
49:31
Speaker 10: numbers were the main metric of success. I mean, this
49:33
Speaker 10: was this was the huge story for them. Of course,
49:36
Speaker 10: all of that changed because the main problem with hot
49:40
Speaker 10: Star was, yes, subscriber growth was good, but the revenue
49:43
Speaker 10: that a hot Star user brought in was very, very
49:47
Speaker 10: low compared to a US subscriber, but only about one
49:50
Speaker 10: tenth the revenue that a US Disney Plus subscriber would
49:52
Speaker 10: bring in, so it obviously was kind of really hurting
49:54
Speaker 10: the bottom line. There was this additional issue with you know,
49:58
Speaker 10: sports rights and you know, the rights of cricket, which
50:01
Speaker 10: is really important in a country like India, but Disney
50:04
Speaker 10: didn't want to pay up and so they started losing
50:07
Speaker 10: subscribers and eventually Disney kind of came to a point
50:10
Speaker 10: where they decided that the best thing to do in
50:12
Speaker 10: terms of, you know, the business and the overall strategy
50:16
Speaker 10: would be to kind of get rid of the whole
50:19
Speaker 10: Star India operation. And so right now they're looking to
50:21
Speaker 10: talk with one of the biggest telecom operators in India,
50:25
Speaker 10: which is Reliance. I think the sticking point right now
50:29
Speaker 10: is really the price. It ranges anywhere from about seven
50:32
Speaker 10: billion to ten billion. I think Disney wants ten billion,
50:34
Speaker 10: Reliance probably wants to pay closer to seven to eight billion,
50:37
Speaker 10: so they're looking to probably not sell the whole thing
50:39
Speaker 10: to still kind of keep some kind of steak. But
50:42
Speaker 10: definitely any progress there and any influx of cash would
50:46
Speaker 10: I think be great for Disney, which has a lot
50:48
Speaker 10: more strategic kind of decisions to make, especially with the
50:51
Speaker 10: purchase of Hulu. They still have to buy out Comcast
50:54
Speaker 10: thirty three percent stake, so that's hanging in the balance
50:57
Speaker 10: along with all the other things in terms of their
50:59
Speaker 10: linear TV network as well as ESPN.
51:01
Speaker 1: All Right, Gith, I think we kind of got through
51:03
Speaker 1: everything in which we can do with you. Keith Ranganathan.
51:06
Speaker 1: She is the media analyst for Bloomberg Intelligence breaking it
51:09
Speaker 1: all down. We've got Spotify, good numbers, Hollywood actors in
51:13
Speaker 1: the studios, still at an impasse and dizzy thinking about
51:16
Speaker 1: what to do with her assets.
51:17
Speaker 2: And thanks for listening to the Bloomberg Markets podcasts. You
51:21
Speaker 2: can subscribe and listen to interviews at Apple Podcasts or
51:25
Speaker 2: whatever podcast platform you prefer. I'm Matt Miller. I'm on
51:28
Speaker 2: Twitter at Matt Miller nineteen seventy three.
51:31
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51:34
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51:37
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