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Retail Sales, Global Inflation and Biopharma Investing · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moven news.
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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
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Speaker 3: We got some eco data today.
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Speaker 1: I've had a lot of economic data early over the
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Speaker 1: last week, week and a half, a lot for the
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Speaker 1: Federal Reserve to chew on as that thinks about its
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Speaker 1: net next rate decision springing. Ira Jersey covers all that
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Speaker 1: interest rate stuff for Bloomberg Intelligence. He's down in the
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Speaker 1: Princeton campus of Bloomberg Intelligence the Core HQ for bi Ira. Again,
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Speaker 1: we had some retail sales number today, some industrial production
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Speaker 1: numbers came in. I guess a little bit weaker than expected.
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Speaker 1: Anything here over the last several days changes your opinion
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Speaker 1: that this Federal Reserve is probably going to raise rates
0:55
Speaker 1: here at the end of the month.
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Speaker 3: But and then after that, it's a I guess, still
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Speaker 3: a guessing.
1:01
Speaker 4: Yeah, it is probably still a guessing game pall afterward,
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Speaker 4: especially since before the September meeting, we effectively get two
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Speaker 4: months worth of data, right, so it's not just a
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Speaker 4: single month like we kind of have now. In between
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Speaker 4: the June and July meetings, you know, the data has
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Speaker 4: been pretty mixed. Today's data is just proof of that.
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Speaker 4: We had pretty weak industrial production numbers that doesn't look good.
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Speaker 4: The good sector of manufacturing is not doing well in
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Speaker 4: the United States, and indeed globally there's a slowdown in manufacturing.
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Speaker 4: And then but on the other side, spending was really
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Speaker 4: good when you look at the control group. So this
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Speaker 4: is the GDP input from the retail sales numbers this morning,
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Speaker 4: and that was solid. So you have very mixed data
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Speaker 4: in terms of what's gone on business sector and maybe
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Speaker 4: setting up for a recession versus you know, actual spending
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Speaker 4: data which looks pretty good.
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Speaker 5: So IRA, in terms of what you anticipate the meetings
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Speaker 5: look the meeting minutes looking like coming out of this
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Speaker 5: next FED meeting next week, do you anticipate the majority
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Speaker 5: of the conversation being about what the FED is going
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Speaker 5: to do in the fall versus a justification for what
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Speaker 5: we expect to be a hike next week.
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Speaker 4: Yes, So I don't think the minutes of this meeting
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Speaker 4: will be particularly interesting because there's not a summary of
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Speaker 4: economic projections that are coming out, so they don't you know,
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Speaker 4: they always tweak, you know, in the inter meeting period
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Speaker 4: kind of here's what happened. But those big discussions about
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Speaker 4: more forward looking information will come more from the September
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Speaker 4: meeting when we do get a new dot plot summary
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Speaker 4: of economic projections, where do we think unemployment and GDP
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Speaker 4: and everything else is going to be? So I think
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Speaker 4: September will be much more telling in that regard. You know,
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Speaker 4: my feeling is is that the Fed this week is
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Speaker 4: going to say, Okay, we're hiking again. They basically promised
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Speaker 4: that they were going to and they'll say, but we're
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Speaker 4: going to reevaluate meeting by meeting, and they'll continue with
2:55
Speaker 4: that type of discussion. You know, you go back to
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Speaker 4: this time last year, and the Fed was still saying,
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Speaker 4: we're continuing to increase interest rates, right, so they were
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Speaker 4: almost promising that they're going to keep going, not necessarily
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Speaker 4: at what pace, but that they were going to keep
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Speaker 4: hiking rates. And and now they're they're significantly more data
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Speaker 4: dependent than they were a year ago. For each in
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Speaker 4: between each individual meeting. So so so this is kind
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Speaker 4: of like a placeholder meeting, I think in a way
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Speaker 4: where September can be much more telling us to the
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Speaker 4: future of interest rates.
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Speaker 1: Is this fed a reserve ever going to come out
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Speaker 1: and say basically, hey, we did a good job. We
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Speaker 1: got inflation down, it's going in the right direction. You know,
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Speaker 1: we were aggressive, but it's working.
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Speaker 6: Well.
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Speaker 4: They've already started to say that that. You know, Jay
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Speaker 4: Powell during his press conference and in some of the
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Speaker 4: other conferences and and and and meetings that he's had
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Speaker 4: in between, whether it was before Congress or over in
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Speaker 4: Portugal at at at the ECB summit, he's basically said, look,
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Speaker 4: inflation is trending in a direction that we like, but
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Speaker 4: but the job's not done. So I think from his standpoint,
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Speaker 4: from their standpoint, that they can they'll they'll won't say
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Speaker 4: anything like that until it's very clear that say that
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Speaker 4: the PC deflator is below three percent. Once you get there,
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Speaker 4: I think they can say that like, we're approaching our target,
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Speaker 4: and and then they'll pat themselves in the back maybe
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Speaker 4: a little bit, and and basically say, you know, job's done,
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Speaker 4: but we're being cautious.
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Speaker 5: And what's your timeline these days, Ira for when we
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Speaker 5: can anticipate that celebration.
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Speaker 4: Yeah, so I think before the end of the year
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Speaker 4: that the FED is going to be able to say,
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Speaker 4: you know, we've gotten inflation back toward we're near our
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Speaker 4: our target level of two percent. So because of that,
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Speaker 4: we can remain on hold, and you know, they'll always
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Speaker 4: continue to use the buzzwords of we're continuing to watch
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Speaker 4: you know, economic activity and inflation and jobs and everything else.
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Speaker 4: I don't think that they're going to cut rates until
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Speaker 4: later next year, so a little bit beyond what's what's
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Speaker 4: being priced, it's still pricing for cuts in the first
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Speaker 4: quarter of next year, or the first cut in the
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Speaker 4: first quarter of next year. I think it's gonna they're
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Speaker 4: not going to ultimately cut until later next year. Once
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Speaker 4: they do, I think that the economy is going to
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Speaker 4: be weak enough that they'll have to cut much more aggressively,
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Speaker 4: maybe than what the market's pricing.
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Speaker 5: Well to Paul's point about when they can start to celebrate,
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Speaker 5: I wonder when we might have a FED that does
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Speaker 5: a little bit of a post mortem and looks at
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Speaker 5: the lag in raising interest rates and maybe is open
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Speaker 5: to discussing and an effort to build some credibility that
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Speaker 5: they maybe drop the ball a little bit too early on.
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Speaker 5: Do you anticipate anything like that happening.
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Speaker 4: Well, you know, I think everyone and the Federal Reserve
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Speaker 4: always does some self reflection, and certainly they can be
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Speaker 4: criticized for, you know, not even the rate hikes. Like
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Speaker 4: if I were to do a post mortem on what
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Speaker 4: the Federal Reserve did and the actions that it took,
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Speaker 4: I think the single biggest thing that they did was
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Speaker 4: a continued quantitative easing to long. You know, they could
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Speaker 4: have ended quantitative easing in the spring of twenty twenty
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Speaker 4: one and you know, started to hike in early twenty
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Speaker 4: twenty two, similar to what they did, but they didn't
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Speaker 4: take any hawkish actions until maybe it was a little
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Speaker 4: bit too late. Now once they got going, they obviously,
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Speaker 4: as we know, they really got going and you know,
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Speaker 4: kind of played catch up. So and it's not unusual
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Speaker 4: for central banks to do that because they don't want
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Speaker 4: to be seen as hiking and tightening monetary.
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Speaker 3: Policy too early.
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Speaker 4: But there's other actions now that they can take other
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Speaker 4: than the blunt instrument of actually hiking interest rates, you know,
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Speaker 4: especially when they have balance sheet policy that they can
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Speaker 4: play with IRA.
6:42
Speaker 1: When you know, talk to institutional investors, what's the recession
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Speaker 1: talk these days? And people think it's kind of off
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Speaker 1: the table or at the very very least it can
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Speaker 1: be short and shallow.
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Speaker 4: Yeah, most of the people that I talked to think
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Speaker 4: that we're going to have some form of soft landing.
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Speaker 4: I you know, I don't know if it's a recession,
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Speaker 4: like you know, how you define a recession obviously matters
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Speaker 4: a lot. Whether whether we get a recession that the
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Speaker 4: NBER you know, classifies as one I think is still
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Speaker 4: very much up in the air, and a lot of
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Speaker 4: investors are kind of looking past that and saying, okay,
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Speaker 4: look when we look at the hard data, when we
7:16
Speaker 4: look at the retail sales data, which is a hard
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Speaker 4: data point because it's actual sales in the economy, that
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Speaker 4: looks pretty good, and employment is hasn't yet completely rolled over.
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Speaker 4: Although we have slowing job growth, we don't have yet
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Speaker 4: have job losses, you know, we've it's pretty rare to
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Speaker 4: have a recession and no job losses. So so I
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Speaker 4: think a lot of people are very hopeful that we'll
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Speaker 4: have a soft landing. You know, I think rates investors
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Speaker 4: are a little more skeptical and a little more pessimistic
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Speaker 4: than say equity investors that I've spoken to. But there's
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Speaker 4: a lot of people who are confused because we do
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Speaker 4: have this variety of data. Like I said that that,
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Speaker 4: you know, you look at the ism surveys and they're
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Speaker 4: suggesting that we're going to have a significant slow down.
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Speaker 4: But at the same time, you get retail sales numbers
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Speaker 4: like we have this morning, and people are like, yeah,
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Speaker 4: you know, maybe the survey data is not going to
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Speaker 4: be right.
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Speaker 1: All right, We're going to be on alert for more data.
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Speaker 1: We obviously have at the FED next week with their announcement,
8:14
Speaker 1: our Jersey chief UoS interest rates strategist for Bloomberg Intelligence
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Speaker 1: joining us there.
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Speaker 7: You're listening to the team Ken's are Live program Bloomberg
8:23
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8:34
Speaker 1: After a brutal twenty twenty two in equities and Fixing Income,
8:37
Speaker 1: twenty twenty three is treating investors a lot better. Here
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Speaker 1: started the first half of the year, SMP up about
8:41
Speaker 1: fifteen percent or so. We've added a little bit more
8:43
Speaker 1: to that since here in July. The question for a
8:46
Speaker 1: lot of folks is now, what do we do? So
8:48
Speaker 1: let's check in with somebody who does this stuff for
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Speaker 1: a living. Karen Murphy, CIO of Kestra Investment Management. She
8:53
Speaker 1: joins us live here in our Bloomberg Interactive Brokers studio,
8:56
Speaker 1: no phoning, and in today. So Caraen, you know, a
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Speaker 1: good first half of the year for a lot of investors,
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Speaker 1: particularly those that on Apple and an Amazon and Meta
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Speaker 1: and things like that. What are you telling your clients
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Speaker 1: here as we kind of kick off the second half, Well, thanks.
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Speaker 6: So much for having me here. And we've called twenty
9:12
Speaker 6: twenty three the revenge of the growth stocks. So there's
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Speaker 6: all those stocks that underperformed so much in twenty twenty
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Speaker 6: two came back with a vengeance and really turned on
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Speaker 6: a dime in the first half. But when you think
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Speaker 6: about you know, largest seven stocks in the SMP were
9:27
Speaker 6: up about ninety percent year to date. Just mathematically speaking,
9:31
Speaker 6: that can't continue forever. So we've started to see the
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Speaker 6: market broaden out a little bit. Russell two is coming
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Speaker 6: back a little bit, seeing some big caps do better,
9:40
Speaker 6: so that's healthy for the market, so, you know, and
9:44
Speaker 6: there's a fair amount of economic momentum as well. You know,
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Speaker 6: we're still cautious on kind of where we are in
9:48
Speaker 6: the economic cycle, but consumers remain really strong. Balancees are
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Speaker 6: relatively hefty, so you know, in my mind, it's kind
9:54
Speaker 6: of a back to basics where you want to be
9:56
Speaker 6: able to have a diversified portfolio because nobody can call
9:58
Speaker 6: those big turning points and you can't be stuck in
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Speaker 6: a handful of stocks that are suddenly going to turn
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Speaker 6: around the wrong way.
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Speaker 5: You mentioned the Russell two K and they broke out
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Speaker 5: of that key resistance level last week. I wonder to
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Speaker 5: what extent you look at that versus the Dow breaking
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Speaker 5: out of its key levels as well. What are you
10:16
Speaker 5: thinking in terms of the comparison of the two endses.
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Speaker 6: Well, Frankly, as a practitioner, the Dow we don't pay
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Speaker 6: all that much attention to because it's a fairly concentrated
10:25
Speaker 6: measure of what's happening in the market. The Russell two
10:27
Speaker 6: is a pretty good representation of what's happening on the
10:29
Speaker 6: smaller side of the market. S and P six is
10:32
Speaker 6: also a very helpful indicator because you take out some
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Speaker 6: of those really small cap names in the Russell two
10:37
Speaker 6: thousand that are not that meaningful. So all of those
10:40
Speaker 6: again are starting to see a little bit more life.
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Speaker 6: But remember, like small caps have been beaten up for years,
10:45
Speaker 6: we really have never had that long kind of streak
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Speaker 6: of small caps outperforming, at least not in recent history.
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Speaker 6: So this could be a sign of some more resiliency
10:55
Speaker 6: in those smaller names.
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Speaker 1: On the fixing cob side, I mean, you know it
10:59
Speaker 1: was brutal, there was nowhere to hide, and fixed income
11:02
Speaker 1: this year I can just go sit in to your
11:04
Speaker 1: treasury and get four point seven percent. That feels like,
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Speaker 1: you know, just paradise. What should I do in a
11:09
Speaker 1: fixed income? Should I be taking a little bit more
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Speaker 1: risk than into your treasury?
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Speaker 6: Well, it's been so interesting to watch investor psychology with
11:15
Speaker 6: As you said, twenty twenty two, fixed income was left
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Speaker 6: for dead. I mean, it was really an existential crisis,
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Speaker 6: and we had a lot of clients who were coming
11:22
Speaker 6: to us saying, why do I own fixed income at all?
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Speaker 6: This year is a very different story where all of
11:27
Speaker 6: a sudden people are very happy sitting in it too.
11:29
Speaker 6: Your treasury or a money market earning attractive returns that
11:31
Speaker 6: we haven't seen in decades. So the reality somewhere in between,
11:35
Speaker 6: fixed income is still a really important asset class. You
11:38
Speaker 6: can still build a really great, diverse side portfolio that
11:41
Speaker 6: will do well over time, but it's hard to kind
11:44
Speaker 6: of draw people out of that very safe place after
11:46
Speaker 6: the volatility that we had last year. So eventually, as
11:49
Speaker 6: we start to see the Yuell curve kind of revert
11:52
Speaker 6: get to a more normal position, I think gradually investors
11:55
Speaker 6: will be drawn out the curve and into some other
11:57
Speaker 6: asset classes. But you're right, right now, they're pretty comfortab Yeah.
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Speaker 5: And in terms of that volatility, obviously the banking turmoil, crisis,
12:05
Speaker 5: whatever term you want to use there comes to mind.
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Speaker 5: How are you thinking about the long term effects of that.
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Speaker 5: Do you think that it was overblown a little bit?
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Speaker 5: Or did we underprice the impact?
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Speaker 6: I think there was a moment there where we were
12:17
Speaker 6: kind of looking across the financial abyss right, like we
12:20
Speaker 6: had three very large financial institutions that failed very quickly.
12:25
Speaker 6: The good news is that regulators already had a pretty
12:28
Speaker 6: good playbook from the financial crisis. They moved in size
12:31
Speaker 6: and force, and it was coordinated, so it worked out okay.
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Speaker 6: From a systemic perspective, it didn't have to be that way,
12:37
Speaker 6: and I credit regulators with managing through that. But there
12:41
Speaker 6: are lasting implications, and the big one is tighter lending standards,
12:45
Speaker 6: and we're seeing that come through in force. Small businesses
12:47
Speaker 6: can't get loans. Loan officers are really tightening up, and
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Speaker 6: that will be a drag on economic growth for the
12:53
Speaker 6: foreseeable future.
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Speaker 1: How about outside of the US are you suggesting your
12:58
Speaker 1: clients look at I don't know. For example, we've got
13:02
Speaker 1: the dollar pulling back off of its recent strength.
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Speaker 3: How do you think about outside of the US?
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Speaker 6: Yeah, similar to fixed income, you know, a lot of
13:09
Speaker 6: non US equity markets had kind of been left for
13:11
Speaker 6: dead because the S and P five hundred was the
13:13
Speaker 6: best performing asset class for a year after year. So
13:16
Speaker 6: we've been encouraging people to remember that non US stocks
13:19
Speaker 6: are still a really important part of a portfolio. In particular,
13:22
Speaker 6: you mentioned the dollar, So the dollar has started to
13:25
Speaker 6: retreat a little bit. If we have inflation licked here
13:29
Speaker 6: and Europe is still battling it, that will also be
13:31
Speaker 6: a drag on the dollar. So that is good for
13:34
Speaker 6: non US investments. But then also when we look at
13:37
Speaker 6: IFA valuations versus the US, US tends to trade at
13:40
Speaker 6: a higher evaluation relative to EFA in general, but that
13:43
Speaker 6: has gotten to like two and a half standard deviations
13:45
Speaker 6: above the norm. So it definitely looks like the valuation differential.
13:49
Speaker 6: You're being paid to take a little bit more risk
13:51
Speaker 6: outside the US.
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Speaker 5: And then okay, if you're getting paid to take on
13:56
Speaker 5: risk outside of the US, what is the allocation looking
14:00
Speaker 5: like then for those emerging markets?
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Speaker 6: So emerging markets is a little trickier because those have
14:06
Speaker 6: much larger kind of cycles. You know, there's been a
14:09
Speaker 6: lot of talk about China just not coming back online
14:12
Speaker 6: like it was expected. Some of those Asian emerging markets
14:16
Speaker 6: that rely a lot on China have actually been more
14:18
Speaker 6: resilient than expected. So emerging markets, I think is an
14:21
Speaker 6: important allocation to be able to have in a portfolio,
14:23
Speaker 6: but you want to size it appropriately. You know, if
14:25
Speaker 6: you're a very conservative investor, you don't want a huge
14:27
Speaker 6: amount of allocation there.
14:29
Speaker 1: All right, we're just starting to really get into the
14:31
Speaker 1: teeth of earnings here. What are you guys and your teams,
14:35
Speaker 1: what are they kind of looking for this earning season?
14:37
Speaker 1: What are you kind of listening for on Ernie's calls?
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Speaker 6: So certainly the banks are going to be really important.
14:41
Speaker 6: We started to see some come out today. We talked
14:44
Speaker 6: about lending standards. So how cautious are companies or banks
14:48
Speaker 6: in particular being in terms of writing new credit? Also
14:51
Speaker 6: what about the credit that's already on their balance sheets?
14:53
Speaker 6: So consumers, you know, we're starting to see delinquencies tick
14:56
Speaker 6: up a little bit, what kind of behavior are they seeing?
15:00
Speaker 6: And then also commercial real estate office in particular, right
15:02
Speaker 6: We've we've seen a lot of concern there and it
15:06
Speaker 6: hogs up a lot of balance sheet on regional banks.
15:08
Speaker 6: So that's going to be very important. And I think
15:11
Speaker 6: more generally looking at consumer behavior, so are people starting
15:15
Speaker 6: to trade down a little bit? We're certainly seeing it
15:17
Speaker 6: outside the US, or people are trading too, you know,
15:20
Speaker 6: more private label, cheaper goods, and so how are people reacting,
15:23
Speaker 6: particularly in anticipation of things like student loan payments coming back?
15:27
Speaker 3: Again?
15:28
Speaker 5: When you think about trading down specifically, I feel like
15:31
Speaker 5: in the last earning cycle, on the consumer discretionary side,
15:34
Speaker 5: at least, it was kind of a mixed picture of
15:36
Speaker 5: the consumer like Target, Bad, Walmart, obviously good. How do
15:40
Speaker 5: you suss out the information that you're getting throughout and
15:43
Speaker 5: earning cycle to come to one conclusion about the consumer?
15:47
Speaker 6: Yeah, it's a challenge your job because, as you point out,
15:51
Speaker 6: there wasn't a single tune right in the last earning season.
15:56
Speaker 6: You heard some areas of caution, some areas like no,
15:58
Speaker 6: we're good. Kind of have to put it all together,
16:01
Speaker 6: you know, like studying for the CFA, you're talking about
16:03
Speaker 6: mosaic theory. So that's really what it is. Taking all
16:05
Speaker 6: these little pieces and then stepping back to see what
16:07
Speaker 6: picture is forming. So I think we'll know a little
16:10
Speaker 6: bit more in a couple of weeks.
16:12
Speaker 3: You're based in Austin, right, I am how long have
16:14
Speaker 3: you been there?
16:14
Speaker 7: Cool?
16:15
Speaker 6: Only a year?
16:16
Speaker 3: Right, so you're one of those five I've been a Texas.
16:18
Speaker 1: I'm just wondering where is Austin putting all these people
16:20
Speaker 1: that are you.
16:20
Speaker 3: Putting like trailers or something? I mean, can Austin handle
16:24
Speaker 3: all these people coming down?
16:26
Speaker 6: It has been a challenge. It is very difficult to
16:28
Speaker 6: get a dinner reservation on a Friday night.
16:30
Speaker 3: How about how about traffic?
16:31
Speaker 1: Is what we've seen in some of these southern cities
16:33
Speaker 1: even Atlanta hasn't been able to, you know, several decades
16:37
Speaker 1: after it exploded and growth to deal with the traffic.
16:38
Speaker 6: Well, I always laugh when I hear Austin Nights complaining
16:41
Speaker 6: about the traffic. I mean, like, no offense, Austin Nights.
16:43
Speaker 6: I love you guys, but you know nothing about traffic.
16:46
Speaker 8: I do not know.
16:46
Speaker 6: I spent most of my life in New York City. Yeah,
16:49
Speaker 6: traffic in Austin is just fine.
16:51
Speaker 1: And so is there. Now are people are they? What's
16:54
Speaker 1: that back to office situation in Austin? What are people
16:56
Speaker 1: generally doing?
16:57
Speaker 6: So much more than what you would see here in
16:58
Speaker 6: New York City. So we're back four days a week
17:00
Speaker 6: and we haven't for a year, and so there's certainly
17:03
Speaker 6: a fair amount of people still remote and will probably
17:05
Speaker 6: remain that way, but simply because you know, commute times
17:08
Speaker 6: are much less than what you find in a place
17:10
Speaker 6: like New York. So a lot of people are back
17:12
Speaker 6: in the office at least a few.
17:13
Speaker 3: Days a week. Is Austin still weird?
17:15
Speaker 6: Oh for sure?
17:16
Speaker 3: For sure. Yeah, keep Austin.
17:18
Speaker 1: I love it.
17:18
Speaker 3: Yeah, it's kind of loves a funny tag line.
17:20
Speaker 5: No, Austin, Austin is amazing.
17:22
Speaker 8: It's like the best and.
17:23
Speaker 3: They have a schooler. I think right there, you.
17:24
Speaker 8: Know, think got a small one.
17:26
Speaker 1: All right, Karen Murphy, thanks so much for joining us.
17:28
Speaker 1: Kara Murphy's the CIO at Kestra Investment Management. She's based
17:31
Speaker 1: in Austin, Texas, but we got her live here in
17:33
Speaker 1: the Bloomberg Interactive Broker Studio, so we just appreciate that.
17:36
Speaker 1: Thank you very much for joining us.
17:37
Speaker 7: Careen, you're listening to the tape cans Are Live program
17:41
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17:45
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17:47
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17:51
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17:54
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17:57
Speaker 1: All right, I'm looking at the work function here. We
17:59
Speaker 1: have the FED obviously next week Wednesday, I think ninety
18:03
Speaker 1: three point six percent percentage likelihood of raising rates.
18:07
Speaker 3: What do you do after that?
18:08
Speaker 7: Though?
18:08
Speaker 1: I mean, I think inflation is whipped here in the US,
18:11
Speaker 1: but nobody asked me my opinion, certainly not at the FED.
18:14
Speaker 1: I wonder how things are going around the world. Anakatrion
18:17
Speaker 1: joins US. She's a chief economist international for Van Longshot
18:21
Speaker 1: Kempen based in Amsterdam. So Anika give us a sense
18:25
Speaker 1: of I think inflation's whipped here in the US, I
18:28
Speaker 1: don't know. Talk to us about Europe. How are things?
18:31
Speaker 1: How's the inflation story playing out there?
18:35
Speaker 9: Well, inflation is not whipped yet in Europe, and it's
18:38
Speaker 9: it's typical, you know, situation that Europe is behind the
18:40
Speaker 9: caa versus the US. So we hope that Europe will
18:43
Speaker 9: continue its pass But I guess the main issue is
18:46
Speaker 9: that especially services inflation, especially core inflation, it's remaining stubbornly high.
18:54
Speaker 9: And that's why Leguard, unlike Powell, actually has been very
18:58
Speaker 9: very outspoken. We are not done yet. So we can
19:02
Speaker 9: definitely expect more rate hikes from the ECB.
19:06
Speaker 5: And when you look at what's going to happen here
19:08
Speaker 5: in the States, the next FED meeting is a kind
19:12
Speaker 5: of foregone conclusion of another hike. The real question is
19:15
Speaker 5: what's going to happen in the fall. What are you
19:17
Speaker 5: going to be looking at to suss out what the
19:20
Speaker 5: Fed might be doing come September? Are you're going to
19:23
Speaker 5: be looking at J Powell's commentary next week? Other FEDS speak.
19:27
Speaker 5: What's your input there?
19:32
Speaker 9: Yeah, Well, the minutes are always fascinating because in the
19:34
Speaker 9: last set of minutes, I think there was a slip
19:36
Speaker 9: of the tongue that we saw using between the language
19:38
Speaker 9: of pause and skip, because initially it was paused, then
19:41
Speaker 9: suddenly the word skip came out, and then oh gosh, no,
19:43
Speaker 9: you know, pause again. So I think the minutes are
19:45
Speaker 9: interesting also looking at what the consensus is, what are
19:48
Speaker 9: the other officials saying? And that was interesting last time
19:50
Speaker 9: because the majority we're talking about two hikes from here,
19:54
Speaker 9: whereas a couple of months ago that absolutely wasn't the case.
19:57
Speaker 9: So that incremental change in language.
20:00
Speaker 8: Across the whole board is interesting.
20:02
Speaker 9: But by far the most important thing is also in
20:04
Speaker 9: the US, what is going to happen to core inflation?
20:08
Speaker 9: And yes, you know, it looked less bad than expected
20:11
Speaker 9: in the last print, but we're still nowhere near the
20:14
Speaker 9: two percent targeted number, and maybe last point, if I may,
20:19
Speaker 9: the two percent targeted number, I don't think you know
20:22
Speaker 9: you're going to see that coming at this stage, but
20:23
Speaker 9: you could argue is two percent even irrelevant target? Probably
20:28
Speaker 9: too early for that discussion to come up.
20:31
Speaker 1: ANAKA, are you concerned that here in the US to
20:34
Speaker 1: FED either has gone or will go too far in
20:37
Speaker 1: push this economy into recession either late this year into
20:40
Speaker 1: next year.
20:40
Speaker 3: That maybe could be avoided.
20:45
Speaker 9: Yeah, I think I think the biggest concern is the following.
20:48
Speaker 9: Let's let's zoom out again. We've spent almost ten years
20:51
Speaker 9: massively under shooting the inflation target, and now you know,
20:54
Speaker 9: the last period we're massively over and shooting the inflation targets.
20:57
Speaker 9: So if you took a step back and said, well,
20:59
Speaker 9: look to tolerate this overshoot period because you know, apparently
21:02
Speaker 9: at ebbs and flows, fine, and then you know we
21:05
Speaker 9: don't need to be so aggressive on monetary policy. We
21:07
Speaker 9: don't need to keep aggressively hiking. Maybe we can avoid
21:09
Speaker 9: this hard landing. That's what the data was telling us
21:12
Speaker 9: last part, not the leading indicators, but the actual data.
21:15
Speaker 9: And we shouldn't be too worried. However, if also part
21:19
Speaker 9: of the credibility restoration that they're busy with, if they're
21:22
Speaker 9: extremely adamant we said two percent, we have to get
21:25
Speaker 9: to the two percent. If we don't get there, we
21:29
Speaker 9: keep on hiking, then yes, that could be really painful
21:34
Speaker 9: for the economy because the transition mechanism takes time.
21:38
Speaker 5: Well, and it takes time, especially in a country like
21:43
Speaker 5: the US where we have so much spending going on,
21:47
Speaker 5: particularly from the government when we look at Bidenomics and
21:50
Speaker 5: the infrastructure Bill. I kept making the joke this weekend
21:53
Speaker 5: because I was on a road trip that I was
21:54
Speaker 5: really seen biden armics in action, because the amount of
21:58
Speaker 5: construction there was in on the highways was absolutely unhinged. So, Anaga,
22:03
Speaker 5: when you think about the spending that's happening from the
22:08
Speaker 5: US government pumping that money into the economy, how does
22:12
Speaker 5: that square with the moves we're seen from the Federal
22:15
Speaker 5: Reserve to try and fight inflation. Can the two come together?
22:22
Speaker 9: Well, this is exactly the problem we're dealing with. And
22:25
Speaker 9: I'm sure it wasn't a fun road for having all
22:27
Speaker 9: that infrastructure work being put to play, but that's exactly
22:30
Speaker 9: the problem. So why is it that we believe that
22:32
Speaker 9: inflation is going to be high at structurally for longer.
22:35
Speaker 9: Partly it's because of what you just mentioned. You know,
22:37
Speaker 9: if you add up the Inflation Reduction Act, which ironically
22:40
Speaker 9: is actually resulting in more inflation, if you add up
22:43
Speaker 9: the infrastructure Bill, if you add up potential student forgiveness,
22:46
Speaker 9: et cetera, et cetera. That's more than a trillion dollars.
22:49
Speaker 9: That's just literally being pumped into an economy. We're at
22:53
Speaker 9: the other side of the table. You've got the monetary
22:55
Speaker 9: policy makers saying, gosh, we're trying to squeeze out the
22:58
Speaker 9: oxygen from the market. We want to reduce our balance sheets,
23:01
Speaker 9: we want to increase interest rates. And that's just a juxtaposition.
23:06
Speaker 9: It's very messy. So that's why you know, there's a
23:08
Speaker 9: fair chance inflation lasts for longer, and the two parties
23:11
Speaker 9: on the same table should figure out, you know, which
23:13
Speaker 9: direction are we going to let this thing going?
23:16
Speaker 1: Hey, Anika, the China. I'm going to talk a little
23:19
Speaker 1: bit about China the reopening. I think the expectations were
23:22
Speaker 1: quite high what that would mean maybe for the global economy,
23:25
Speaker 1: and we're seeing some weaker than expected data coming out
23:28
Speaker 1: of China. And I think about the exposure obviously in
23:30
Speaker 1: the US big trading partner, but also think about Europe
23:33
Speaker 1: because I think about some of these big European industrial
23:35
Speaker 1: companies and all the big equipment and stuff that they
23:38
Speaker 1: make they sell into China. Talk to us about kind
23:41
Speaker 1: of how you know European manufacturers in European industry are
23:46
Speaker 1: thinking about China and the pace of the reopening there.
23:50
Speaker 9: Yeah, and to your point, you know the pace of reopening.
23:52
Speaker 9: We were very excited in the beginning, and that excitement
23:55
Speaker 9: got abated because we see that things are really slowing down.
23:58
Speaker 9: And to what extents will the cent bank they're put more,
24:01
Speaker 9: as said, oxygen into the markets. We don't know, but
24:04
Speaker 9: I think that the company's issue is twofold. So on
24:06
Speaker 9: one fold, it's producing goods that are sold to China
24:08
Speaker 9: and looking at the disposable income and is that demand
24:11
Speaker 9: going to be robust enough to keep up those expoarded sales.
24:14
Speaker 9: But I think the other side is maybe more interesting,
24:17
Speaker 9: which is because of geopolitics, because of rewiring of supply chains,
24:21
Speaker 9: et cetera. Companies also European companies that were relying on
24:25
Speaker 9: part of their manufacturing footprint to be situated in China
24:29
Speaker 9: that have now got to find other locations. That's structurally
24:33
Speaker 9: inflationary in most cases. So you know, your cost of
24:36
Speaker 9: good souls are shooting up, and are you able to
24:41
Speaker 9: pass those you know, higher cost to your customers? Yes
24:43
Speaker 9: or no? You've already passed on quite a bit. Are
24:45
Speaker 9: consumers willing to pay those prices?
24:47
Speaker 8: Et cetera?
24:48
Speaker 9: That just exacerbates the issue.
24:50
Speaker 5: Yeah, and aga final thirty seconds here soft landing, how
24:53
Speaker 5: likely is that in your scenarios?
24:56
Speaker 9: It's well, it all depends on I think it's thirty seconds.
25:00
Speaker 9: Most important thing is how stubborn are central banks going
25:03
Speaker 9: to be on this two percent inflation targets? If we're
25:05
Speaker 9: willing to accept inflation being in the three four percent
25:09
Speaker 9: for longer than expected, and they won't be too aggressive
25:12
Speaker 9: the soft land who could very well happen if we
25:14
Speaker 9: stick to it and have to keep pushing policy according
25:17
Speaker 9: to the rule book. It could get more thankful.
25:21
Speaker 1: Anaka, thanks so much for joining us. We always appreciate
25:23
Speaker 1: getting your global view, your global perspective. Anika is the
25:26
Speaker 1: chief ec Commerce International for von launchhot Kempen, joining us
25:30
Speaker 1: via zoom from Amsterdam, giving us the global view.
25:35
Speaker 7: You're listening to the team. Can's our live program Bloomberg
25:38
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot com,
25:41
Speaker 7: the iHeartRadio app and the Bloomberg Business App, or listen
25:45
Speaker 7: on demand wherever you get your podcasts.
25:49
Speaker 1: Let's talk big banks, right, smack in the middle of
25:51
Speaker 1: earning season for the banks, the regional banks, the big
25:54
Speaker 1: money centers, all reporting numbers here. So let's round table
25:58
Speaker 1: this thing like we like to do. Alison Williams, She
26:01
Speaker 1: joins u Via Zoom and Herman Chen. We got them
26:04
Speaker 1: last owed here into our Bloomberg studio here in New York. Herman,
26:07
Speaker 1: let's start with you, because you were the source of
26:09
Speaker 1: all this problem several months ago, you in your regional banks,
26:12
Speaker 1: big super regional bank reported today P and C it
26:16
Speaker 1: stocks up.
26:17
Speaker 3: Yeah, what are you see from P and C A
26:19
Speaker 3: bit of a surprise.
26:20
Speaker 10: I think it's just PNC is getting caught up with
26:23
Speaker 10: some of the more positive tone from some of the
26:28
Speaker 10: other banks that reported today. But for P and C itself,
26:31
Speaker 10: the earnings missed estaments and the guidance was a bit
26:36
Speaker 10: weak relative to both net interest income and some other areas.
26:42
Speaker 10: So it's a bit of a challenge for regional banks.
26:45
Speaker 10: I think this will be sort of reflective across the group.
26:48
Speaker 10: Where the positive costser continue to rise, banks will continue
26:52
Speaker 10: to offer weaker guidance with respect to net interest income.
26:55
Speaker 10: Lonkre's going to be a bit of a challenge for
26:57
Speaker 10: the regional. It's because they don't have a lot of
26:59
Speaker 10: the areas that are growing, like credit cards, so it's
27:02
Speaker 10: going to be a bit of a slog over the
27:03
Speaker 10: next three quarters.
27:04
Speaker 5: Well, it seems like wealth management is the thing that's
27:07
Speaker 5: kind of keeping a lot of these banks from having
27:11
Speaker 5: less than great earnings this season. Allison, to what extent
27:15
Speaker 5: do you think that the wealth management side of these
27:18
Speaker 5: firms is going to be able to keep them from
27:22
Speaker 5: experiencing more of these headwinds from things like deposits and
27:27
Speaker 5: money market funds.
27:28
Speaker 11: Certainly for Morgan, Stanley was very strong of clows came
27:32
Speaker 11: in better than expected, their fee base flows better, investment
27:36
Speaker 11: management flows also better, and in fact revenue for them
27:41
Speaker 11: also came in a bit better.
27:42
Speaker 8: The net interest income side within.
27:45
Speaker 11: Wealth tends to feel a little bit more pressure than
27:49
Speaker 11: some of the core business, and that really is because
27:51
Speaker 11: those customers are a little bit more presensitive, the boundsies
27:54
Speaker 11: are higher, and the cost of deposits tends to rise
27:57
Speaker 11: faster there. But I think what we're seeing across the banks,
28:02
Speaker 11: if anything, is a little bit of a relief rally
28:04
Speaker 11: in the sense that deposit posts are going up. We
28:08
Speaker 11: are seeing that migration but it's not as bad as feared.
28:12
Speaker 8: Bag America did.
28:15
Speaker 11: Come in about in line, so that was not as
28:17
Speaker 11: positive as what we saw JP Morgan and City, but
28:21
Speaker 11: they did up their guidance for next quarter a little bit,
28:24
Speaker 11: and so I think that's a key positive and is
28:26
Speaker 11: helping the shares a little bit today.
28:28
Speaker 1: Hey Hermer, what have you heard so far and what
28:31
Speaker 1: do you expect to hear about? I know that you
28:33
Speaker 1: mentioned and also mentioned the cost of deposits going up, obviously,
28:37
Speaker 1: but how about just the deposits in general at these
28:40
Speaker 1: regional banks are concerned that they would be that they'd
28:43
Speaker 1: be losing deposits.
28:44
Speaker 3: What are you hearing so for yees?
28:46
Speaker 10: So deposits, actually, the overawhill balances have been pretty stable
28:49
Speaker 10: if you look at the reporting. But what's interesting is
28:52
Speaker 10: the remixing of those deposits, So the non interest sparing accounts,
28:56
Speaker 10: those are continuing to fall, so they're down about six
28:59
Speaker 10: seven percent across the group so far that have reported,
29:02
Speaker 10: and that's just indicative of the repricing pressures as folks
29:08
Speaker 10: that have checking accounts, they're moving their money to CDs
29:12
Speaker 10: and so the banks have to pay up for those.
29:14
Speaker 10: So that's another reason why we're seeing headwinds across the group.
29:17
Speaker 5: But it doesn't necessarily feel to consumers like they're getting
29:22
Speaker 5: a lot of bang for their buck when it comes
29:23
Speaker 5: to these deposits. Do you think that we're going to
29:26
Speaker 5: need to see a Bank of America offering better returns
29:29
Speaker 5: for people to keep their money in their bank accounts.
29:32
Speaker 10: Well, the banks are not going to give you the
29:34
Speaker 10: money the higher interst right, you have to take your
29:37
Speaker 10: money out of your deposit accounts open up a CD.
29:39
Speaker 10: So it takes a bit of some wherewith off from
29:42
Speaker 10: your consumer to do that. And the banks are just
29:45
Speaker 10: banking on folks just keeping their money and they're checking accounts.
29:50
Speaker 10: So that's that's really the dynamics that's playing out right now.
29:52
Speaker 1: Hey, Allison, what are we going to see from a
29:55
Speaker 1: gold and Sacks just tomorrow? What will you be looking for?
29:57
Speaker 1: What do you think the market's looking for?
29:59
Speaker 11: So we are going to see some charges at Goldman
30:02
Speaker 11: Sachs that we saw some severance costs at Morgan Stanley today,
30:05
Speaker 11: We're also going to see that at Goldman and we're
30:07
Speaker 11: also going to see the higher impairment. So that's definitely
30:10
Speaker 11: going to lead to some pressure on the reported numbers
30:14
Speaker 11: on a core basis, trading fees are down and despite
30:18
Speaker 11: things coming in a little bit better than expected, and
30:21
Speaker 11: there's you know, talk of constructive view those that revenue
30:26
Speaker 11: is going to be lower for Golden Sacks, they do
30:29
Speaker 11: they are the revenue leader and EM and I and
30:32
Speaker 11: that's a big headwind for the quarter. So for the bank,
30:36
Speaker 11: we're really going to be looking to see how they
30:39
Speaker 11: stacked up competitively on those revenue trends and then costs
30:42
Speaker 11: beyond some of the items I talked about, what is
30:44
Speaker 11: the core trend there?
30:46
Speaker 8: Because they really are working to improve their efficiency.
30:49
Speaker 1: Hellison, is there am I imagining this or is there
30:53
Speaker 1: any pressure from shareholders or any other external stakeholders on
30:57
Speaker 1: David Solomon right now? Given maybe what happened with the
31:00
Speaker 1: Consumer Bank for example.
31:01
Speaker 8: I mean, I think.
31:02
Speaker 11: There's a lot of talk and headlines around the Consumer Bank,
31:05
Speaker 11: but keep in mind that was not started under his review,
31:09
Speaker 11: so it was something sort of that he inherited, and
31:12
Speaker 11: it was you know, they took a shot.
31:14
Speaker 8: It was something different for Goldman Sachs.
31:16
Speaker 11: I would say that investors never really had a lot
31:20
Speaker 11: of faith in that strategy. It's certainly not why people
31:24
Speaker 11: bought the stock. It was more something that they tried
31:26
Speaker 11: out and could help over time.
31:29
Speaker 8: They are continuing with the.
31:31
Speaker 11: Consumer deposits side of the business, so there is, you know,
31:34
Speaker 11: something there, but certainly the lending strategy is something that
31:39
Speaker 11: they've decided it is just not something they're going to
31:41
Speaker 11: move forward with. They don't really have the competitive advantage there.
31:45
Speaker 5: And when it comes to the consumer Hermann, I want
31:47
Speaker 5: to bring you back in here because we talked a
31:50
Speaker 5: lot about the impact of credit tightening on consumers small businesses.
31:55
Speaker 5: So far with the PNC earnings, are we getting any
31:58
Speaker 5: indication as to how tight the credit is getting for
32:02
Speaker 5: those smaller consumers small businesses across the country.
32:06
Speaker 10: Yeah. So we're seeing actually consumer growth still fairly strong
32:12
Speaker 10: across the board, and where the demand has has fallen
32:16
Speaker 10: a bit is on the business side of the commercial side,
32:19
Speaker 10: and Allison Spanks have seen some strengthen credit card lending,
32:23
Speaker 10: so that's something that is helping some of the money
32:27
Speaker 10: center banks relative to the regionals, But the tighter underwriting
32:32
Speaker 10: is probably going to happen more on the commercial side
32:34
Speaker 10: of things, which really is a detriment to the regionals
32:37
Speaker 10: because they are more focused on commercial lending.
32:39
Speaker 1: Allison, are we seeing any share shifts in you know,
32:42
Speaker 1: the I think about the classic fixed income trading businesses
32:46
Speaker 1: is it. Are we seeing any big shifts there? There's
32:49
Speaker 1: still kind of Goldman, Sachs, Morgans, Stanley, Bank of America
32:52
Speaker 1: that the big players.
32:54
Speaker 8: I mean, it still is the big players.
32:56
Speaker 11: But what we have seen I mean over the last
32:59
Speaker 11: decade or so is market share games from the largest
33:03
Speaker 11: US competitors.
33:04
Speaker 8: In this particular quarter.
33:06
Speaker 11: Bank of America is really the standout showing more resilient
33:10
Speaker 11: ten percent growth. However, I would also point out that
33:13
Speaker 11: you know, Morgan Stanley and Globe and Sachs, who stills
33:17
Speaker 11: you well in the commodities business, are up some really
33:20
Speaker 11: against some really tough comparison. Morgan Stanley, you know, coming
33:24
Speaker 11: in even worse than than than had been expected. But
33:28
Speaker 11: if you looked, I think across the different verticals, the
33:32
Speaker 11: big getting bigger, and Bank of America really I think
33:35
Speaker 11: seeing the fruits of some of their investments in terms
33:38
Speaker 11: of the rates trading business and equities trading business.
33:41
Speaker 5: Alison really quickly here though, with Bank of America the
33:44
Speaker 5: bond losses hitting one hundred and six billion dollars is
33:48
Speaker 5: that going to weigh on the bank moving forward, heading
33:52
Speaker 5: into the next quarter.
33:55
Speaker 11: I think that the bank has sort of give keeps
33:59
Speaker 11: giving a lot more granular information about its on portfolio.
34:03
Speaker 11: Certainly that's just going to take time to manage that
34:07
Speaker 11: over time. And I think that the fact, as we
34:12
Speaker 11: learned with these banks, it's not just about the losses
34:15
Speaker 11: that you carry, but it's sort of about the strength
34:17
Speaker 11: of the deposits and the asset liability management that supports them.
34:22
Speaker 11: And what we are seeing at Bank of America deposits
34:26
Speaker 11: down with the industry, but certainly that broad based strength
34:30
Speaker 11: and especially on the new account side.
34:34
Speaker 1: All right, guys, what you just heard is some smart,
34:36
Speaker 1: smart analysis from some of our leading voices at Bloomberg
34:39
Speaker 1: Intelligence covering the banks. Alison Williams, she covers a big
34:42
Speaker 1: global banks, the investment banks. Herman Chan covers the regional banks,
34:46
Speaker 1: which have really come into focus really over the last
34:48
Speaker 1: several months. And we love getting those two smart people
34:51
Speaker 1: together help us kind of walk through what's happening out
34:53
Speaker 1: there with the banking system. So Alon Williams and Herman Chan,
34:56
Speaker 1: thank you so much for joining us here.
34:58
Speaker 7: You're listening to the tape cancer O live program Bloomberg
35:01
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35:46
Speaker 1: tell us what you guys do. What's your focus ad Recursion?
35:50
Speaker 12: Well, thanks, Paul high Madison. Yeah, our focus is to
35:53
Speaker 12: eliminate that bimodal worry that you just talked about, Paul.
35:57
Speaker 12: So we're bringing together the world of automation and computation
36:01
Speaker 12: to try and turn this artisanal, bespoke process of discovering
36:05
Speaker 12: medicines that takes ten to fifteen years and costs billions
36:08
Speaker 12: of dollars for each new approved drug, and turn it
36:11
Speaker 12: into something that looks more like an assembly line, that's
36:14
Speaker 12: much more predictable, that has much lower failure rates. And
36:16
Speaker 12: so we're using the latest in mL and AI that
36:19
Speaker 12: we build here with our team, using a lot of
36:22
Speaker 12: robots to do our experiments and exploring and mapping biology
36:26
Speaker 12: to try and discover new medicines at scale and one
36:29
Speaker 12: day bring down the price as well.
36:31
Speaker 5: Okay, so you know what I have to ask you
36:33
Speaker 5: about is the investment from Nvidia. I got a hit
36:36
Speaker 5: it at the top here, fifty million dollar private investment,
36:40
Speaker 5: and I had covered Recursion slightly previously, but I hadn't
36:44
Speaker 5: looked into your company as much, to be honest, until
36:47
Speaker 5: the news of that deal. To what extent do you
36:51
Speaker 5: see that infusion of investment as a game changer for
36:55
Speaker 5: what you're going to be able to do moving forward
36:57
Speaker 5: with Recursion.
37:00
Speaker 12: I think what's important for us about the investment and
37:02
Speaker 12: partnership with Nvidia is that we've been working together with
37:06
Speaker 12: them for the past three or four years. We run
37:08
Speaker 12: one of the fastest supercomputers in the world. I think
37:11
Speaker 12: it's number one thirty or something in the fastest computers
37:13
Speaker 12: in the world right now, and it's built on the
37:15
Speaker 12: Nvidia infrastructure. And what this thing, what I think this
37:18
Speaker 12: does is more signals to the rest of the world
37:21
Speaker 12: that in Vidia is excited about the biopharma market and
37:24
Speaker 12: that they see us as as a leader and someone
37:27
Speaker 12: to partner with. And so we're very excited to not
37:30
Speaker 12: only continue discovering new medicines internally here at Recursion, to
37:33
Speaker 12: continue our partnerships with Buyer and Roach Genentech in the
37:36
Speaker 12: fields of fibrosis and neuroscience, but now with Nvidia, to
37:40
Speaker 12: actually start to take some of the neural networks that
37:42
Speaker 12: we're building here at Recursion that we apply to our
37:45
Speaker 12: own data and to actually serve those on their marketplace Bioonemo,
37:50
Speaker 12: where other pharma companies who aren't yet our close partners
37:53
Speaker 12: can actually start to access those neural nets to advance
37:56
Speaker 12: their own research. And so we're very excited about that
37:58
Speaker 12: collaboration broadly.
38:00
Speaker 5: I wonder if you think that AI and the mania
38:03
Speaker 5: around AI is enough to help the biopharma industry kind
38:08
Speaker 5: of recover from some of the FED rate hiking impacts
38:12
Speaker 5: and headwinds that have impacted your industry over the past
38:14
Speaker 5: couple of years.
38:16
Speaker 12: Well, look, it's always hard in biopharma because our revenues
38:19
Speaker 12: are so deferred, and as Paul mentioned at the beginning,
38:21
Speaker 12: and really in the past, has been pretty bimodal, especially
38:24
Speaker 12: for startups. But I think in this particular case, mL
38:27
Speaker 12: andai is starting to give people an appreciation for how
38:31
Speaker 12: that could change. And you know, three or four years ago,
38:34
Speaker 12: even we in the biopharma industry hadn't fully accepted the
38:37
Speaker 12: potential of mL and ai. But Recursion was founded almost
38:40
Speaker 12: ten years ago specifically to bring these tools to bear.
38:44
Speaker 12: And like many founding stories, this is a company I
38:47
Speaker 12: founded out of graduate school. We were really going against
38:50
Speaker 12: the current in the early days. I would say now
38:53
Speaker 12: in every executive team in biopharma of the largest companies
38:56
Speaker 12: in the boardroom, all of them are thinking about the
38:58
Speaker 12: ways that mL and ai going to change this industry,
39:01
Speaker 12: and they're looking to companies like us who've been doing
39:04
Speaker 12: this for years to give them clues as to which
39:06
Speaker 12: direction things are going. Will it pull us out of
39:08
Speaker 12: the broader macrocycle? I have no idea. I learned a
39:11
Speaker 12: lot from our board chair Martin Chavez, who said not
39:14
Speaker 12: to make predictions about the future of the market, So
39:16
Speaker 12: I won't do that, all right.
39:17
Speaker 1: Recursion Pharmaceuticals is a publicly traded company. Our x r
39:21
Speaker 1: X is a very cool ticker symbol. It's got a
39:24
Speaker 1: market cap two point six billion stocks up seventy six
39:26
Speaker 1: percent year to date, in large part on that investment
39:29
Speaker 1: by Nvidia. Anything in Vidia touches seems to turn to
39:32
Speaker 1: gold here. So just to understand your company, Chris, does
39:36
Speaker 1: Recursion develop any drugs treatments on its own or do
39:40
Speaker 1: you license your technology to other biotech companies?
39:44
Speaker 12: All of the above, Paul. So, we've got five drugs
39:47
Speaker 12: in clinical trials right now. Three of those are in
39:50
Speaker 12: phase two or phase two to three trials. In fact,
39:52
Speaker 12: we fully enrolled our first phase two trial just a
39:55
Speaker 12: few weeks ago. We focus internally on rare genetic disease
40:00
Speaker 12: and precision oncology, where a company of our size and
40:02
Speaker 12: scale could run five, six, maybe one day ten twenty
40:06
Speaker 12: clinical programs, and then we partner with large companies like
40:10
Speaker 12: Bayer and Roch Genentech to go after huge intractable areas
40:13
Speaker 12: of biology like neuroscience, where you really need the capital,
40:17
Speaker 12: the resources, and the expertise of a large pharma company
40:20
Speaker 12: to go after Alzheimer's parkins at some of these big neurodiseases.
40:24
Speaker 12: And then I think what's exciting people recently about the
40:27
Speaker 12: Nvidia news is there's now this third value driver beyond
40:31
Speaker 12: our own pipeline, beyond our own partnerships to discover medicines.
40:34
Speaker 12: We're now starting to leverage some of the tools we
40:36
Speaker 12: built for mL and AI to look at a different
40:39
Speaker 12: part of the demand curve and start to partner with
40:41
Speaker 12: the rest of the biopharma industry to leverage our tools
40:44
Speaker 12: on some of their own data. And there will be
40:46
Speaker 12: more coming about this in the coming quarters, but certainly
40:49
Speaker 12: that's the plan with our friends at Nvidia.
40:52
Speaker 5: Talk to me about something that my mom would want
40:55
Speaker 5: to know that AI could help with when it comes
40:58
Speaker 5: to drug discovery.
41:01
Speaker 12: So today scientists are trying to understand this incredibly complex
41:06
Speaker 12: space of biology and chemistry using really, really old tools.
41:11
Speaker 12: And what we're doing at Recursion is the equivalent of
41:14
Speaker 12: building Google Maps, but for biology. So instead of focusing
41:18
Speaker 12: on one disease at a time, we're looking at every
41:20
Speaker 12: gene in the genome and millions of molecules in many
41:23
Speaker 12: different human cell types, using robots and sophisticated computational tools
41:27
Speaker 12: to literally give a map on a web interface for
41:31
Speaker 12: biologists and chemists to use, and it will look very
41:34
Speaker 12: much like Google Maps, but instead of looking at a
41:36
Speaker 12: street in your neighborhood or looking at a street view
41:40
Speaker 12: of a restaurant that you want to go to, this
41:42
Speaker 12: map will give the equivalent of that to biologists and
41:45
Speaker 12: chemists to understand things about biology and chemistry that until
41:48
Speaker 12: now we haven't been able to see, to understand the
41:50
Speaker 12: complexity of all around us. And we think by providing
41:53
Speaker 12: that map, people will be able to blotter better plot
41:57
Speaker 12: the course from disease to healthy, not just for one
42:00
Speaker 12: disease at a time, but for many. And that's what
42:02
Speaker 12: we'll be working on for the last ten years here
42:04
Speaker 12: in Madison.
42:05
Speaker 1: All right, Chris, fascinating stuff. And I guess I mean,
42:07
Speaker 1: when you get your undergraduate degree in bioengineering and biomedical
42:10
Speaker 1: engineering from Rice University, and if that's not enough, then
42:13
Speaker 1: you go get a PhD in bioengineering from the University
42:16
Speaker 1: of Utah, you better do something really important. I think
42:19
Speaker 1: that's what these folks are doing here. Chris Gibson, CEO
42:22
Speaker 1: and co founder of Recursion to Pharmaceuticals. The ticker is
42:26
Speaker 1: a great ticker for a drug maker r x RX
42:30
Speaker 1: and doing some interesting work there, really interesting work in
42:32
Speaker 1: the biopharma space. We appreciate getting a few minutes of
42:35
Speaker 1: Chris's time.
42:36
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
42:39
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Speaker 2: at Matt Miller nineteen seventy three.
42:49
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
42:52
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42:54
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