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Credit Suisse, Markets, and Industrials (Podcast) · 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. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. Credit Swiss Group. I'm
0:23
Speaker 1: looking at the share trading in Europe right now, down
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Speaker 1: sixteen per cent on the back of some news of
0:30
Speaker 1: a major restructuring, yet another major restructuring of this leading
0:34
Speaker 1: European investment bank, Quasi Global Investment Bank um Credit Swiss.
0:39
Speaker 1: They're also gonna issue four billions share sale four billion
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Speaker 1: dollars to fund the revamp, and that's obviously weighing on
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Speaker 1: the stock. Let's bring in Allison Williams. She's a senior
0:48
Speaker 1: global banks analysts for Bloomberg Intelligence. So Allison give us
0:52
Speaker 1: kind of the layout here of this latest restructuring of
0:57
Speaker 1: Credit Suis Group. So let's start with the strategic changes,
1:02
Speaker 1: which I think they are doing the right thing. They
1:05
Speaker 1: are um sort of carving out the part of their
1:09
Speaker 1: trading business that really does not align with the core
1:12
Speaker 1: wealth unit. UM. I think this is not a surprise.
1:16
Speaker 1: They're going to be selling that to Apollo and Pimco,
1:21
Speaker 1: remaining some some residual assets, but that will free up
1:24
Speaker 1: some capital that they can allocate elsewhere. Um. And then
1:28
Speaker 1: the other interesting changes bringing back the first Boston name,
1:31
Speaker 1: so a little throwback their avie you um and uh
1:36
Speaker 1: They're gonna so that that's sort of an interesting point.
1:39
Speaker 1: They're going to carve out that part of the investment
1:41
Speaker 1: bank and make it a little bit of a more
1:44
Speaker 1: of a boutique with some outside money, which is interesting.
1:48
Speaker 1: But my feeling is that the main thing that will
1:51
Speaker 1: accomplish is to provide a way to compensate the talent
1:55
Speaker 1: and retain that talent that is so important to that business,
1:58
Speaker 1: which you know Paul and and um and so you know,
2:01
Speaker 1: this boutique structure has worked with all these spinouts at
2:04
Speaker 1: Greenhill sort of began that trend a long time ago.
2:06
Speaker 1: So we'll see, UM, we'll see that and I think
2:10
Speaker 1: that UM the big surprise. So so I think those
2:13
Speaker 1: were expected. They're going to focus on wealth, that's that's expected,
2:17
Speaker 1: have some assets in a bad bank, that's that those
2:19
Speaker 1: are all sort of expected things. The quarter was weak
2:22
Speaker 1: generally as expected. The big surprise that drove the four
2:26
Speaker 1: billion dollar loss was that they took a three point
2:29
Speaker 1: seven billion UM deferred tax impairment as part of the
2:34
Speaker 1: UM overall look, and so that set their capital UM
2:38
Speaker 1: you know, back a little bit UM by fifty basis
2:41
Speaker 1: points their their capital ratio UM, which we know is
2:44
Speaker 1: is one of the important things that they need to
2:47
Speaker 1: work on going forward. The four billion dollar UM capital
2:52
Speaker 1: rays that they announced, UM, you know, it's I think
2:57
Speaker 1: the reason why the stock is week today is first
2:59
Speaker 1: of all, that it has to price, so it's always
3:01
Speaker 1: gonna be hard for a stock to UM do well
3:04
Speaker 1: ahead of that. There's some technical issues, and then there
3:07
Speaker 1: are a lot of details missing and so I think, um,
3:10
Speaker 1: you know, they're gonna be We don't know what the
3:12
Speaker 1: pricing is on the on the UM securitized product groups
3:15
Speaker 1: sale that I just told you about, So we have
3:17
Speaker 1: no idea how much money they're gonna get there. We
3:19
Speaker 1: want to know about that. What is all the profit
3:22
Speaker 1: that they're giving up with the things that they're selling. UM,
3:25
Speaker 1: they haven't you know, given the full look of what
3:28
Speaker 1: that first Boston Investment Banking car about is going to
3:31
Speaker 1: look like. So there's there's a lack of details on
3:34
Speaker 1: those things. We have. The four billion capital rais coming.
3:38
Speaker 1: I would say the four billion was sort of a
3:40
Speaker 1: consensus UM, and I would say that the restructuring charges
3:45
Speaker 1: UM also probably about in line with consensus. Well, let's
3:49
Speaker 1: talk about the capital raise, because they were trying to
3:52
Speaker 1: avoid this, right, just given how low the shares are trading,
3:57
Speaker 1: I mean, was this kind of a last ditch effort.
4:00
Speaker 1: I mean, I think that they need capital. So the
4:03
Speaker 1: two alternatives, right are a dilutive capital raising, which, as
4:08
Speaker 1: you said, UM, no one wants to do, especially with
4:11
Speaker 1: UM the steep valuation the stock at point three times
4:15
Speaker 1: UM price to book, so that was something they would
4:19
Speaker 1: want to avoid. But I do think that, you know,
4:21
Speaker 1: given the situation that they're in and where we are today,
4:25
Speaker 1: the most important thing for them is to one set
4:28
Speaker 1: the clear path forward, which I think they've done, and
4:31
Speaker 1: and be aggressive enough in terms of what that strategy is,
4:34
Speaker 1: and to raise enough capital so that they don't have
4:37
Speaker 1: to come back UM. So they do need to fund
4:41
Speaker 1: these stuffs going forward. They could either do it through
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Speaker 1: assets sales, or they could do through the dilutive um
4:46
Speaker 1: capital raising. You know, it's it's not neither were good.
4:50
Speaker 1: Neither were or are good choices because the valuations of
4:53
Speaker 1: things that they're selling are so low. Um So so
4:56
Speaker 1: either way I think is a tough choice. But you know,
4:59
Speaker 1: the but raising enough so that they don't have to
5:02
Speaker 1: come back, because keep in mind that we think that
5:04
Speaker 1: markets are going to be uncertain from here. For structuring
5:07
Speaker 1: never goes into a straight line. Um, you know, you're
5:11
Speaker 1: not gonna want to have to have that overhang, which
5:14
Speaker 1: in a way, um you know, just becomes a vicious
5:18
Speaker 1: loop with the stock. So just real quickly, but I
5:20
Speaker 1: got about a forty five seconds left. So is the
5:22
Speaker 1: remaining credit Swiss just basically a European private wealth manager?
5:26
Speaker 1: Is that it? I mean, if you step back and
5:29
Speaker 1: look at the change in their revenue mixed, which is
5:32
Speaker 1: what they're projecting, trading is going to go from to
5:38
Speaker 1: so it's still there and you know the CSFB name,
5:42
Speaker 1: that's still going to be likeent of revenue, so it's
5:46
Speaker 1: not totally turning away. They're taking a chunk of trading
5:49
Speaker 1: that really doesn't have to do with much of a
5:51
Speaker 1: business and sort of sort of that of revenue will
5:55
Speaker 1: shift towards um wealth. But so it's the capital, you know,
6:01
Speaker 1: the capital and the returns because are what's important, because
6:05
Speaker 1: even though the revenue is shrinking, the capital allocated to
6:09
Speaker 1: that um was intense and that sort of is lower return.
6:13
Speaker 1: The stocks are valued based on what profitability you can
6:16
Speaker 1: give me or give the investor, and so I think
6:19
Speaker 1: that's that's the shift. So some shift, but not totally
6:22
Speaker 1: going away. All right, good stuff as always, and I
6:25
Speaker 1: I will note that Michael Klein, one of the top
6:28
Speaker 1: bankers on Wall Street and a board member of Credit Swiss,
6:31
Speaker 1: is going to become the CEO of this new c
6:33
Speaker 1: S First Boston. So I'm going to keep an eye
6:36
Speaker 1: on that boutique investment bank for sure. Alison Williams, Senior
6:39
Speaker 1: Global Banks analyst for Bloomberg Intelligence, giving us the breakdown
6:43
Speaker 1: kind of yet another restructuring of one of Switzerland's leading banks,
6:48
Speaker 1: one of Europe's leading banks. Tough tough times, trying to
6:51
Speaker 1: restructure and make it to the other side. When we
6:57
Speaker 1: started off this morning with uh the ECB raising their
7:02
Speaker 1: benchmark rate by seventy five basis points, we also got
7:04
Speaker 1: a lot of economic data out today, led by the
7:07
Speaker 1: GDP number came in a little bit better and expected
7:09
Speaker 1: plus two points six percent. Remember was minus zero point
7:13
Speaker 1: six percent last quarter, So kind of brings us back
7:15
Speaker 1: to the same discussion. What's the Federal Reserve gonna do
7:18
Speaker 1: as it looks at all these ECO data points. Let's
7:20
Speaker 1: check in with Matt Stucky. He's a senior portfolio manager
7:23
Speaker 1: at Northwestern Mutual. Matt, you know, we obviously the ECB.
7:27
Speaker 1: What we heard from Madame Legard this morning, what we
7:30
Speaker 1: have been hearing from Federal Reserve officials leading FED Chairman
7:34
Speaker 1: j pal is the focus is on inflation. What is
7:38
Speaker 1: your inflation called Northwestern Mutual? And then how does that
7:41
Speaker 1: kind of drive where you think this Federal Reserve will
7:44
Speaker 1: go from here? Well, good morning. Uh, you know, first
7:47
Speaker 1: and foremost we are are called Northwestern Mesia was that
7:50
Speaker 1: inflation is set to roll over here as we entered
7:52
Speaker 1: into three. However, we do think that, um, you know,
7:56
Speaker 1: you're not really going to see in the official CPI
7:58
Speaker 1: numbers until we turn over into the next year because
8:02
Speaker 1: of the lagged effects of housing. Housing enters into CPIS.
8:06
Speaker 1: We all know with the twelve to eighteen month leg
8:08
Speaker 1: and so right now we're just dealing with you know,
8:11
Speaker 1: the housing market that we had, and that's light years
8:14
Speaker 1: different than the current environment. So it's going to take
8:17
Speaker 1: time for this, this inflation number two to roll over.
8:21
Speaker 1: But you know, the end destination in our our minds
8:24
Speaker 1: is very different than the stick inflation argument that that's
8:28
Speaker 1: still out there today. And obviously we're in the heart
8:32
Speaker 1: of earning season, and when we think about what the
8:34
Speaker 1: FED is trying to accomplish in trying to get a
8:38
Speaker 1: grip on inflation, trying to bring demand down. When you
8:41
Speaker 1: are passing through some of the earnings reports that we're getting,
8:45
Speaker 1: what do you think would be better from the Fed's perspective.
8:48
Speaker 1: Would it be better if companies were just trailing estimates
8:52
Speaker 1: missing everything, or if companies were still beating by a
8:57
Speaker 1: mile right now like they were you know maybe here
9:00
Speaker 1: or two years ago. Well, the FED definitely wants to
9:04
Speaker 1: bring in flight inflation lower, and they want to do
9:06
Speaker 1: so without, uh, without you know, really putting a lot
9:11
Speaker 1: of people out of work. But you know, I think
9:13
Speaker 1: at a high level of profits and employment are are correlated, uh,
9:17
Speaker 1: and so higher inflation, weaker aggregate demand from consumers. As
9:21
Speaker 1: results of all of this um monetary policy tightening is
9:24
Speaker 1: inevitably going to lead to lower profits UM. And so
9:28
Speaker 1: you know, you look on the other side of this,
9:30
Speaker 1: you have to expect um employment to suffer as we
9:34
Speaker 1: move into and we're starting to see that show up
9:36
Speaker 1: in the survey data. You just look at the conference
9:39
Speaker 1: board information that we got last week. The labor differential
9:42
Speaker 1: you know, starting to migrate back um, away from the
9:46
Speaker 1: strength that we saw you know, the last twelve months.
9:49
Speaker 1: And you know, the spread between how how how people
9:53
Speaker 1: are asking are answering the question of our jobs easy
9:56
Speaker 1: or versus hard to get right now is starting to
9:58
Speaker 1: correlate towards an increase in the employment rate. And so
10:01
Speaker 1: I think that's what the Fed wants to see. They
10:03
Speaker 1: want to see, um, some labor market slack re enter
10:07
Speaker 1: into into the economy and UM, you know, we'll we'll
10:11
Speaker 1: likely see that UM in the coming quarters. We've had
10:15
Speaker 1: almost half of the SMP five companies report earnings. UM.
10:20
Speaker 1: You know, so we had some tech disappointment, but some
10:22
Speaker 1: other parts of the market is showing some decent numbers
10:25
Speaker 1: relative expectations. You get any takeaways here at this point, yeah, Um,
10:30
Speaker 1: you know, I think a broad takeaway is that certain
10:32
Speaker 1: parts of the economy, you know, this is going to
10:34
Speaker 1: feel like a pre severe recession, and in other parts
10:37
Speaker 1: of the economy, this is gonna be almost as if,
10:40
Speaker 1: you know, we don't really feel much of the recession
10:42
Speaker 1: at all. We're still rebalancing consumer spending back towards the
10:46
Speaker 1: historical mix of services to goods. Um. You know, we
10:50
Speaker 1: were in a very very strong good spending environment and
10:52
Speaker 1: stay at home um um uh uh spending profile that
10:57
Speaker 1: really promoted good spending. I mean, good spending jump thirtiesome
11:00
Speaker 1: percentage points year on year, and you know, we're normalizing
11:04
Speaker 1: down down to historical averages, and so for those companies
11:07
Speaker 1: that operate in that area is going to feel pretty
11:08
Speaker 1: pretty painful. On the other hand, on the service to side,
11:11
Speaker 1: you know, demand still remains pretty good, and you know,
11:14
Speaker 1: we would we would expect that to be pretty resilient.
11:17
Speaker 1: And if you look back through historical recessions and we
11:19
Speaker 1: do think we're gonna have some sort of a version
11:21
Speaker 1: of MODELD recessions, services demand has to hang in there
11:24
Speaker 1: pretty well. It's it's the good side of things that
11:26
Speaker 1: you know, it really takes the brunt of brunt of
11:28
Speaker 1: the weakness and So, Matt, when you survey the cross
11:32
Speaker 1: asset landscape right now, where do you see the most opportunity? Yeah.
11:37
Speaker 1: For the for the last couple of years, we've been
11:39
Speaker 1: tilting our our client's portfolios towards cheaper parts of the market,
11:43
Speaker 1: areas that can't absorb some weakness in terms of earning
11:48
Speaker 1: revisions to the to the downside. UM, and we see
11:51
Speaker 1: no reason to change that view. UM. You know, I
11:54
Speaker 1: think if you just look at a sector neutral kind
11:57
Speaker 1: of value tilt in the large up space, you're only
12:00
Speaker 1: paying eight and a half nine times forward earnings for
12:04
Speaker 1: portfolio that's constructed in that manner. And so that's a
12:07
Speaker 1: lot of cushion against UM an environment that we see,
12:10
Speaker 1: following Ernie's expectations as the lagged effects of tiny monetary policy,
12:15
Speaker 1: higher inflation starts to impact aggregate demand. Uh. And so
12:18
Speaker 1: that's how we've positioned our portfolio the last couple of years,
12:21
Speaker 1: and we just don't see a reason to change at
12:22
Speaker 1: this point. All right, Matt, good stuff. Really appreciate getting
12:25
Speaker 1: your time. Matt Stucky. He's a senior portfolio manager of
12:28
Speaker 1: Northwestern Mutual based in Milwaukee. And I've said it once.
12:32
Speaker 1: Let's say it again. There are some smart money managers
12:34
Speaker 1: in Milwaukee. Wouldn't think of it, but it is a
12:37
Speaker 1: go to stop for an intrepid cell side analyst. Look
12:41
Speaker 1: at me for some I I votes, um so, I
12:43
Speaker 1: spent a lot of time in Milwaukee back in the day.
12:48
Speaker 1: This could be the interesting discussion most interests the discussion
12:51
Speaker 1: of the morning. Uh Asotash potty managing partner. He runs
12:55
Speaker 1: North America for mckensey, which I think is some little
12:57
Speaker 1: consulting firm or something. Yeah, anyhow, attaches in our Bloomberg
13:02
Speaker 1: Interactive Broker studio. Asotas, thanks so much for joining us here. Um,
13:06
Speaker 1: you've got a new book out. We'll get to your
13:08
Speaker 1: practice and what McKinsey's doing and all that kind of stuff.
13:11
Speaker 1: The titanium economy, I've not heard that term before. What
13:15
Speaker 1: is the titanium economy, Paul, It's great to be here.
13:19
Speaker 1: The titanium economies all around us. It actually constitutes a
13:24
Speaker 1: portion of the manufacturing. We call this industrial technology. These
13:28
Speaker 1: companies are durable, they're resistant. You don't actually see them,
13:32
Speaker 1: which is why we coined the phrase the titanium economy.
13:36
Speaker 1: And these companies are six thousand of them. They've been
13:39
Speaker 1: around for the last years, yet they often don't get
13:44
Speaker 1: talked about. These are not the companies with the business
13:47
Speaker 1: to consumer brands. They don't buy the Super Bowl ads.
13:49
Speaker 1: They often the CEOs often don't make it to the
13:53
Speaker 1: front page of the newspaper. Yet when we spend time,
13:56
Speaker 1: what we found is that these companies, these companies are profitable,
14:01
Speaker 1: they've been around for decades. Only are actually public and
14:05
Speaker 1: the vast majority are private. And the thing that struck
14:09
Speaker 1: us was this not just past, this could be the
14:11
Speaker 1: future of the American economy and hence hence the reason
14:14
Speaker 1: we put a focus on it. So names some names here,
14:17
Speaker 1: what is the quintessential Titanium Economy Company? So, Katie, we
14:22
Speaker 1: could have written this as saying, there are these are
14:24
Speaker 1: the fifty companies you didn't know about, an hundred fifty
14:28
Speaker 1: places you never visited. And let me take a couple
14:31
Speaker 1: of examples. One is an example of a company called
14:35
Speaker 1: Brady Corporation. Excuse me. They're based in Milwaukee, and they've
14:45
Speaker 1: been around since nineteen fourteen, and they initially came up
14:48
Speaker 1: with technology that was used during the military during World
14:51
Speaker 1: War Two. So when you were in extreme temperatures and
14:53
Speaker 1: you needed to separate electrical wires to provide safety. Today
14:57
Speaker 1: that same companies around and what they do is they
14:59
Speaker 1: provide technology that is used for identification of babies, the
15:04
Speaker 1: baby bracelets in hospitals. Right, that's one example of a company.
15:09
Speaker 1: Another example of a company, if that go down south,
15:11
Speaker 1: is Corbo, which is based in Raleigh. When we are
15:15
Speaker 1: able to text and speak on the phones at the
15:18
Speaker 1: same time, it's because of the company called Corbo, and
15:21
Speaker 1: they make the components that actually use that allow us
15:25
Speaker 1: to be able to text and speak on the phone
15:28
Speaker 1: at the same time. Right. So these are just two
15:30
Speaker 1: examples of like things that we have come across in
15:33
Speaker 1: our day to day lives. And that's why we said
15:35
Speaker 1: these companies are all around us. I mean we use
15:36
Speaker 1: the products on a continuous basis every single day, yet
15:40
Speaker 1: we never actually see them. Why aren't more of these companies,
15:45
Speaker 1: you know, public? Why where how do they capitalize on
15:48
Speaker 1: themselves that they don't go to the public markets? So
15:52
Speaker 1: many of these poul I get that question a lot.
15:54
Speaker 1: Many of these companies have been around for decades. These
15:59
Speaker 1: are companies that are parade. They have a degree of specialization.
16:02
Speaker 1: We call these micro verticals. So these six thousand companies,
16:05
Speaker 1: they operate in roughly ninety or so different micro verticals.
16:08
Speaker 1: They have come up with a playbook that actually allows
16:11
Speaker 1: them to be able to drive a consistent level of
16:13
Speaker 1: revenue growth and a consistent level of a strong economic performance.
16:19
Speaker 1: We look at return on invested capital, and they have
16:21
Speaker 1: solid return and invested capital and they've been doing that
16:24
Speaker 1: for decades. These companies have been in the mode of consistent,
16:28
Speaker 1: steady operating performance, and as a result, often the change
16:32
Speaker 1: in ownership is driven by is driven much more by
16:37
Speaker 1: and by by the transition of a founder, et cetera.
16:41
Speaker 1: The strange thing that we found back to capitalists, they
16:43
Speaker 1: only get less than one percent of today's venture capital
16:46
Speaker 1: funding actually goes into the titanium economy. And since we
16:50
Speaker 1: published this book, interestingly, we've had reach outs from a
16:52
Speaker 1: couple of venture capitalists who are actually interested in finding
16:55
Speaker 1: out more. I like this conversation because it feels somewhat
17:00
Speaker 1: more hopeful than the conversations we typically have around US manufacturing,
17:04
Speaker 1: for example, and the decline of that industry. But to
17:08
Speaker 1: your point, this is thriving. It's just undercovered, under talked about.
17:13
Speaker 1: That's exactly right, and this is you know, the thing
17:15
Speaker 1: that struck us was jobs in the titanium economy. Companies
17:20
Speaker 1: um you know, typically are about sixty tho not of
17:23
Speaker 1: sixty tho dollars a year, which is two x what
17:26
Speaker 1: it is in the services sector, right and often. The
17:30
Speaker 1: thing that we also found is that these companies don't
17:33
Speaker 1: actually have any difficulty in retaining talent, but they have
17:37
Speaker 1: a real challenge and attracting talent because no one actually
17:41
Speaker 1: knows about them. So last year, when we looked across
17:43
Speaker 1: the economy, there was not of a million jobs that
17:46
Speaker 1: went unfulfilled, which from the standpoint if you quantify the
17:49
Speaker 1: economic impact of that, from the standpoint of the GDP
17:52
Speaker 1: of the of the United States, that's actually massive. So,
17:57
Speaker 1: as a head of kids in North America, you and
17:59
Speaker 1: you're anti teams. You talked to pretty much everybody here,
18:02
Speaker 1: and at the beginning of the pandemic, you know, when
18:05
Speaker 1: the supply chain really seized up, a lot of companies,
18:09
Speaker 1: a lot of industries, a lot of politicians said we
18:11
Speaker 1: need to reshore some of this stuff, like semicituctor manufacturing.
18:15
Speaker 1: When you talk to your clients, is that really going
18:19
Speaker 1: to happen or was that just rhetoric at the beginning
18:21
Speaker 1: of the pandemic. Do you think because face I mean,
18:24
Speaker 1: you know as well as anybody this is a global
18:26
Speaker 1: economy and what's happened over the last three or four
18:29
Speaker 1: generations is that going to be reversed at all? So well, Uh,
18:34
Speaker 1: If I go back with the thing that the pandemic
18:36
Speaker 1: did is I think historically companies had been focused on
18:40
Speaker 1: purely efficiency, which is the lowest cost. The thing the
18:43
Speaker 1: pandemic did was it introduced a new term called resilience.
18:47
Speaker 1: And resilience means many different things, but you can actually
18:49
Speaker 1: quantify and say if you have a shock in the
18:52
Speaker 1: in the supply chain, a shock could be because of logistics,
18:55
Speaker 1: it could be because of you know a Tier two
18:58
Speaker 1: or Tier three suppliers that you know that that that
19:01
Speaker 1: it actually has a big financial impact on the business.
19:03
Speaker 1: And we quantified that to the McKenzie Global Institute and
19:07
Speaker 1: we said for many different companies it could be up
19:10
Speaker 1: to thirty to fifty of annual earnings over a five
19:13
Speaker 1: to ten year period. The interesting thing was they had
19:16
Speaker 1: been facing that level of impact over the past ten years,
19:19
Speaker 1: except COVID put a microscope and a focus on it,
19:22
Speaker 1: so as we look at it now. Every company is
19:24
Speaker 1: therefore starting to rethink and say what does supply chain
19:27
Speaker 1: resilience actually mean for them? And it might imply very
19:30
Speaker 1: different answers for very different institutions. But the question is
19:33
Speaker 1: very much on the table with CEOs and with boards.
19:37
Speaker 1: And we only have about a minute left with you.
19:38
Speaker 1: But I am curious what inspired you to write this book?
19:41
Speaker 1: What led you to sitting down and saying, I gotta
19:44
Speaker 1: write a book about this. So I started with McKenzie
19:47
Speaker 1: twenty seven years ago. And then when I when I
19:50
Speaker 1: came to the United States the first time, I spent
19:53
Speaker 1: a portion of my life in Cleveland, where serving industrial companies.
19:56
Speaker 1: Then I went to the Silicon Valley, where serving technology company.
20:00
Speaker 1: I noticed that both were driving innovation. But yet when
20:03
Speaker 1: we talk about innovation, we only talk about innovation on
20:07
Speaker 1: the tech on the West Coast, and we missed this
20:10
Speaker 1: other critical aspect of the of the innovation which should
20:13
Speaker 1: really be a bedrock of the American economy. Absolutely, some
20:16
Speaker 1: good stuff, really fascinating Asotas party. Uh, managing partner for
20:20
Speaker 1: McKinsey of North America. UH, there's some pretty smart people,
20:24
Speaker 1: you know, come in contact a lot of McKinsey folks. Uh. Apparently,
20:30
Speaker 1: apparently they charge a lot and it ain't free. These
20:33
Speaker 1: guys give you in terms of advice asotas. Thanks so
20:35
Speaker 1: much for joining us. We appreciate it. His book is
20:37
Speaker 1: The Titanium Economy. Sounds pretty interesting out there. And Nashta
20:45
Speaker 1: down seven tents percent, seven tents of one percent on
20:48
Speaker 1: some of those week tech earnings. Um, and it's it
20:51
Speaker 1: hasn't been across the board, but there's been a lot
20:53
Speaker 1: of headwinds that have become really apparent for investors in
20:55
Speaker 1: his technology space, painfully apparent, and one of them is
20:59
Speaker 1: digital average zing. But let's bring on and round table
21:01
Speaker 1: this thing a little bit. We'll bring on Man Deep
21:04
Speaker 1: singh Uh. He's in our Bloomberg Interactive Broker studio, a
21:06
Speaker 1: rock Rona. He's on the phone. They are both senior
21:09
Speaker 1: technology analysts for Bloomberg Intelligence. They covered the entire tech space.
21:14
Speaker 1: They've been doing it for decades, and we need to
21:16
Speaker 1: break it down. Uh, Man Deep, Let's start with you
21:19
Speaker 1: and Facebook. Um, this is my takeaway from the Facebook call,
21:23
Speaker 1: which I did listen to last night. We have slowing
21:28
Speaker 1: revenue growth for a variety of reasons. We're gonna continue
21:33
Speaker 1: to ramp up our spending on a business meta that
21:36
Speaker 1: none of you really understand or support. That's a tough
21:39
Speaker 1: message for stock and I'm like, how can that stock
21:42
Speaker 1: work with that type of message? And stocks down today?
21:46
Speaker 1: What's your takeaway here about the Facebook story going forward? Yeah, Look,
21:51
Speaker 1: I think the print wasn't bad. So if you look
21:53
Speaker 1: at the impressions growth SEV growth, given you know, all
21:57
Speaker 1: the product changes they're making to compete with TikTok, it
22:01
Speaker 1: was in line, in fact better than expectations. The problem
22:04
Speaker 1: was the guide, and that too. They seem to have
22:07
Speaker 1: reined in the expenses for this year's In fact, they
22:10
Speaker 1: started off the year with llion opex guide. They brought
22:13
Speaker 1: it down to eighty seven, but for next year they're
22:17
Speaker 1: saying it will be one billion, when the top line
22:22
Speaker 1: has flowing to two percent growth. So and then on
22:25
Speaker 1: the capex side, they kept talking about how they need
22:28
Speaker 1: to invest more in data centers to catch up to TikTok.
22:31
Speaker 1: So it wasn't a good message in terms of just
22:35
Speaker 1: you know, cost discipline that a company like Facebook needs
22:37
Speaker 1: to show at this point. And you made a great
22:39
Speaker 1: point to me just a minute ago, how can I
22:43
Speaker 1: kind of get away with doing this. And the answer
22:45
Speaker 1: is the super voting rights that Mr. Zuckerberg has. And
22:49
Speaker 1: look for a company of this size which was almost
22:52
Speaker 1: a trillion dollars in market cap and now it's down
22:55
Speaker 1: se lost seventy percent off its values. If fields irresponsible
23:01
Speaker 1: and to an extent, they brought it down to themselves,
23:04
Speaker 1: you know, in terms of doing it in this fashion.
23:07
Speaker 1: All right, it's not a bad guy to be. Mark
23:09
Speaker 1: Zuckerberg have all encompassing power. But today yeah, that's true,
23:15
Speaker 1: that's true. We still is more than me. But in
23:16
Speaker 1: any case, on a rug wrapped this into what we're
23:19
Speaker 1: expecting this afternoon. We have Apple, we have Amazon. Obviously
23:23
Speaker 1: very different businesses from the likes of Meta. But I mean,
23:27
Speaker 1: if we think about all of the numbers that we
23:30
Speaker 1: got from Microsoft Alphabet, the mood music is pretty grim
23:34
Speaker 1: at this point. Our Apple and Amazon gonna move the
23:37
Speaker 1: needle at all, and if it's going to be very interesting,
23:41
Speaker 1: and I think one would say logically both of them
23:44
Speaker 1: should show some weakness, you know, from the Apple side
23:47
Speaker 1: of faith, we should see you know, good demand in
23:50
Speaker 1: the US offset by the good demand in Europe and China.
23:54
Speaker 1: Um and for Amazon. You know, we are expecting the
23:57
Speaker 1: cloud business book slowdown as well. That is some learned
24:00
Speaker 1: to uh you know what we saw in Microsoft not
24:03
Speaker 1: so much in this quarter, but they have guidance for
24:05
Speaker 1: next quarter which should temper some expectations. But the big
24:09
Speaker 1: question in both cases will be how much of that
24:12
Speaker 1: is already priced in the stock declining over the past
24:15
Speaker 1: several months. I think it's going to be a very
24:17
Speaker 1: interesting earnings tonight. So I guess on the Apple story here,
24:24
Speaker 1: what do you think their message really needs to be here? Um?
24:28
Speaker 1: Is it still focus on new and cool products or hey, folks,
24:32
Speaker 1: take your to take your focus away from that and
24:36
Speaker 1: focus on the services business. What do you think they're
24:38
Speaker 1: the message they need to get across tonight? Is I
24:41
Speaker 1: think the message is going to be focused on the
24:43
Speaker 1: complete ecosystem, not so much honeing just on the iPhone
24:46
Speaker 1: numbers all the time. But look at what they have
24:48
Speaker 1: done in terms of you know, the clients adopting far
24:51
Speaker 1: more products, everything from Max to air pods. And then
24:55
Speaker 1: the services business where they are investing aggressively because you know,
24:59
Speaker 1: frankly speak, services business does something more than just add revenue.
25:03
Speaker 1: It adds a really high margin profit to uh Apple's
25:08
Speaker 1: bottom line. Services business have gross margins of about compared
25:12
Speaker 1: to products, which is only in the fogies. So as
25:15
Speaker 1: they grew up the services business, I think it is
25:17
Speaker 1: going to be beneficial to Apple in the long run.
25:20
Speaker 1: Can I in check some ANTEC data? And here my
25:24
Speaker 1: husband bought an iPhone for the first time this week,
25:27
Speaker 1: which is fascinating. Here he's always been an introducer, but
25:31
Speaker 1: he bought his very first iPhone. I told one of
25:33
Speaker 1: our family friends that her husband also bought his first
25:37
Speaker 1: iPhone in the past few months. So I don't think
25:39
Speaker 1: there's any there's still the total addressable market has not
25:44
Speaker 1: been completely tapped yet. But I mean, deep, I want
25:47
Speaker 1: to go back to Meta because you were saying it
25:49
Speaker 1: wasn't that bad. Maybe you look at the share price today,
25:54
Speaker 1: twenty three percent down in Meta shares. Is this an overreaction?
25:59
Speaker 1: It certainly is. And from a valuation perspective, look if
26:03
Speaker 1: they've walked back their comments or the guidance around you know,
26:06
Speaker 1: the opics and capex they gave three that would add
26:10
Speaker 1: about you know, ten billion dollars in free cash flow
26:13
Speaker 1: that the company could generate more, and that certainly would
26:16
Speaker 1: drive a rerating of the stock. But the question is
26:19
Speaker 1: how quickly do they do it? And you know, again
26:22
Speaker 1: it comes back to voting rights. Right now, it's just
26:24
Speaker 1: one person who's making all the decisions. There is the
26:27
Speaker 1: bloom off the rose for the digital advertising play writ large,
26:32
Speaker 1: I jump off the bandwagon, No, I think. Look, digital
26:35
Speaker 1: ad has always been a cyclical market and that's not changing. Yes,
26:41
Speaker 1: it's gonna grow, you know, about two times GDP and
26:45
Speaker 1: if the GDP slowing down, that's going to impact you know,
26:48
Speaker 1: inflation is somewhat a headwind for all the digital ad vendors.
26:53
Speaker 1: And we will come out of this. I mean, I
26:55
Speaker 1: have no doubt that search and YouTube will grow, you know,
26:59
Speaker 1: much faster than they're growing now. Question for Meta is
27:02
Speaker 1: can they keep the engagement because once you lose your
27:05
Speaker 1: critical users and and they seem to have migrated to
27:08
Speaker 1: apps like Snapchat roadblocks, I mean the young demographic TikTok.
27:13
Speaker 1: I think that is the one that is worrying me
27:15
Speaker 1: the most, and that's why Meta is making this huge
27:17
Speaker 1: pivot and real quick on a rug is the tech
27:22
Speaker 1: spend call macro calls that's still in place. Yes, I
27:27
Speaker 1: mean one of the things if you see, Paul, if
27:29
Speaker 1: you look at the results from service now, they were
27:32
Speaker 1: pretty spectacular. They were unbelievably strong. So if you look
27:35
Speaker 1: at it, most software names are up today. So from
27:38
Speaker 1: our side, you know, we still think software is the
27:40
Speaker 1: place to be in terms of you know, spending for
27:43
Speaker 1: enterprises because it generates the hardest part of y. The
27:46
Speaker 1: other areas such as hardware is are the one that
27:48
Speaker 1: is getting impacted the most. Alright, good stuff, you guys,
27:52
Speaker 1: really appreciate you putting into perspective. We've got some more
27:54
Speaker 1: names after the close Apple, Amazon, but so far it's
27:56
Speaker 1: been a little bit underwhelming from the world of big tech.
27:59
Speaker 1: But love getting some perspective on a Rock Rana senior
28:02
Speaker 1: software analyst for Bloomberg Intelligence and Men Deep Seeing senior
28:05
Speaker 1: tech analyst with Bloomberg Intelligence joining us, just giving us
28:08
Speaker 1: kind of some perspective here. There's a lot of names here,
28:10
Speaker 1: like Meta that's really really taking it on the chin
28:13
Speaker 1: off here. Market trying to digest a lot of earnings here.
28:21
Speaker 1: We had the ECB raising rates as well earlier this morning.
28:24
Speaker 1: Question then we'll be um, you know, what will the
28:27
Speaker 1: Federal Reserve do next week? And I think we're probably
28:29
Speaker 1: going to cover that, don't you think, Katie, Yeah, it's
28:31
Speaker 1: you know the topic of conversation. All right, let's talk
28:35
Speaker 1: about these markets here we can do with a good friend.
28:37
Speaker 1: Katarina Siminetti's senior vice president at Morgan Stanley Private Wealth Management. Katarina,
28:42
Speaker 1: there's a lot of talk in the marketplace about whether
28:46
Speaker 1: this market is setting in a bottom and I don't
28:49
Speaker 1: even know how to measure it, determine it, you know,
28:53
Speaker 1: how do you think about it? Are you getting phone
28:55
Speaker 1: calls like that from your clients like, hey, Katarina, is
28:57
Speaker 1: this the bottom? Do we needed to be putting fresh
28:59
Speaker 1: capital to work here? Well, Paul and Katie, thank you
29:02
Speaker 1: for having me on. And absolutely, you know, this is
29:06
Speaker 1: exactly the type of types of calls that we're getting
29:10
Speaker 1: because you know, investors are seeing that they if we
29:13
Speaker 1: haven't hit the bottom and the bear market yet, then
29:16
Speaker 1: maybe the end is near. And the question is, you know,
29:19
Speaker 1: they should we increase our equity exposure? And it's naturally
29:23
Speaker 1: to be wondering this, you know, are we done? And
29:25
Speaker 1: it's a really hard coal because in our review, even
29:29
Speaker 1: though the rallies like this are you know, much needed,
29:32
Speaker 1: they provide this relief that we're so craving important. We
29:34
Speaker 1: want to be optimistic, and we have to look into
29:38
Speaker 1: the long run. You know, we think that the market
29:40
Speaker 1: already priced in the FED action, but we still have
29:43
Speaker 1: earnings revisions from the table, and until we're done with those,
29:47
Speaker 1: which might take a quarter or even two, the volatility
29:50
Speaker 1: is going to remain high. So average into the market
29:53
Speaker 1: is definitely the way to go here in the long run.
29:56
Speaker 1: It is absolutely important to be invested in stay the course,
30:00
Speaker 1: and very soon we're going to be ready to recommend
30:02
Speaker 1: more aggressive place like cyclical exposure, like consumer discretionary services, manufacturing.
30:08
Speaker 1: But for now, our coal remains staple state, defensive state
30:11
Speaker 1: the course, you know, stick with healthcare, energy, consumer staples.
30:15
Speaker 1: You know, there are preferred defensive sectors because they offer
30:19
Speaker 1: you attractive yields and price stability, operational efficiency, things that
30:23
Speaker 1: we need to hold on to the order to, you know,
30:26
Speaker 1: to sustain integrity of the portfolio within this volatility. And
30:30
Speaker 1: Katarina from your chair, what is the bigger factor? And
30:33
Speaker 1: you're thinking right now when you're putting together a portfolio,
30:36
Speaker 1: is it earnings or is it the FED? And I
30:39
Speaker 1: realized the two obviously bleed into each other. Katie, I
30:43
Speaker 1: think that we we had a lot of talk about
30:45
Speaker 1: the FED, and in our view, you know, we kind
30:48
Speaker 1: of know what to expect. You know, FED is going
30:51
Speaker 1: to be a rising rates until it's time to pivot.
30:53
Speaker 1: Eventually they're going to pivot. The end is inside, you know.
30:56
Speaker 1: So I think that then we're looking at the FED action,
30:59
Speaker 1: there's not much, you know, to be surprised about. But
31:02
Speaker 1: earnings revisions are on the table and the rates have
31:06
Speaker 1: been priced in, but the earnings risk still remains high,
31:10
Speaker 1: and in our view, that's what is going to bring
31:12
Speaker 1: another leg down. Well, we really want to be optimistic,
31:15
Speaker 1: and we should hold on to this optimism because in
31:17
Speaker 1: the long run, this is exactly what we need. This
31:20
Speaker 1: bear market, in our view, is not over and we
31:23
Speaker 1: need to see this earning revision cycle completed. That will
31:27
Speaker 1: be the pivoting pivoting point for the economy to move
31:30
Speaker 1: into the next bull market. And it is absolutely coming.
31:33
Speaker 1: We're probably in into this bear market, you know. We're
31:37
Speaker 1: kind of looking that perhaps towards the second half of
31:40
Speaker 1: the next year, FED might start cutting rates and we
31:43
Speaker 1: will see the acceleration of the global economy. But we're
31:46
Speaker 1: not there yet. Before we get there, we need to
31:48
Speaker 1: get through this final stage of the bear market that
31:52
Speaker 1: might be difficult for investors. So psychologically, we need to
31:54
Speaker 1: prepare ourselves to stay the course, stay defensive, stay put,
31:58
Speaker 1: but also trade into the volatility and position portfolios for
32:02
Speaker 1: the recovery that is definitely coming. Katarina, how about them?
32:07
Speaker 1: I look at it to your treasury boy, it's four
32:09
Speaker 1: point three percent right now, I can actually get some
32:12
Speaker 1: return on my cash. Are you do you have clients
32:15
Speaker 1: calling you up saying, hey, can I buy a CD
32:17
Speaker 1: or something like that. Well, Paul, that's a nice change
32:20
Speaker 1: from the beginning of the year. You know. The the
32:22
Speaker 1: difficult part about you know, starting this year was the
32:26
Speaker 1: fact that bonds were down on stocks were down at
32:28
Speaker 1: the same time. There was basically no place to hide.
32:31
Speaker 1: And right now we're seeing that, you know, finally we
32:34
Speaker 1: can get attractive yields in treasuries, you know, c d s,
32:37
Speaker 1: even money market rates are coming up. But where we
32:40
Speaker 1: see the rates being the most attractive are short term,
32:43
Speaker 1: high quality corporate bonds. You know, really, you know, there
32:46
Speaker 1: are options for investors finally, you know, so forth the
32:50
Speaker 1: individuals who are not looking to increase the direquity exposure
32:52
Speaker 1: that are concerned they don't necessarily want to be in
32:55
Speaker 1: the market right now because they're worried about all the
32:57
Speaker 1: risks that we're still facing. You know, that are attractive
33:00
Speaker 1: yields that you know we're finally can get you on
33:03
Speaker 1: the fixt income side. And Katerina, I want to go
33:06
Speaker 1: back to the idea of a FED pivot because markets
33:09
Speaker 1: have been trying to time this trade for about six
33:12
Speaker 1: months now. Hasn't worked yet. But we talk about economic
33:17
Speaker 1: data often in trying to suss out whether we're starting
33:20
Speaker 1: to see the real economic impacts of tightening financial conditions.
33:24
Speaker 1: But when you look at the earnings releases that we've
33:26
Speaker 1: gotten over the past couple of weeks, are you starting
33:29
Speaker 1: to see evidence that uh conditions are tighter in some
33:33
Speaker 1: of those numbers. Well, you know, we certainly wouldn't want
33:37
Speaker 1: to be in the seat of the Federal Reserve right
33:39
Speaker 1: now because they're trying to achieve the soft landing. But
33:42
Speaker 1: you know, there is a delay to their action, and
33:45
Speaker 1: we don't really know how the economy is going to respond.
33:48
Speaker 1: You know, in our deep hope is that you know,
33:51
Speaker 1: even if we get the reception it's going to be
33:53
Speaker 1: a mild recession and not a severe one, and hopefully
33:56
Speaker 1: we will be able to avoid it all together, you know.
33:58
Speaker 1: But that's the challenging for the FAD is, you know,
34:01
Speaker 1: they want to tighten and they want to get inflation
34:04
Speaker 1: under control, but still by the way, is remaining high
34:07
Speaker 1: and there is a chance that inflation might stay at
34:10
Speaker 1: the higher levels levels in com person to what we
34:13
Speaker 1: have seen historically, you know, and that might be our
34:16
Speaker 1: new normal. But that's the challenge, that's the balancing act
34:19
Speaker 1: that that FED is facing right now, is you know,
34:22
Speaker 1: they need to tighten. They need to, you know, to
34:24
Speaker 1: address the inflation. The dollar is high and the course
34:27
Speaker 1: for a good reason, you know, with oil prices being high,
34:30
Speaker 1: with us, you know, seemingly doing better than the rest
34:33
Speaker 1: of the world, you know, But they don't want to overshoot.
34:36
Speaker 1: They don't want to tighten so much that you know
34:38
Speaker 1: it will bring the economy into recession. Katerina, thank you
34:41
Speaker 1: so much for joining us. Always appreciate getting your perspective.
34:44
Speaker 1: Caterina Seminety, She's a senior vice president private wealth advisor
34:48
Speaker 1: at a little firm called Morgan Stanley UM and Katie
34:52
Speaker 1: I think one of the key takeaways from Katerina's comments
34:55
Speaker 1: where she felt like, maybe we were nine of the
34:58
Speaker 1: way through this bear market, there's light at the end
35:00
Speaker 1: of the tunnel, that type of argument. I'm not sure
35:02
Speaker 1: if that number is accurate, but I feel like that's
35:04
Speaker 1: kind of a building consensus here that we're closer to
35:07
Speaker 1: the end than the beginning of the bear market. I
35:09
Speaker 1: think that just the price action of the past few
35:11
Speaker 1: days supports that when you think about the fact that
35:12
Speaker 1: the SMP five still fighting to stay green even though
35:16
Speaker 1: big Tech, as we've mentioned over and over again, uh
35:20
Speaker 1: been a bit of a disappointment, to put it mildly
35:23
Speaker 1: kind all right, we had lots and lots of earnings
35:27
Speaker 1: last night. Today we're gonna have some more earnings after
35:29
Speaker 1: the clothes led by Apple and Amazon. One of the
35:32
Speaker 1: names that really jumped out at me because I love
35:35
Speaker 1: industrial America, is Caterpillar. Cat stocks up eight point two percent.
35:39
Speaker 1: They had some good numbers, and I want to break
35:42
Speaker 1: it down and get a closer look. And we can
35:43
Speaker 1: do that with Chris Chile. You know, he covers all
35:46
Speaker 1: the industrial companies for Bloomberg Intelligence. He's based in Bloomberg Intelligences,
35:51
Speaker 1: Princeton Office, Chris, some they're selling some tractors, they're selling
35:55
Speaker 1: some Bacco's tell us about the quarter there are, It
35:59
Speaker 1: was a really a strong print within across the board.
36:01
Speaker 1: Beat Um, the volumes were good, but I think pricing
36:04
Speaker 1: continues to be the real standout here, up fourteen percent
36:08
Speaker 1: in the quarter. Uh, and that momentum should really be
36:11
Speaker 1: sustained into four que. And you know, despite all the
36:15
Speaker 1: headlines we see around the economy is slowing, demand continues
36:18
Speaker 1: to be healthy across most of CATS and markets. Orders
36:21
Speaker 1: maintain their double digit growth trajectory. So that should really
36:25
Speaker 1: support a really favorable backdrop for that moving into next year. Absolutely.
36:30
Speaker 1: I mean that's why this report caught my attention. I
36:32
Speaker 1: thought that with all the inflation we keep talking about,
36:35
Speaker 1: this is going to be another gloom and doom report
36:37
Speaker 1: when you think about Caterpillars reputation as this bell weather
36:41
Speaker 1: for the economy. But Chris, in your view, I mean,
36:44
Speaker 1: how much was this actual strength in the numbers versus
36:48
Speaker 1: expectations maybe being too low. Um, It's probably a little
36:53
Speaker 1: bit of both, you know. I think part of the
36:55
Speaker 1: story around CAT has been somewhat you know, lackluster margins,
36:58
Speaker 1: especially in their kind of war businesses coming out of
37:02
Speaker 1: this post COVID recovery. So it was very encouraging to
37:06
Speaker 1: see and across the board beat across all units UM
37:10
Speaker 1: this quarter, which is the first time we've seen this
37:12
Speaker 1: in a long time. UM. And really it was a
37:15
Speaker 1: combination of both very strong pricing and volumes UM. I
37:19
Speaker 1: think the supply chain easing up a little bit has
37:21
Speaker 1: helped them get more equipment out of the factory. Chris,
37:25
Speaker 1: I'm just looking at the pg e O function on
37:27
Speaker 1: the Bloomberg TERMO for for CAT and I see that
37:29
Speaker 1: at six the revenue is outside of the US, inside
37:33
Speaker 1: the US. Did they call out any regions of the
37:35
Speaker 1: world that are particularly strong or weak. I mean we
37:38
Speaker 1: kind of think about Europe is in a really tough spot,
37:41
Speaker 1: exacerbated by by the war in Ukraine. Yeah, if you
37:44
Speaker 1: think about going across around the globe here, UM, you know,
37:50
Speaker 1: revenues were up in all regions. You know, we did
37:53
Speaker 1: see some deceleration or some softness UM in Europe and
37:57
Speaker 1: Asia Asia. It's really function of China, UM, which is
38:02
Speaker 1: not surprising if you take out China, Asia was actually
38:05
Speaker 1: up UM and a little bit of softness in Europe,
38:08
Speaker 1: but you know what, there's still a lot of infrastructure
38:10
Speaker 1: investments over there, so that has held up demand reasonably well.
38:13
Speaker 1: In this environment, North America continues to be unbelievably strong, um,
38:18
Speaker 1: even though we were starting to see obviously some weakness
38:20
Speaker 1: on the residential construction side, but non residential continues to
38:24
Speaker 1: be a real standout. Yeah, this this demand and the
38:27
Speaker 1: pricing side of this business, let's just focus on the
38:29
Speaker 1: America's christ Like a typical customer of Caterpillar. Yes, so
38:35
Speaker 1: all their equipment goes through dealers, and then through the
38:38
Speaker 1: dealer channel that goes out to uh, you know, it
38:41
Speaker 1: could be infrastructure investments, large industrial projects, petrochemicals. I mean,
38:47
Speaker 1: it really spans the gamut of the non residential construction sector. UM.
38:52
Speaker 1: That's roughly you know, three quarters of their construction business. Uh.
38:56
Speaker 1: And then obviously they have you know, a mining equipment
38:59
Speaker 1: business this which you know continues to make steady progress.
39:02
Speaker 1: Industrial America isn't a christ. And then don't forget I
39:06
Speaker 1: mean the the energy and transportation business. You know, with
39:08
Speaker 1: these higher oil and commodity prices, UM, that's certainly a
39:11
Speaker 1: tail win there as well. This isn't the titanium, this
39:15
Speaker 1: is the industrial economy. But Chris, if we continue on
39:19
Speaker 1: this metaphor of you know, Caterpillar being this economic bell weather,
39:23
Speaker 1: when you look through this report, are we past peak
39:26
Speaker 1: supply chain worry? I think we're getting there. Um. You know,
39:31
Speaker 1: this was the first quarter that CAT had actually called
39:34
Speaker 1: out some pockets of improvement in the supply chain, and
39:37
Speaker 1: really up to this point they had been reluctant to
39:39
Speaker 1: do that. We had heard that from a number of
39:41
Speaker 1: other companies. Um. CAT tends to be I think a
39:44
Speaker 1: little bit more conservative from this standpoint. So for them
39:47
Speaker 1: to start citing some pockets of improvement, I think we're
39:51
Speaker 1: probably past the peak. Um. But you know, things are
39:55
Speaker 1: quite fluid. Um. There's still you know, numerous supply issues
39:58
Speaker 1: around chips and engine components. But to see the volumes
40:02
Speaker 1: jump here, um, I think that's a sign that we're
40:05
Speaker 1: probably past the peak. All right, Chris, great stuff. We
40:08
Speaker 1: appreciate you hopping on breaking down Caterpillar stock up a
40:10
Speaker 1: little over eight percent, So some good numbers at of Deerfield,
40:14
Speaker 1: Illinois at Screams of Middle America. Great stuff there. Chris
40:17
Speaker 1: Chileo covers industrial companies for Bloomberg Intelligence. Thanks for listening
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