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Starbucks Ousts CEO, Home Depot Earnings · Bloomberg Intelligence

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Speaker 3: Let's get more on Starbucks here. Jody Louri is Bloomberg
0:28
Speaker 3: Intelligence credit analyst, and she joined us now on that. Hey, Jody,
0:32
Speaker 3: just talk us through your reaction to this.
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Speaker 4: I think as the credit analysts were always sort of
0:39
Speaker 4: hesitant when there's these full scale changes that happen overnight,
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Speaker 4: and when you've had a CEO that's only been there
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Speaker 4: since March of last year. So we have just only
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Speaker 4: gotten comfortable with the concept. They're giving back twenty billion
0:52
Speaker 4: dollars and now you have two activists investors very heavily involved,
0:55
Speaker 4: one getting a board seat and pushing out the CEO
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Speaker 4: with a new CEO. That could be a pot positive
1:00
Speaker 4: for the company long term in terms of performance. But
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Speaker 4: I do also think that shareholders might make it better
1:06
Speaker 4: than bondholders at this point.
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Speaker 5: Why do you say that you think they're just going
1:10
Speaker 5: to maybe start returning cash shareholders.
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Speaker 4: I think they'll get a little bit more aggressive with that, Paul,
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Speaker 4: I mean, I think, you know, it could end up
1:18
Speaker 4: being the type of thing that they look at the
1:19
Speaker 4: company and that you sort of think about ways to
1:22
Speaker 4: sort of boost the value, whether it be spin off
1:24
Speaker 4: some entity or what have you. I'm not sure what
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Speaker 4: entity they could spin off at a Starbucks because so
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Speaker 4: much of the non core business has already been peeled away.
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Speaker 4: That said, I mean, I think that when when you're
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Speaker 4: dealing with activists, you're always sort of hesitant because you say, Okay,
1:38
Speaker 4: how much are they going to risk the balance sheet?
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Speaker 4: How much are they going to lever to get the
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Speaker 4: company into a different spot. Now, that might be a
1:45
Speaker 4: short term pain for long term gain, but for bond holders,
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Speaker 4: when you think about that short term pain, that's not
1:51
Speaker 4: always necessarily the best thing. You know, we have a
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Speaker 4: long history of Yam for for example, you know, which
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Speaker 4: which the new CEO is part of. When they sp
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Speaker 4: off their entity Young China, you know, they ended up
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Speaker 4: giving back so much of their money to shareholders.
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Speaker 3: Which then to the point breaks a question like how
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Speaker 3: is Starbucks actually doing from a bond holder perspective.
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Speaker 4: From a bond holder perspective, you know, over the past year,
2:14
Speaker 4: they've been a little bit more volatile. We were looking
2:17
Speaker 4: at some of the recent bonds, you know, the twenty
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Speaker 4: twenty nine for example, which are five year bonds, have
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Speaker 4: actually tightened modestly on the news.
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Speaker 6: But I think it's hard to tell.
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Speaker 4: I mean, I think it's more of a question of
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Speaker 4: what this means longer term from a performance standpoint. It's
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Speaker 4: going to take a little while for bondholders to sort
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Speaker 4: of digest this news. You know, something that that's very
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Speaker 4: clear that we've been tracking is the ALDI the Bloomberg
2:41
Speaker 4: Second Measure data.
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Speaker 3: Yeah, okay, so wait, first of all, what is this?
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Speaker 3: Because I got to be honest, for I've never heard
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Speaker 3: of this before, and you mentioned it and you were
2:47
Speaker 3: going to talk about it, and now I'm a little
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Speaker 3: obsessed with it.
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Speaker 4: It is pretty amazing, Alex, particularly when it comes to Starbucks,
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Speaker 4: because the R squared or the you know, the sort
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Speaker 4: of predictive value of it is pretty great when it
2:59
Speaker 4: comes to Starbucks in particular.
3:01
Speaker 6: So what it is.
3:02
Speaker 4: It's credit card and deborcart swipes only in the United States,
3:06
Speaker 4: and Bloomberg aggregates the data. You can see it. You
3:08
Speaker 4: can see it both on a year over year basis.
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Speaker 4: You can see it on an actual value basis if
3:11
Speaker 4: you look at the year over year where it's trending,
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Speaker 4: it's actually very much down when it comes to sales
3:16
Speaker 4: and transactions, which is not surprising because they've had a
3:19
Speaker 4: couple of sort of disappointing points, one of them being geopolitics,
3:23
Speaker 4: so the astro turf effort related to the Middle East.
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Speaker 6: You know.
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Speaker 4: The other portion is obviously China and the fact that
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Speaker 4: they really went all in on China and it's been
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Speaker 4: a little bit of a disappointment. And then you've also
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Speaker 4: just had consumers pulling back in terms of their spending
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Speaker 4: on things like Starbucks, McDonald's, what have you, and so
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Speaker 4: companies have been trying to just get people in the door.
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Speaker 4: Now if you look at it for you know, transaction value,
3:47
Speaker 4: or if you look at you know, the PLACER data,
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Speaker 4: which we also have embedded on the terminal, even the
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Speaker 4: PLACER data is down, so that's estimated visits. So people
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Speaker 4: physically going into stores has been down recently. And so
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Speaker 4: how does the new CEO get these people back? How
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Speaker 4: does he get them comfortable with the Starbucks that we
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Speaker 4: used to know and love I'm not sure.
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Speaker 5: So what has been talk to us about China, because
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Speaker 5: I know you've flagged that before. It talks about China
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Speaker 5: and what it means for Starbucks.
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Speaker 4: I think China means a lot of things for a
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Speaker 4: lot of the companies in our space. I think it's
4:18
Speaker 4: been a very common word, more so than normal when
4:22
Speaker 4: it comes to across the consumer and leisure space. You know,
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Speaker 4: So if you listen to earning calls this quarter, if
4:30
Speaker 4: anyone from Hilton to Hyatt to you know, even the
4:33
Speaker 4: cruise lines have been mentioning China either as an avenue
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Speaker 4: for growth or as a disappointment for an avenue for growth.
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Speaker 4: I mean, we haven't seen the value of China. We've
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Speaker 4: seen sort of the sluggish, slow growth of late and
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Speaker 4: for someone like Starbucks that last year they mapped out
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Speaker 4: their plan and they said, we're going to be building
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Speaker 4: out more stores in China and that's our international growth plan,
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Speaker 4: and that's how we're getting the company back on track.
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Speaker 4: All of a sudden, you don't you don't necessarily have that,
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Speaker 4: I mean, I mean that's kind of a big problem.
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Speaker 3: Yeah, And when they talk about like strategic options for
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Speaker 3: that are partnerships, what does that wind up looking like
5:06
Speaker 3: they're not going to spin it off, right, So it's
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Speaker 3: not gonna be a Yum and Young brand's China kind
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Speaker 3: of situation. So how do you digest that?
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Speaker 4: I mean, it could be a Yum and China situation.
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Speaker 4: Who knows what's on the table at this point. I mean,
5:18
Speaker 4: we we could, you know, we could fathom any sort
5:21
Speaker 4: of measures. I mean, most of Starbucks stores are owned,
5:24
Speaker 4: but then when it comes to international it's a little
5:26
Speaker 4: less so. And even places like you know, I mentioned
5:28
Speaker 4: the cruise lines. You know, we were on a Royal
5:29
Speaker 4: Caribbean ship a couple months ago and they had a
5:31
Speaker 4: light in our base.
5:33
Speaker 3: It's like, remember that time I was on that cruise
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Speaker 3: and it was really awesome. Sorry continue.
5:38
Speaker 4: They did actually have a collector mug for kind of
5:41
Speaker 4: the Seas that I did buy, which was a Starbucks mug,
5:45
Speaker 4: but it was Starbucks with a bunch of icon of
5:47
Speaker 4: the Sea stuff. I had to get it.
5:48
Speaker 6: I mean, it was two companies I cover.
5:50
Speaker 7: I was like, I can't one shot.
5:51
Speaker 5: Well on the flip side of this this transaction, Chipotle,
5:56
Speaker 5: what's the outlook there, what's the feeling there in the street.
6:00
Speaker 4: So Chippote is an interesting one because they don't really
6:02
Speaker 4: have that much debt outstanding, so it's one that you know,
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Speaker 4: Mike Hallen really deeply covers. We a little less, so
6:07
Speaker 4: we cover it from the standpoint that obviously it's a
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Speaker 4: very important player in the space. It's that fast, casual
6:14
Speaker 4: we love talking about youm and obviously Chipotte sort of
6:16
Speaker 4: lines in perfectly with Yum, and it's sort of that
6:19
Speaker 4: intersection between Yum and Darden, which we like talking about.
6:22
Speaker 4: And so I mean, I think, you know, Chippote obviously
6:25
Speaker 4: had a lot of negative headlines. We're talking five years ago,
6:29
Speaker 4: you know, in terms of safety for their food, which
6:31
Speaker 4: is obviously never, never a good thing. Since then, they've
6:34
Speaker 4: turned around the company quite substantially. Now, I don't know
6:37
Speaker 4: what this means when you have a Darling CEO jump
6:40
Speaker 4: ship and go to another company. I'm not quite sure
6:42
Speaker 4: what we'd expect there as of now. From a bomb
6:45
Speaker 4: holder's perspective, we don't really care at the moment, but
6:49
Speaker 4: I do sort of wonder what shareholders are thinking right now.
6:53
Speaker 7: All right, Very good.
6:54
Speaker 5: Jody Lourie, Senior Credit a also Bloomberg Intelligence, join us
6:57
Speaker 5: from the Princeton office via zoom.
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Speaker 7: Here Chipotle for you.
7:02
Speaker 3: No, no, no, really all right, but it's the same,
7:06
Speaker 3: like okay, no matter what you get, doesn't all taste
7:09
Speaker 3: the same. And isn't that weird?
7:11
Speaker 7: No, and no, it's very good. John help me out here.
7:14
Speaker 7: You're Chipotle person? Uh yeah, I mean I like it.
7:17
Speaker 8: I don't go there.
7:18
Speaker 3: There's no one near me.
7:19
Speaker 7: It's not even Lisa Mateo said she liked it, you know,
7:22
Speaker 7: she loved it.
7:23
Speaker 5: Yeah, and that's hard because usually if you know, it's
7:25
Speaker 5: not like super granola healthy thing.
7:28
Speaker 3: You know, I don't think I've literally had one in
7:30
Speaker 3: twelve years.
7:30
Speaker 9: But my problem is.
7:31
Speaker 10: There's just too many people involved in the front, too
7:34
Speaker 10: many people faced teenagers.
7:36
Speaker 3: Wow, you know, loading up my because it's think that
7:40
Speaker 3: I make you look like a Come on now, I
7:43
Speaker 3: mean I do it myself. Oh what is your chipottle
7:48
Speaker 3: of choice?
7:48
Speaker 10: Uh?
7:49
Speaker 5: Two hard tacos, two hard tacos, chicken okay, yeah, peppers
7:53
Speaker 5: and onions, pinco degayo and some cheese and we're.
7:56
Speaker 8: Good to go.
7:57
Speaker 3: No guakalk, no guac, No okay, no chips.
8:01
Speaker 7: No, I don't need chips.
8:03
Speaker 5: Oh so you're just and you know what, now they
8:04
Speaker 5: feel them so full because the social media was saying
8:07
Speaker 5: how they were underfilling them. Now they feel them so
8:09
Speaker 5: full that I only get two tacos.
8:11
Speaker 3: Versus three before, and you pay by the taco.
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Speaker 7: Paid by the taco. So I'm a huge winner here.
8:18
Speaker 7: Based upon the social media pressure, They've had a big
8:21
Speaker 7: move in the in the restaurant business. Oh yeah, business.
8:25
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Speaker 3: This is Bloomberg Intelligence Radio. We're broadcasting to you live
8:45
Speaker 3: from Interactive Broker Studio right here in midtown Manhattan. Let's
8:49
Speaker 3: go back to some of the earnings here and go
8:51
Speaker 3: to Home Depot specifically, I'm taking a look at that stock.
8:54
Speaker 3: It is up by about three tenths of one percent.
8:57
Speaker 3: So they did cut their outlook saying that consume are
9:00
Speaker 3: in their quote deferral mindset. I mean to me, I
9:03
Speaker 3: begs the question, though, once things get better, don't you?
9:06
Speaker 3: Is it just delayed purchasing or am I never going
9:08
Speaker 3: to redo my floor? I know, I agree. Okay, so
9:11
Speaker 3: let's get some more details here with Red Brown, Bloomberg
9:13
Speaker 3: News earnings reporter. He joins us on home depot. All right, Red,
9:16
Speaker 3: walk us through some of the numbers here.
9:18
Speaker 1: Yeah, I mean, so I think overall, kind of the
9:21
Speaker 1: message that I'm sort of taking away from the results
9:23
Speaker 1: is this seems like they might have kind of found bottom.
9:25
Speaker 7: If we look the last.
9:26
Speaker 1: Six quarters, they've seen earnings top and bottom line shrinking
9:30
Speaker 1: and then for the first time in since twenty twenty three, Yeah,
9:35
Speaker 1: things are flattening out a little bit. So, yes, they
9:37
Speaker 1: caught the cut the top line outlook, maybe a bit
9:41
Speaker 1: of a reset there. But I think there's a lot
9:43
Speaker 1: to be optimistic about these results.
9:45
Speaker 5: Well, I think I guess one of the questions that
9:47
Speaker 5: I had, just being a grizzled veteran having listened to
9:50
Speaker 5: a million conference calls, is you know, suggesting that maybe
9:54
Speaker 5: this is a little bit temporary, that maybe these are
9:55
Speaker 5: purchases that are being.
9:56
Speaker 7: Deferred in anticipation of lower rates. How does that kind
10:02
Speaker 7: of stand with you?
10:03
Speaker 1: I mean, I think it does. I think, I mean,
10:05
Speaker 1: I believe it a little bit more than that. It
10:06
Speaker 1: sounds like YouTube might just because the one thing that
10:09
Speaker 1: analysts are putting to a lot is contractors backlogs. So
10:12
Speaker 1: those are you know, contracted projects that they are expected
10:16
Speaker 1: to eventually fulfill. It's just a matter of when the
10:20
Speaker 1: customers are ready to actually you know, follow through with
10:23
Speaker 1: that and say yep, let's do it. You know, those
10:24
Speaker 1: are long term projects to take several months, so it's
10:27
Speaker 1: not something that people are kind of likely to back
10:29
Speaker 1: out of their big something you probably need to get
10:32
Speaker 1: financing for as well. So it's it's you know, it's
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Speaker 1: a significant commitment for the consumer. And yeah, I mean
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Speaker 1: this deferral mindset I think is an interesting way to
10:41
Speaker 1: spin the situation for for Home Deeper right now.
10:43
Speaker 3: Yeah, that's interesting. So you have contractor backlog because customers
10:47
Speaker 3: want to get their project in the queue, but they're
10:49
Speaker 3: not putting down the money for it yet. So it's
10:50
Speaker 3: always like, hmmmm, is that gonna wind If the economy
10:53
Speaker 3: really turns, what winds up happening? So I guess if
10:57
Speaker 3: we just say okay, we're at the trough, I wonder
10:59
Speaker 3: if we have any visible ability yet into what the recovery,
11:01
Speaker 3: then looks like for a home depot.
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Speaker 1: Yeah, so I think, you know, if we look into
11:05
Speaker 1: what they said the commentary around the guidance cut. So
11:09
Speaker 1: right now they said, if it's going to be the
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Speaker 1: same store sales, the top end is down three percent
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Speaker 1: this year. They're saying that that will happen if things
11:18
Speaker 1: stay stable from the first half of the year. And
11:21
Speaker 1: right now they say all signs point to consumer demand
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Speaker 1: like staying at that same level, and they're not guiding
11:27
Speaker 1: towards the bottom end of that range right now. So
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Speaker 1: right now, that seems to be where the company is at,
11:31
Speaker 1: and I think we can see, you know, and the
11:34
Speaker 1: market seems to we kind of be digesting that with
11:38
Speaker 1: some positive.
11:39
Speaker 7: Outlook here as well.
11:40
Speaker 5: You know, I'm just looking at the chart here and
11:42
Speaker 5: just thinking back to the pandemic. That stock, you know,
11:45
Speaker 5: was up about one hundred and seventy percent from you know,
11:47
Speaker 5: the beginning of the pandemic through the end of twenty
11:48
Speaker 5: twenty one.
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Speaker 7: It's come off since then. So that was just such
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Speaker 7: a moonshot for the company.
11:54
Speaker 5: What does the company say about the consumer their business
11:57
Speaker 5: kind of now versus pre pandemic, they.
12:00
Speaker 7: Ever put it in that kind of context.
12:01
Speaker 1: Well, the reason for that ride up, if you remember,
12:04
Speaker 1: was because of so much DIY activity. Everyone was stuck home.
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Speaker 1: I mean, I'm tired of looking at this shelf, Let
12:11
Speaker 1: me fix it, or I hate this paint color, whatever
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Speaker 1: it was. Now there's a little bit less of that,
12:16
Speaker 1: just because we're spending less time at home. You know,
12:18
Speaker 1: we have less time on our hands and if we
12:21
Speaker 1: and Home Depot is kind of accepted that that they're
12:24
Speaker 1: not going to see those levels as much anymore. And
12:26
Speaker 1: what they are focusing and similar thing happening at Low's
12:29
Speaker 1: as well, is focusing on that contractor business. It's a
12:32
Speaker 1: higher margin business. It's a little bit more consistent. And
12:36
Speaker 1: we saw what their their latest acquisition, eighteen billion dollar
12:39
Speaker 1: acquisition for SRS Distribution, And that is part of this
12:42
Speaker 1: pivot towards can we capture more of the market share
12:46
Speaker 1: for those contractors.
12:48
Speaker 3: Oh yeah, love me some contractors working with some right
12:51
Speaker 3: now in the Berkshires. The allowance for my kitchen Island
12:54
Speaker 3: was huge.
12:55
Speaker 7: Are there good contractors up like in that part of
12:57
Speaker 7: the world.
12:58
Speaker 11: Yeah, yeah, really good. Yeah.
12:59
Speaker 7: We went to one.
13:00
Speaker 3: We didn't do like comparison shopping because this company had,
13:04
Speaker 3: like we done our roof had did our did our
13:05
Speaker 3: kitchens like we'd already worked with them for the last
13:07
Speaker 3: you know, ten fifteen years. Red when you take a
13:10
Speaker 3: look at earnings in general, so you're your earnings reporter,
13:12
Speaker 3: like this is this is your jam. What are some
13:15
Speaker 3: of the takeaways that we can learn from earnings in general?
13:17
Speaker 3: Right now?
13:18
Speaker 1: I think with home Depot and we'll see with Walmart
13:22
Speaker 1: later this week. It's just a kind of repetition of
13:24
Speaker 1: this same pattern in retail, which is consumers are trading down.
13:28
Speaker 1: You know, last year there was so much where when
13:30
Speaker 1: is it happening? When is it happening? And it's kind
13:32
Speaker 1: of been slowly trickling in quarter over quarter more people
13:35
Speaker 1: are trading down. Or what that looks like on the
13:37
Speaker 1: ground is I'm delaying some of those bigger purchases, those
13:40
Speaker 1: bigger high margin for the company's purchases. I'm focusing on
13:44
Speaker 1: what I need. And I think Walmart will be the
13:47
Speaker 1: kind of exemplar example of that of people. You know,
13:50
Speaker 1: I'm just looking at you know what I need. I
13:52
Speaker 1: need food, I need groceries, I need toiletries, things like that,
13:55
Speaker 1: and then maybe I'll delay until I get a little
13:57
Speaker 1: bit more clarity on when I'm going to buy that TV.
14:00
Speaker 7: For a Home Depot.
14:01
Speaker 5: I just think of walking into Home Depot and boyd,
14:03
Speaker 5: there's a lot of stuff. They're huge, huge stores and
14:06
Speaker 5: there's a lot of stuff there. Talk to us about inventory.
14:08
Speaker 5: Inventory management, I know for some of these big box
14:10
Speaker 5: retailers is huge.
14:11
Speaker 7: What are they saying these days?
14:13
Speaker 1: So one thing to look for the inventory is actually
14:15
Speaker 1: the transportation costs have been coming down, so I think
14:18
Speaker 1: the overall that just speaks to an easy supply chain
14:21
Speaker 1: for Home Depot, so they are able to manage a
14:24
Speaker 1: little bit better. In general, they're managing their costs quite well.
14:27
Speaker 1: That's part of the reason that they were able to
14:30
Speaker 1: kind of flatten out the earnings trough there. And yeah,
14:33
Speaker 1: I think overall the inventory has been shifting well, and
14:37
Speaker 1: they are you know, they have so much stuff, they're
14:39
Speaker 1: able to manage it well and they're able to get
14:41
Speaker 1: the products that people want in the stores.
14:43
Speaker 3: All right, Red, thanks a lot, super appreciate it. Red Brown,
14:45
Speaker 3: Bloomberg News Earnings reporter, joining us on Home Depot.
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Speaker 3: Rathburn see io at Sibiz Investment Advisory Services. I'm looking
15:30
Speaker 3: at a market, Anna, that is definitely responding to this
15:33
Speaker 3: PPI data as in another green light for the Fed
15:36
Speaker 3: to cut in September. Is that how you're taking this?
15:40
Speaker 6: Yeah, that's the initial reaction from the markets today.
15:42
Speaker 12: I mean it is a prelude to tomorrow's CPI which
15:45
Speaker 12: is even more closely watched. But it was a really
15:47
Speaker 12: good prelude. We had services and that was really good news.
15:52
Speaker 12: Contribute to this disinflationary trend here and you know, the
15:57
Speaker 12: numbers were down even though we had a week er
15:59
Speaker 12: dollar really pulling up those trade prices. So in all,
16:03
Speaker 12: it was actually a really good good news, at least
16:06
Speaker 12: in the first reaction for the markets. But honestly, I'm
16:09
Speaker 12: starting to wonder if we have to start worrying about
16:12
Speaker 12: this inflationary force is actually reflecting some of the other
16:16
Speaker 12: slowing economic trends that we've seen in the labor market
16:19
Speaker 12: and from the consumers, and frankly from home depot as well.
16:23
Speaker 7: So what did you take from the home depot numbers? Here?
16:26
Speaker 5: We'll get retail sales later this week, but boy, home
16:28
Speaker 5: depot's a pretty good barometer out there.
16:31
Speaker 7: What did you take away from their earnings?
16:33
Speaker 4: Yeah?
16:33
Speaker 12: I mean, in some ways, we're not surprised, right because
16:36
Speaker 12: we've been talking about weak consumers actually for a really
16:40
Speaker 12: long time and some pressure on retailers for a long time,
16:43
Speaker 12: so it actually fits that struggling consumer theme. But I
16:46
Speaker 12: think there's a little bit more to this. It's the
16:49
Speaker 12: interest rate sensitivity, and it's tied to the housing market.
16:53
Speaker 12: So you know, this whole PPI CPI, what will the
16:55
Speaker 12: Fed dude, this will actually have a lot more weight
16:59
Speaker 12: on details are like home depot that are very much
17:02
Speaker 12: tied to the housing market, because frankly, unless we see
17:06
Speaker 12: cuts going down to like two hundred or three hundred
17:09
Speaker 12: basis points, we're not going to see stabilization of the
17:11
Speaker 12: housing market. Effective mortgage rate is below four percent, so
17:17
Speaker 12: from a perspective of a lower guidance perfectly makes sense
17:22
Speaker 12: to us. Higher interest rates being named as one of
17:25
Speaker 12: the culprits makes perfectly perfect sense to us.
17:28
Speaker 6: And I also think there's sort of an upgrade fatigue.
17:31
Speaker 12: Everybody upgraded everything during the pandemic and the ensuing years,
17:35
Speaker 12: and now like what else are you going to upgrade?
17:37
Speaker 6: Right?
17:38
Speaker 3: So that's actually a relatively I mean, that's a lot
17:40
Speaker 3: of cuts we have to get to get some juice
17:42
Speaker 3: going in the housing market. And you mentioned sort of
17:45
Speaker 3: the other slowing economic trends from consumers, and that sort
17:49
Speaker 3: of the disinflation was creating like a veil that we're
17:54
Speaker 3: not really seeing those slowing eco trends. What exactly are
17:57
Speaker 3: you referring to? And how worried are you?
18:00
Speaker 12: So I'm not worried like sky is falling, right, I
18:03
Speaker 12: mean we're slow. We're watching everything very carefully. So labor market,
18:07
Speaker 12: we've been watching it for about a year, household survey
18:10
Speaker 12: versus establishment survey. I know this has been discussed in
18:13
Speaker 12: the public discourse for a while now, and we're watching
18:16
Speaker 12: it actually converge again.
18:17
Speaker 6: They've been diverging for.
18:18
Speaker 12: A while now they're starting to converge, and we're trying
18:21
Speaker 12: to see if there's a trend there. We're also seeing
18:23
Speaker 12: what people are calling that ca shaped economy, where the
18:26
Speaker 12: luxury goods market is doing really well because of wealthy Americans,
18:30
Speaker 12: but frankly, lower income Americans are really really struggling. And
18:34
Speaker 12: so these are the things that we're watching and frankly,
18:36
Speaker 12: how much does that creep up to the middle class, right,
18:40
Speaker 12: because at some point, when rates stay high, it's going
18:42
Speaker 12: to eventually impact everybody at some point. And the question
18:46
Speaker 12: is can the FED cut fast enough. I'm not talking
18:49
Speaker 12: about fifty to seventy five basis points, but at a
18:51
Speaker 12: twenty five basis point.
18:55
Speaker 6: Clip all the way down to where they want to
18:57
Speaker 6: be for the consumers to actually stabilized.
19:00
Speaker 12: That's really what we're watching, and where we're worried is
19:03
Speaker 12: that we're not going to get those cuts all right.
19:05
Speaker 5: If we don't get those cuts, kind of where do
19:08
Speaker 5: you see opportunities in the markets, either equities, fixed income.
19:11
Speaker 7: What's kind of your go to trade these days?
19:14
Speaker 12: Now, if we have a disinflationary, disinflationary situation, it's going
19:20
Speaker 12: to weigh on stocks, right, so small halves. I know
19:24
Speaker 12: we've seen a little bit of a bump up, we
19:26
Speaker 12: see a bump up today.
19:27
Speaker 6: I think it's going to continue to be pressured.
19:29
Speaker 12: Anything that is cyclical or anything that is very much
19:32
Speaker 12: interest rate dependent. I think we're going to see some
19:35
Speaker 12: pressure there. Stocks in general. I think this inflationary forces
19:39
Speaker 12: are not necessarily good. In the bonds, you know, the
19:43
Speaker 12: yields are still pretty attractive, So I think it's if
19:47
Speaker 12: you're clipping coupons, I think you can still be there.
19:50
Speaker 12: And if the Fed is cutting slowly, those coupons are
19:53
Speaker 12: still going to stay attractive. Because we're talking about.
19:55
Speaker 6: Five point two five to five point five percent in.
19:58
Speaker 12: Fed funds rate point, it'll become less attractive. But I
20:02
Speaker 12: think that the PPI number today suggests potential weakening. We're
20:07
Speaker 12: to also talking about margin pressure as well for companies
20:10
Speaker 12: and for the equity markets. I think there are a
20:12
Speaker 12: lot of headwinds here that we just have to be
20:15
Speaker 12: a little bit more careful about areas.
20:17
Speaker 6: That are a little bit investors seem to be a
20:20
Speaker 6: little more risky.
20:21
Speaker 3: Do you feel like earnings reflected that view yet?
20:25
Speaker 12: No. So what's interesting is we've seen some broadening, right,
20:31
Speaker 12: So we've been talking about max seven earnings being the
20:34
Speaker 12: majority of earnings growth for the first two quarters of
20:37
Speaker 12: this year or first quarter of this year, and in
20:40
Speaker 12: the second quarter we're starting to see some broadening out.
20:43
Speaker 12: I think that is better management, frankly, and cost reduction.
20:48
Speaker 12: The question is isn't so much how is the earnings
20:51
Speaker 12: from the past quarter doing?
20:52
Speaker 6: The question is can they sustain it?
20:55
Speaker 12: Can this broadening of fundamentals actually be sustained in a
20:58
Speaker 12: high interest rate environment for the rest.
21:00
Speaker 6: Of the year, And that is a big question mark
21:02
Speaker 6: over our heads.
21:03
Speaker 5: So, you know, I mean the guidance, I mean, the
21:06
Speaker 5: earnings themselves this quarter were solid. I mean I think
21:09
Speaker 5: the SMP coming in around eleven percent growth. What was
21:13
Speaker 5: the guidance for you? How was a guidance enough for
21:15
Speaker 5: you to support this market? Or do you think there's
21:17
Speaker 5: risk there from an earning perspective?
21:19
Speaker 12: I yeah, I think there's a bit of risk because
21:22
Speaker 12: the guidance, you know, This is an opinion, but it's
21:26
Speaker 12: a little optimistic, right, So I feel like everybody is
21:29
Speaker 12: pricing in a soft landing except for a few like
21:33
Speaker 12: Home Depot may not be.
21:34
Speaker 6: So it doesn't really.
21:36
Speaker 12: Give me a lot of confidence. And frankly, inflation falling
21:40
Speaker 12: is not great for margins. It takes away the pricing
21:45
Speaker 12: power from a lot of these companies. So I think
21:47
Speaker 12: there's a bit of optimism built into some of the
21:50
Speaker 12: guidance that may not be healthy for price action in
21:54
Speaker 12: the second half of the.
21:55
Speaker 3: Year, right, particularly if top line sales don't grow. So
21:58
Speaker 3: if at least the margins compress sing, you need the
22:00
Speaker 3: top line sales to grow, And if you don't get
22:02
Speaker 3: that because the economy is slowing, then and you're really
22:04
Speaker 3: getting crunched in terms of technicality because you're talking all fundamentals.
22:09
Speaker 3: But what we saw over the last week in many
22:11
Speaker 3: ways was technical and that we were over bought. There
22:15
Speaker 3: was the yen carry trade unwind as means looking at
22:17
Speaker 3: the dollar yen chart was truly unbelievable, Like, of course
22:20
Speaker 3: stuff happened. If you look at that declined down, is
22:22
Speaker 3: it over?
22:25
Speaker 6: You know, I don't think it's over. I mean, in
22:27
Speaker 6: some ways.
22:27
Speaker 12: It was the obvious trade because that discrepancy was so wide.
22:32
Speaker 12: But I think that there's still leverage in the system
22:34
Speaker 12: that hasn't been unwound. Now it think about it, if
22:38
Speaker 12: the FED starts to cut, that's another reason for that
22:41
Speaker 12: to be unwound, right, I mean, so the Bank of
22:43
Speaker 12: Japan is holding steady, okay, fine, but if the Feds start,
22:48
Speaker 12: if there's leverage in the system and the FED starts
22:50
Speaker 12: to cut, then they're more unwinding that is waiting to happen.
22:55
Speaker 12: I don't think it's necessarily over now. Will the market
22:58
Speaker 12: participants be small harder about it this time? Probably you
23:02
Speaker 12: might not see as big of a reaction and they
23:04
Speaker 12: may not be caught by surprise. But as to the
23:07
Speaker 12: leverage in the system, I think we're still looking at
23:11
Speaker 12: potentially more pain.
23:13
Speaker 7: All right, Anna, thank you so much. We appreciate that.
23:14
Speaker 5: On a Rothbland, Chief investment Officer for Seabiz Investment Advisory Services.
23:21
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
23:25
Speaker 2: weekdays at ten am Eastern on applecar.
23:27
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23:30
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23:39
Speaker 3: Come Alex, you alongside pauls we need. This is Bloomberg
23:41
Speaker 3: Intelligence Radio. We bring you all the top news in
23:44
Speaker 3: business and finance and economics. There are lens of our
23:46
Speaker 3: Bloomberg Intelligence folks. They cover two thousand companies and one
23:49
Speaker 3: hundred and thirty industries worldwide. We also love going to
23:52
Speaker 3: the c suite, take a look at different companies all
23:54
Speaker 3: across the world. And for that we go to Kathy Winter.
23:57
Speaker 3: She's chief operating officer of May Mobility. It's a private
24:01
Speaker 3: company and she joins us now from ann Arbor, Michigan.
24:04
Speaker 3: So apparently May Mobility is the leader in the development
24:08
Speaker 3: and deployment of autonomous driving technology. I want to get
24:12
Speaker 3: more on this, Hey, Kathy, does that mean like a
24:14
Speaker 3: self driving car? Is that what we're talking about here?
24:16
Speaker 11: Yeah, Hi, thanks for having me Exactly.
24:19
Speaker 9: We are talking about self driving cars and the service
24:23
Speaker 9: that we actually go out and provide. So trying to
24:26
Speaker 9: solve like real world problems, augment existing transit systems and
24:31
Speaker 9: get these cars on the road so that more people
24:33
Speaker 9: can access them.
24:34
Speaker 5: Who are the you are the customers, individuals are they
24:38
Speaker 5: cities and municipalities that deploy them, maybe like as a
24:41
Speaker 5: kind of a taxi fleet or something.
24:44
Speaker 11: So think of this as what we do is a
24:46
Speaker 11: little bit different.
24:47
Speaker 9: We are more in the b TOG space where we
24:51
Speaker 9: partner with local municipalities and governments to come in and
24:56
Speaker 9: cooperate and plan out a system that'll really work and
24:59
Speaker 9: solve problems.
25:00
Speaker 11: A little bit different for sure.
25:02
Speaker 9: Than a robotaxi environment where you're maybe dropping in a
25:05
Speaker 9: fleet of vehicles and customers are.
25:07
Speaker 11: Calling them on their own right, So different segment in
25:11
Speaker 11: the market.
25:11
Speaker 3: So tell me what kind of stuff you're working on
25:13
Speaker 3: right now. Then give us an example of how this
25:14
Speaker 3: would work and how those conversations go with the government.
25:18
Speaker 9: Yeah, sure, So, Well, the biggest thing we're working on
25:20
Speaker 9: is really the technology itself. So we have a patented MPDM.
25:24
Speaker 9: It's multi policy decision making solution, and so what that
25:28
Speaker 9: really is about is how we use AI to continuously
25:32
Speaker 9: learn on the vehicle and quickly be able to scale
25:35
Speaker 9: to implement in a city.
25:37
Speaker 11: So what are we doing. We've launched them.
25:39
Speaker 9: We actually have multiple sites out there today. They're in
25:42
Speaker 9: operation and more slated both here and Japan.
25:46
Speaker 11: For the second half of the year.
25:48
Speaker 5: So an arm Or, Michigan, that's one of your deployment sites,
25:52
Speaker 5: explain to us kind of how that looks.
25:54
Speaker 7: What does that the deployment look like in terms of
25:57
Speaker 7: maybe vehicles and things like that.
26:00
Speaker 9: Ann ourbur Michigan is it's a really fun one to
26:02
Speaker 9: talk about because, of course, not just because this is
26:05
Speaker 9: our headquarters, but huge booming university town.
26:08
Speaker 11: Students are coming back this week.
26:10
Speaker 9: So in this case we've partnered with the university, the
26:13
Speaker 9: local government, and so what we provide is a service
26:17
Speaker 9: that if you think about students that don't have cars
26:19
Speaker 9: on campus, it's provided they.
26:21
Speaker 11: Don't actually pay for it. It's free to them and
26:26
Speaker 11: they can ride.
26:26
Speaker 9: For example, let me give me they might not live
26:29
Speaker 9: on campus, so they park for free off campus and
26:33
Speaker 9: then they can call. You know, there's any number of
26:36
Speaker 9: thirty stops across an arbor they can call and they
26:39
Speaker 9: can jump in the car and get onto campus and
26:42
Speaker 9: wherever they want to go.
26:44
Speaker 11: It's open to more than just students.
26:46
Speaker 9: But that's a good use case as opposed to Grand Rapids,
26:50
Speaker 9: Minnesota is a rural community with tons of snow you
26:54
Speaker 9: can imagine, and they don't actually really have much of
26:57
Speaker 9: a public transportation, so in that case, it's the rural
27:00
Speaker 9: population that doesn't have access. And maybe one other thing
27:04
Speaker 9: I'll mention is we are really proud of our wheelchair accessible.
27:10
Speaker 11: Bands because you.
27:11
Speaker 9: Know, that makes it just so much more accessible to
27:13
Speaker 9: people who didn't have that kind of on demand service
27:16
Speaker 9: that they could call up.
27:17
Speaker 3: Yeah, especially because if you do have that on demand
27:20
Speaker 3: service that can be so expensive. You're also deployed in Miami, Florida.
27:23
Speaker 3: What does that look like.
27:25
Speaker 9: Yeah, that's one of our newer ones, and we have
27:27
Speaker 9: two big routes down there, so I guess they forgot
27:29
Speaker 9: to mention we had four vehicles and like thirty different
27:32
Speaker 9: drop off areas in an arbor. Miami is one of
27:35
Speaker 9: our newest ten vehicles and two different sections, so we
27:39
Speaker 9: expect to continue expanding the square footage.
27:42
Speaker 11: But same kind of thing.
27:44
Speaker 9: But again, that's so much. You know, that's hot weather,
27:46
Speaker 9: steamy weather. So we really get between between our locations
27:50
Speaker 9: in Grand Rapids, Michigan, where we're Minnesota with snow and
27:55
Speaker 9: urburt here multi seasonal. You got Arlington, Texas, which is
28:00
Speaker 9: really smoking hot this time of year, and then you
28:02
Speaker 9: have Miami, right superhuman. So we feel like we get
28:05
Speaker 9: the real life commercial tests going in all these different locations.
28:09
Speaker 5: So what are these municipalities looking for? What kind of
28:13
Speaker 5: problem are they trying to solve for?
28:15
Speaker 9: Yeah, that's actually probably at the crux of what our
28:18
Speaker 9: mission is is to really work with these communities. It
28:21
Speaker 9: might be that, you know, there's not enough traffic to
28:26
Speaker 9: make the business case work for a ginormous bus to
28:28
Speaker 9: be driving around, so they're looking for something smaller. They
28:31
Speaker 9: have areas where they just don't have bus service today,
28:34
Speaker 9: but they want to make it accessible, some kind of
28:37
Speaker 9: public transportation, so we can kind of micro transit augment
28:41
Speaker 9: what might be there. And then I will say a
28:43
Speaker 9: lot of it is around the accessibility for those with disabilities.
28:49
Speaker 9: So Detroit, for example, they just launched and they are
28:52
Speaker 9: very specifically focusing on senior citizens and folks who have
28:57
Speaker 9: accessibility issues, whether it's hearing impaired, impaired, or specifically the wheelchairs.
29:02
Speaker 9: Wheelchairs on demand is just not there anywhere that I
29:05
Speaker 9: know of. You have to pre register typically twenty four
29:08
Speaker 9: hours notice.
29:09
Speaker 11: Could be very costly.
29:11
Speaker 3: What are some of the community feedback, like the good
29:13
Speaker 3: stuff but also the stuff that you need to keep
29:15
Speaker 3: working on.
29:17
Speaker 11: Yeah, that's a good question.
29:18
Speaker 9: I would say we get we actually take a survey.
29:22
Speaker 9: Whenever anybody rides, they call it up on their app,
29:25
Speaker 9: or they can call a phone number to book if
29:27
Speaker 9: it's someone who's not you know, tech savvy with their phone,
29:31
Speaker 9: so two ways to book it. And then after every
29:34
Speaker 9: ride we ask them to rate the ride. And so
29:37
Speaker 9: this is something we also do with the communities is
29:39
Speaker 9: we look at their ridership, look at where they have
29:42
Speaker 9: hotspots that maybe need more vehicles, more capacity.
29:46
Speaker 11: We look to see the quality of the rides.
29:49
Speaker 9: We get extremely high ratings. It's usually hey, can we
29:52
Speaker 9: even expand the service areas? Right, So it's a partnership
29:57
Speaker 9: where we can really share that kind of data and
30:01
Speaker 9: both learn where to expand and where to bring the
30:03
Speaker 9: highest value to them.
30:05
Speaker 5: What's a typical or what's a target kind of market
30:08
Speaker 5: to open up? What fits your criteria.
30:13
Speaker 9: Well, one of the things we do, and I think
30:15
Speaker 9: this has been to the success of May being one
30:17
Speaker 9: of the few companies still standing out there and a
30:19
Speaker 9: profitable company from we have profitable sites operating today, is
30:24
Speaker 9: that we start very.
30:28
Speaker 11: Very deliberately with a specific geographic area.
30:32
Speaker 9: We'll work with the community as say where's your hotspots,
30:34
Speaker 9: where's your trouble. But we also will say, you know,
30:37
Speaker 9: let's stick to thirty thirty five forty miles an hour
30:40
Speaker 9: by the end of the year roads without saying we're
30:43
Speaker 9: going to hop on the freeways and try to map
30:44
Speaker 9: the entire city. So you know, it's a it's a
30:47
Speaker 9: more measured approach to say, hey, lower risk, let's start
30:51
Speaker 9: here and we'll continue to expand over time. So the
30:54
Speaker 9: criteria we really are operating in all different climates, that's
30:57
Speaker 9: not really an issue. It's really more just which communities
31:02
Speaker 9: are ready to embrace. Another application would be an airport,
31:05
Speaker 9: for example, So there is some B to B as well.
31:07
Speaker 9: It's not just B to G, but you can think
31:09
Speaker 9: of airports obviously wanting to move people around without having
31:13
Speaker 9: to pay for joinoris again shuttle buses.
31:15
Speaker 3: So interesting, really great stuff. Hey, Kathy, really appreciate it.
31:19
Speaker 3: Kathy Winters, the chief operating officer at my Mobility, We
31:23
Speaker 3: really appreciate all of that context just staying in cars
31:26
Speaker 3: for a sec. So apparently this according to Baron's Ford
31:29
Speaker 3: and A Texas Utility is making a plan to make
31:33
Speaker 3: charging free for Texas University. Texas customers if EV owners
31:37
Speaker 3: charge during off peak times of day, So basically it's like, hey,
31:41
Speaker 3: get your EV because you know what, if you do
31:42
Speaker 3: it in this very strict parameter, you can charge up your.
31:45
Speaker 9: Car for free.
31:46
Speaker 7: Right So starting to get a little bit creative.
31:48
Speaker 5: They're trying to stoke demand out there, because again that's
31:50
Speaker 5: probably one of the gating issues at least right now
31:53
Speaker 5: for the EV business.
31:54
Speaker 3: And you can still charge it in, you know, at
31:55
Speaker 3: home during these times, it just got to pay for it.
31:57
Speaker 3: So that's a quite interesting little thing there. From Ford.
32:01
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
32:05
Speaker 2: weekdays at ten am Eastern on applecard.
32:07
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32:10
Speaker 2: You can also listen live on Amazon Alexa from our
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Speaker 2: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
32:19
Speaker 5: Alex Steel, Paul Swine. You live here in our Bloomberg
32:21
Speaker 5: Interactive Brokers studio. We're streaming live on Youtubes. A hit
32:24
Speaker 5: over YouTube dot com search Bloomberg Podcast and that's where
32:28
Speaker 5: you will find us. I know set the mortgage back
32:30
Speaker 5: Mortgage Bankers Association thirty or fixed Mortgage is now six
32:33
Speaker 5: point five five percent, so coming down from the north
32:36
Speaker 5: of seven. But a lot of folks in the real
32:38
Speaker 5: estate business it's got to come down even more to
32:41
Speaker 5: prompt some of these people to get out of their
32:42
Speaker 5: homes and maybe provides more liquidity to the used housing market.
32:47
Speaker 7: Let's talk about the stock market here.
32:48
Speaker 5: We get a nice run coming off of those that
32:51
Speaker 5: really disturbing Monday a week ago. We found market's kind
32:55
Speaker 5: of found some footing here, up about one percent at least.
32:57
Speaker 7: Was just reporting on the SP five hundred. James. He
33:00
Speaker 7: does this investing thing for a living.
33:02
Speaker 5: He's a chief investment officer at main Street Research. Joining
33:06
Speaker 5: us from New York via a zoom here, James, let's
33:10
Speaker 5: put into context here. We've got a little bit of
33:11
Speaker 5: a rearview mirror. Now we can think about a week ago,
33:13
Speaker 5: last Monday, the volatility the market experienced here and then
33:17
Speaker 5: seems to again found its footing since then, what happened?
33:22
Speaker 10: Yeah, I Paul, thanks for having me in Hi Alex.
33:26
Speaker 10: That was panic button for sure last Monday, market down
33:30
Speaker 10: a thousand points, and I think that investors mistakenly looked
33:35
Speaker 10: at that as you know, blood on the streets or panic,
33:39
Speaker 10: when in fact, in our view. That was an invitation,
33:42
Speaker 10: one of only a few we've had this year where
33:44
Speaker 10: that momentum of upside in the market just sort of
33:47
Speaker 10: gave way to what I would call, you know, on
33:49
Speaker 10: our team, a normal correction, but at high speed. Right, So,
33:53
Speaker 10: you know, these kind of eight to ten percent corrections
33:56
Speaker 10: usually take three four weeks and we're sort of lulled
33:59
Speaker 10: comfortably into the the lower market levels. We got all
34:02
Speaker 10: of it within ten days. Investors just really weren't ready
34:05
Speaker 10: for that. But relative to norms, that was a normal pullback,
34:10
Speaker 10: just that turbo speed. We don't think it in any
34:13
Speaker 10: way sort of stops or impedes this bull market, this
34:17
Speaker 10: new business cycle that we see.
34:19
Speaker 3: Why are you so convinced that this was just a
34:21
Speaker 3: decline in a bull market versus something more serious longer term?
34:26
Speaker 10: Yeah, Alex, and I think that's a really good question.
34:29
Speaker 10: Investors to try to get themselves away from being psychologically
34:32
Speaker 10: drawn into the drama of the decline, you know, focus
34:36
Speaker 10: on metrics to remind ourselves to keep an even keel psychologically.
34:42
Speaker 10: And when we do that, you know, one, you know
34:45
Speaker 10: what the ingredients of these new bull markets are valuation.
34:48
Speaker 10: You want to make sure stock our stocks reasonly priced?
34:51
Speaker 10: Is this the beginning of something worse? And valuation across
34:55
Speaker 10: most stocks AI excluded is around sixteen times earnings. This
34:58
Speaker 10: is historically reasonable. Another thing you want to think about
35:03
Speaker 10: is economy growing. Yeah, we're growing it north of three percent,
35:07
Speaker 10: so the checks the box there that you know, recession
35:09
Speaker 10: is a long way from three percent growth. Corporate profits
35:13
Speaker 10: very important goes along with economic growth better than expected.
35:17
Speaker 10: You know, one thing I think that investors really should
35:19
Speaker 10: have thought maybe a little bit better about last week
35:23
Speaker 10: was where is FED policy going? You know, FED policy
35:27
Speaker 10: is a really important ingredient to keep the bull market going.
35:30
Speaker 10: And we've gotten some data well today the PPI right,
35:34
Speaker 10: a little lower than expected, and even data past Friday
35:38
Speaker 10: when the market didn't like that data about employment. But
35:40
Speaker 10: what that data told us is the Fed is ready
35:43
Speaker 10: and willing to lower rates. Those little metrics I just
35:47
Speaker 10: mentioned there is really the support that investors need to know. Hey,
35:51
Speaker 10: this market decline isn't panic, it's an invitation to the
35:55
Speaker 10: beginning of that next leg upward, which we think goes
35:57
Speaker 10: to six thousand by the end of the year on
35:59
Speaker 10: the SMA.
36:00
Speaker 7: Wow, whoa, that's a nice round number. I like nice
36:03
Speaker 7: round numbers. What's going to get us there? James?
36:05
Speaker 5: I mean, as long as I can been in this game,
36:07
Speaker 5: it's been technology kind of leading this market in and
36:10
Speaker 5: I guess, given the market cap has some of the
36:12
Speaker 5: big tech names, is tech going to lead us to
36:14
Speaker 5: that kind of level six thousand?
36:17
Speaker 10: Yeah, the wild factor of six thousand stills exists, but
36:20
Speaker 10: it was a lot more fun to say it last Monday.
36:24
Speaker 10: But you know, we think what leads us there is,
36:28
Speaker 10: first of all, corporate profit growth. Right. We continue to
36:31
Speaker 10: see Ernie's coming way better than expectations, and we think
36:34
Speaker 10: the FED policy is really going to I don't think
36:37
Speaker 10: they're going fifty basis place. I think they're going to
36:39
Speaker 10: tap the accelerator on rates go twenty five. That'll keep
36:44
Speaker 10: people comfortable, and that's going to be the big fuel
36:47
Speaker 10: what I call that booster for the next leg up.
36:50
Speaker 10: But you know, I think also valuations are cheaper now
36:54
Speaker 10: you've got six trillion dollars not in the market. That
36:58
Speaker 10: should be that money, called fomo fuel is probably going
37:02
Speaker 10: to come in once the FED goes and has a
37:05
Speaker 10: nice message about the economy. I think that money comes.
37:08
Speaker 10: I think it's a big rocket fuel to get to
37:10
Speaker 10: six thousand by the end of the year. You know,
37:12
Speaker 10: we're also saying now one hundred thousand in the next
37:14
Speaker 10: six years, because we're in the early phase.
37:17
Speaker 5: Of this point.
37:17
Speaker 3: But that's that doesn't sound like that's a purely AI
37:20
Speaker 3: tech call at all. That sounds like that's a broadening rally.
37:23
Speaker 3: Gets us there.
37:24
Speaker 10: Yeah, Alex, thank you. I do think that there's lots
37:28
Speaker 10: of momentum left in AI. The appetite for spending is
37:32
Speaker 10: still there as we go through the conference calls and earnings.
37:36
Speaker 10: But I do think also, and the team sort of
37:38
Speaker 10: supports us on this, that the Fed lowering rates is
37:42
Speaker 10: really going to be the real trigger for the market
37:45
Speaker 10: to broaden.
37:46
Speaker 8: Right.
37:46
Speaker 10: Lower rates you just mentioned mortgage rates. That's helpful there.
37:50
Speaker 10: The banks are going to benefit from real rates coming down,
37:54
Speaker 10: you know, as opposed to speculating that they will. So
37:57
Speaker 10: we think that the September cut is going to be
38:00
Speaker 10: the real fuel that wow a rally to the end
38:03
Speaker 10: of the year, probably led by tech that's where the
38:05
Speaker 10: market cap is. But I think here you're really going
38:08
Speaker 10: to see the small stocks, the financials, the industrials.
38:11
Speaker 8: All be part of this.
38:13
Speaker 10: This great invitation of this party that we're headed towards
38:16
Speaker 10: the end of the year.
38:19
Speaker 7: Earnings cycle.
38:21
Speaker 6: Here.
38:21
Speaker 5: We're starting to get to the tail end of this
38:23
Speaker 5: earning cycle here, James, any takeaways for you this cycle?
38:28
Speaker 10: You know, it's sort of the same story over and
38:31
Speaker 10: over the last few quarters where you've got the technology
38:35
Speaker 10: companies beating expectations. You know, those expectations have been risen,
38:40
Speaker 10: so you had a little murkiness there. I think that
38:42
Speaker 10: that's going to continue this earning season. You saw some
38:46
Speaker 10: really I saw some great numbers in the financials, particularly
38:49
Speaker 10: like the JP Morgans that didn't rely so much on
38:52
Speaker 10: interest expense. So I'd just say that, you know, again,
38:56
Speaker 10: earnings were better than expected this last quarter. I think
38:59
Speaker 10: with FED policy, we're going to see continue to see
39:02
Speaker 10: the same thing in the in the fourth.
39:04
Speaker 3: I know you're probably gonna hate this question. Where could
39:06
Speaker 3: you be wrong?
39:07
Speaker 12: Like?
39:07
Speaker 3: What are the cases where we don't get to six thousand?
39:10
Speaker 3: Is that a FED behind the curve? Is that an
39:13
Speaker 3: exogenous event? Is that AI hyperscaler is kind of pushing back?
39:18
Speaker 3: Where where do you game out your barricades?
39:21
Speaker 10: Yeah, Alex, I spent half my life second guessing okay, good,
39:27
Speaker 10: and I think it's important for investors to use, you know,
39:30
Speaker 10: things like risk management tools stop losses to mitigate you know,
39:33
Speaker 10: risks that are there. And you know, I think the
39:35
Speaker 10: risks here are the FED either does nothing, so I
39:39
Speaker 10: FED policy is a big risk. If FED does nothing,
39:42
Speaker 10: I think that's going to be very bad for our
39:44
Speaker 10: whole view of six thousand. I also think that the
39:47
Speaker 10: FED going fifty basis points are something you know, too extreme.
39:51
Speaker 12: That also is a risk.
39:52
Speaker 10: We don't want to scare investors that thinking gosh, they're
39:54
Speaker 10: going fifty because the economy is two weak, because frankly
39:57
Speaker 10: it isn't. So I think, you know, we want to
39:59
Speaker 10: see the FED really specifically at policy. That is a risk.
40:03
Speaker 10: The geopolitical risk is clearly there, it's increasing. I think
40:06
Speaker 10: investors really want to be you know, monitor that, like
40:09
Speaker 10: our team does you know the thing with you know,
40:11
Speaker 10: Israel and Iran and all around the world. We have
40:14
Speaker 10: all these risks the elections coming that's gonna make people
40:17
Speaker 10: generate though elections typically don't cause risks for index markets
40:22
Speaker 10: maybe some sectors, So we want to be careful of
40:24
Speaker 10: watching all these things. And then there's always the stuff
40:27
Speaker 10: we don't know right, which is a risk, so again,
40:29
Speaker 10: use some risk management tools, but you know those are
40:32
Speaker 10: underpinnings we mentioned earlier, valuation, economic growth, earnings, cash levels,
40:36
Speaker 10: really high, FED policy coming in to accelerate the economy
40:40
Speaker 10: a little bit. I think that's going to get us.
40:42
Speaker 5: There, all right, James, thanks so much for joining us.
40:44
Speaker 5: Really appreciate getting your thoughts. James Demmert. He's the chief
40:47
Speaker 5: investment officer at main Street Research. I appreciate getting a
40:51
Speaker 5: few minutes of his time.
40:53
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