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Macy’s Beats on Profits, Lowe's Earnings · Bloomberg Intelligence

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Speaker 2: MASUS is down one and a half percent. I was
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Speaker 2: looking to see if there was anything that came out recently,
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Speaker 2: and it hasn't. So I just wonder if you know,
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Speaker 2: it had a nice run up in their earnings or
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Speaker 2: still just a few months away from fifty two week high.
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Speaker 2: Maybe it's that, but we want to get more insight
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Speaker 2: onto that. Yes, raising a full year outlook good, same
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Speaker 2: store of sales falling less than estimated. Rachel Tenbrink is
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Speaker 2: general partner over Red Bike Capital. She joins us Now
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Speaker 2: in studio. Rachel, you deeply cover the retail industry. What
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Speaker 2: was your broad takeaway from Macy's.
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Speaker 3: So, I think that there's new CEO. The clock is
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Speaker 3: taking there's a lot of pressure, and so I think
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Speaker 3: that he's trying to as quickly as possible make an impact.
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Speaker 3: But truly it's hard to see the short term sort
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Speaker 3: of real pop I think what you're seeing is there's
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Speaker 3: a lot of focus on top doors. There's a lot
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Speaker 3: of focus on top performers in the Bloomingdale's and Blue Mercury,
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Speaker 3: but overall, the consumer is still challenged. They still have
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Speaker 3: inventory issues, and if you look at the overall performance,
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Speaker 3: they did a little better because they had better operating
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Speaker 3: but the top line was down.
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Speaker 4: So when I think about Macy's, I mean, obviously it
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Speaker 4: is the quintessential department store. What's the strategy for Macy's
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Speaker 4: going forward, because it just doesn't feel like this has
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Speaker 4: been a long term trend for department stores in general,
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Speaker 4: you know, with e commerce and so on, kind of.
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Speaker 5: A tough place to be.
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Speaker 4: What's the strategy for Macy's these days?
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Speaker 5: Do you think so?
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Speaker 3: I think the reality is just a smaller footprint, a
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Speaker 3: smaller company. I think it's shocking if you think about
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Speaker 3: the fact that May Season the last twenty years has
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Speaker 3: lost about twenty five percent market share and so to
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Speaker 3: whom to basically retailers, Amazon Discounters. It's just a much
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Speaker 3: smaller company than it used to be twenty years ago.
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Speaker 3: And I think that if you think about the fact
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Speaker 3: that they're going to close one hundred and fifty stores,
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Speaker 3: they're going to be left with three hundred and fifty stores.
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Speaker 3: It's just I think that it's a tough place to be.
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Speaker 3: I think there's still a place for it, and I
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Speaker 3: think they can thoughtfully talk to those customers, but it's
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Speaker 3: just going to be a smaller place.
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Speaker 2: To that point, what as their inventory functioning, Like are
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Speaker 2: they doing that well? Like having a smaller footprint might
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Speaker 2: be good into inventory management, How are they managing that?
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Speaker 3: So from what I read, they were struggling a little
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Speaker 3: bit trying to figure out the transition between spring and summer,
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Speaker 3: so they did have a little bit of elevated inventory levels,
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Speaker 3: but they seem to be doing okay. I think what
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Speaker 3: they're trying to do is create more proprietary and special experiences,
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Speaker 3: private label things that you can't find anywhere else. But
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Speaker 3: they need to hit it on the nose, and the
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Speaker 3: consumer is being very picky right now about where they're spending.
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Speaker 2: You guys know why I asked that question, right Why
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Speaker 2: too much inventory means sales? Sales means ALEX shops there.
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Speaker 2: Good inventory management mean Alex is not shop there. I'm
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Speaker 2: not paying full price. But I mean I asked that
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Speaker 2: I say that in Jess, But it does speak to
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Speaker 2: the promotional activity and if the consumer stretch and they're
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Speaker 2: being picky, that's going to rely on the promotional world
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Speaker 2: to kind of get them in the store to help
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Speaker 2: for more volume. Is Macy's part of that, Yeah.
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Speaker 3: I mean, I think what's interesting if you think about
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Speaker 3: Macy's is that they're sort of picking this biffurcated strategy
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Speaker 3: where on the one hand, they have their own, you know,
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Speaker 3: the Mace's nameplate stores, and I think they're focusing on
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Speaker 3: top doors, sharpening the inventory, sharpening the offer, and then
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Speaker 3: they're going high end with Macy's and Blue Mercury, sorry,
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Speaker 3: with Bloomingdale's and Blue Mercury to try to attract that
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Speaker 3: higher end shopper that's willing to spend a little more.
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Speaker 4: Rachel, I don't know if you're aware, but the big
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Speaker 4: news in this studio over the last week was, for
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Speaker 4: the first time ever, I went to a Walmart store
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Speaker 4: over the weekend. Hugely impressed, blown away everything. You know,
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Speaker 4: it is as you would expect because we had some
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Speaker 4: Walmart earnings last week. What do you take away from Walmart?
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Speaker 5: They seem to be doing pretty well well.
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Speaker 3: I think that you always have to look at the
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Speaker 3: relationship between Walmart Target, right, they're always head to head,
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Speaker 3: and I think right now the consumer is feeling the
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Speaker 3: financial pressure, they're feeling inflation, and they're trying to find deals.
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Speaker 3: And what's interesting is there is still this perception that
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Speaker 3: if you want to find lower price points, specially in
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Speaker 3: things like food that are basic, you go to Walmart.
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Speaker 3: Now it'll be interesting. Now, yesterday Target announced that they're
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Speaker 3: lowering prices on five thousand skews, And so how is
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Speaker 3: that going to affect the dynamic between Wall. You know,
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Speaker 3: they're they're still trying Target is still trying to keep
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Speaker 3: that upscale image that yep, but you know they're fighting
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Speaker 3: for consumers that are really caring about every penny.
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Speaker 4: I mean, I was five thousand skews. I mean, how
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Speaker 4: often does that happen? I don't think I've heard that.
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Speaker 3: I don't know if I know that. I mean, I
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Speaker 3: think that's pretty dramatic. Walmart has been lowering prices as well,
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Speaker 3: so I think they're just sharpening the competition.
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Speaker 2: So they have actually already cut prices on about fifteen
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Speaker 2: hundred items, and they had so that thousands more of
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Speaker 2: reductions are planned over the course of the summer. Yeah,
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Speaker 2: exactly right. One analyst over Barclays was saying that these
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Speaker 2: may have been planned as part of sort of the
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Speaker 2: second quarter inflection that was embedded in guidance. In the
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Speaker 2: second half maybe gets a little bit better, but obviously
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Speaker 2: that's going to be a key topic tomorrow. Also, these
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Speaker 2: items that we're talking about are milk, bread, soda, fruit, veggies.
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Speaker 4: That's good because that's where I've seen it.
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Speaker 2: Yeah, but that's also I wonder if that's a direct
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Speaker 2: competition then to Walmart, because that's where you can make
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Speaker 2: an argument that if you go to Walmart for groceries,
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Speaker 2: that's where you buy your other stuff.
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Speaker 6: And I wonder if Target's trying to play with that exactly.
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Speaker 6: I think that it's sort of a double edged store.
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Speaker 6: Target always tried to be like, you know, better quality,
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Speaker 6: higher end, but still affordable. And I think what they're
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Speaker 6: realizing is right now the customers really focusing on the
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Speaker 6: affordable and they're really focusing on the basics. So they're
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Speaker 6: going head to head on that piece.
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Speaker 4: Is there still too many stores out there, department stores
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Speaker 4: or big box I mean, particularly the department stores. I've
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Speaker 4: always heard like in the department stores. There's still too
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Speaker 4: many stores in America, but now maybe the pandemic solved
6:35
Speaker 4: for that. I don't know.
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Speaker 3: Well, I think part of the challenge is, you know,
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Speaker 3: Macy's did announce one hundred and fifty store closures, so
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Speaker 3: they're definitely that's big. That's a big hit for them.
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Speaker 3: I think a lot of it is, you know, when
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Speaker 3: you think about stores, you also think about location and
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Speaker 3: real estate, and you.
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Speaker 2: Know, what are the top malls.
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Speaker 3: There's obviously you know, it's not just there there are
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Speaker 3: too many stores. Is that there are too many malls
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Speaker 3: and people aren't going to those malls, but there are
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Speaker 3: some shining places. So I think it's about like finding
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Speaker 3: the winners and having a smaller sharper footprint versus so
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Speaker 3: many doors.
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Speaker 2: And it was interesting you say that, Paul, because some
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Speaker 2: of these malls are being anchored by Target. So you
7:16
Speaker 2: also have to wonder if Target has to retrench a
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Speaker 2: little bit here, what does that wind up meaning then
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Speaker 2: for the mall what would be good from Target when
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Speaker 2: they report?
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Speaker 3: So I think the expectation is that they're going to
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Speaker 3: be up slightly about one percent, but we'll have to see.
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Speaker 3: I mean, I do think that this news of better
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Speaker 3: pricing is going to have an impact on them?
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Speaker 2: Mean yeah, meaning that that would be helpful volume, but
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Speaker 2: then obviously not with margins correct, So interesting, where.
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Speaker 4: Do we go from here for retail? I mean, what's
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Speaker 4: your takeaway on the consumer?
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Speaker 7: Here?
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Speaker 4: The consumer seems like it's I guess that K shaped
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Speaker 4: economy where some small percentage are doing quite well, particularly
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Speaker 4: those that don't said stocks, bonds, houses, and everybody else
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Speaker 4: is really feel into pain. Is that what you're hearing
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Speaker 4: from the retailers?
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Speaker 6: Absolutely?
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Speaker 3: I think that there is this sort of biffurcation of
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Speaker 3: like the have and the have nots, And so for
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Speaker 3: some consumers it's a small group, but they're very profitable.
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Speaker 3: They're doing okay, they're still spending, they're still going to Bloomingdale's,
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Speaker 3: they're still buying their targe, And for others, they're really struggling.
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Speaker 3: And I think it's sort of come to that breaking
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Speaker 3: point where when you start to see stores lowering prices
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Speaker 3: there's a real pressure from the consumer.
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Speaker 5: Good point, yeah, but.
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Speaker 2: Then obviously hurts the margins and then it's like as
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Speaker 2: a stock investor, you're like, well, do I like that
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Speaker 2: volume versus margins in your experience when the retail sector,
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Speaker 2: which ones are kind of crushing it right now, because
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Speaker 2: it does seem to me that what names that people
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Speaker 2: like are very targeted, right like a specialty retail store
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Speaker 2: is the winner? Is that true?
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Speaker 8: Yeah?
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Speaker 3: I mean the first name that comes to mind is
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Speaker 3: Sephora and how it continues to outperform. You know, there's
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Speaker 3: a lot of talk about Sephora kids, but.
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Speaker 4: You just see, so what's a kid?
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Speaker 3: So a Sephora kid is my twelve year old daughter
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Speaker 3: who enjoys spending hours at Sephora. But guess what it
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Speaker 3: means she buys? It means I buy. And I do
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Speaker 3: think that there is an interesting approach where you know,
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Speaker 3: these gen Z consumers that everybody thought, well, they don't
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Speaker 3: really have that much disposable income, but guess what they
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Speaker 3: bring along others?
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Speaker 2: And have you ever seen the line and over here
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Speaker 2: their story always a long line depths of the pandemic lockdown,
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Speaker 2: I mean ground zero, the lockdown people in support.
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Speaker 4: A they didn't close the store, and B there were
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Speaker 4: people in there, I mean triple massed up or whatever.
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Speaker 4: They were there and they were in our chocolate store downstairs.
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Speaker 2: You know what we do, Paul, We invest in our face, yes, yes,
9:41
Speaker 2: and that comes in many different forms. And after we
9:48
Speaker 2: go eat chocolate, and that is what we do. Very good,
9:51
Speaker 2: all right, good stuff. Thanks a lot, really appreciate it.
9:53
Speaker 2: Rachel Tenbring joining us. I'm a partner over at Red
9:56
Speaker 2: Bike Capital. We'll see how those numbers wind up stacking up.
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Speaker 5: Let's top Low's.
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Speaker 4: I mean I went to I've been to a Low's
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Speaker 4: and now I had not been to a Walmart until
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Speaker 4: this past Sunday, but I've been to Lolaise. Now I'm
10:27
Speaker 4: not John Tucker, but I know my way around a Lows.
10:30
Speaker 4: Drew reading those his way around the Lows. He's the
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Speaker 4: home building autost of Bloomberg Intelligence. Joining us from Princeton,
10:36
Speaker 4: New Jersey. Forgot about the whole New Jersey transit can
10:38
Speaker 4: get into New York City thing?
10:39
Speaker 2: No, apparently not today. It's really. Oh yeah, it already
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Speaker 2: broken down.
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Speaker 4: It's like I'm just ignoring it and hoping it'll be
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Speaker 4: fine by the time I leave here.
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Speaker 5: That's my That's how I'm approaching this.
10:50
Speaker 4: Drew talk to us about Low's here. Are people still
10:53
Speaker 4: kind of remodeling their basements.
10:56
Speaker 8: Yeah, So the quarter was a little bit of a
10:58
Speaker 8: tug of war between sales and margins, and I think
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Speaker 8: you're seeing that reflected in the stock today. Same store
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Speaker 8: sales were down about four percent, which was better than
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Speaker 8: the five to six percent decline consensus was looking for.
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Speaker 8: But part of that sales performance was due to the
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Speaker 8: fact that there was a more promotional environment out there.
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Speaker 8: If you think back to when Home Depot reported last week,
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Speaker 8: they cite a late start to spring as something that
11:22
Speaker 8: muted sales. Lows actually said Spring got off to a
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Speaker 8: good start, and that has to do with them being
11:27
Speaker 8: more aggressive on promotions as part of their Spring Fest,
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Speaker 8: and I think that really speaks to you know, what
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Speaker 8: we're seeing really across the retail landscape with the consumer,
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Speaker 8: and that's that they're looking for value wherever they could
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Speaker 8: get it. Now. They did reaffirm their full year operating
11:42
Speaker 8: margin guidance, but that's going to require the company to
11:44
Speaker 8: execute on some internal initiatives. In the back half of
11:48
Speaker 8: the year, Low's has made good progress in improving their
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Speaker 8: their margin profile and them narrowing the gap with Home
11:55
Speaker 8: Depot has really been a key that investors have kind of,
11:59
Speaker 8: you know, grasped onto. So the fact that they're taking
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Speaker 8: a little bit of a step back here maybe making
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Speaker 8: them a little bit uneasy.
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Speaker 2: When how much would the stock have to rerate for
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Speaker 2: investors and analysts to say, okay, fine, the margins are suffering,
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Speaker 2: but at least the volume and the sales are there.
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Speaker 8: Yeah, well, the stock is still trading above you know,
12:19
Speaker 8: the ten year average, even if you go back to
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Speaker 8: prior to the pandemic, So from a pure valuation perspective,
12:26
Speaker 8: you know, it's still a little bit elevated. That being said,
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Speaker 8: I mean, if you take a step back, the move
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Speaker 8: they've made on margins and narrowing the gap with home
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Speaker 8: Depot has been impressive over the last couple of years.
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Speaker 8: So I think, you know, the bulls would argue that
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Speaker 8: this is kind of a one off, and as we
12:41
Speaker 8: get to the back half of the year, margins start
12:44
Speaker 8: to improve as they implement some of their PPI initiatives,
12:49
Speaker 8: and in terms of sales, you know, we're not expecting
12:52
Speaker 8: a huge rebound in sales this year and the second
12:56
Speaker 8: half comps will definitely get easier. But even Lows has
12:58
Speaker 8: stated that comps may turn positive, but that's not a
13:02
Speaker 8: reflection of an improved demand environment. It's strictly a reflection
13:06
Speaker 8: of easier comps. So we think as we get into
13:08
Speaker 8: twenty twenty five, that's when we would expect the market
13:11
Speaker 8: to see more of a turn, as we get more
13:13
Speaker 8: of a rebound and existing home sales.
13:16
Speaker 4: How about lumber, That's something they buy a lot of.
13:19
Speaker 4: How's the cost of lumber these days? How's that impacting
13:22
Speaker 4: their margins?
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Speaker 8: Yeah, lumber is about ten percent of sales for both
13:26
Speaker 8: Home Depot and Lows. Lumber was really more of a
13:30
Speaker 8: story last year was extremely volatile, so you saw the
13:33
Speaker 8: impact on their top line. There not so much of
13:37
Speaker 8: a story this year. I think commodity particularly lumber, are
13:40
Speaker 8: going to have less of an impact in the near term.
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Speaker 2: So you feel like we're not going to really see
13:46
Speaker 2: a benefit in HOLD twenty twenty five. I mean, some
13:48
Speaker 2: analysts are looking for the back half of this year.
13:50
Speaker 2: Maybe some improvement. But for you it's really like a
13:52
Speaker 2: year out kind of thing.
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Speaker 8: Well, I think as we get to the end of
13:56
Speaker 8: this year, I think you'll start to see a little
13:58
Speaker 8: bit of a turn, and a lot of that predicate
14:00
Speaker 8: upon with what happens in the housing market. Obviously people
14:04
Speaker 8: are looking for the FED to cut rates at some
14:06
Speaker 8: point this year, obviously not as much as we had
14:08
Speaker 8: hoped for previously. But we think that you know, when
14:11
Speaker 8: you when you look at existing home sales, we're you know,
14:14
Speaker 8: at the lowest levels in you know, more than two decades,
14:17
Speaker 8: So there's not a whole lot lower we can go
14:20
Speaker 8: absent you know, a broader economic decline where you start
14:23
Speaker 8: to see a lot of job loss. So we think that,
14:25
Speaker 8: you know, if rates come in a little bit, you
14:26
Speaker 8: could kind of start to build a little momentum ending
14:28
Speaker 8: this year carrying into next year. When we think, you know,
14:31
Speaker 8: bigger picture about the home improvement market, there's some there's
14:34
Speaker 8: some solid tail winds out there. You know, you have
14:37
Speaker 8: homeowners who are sitting on record amount of home equity.
14:41
Speaker 8: When you think about you know, the rise and home
14:42
Speaker 8: prices we've seen over the last several years, you've got
14:45
Speaker 8: an aging housing stock, and I think the fact that
14:48
Speaker 8: mobility has been so low because of those high interest
14:51
Speaker 8: rates is going to continue to encourage people to invest
14:54
Speaker 8: in their house and I think what kind of triggers
14:56
Speaker 8: that is rates coming back in a little bit so
14:58
Speaker 8: you can start to tap that equity.
15:01
Speaker 4: True, how many stores as Lows have and are they
15:03
Speaker 4: adding stores? Are they pairing backstores? Kind of worthy with
15:07
Speaker 4: their store count these days?
15:08
Speaker 8: Yeah, so they're under two thousand. It's an interesting dynamic.
15:12
Speaker 8: So their competitor, Home Depot, is actually embarking on their
15:16
Speaker 8: first store expansion in a long time. Lows, on the
15:19
Speaker 8: other hand, has cut back. They got out of their
15:21
Speaker 8: Canadian business, which reduced their store a count. But what
15:24
Speaker 8: they're doing from a store perspective is really introducing new formats.
15:28
Speaker 8: So they're starting to go after the rural customer. Their
15:32
Speaker 8: stores tend to be located in more rural locations compared
15:35
Speaker 8: to Home Depot, which are more densely populated locations, and
15:39
Speaker 8: they found success with that, so they're starting to compete
15:41
Speaker 8: more with the tractor supplies of the world. They're also
15:44
Speaker 8: introducing Low's outlets, So if you think of you know,
15:51
Speaker 8: appliances that might have things and scratches. You could go
15:53
Speaker 8: there and get heavily discounted items, and that's another way
15:56
Speaker 8: they're looking to kind of, you know, drive traffic through
15:59
Speaker 8: the lows brand.
16:00
Speaker 2: Okay, now you're speaking my language. You put outlet there,
16:03
Speaker 2: and I'm like, boom, we will go find things that
16:06
Speaker 2: are cool.
16:06
Speaker 5: I don't do outlets either.
16:08
Speaker 9: You don't.
16:08
Speaker 2: I know, you don't do outlets. That's my thing. It's
16:11
Speaker 2: just my thing. Even if I had a bazillion dollars,
16:14
Speaker 2: I wouldn't pay full price. Part of the hunt.
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Speaker 6: Okay.
16:17
Speaker 2: AnyWho so drew based on all this, If I wanted
16:20
Speaker 2: to play this housing market right now, what is the
16:23
Speaker 2: best play? And I say that because it's not like
16:25
Speaker 2: the housing market that the demand isn't there, the supply
16:29
Speaker 2: might not be there. The costs are a little too high,
16:32
Speaker 2: mortgage rates are too high, but eventually it'll normalize. What's
16:35
Speaker 2: the best way to capitalize.
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Speaker 8: We think right now kind of sitting at the top
16:41
Speaker 8: of the broader housing ecosystem is the home builders. We think,
16:46
Speaker 8: you know, from a supply perspective, they're in a good
16:49
Speaker 8: position their ability to buy down mortgage rates and make
16:52
Speaker 8: payments more palatable to the consumers is something that differentiates
16:57
Speaker 8: them versus the resale market. They're going to grow community
17:00
Speaker 8: accounts in the coming years, so we really think that
17:02
Speaker 8: they're still in a good position from a competitive perspective.
17:05
Speaker 8: And when you look at you know, within the home
17:07
Speaker 8: building space, you have the large, well capitalized, publicly traded
17:11
Speaker 8: homebuilders who have access to land, access to labor, and
17:14
Speaker 8: you compare that versus the smaller private piers, and you
17:17
Speaker 8: have to remember home building is a very fragmented industry,
17:20
Speaker 8: particularly outside some of the largest markets. But those smaller
17:24
Speaker 8: private peers tend to rely on regional banks for growth
17:28
Speaker 8: capital and with you know, a slowing economy and more
17:31
Speaker 8: concern there, you're starting to see a poolback and lending.
17:34
Speaker 8: So we think it's a good opportunity for those larger
17:37
Speaker 8: builders to continue to take share.
17:39
Speaker 2: Great stuff. Drew, really appreciate it. Thank you so much
17:41
Speaker 2: to reading Bloomberg Intelligence US home Building Analyst. Joining us there.
17:48
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
17:52
Speaker 1: weekdays at ten am Eastern on Focarplay and rout outo
17:55
Speaker 1: with the Bloomberg Business app. Listen on demand wherever you
17:58
Speaker 1: get your podcasts, or just live on YouTube.
18:03
Speaker 2: This is Bloomberg Intelligence Radio. I'm Alex C alongside Paul
18:06
Speaker 2: Sweeney and John Tucker. We bring you all the news
18:08
Speaker 2: in finance and economics through our lens of our Bloomberg
18:11
Speaker 2: Intelligence analysts. They cover about two thousand companies one hundred
18:14
Speaker 2: and thirty industries worldwide. We also use this time to
18:17
Speaker 2: talk about stuff that Paul and I are interested in,
18:19
Speaker 2: so media, maybe some retail, maybe some sports, oh and
18:23
Speaker 2: maybe some energy. Joining us in studio is a doctor
18:27
Speaker 2: Jeff Chamberlain. He is CEO of Volta Energy Technologies. I
18:31
Speaker 2: don't know what that is, so I'm going to learn
18:33
Speaker 2: about it, doctor Jeff Chamberlain. Welcome, thank you for joining us.
18:37
Speaker 2: What is Volta Energy Technologies?
18:39
Speaker 5: Well, thank you Alex for having me. Volta Energy Technologies
18:42
Speaker 5: is a venture capital firm that we spun out of
18:44
Speaker 5: Argon National Laboratory, which is one of the seventeen Department
18:48
Speaker 5: of Energy labs and the lead in battery and storage
18:51
Speaker 5: tech and development for vehicles and for the grid.
18:53
Speaker 2: So that means that you are trying to find good
18:57
Speaker 2: battery storage solutions that we can adopt on a cheaper scale.
19:02
Speaker 7: YEP, that's going. That's it.
19:03
Speaker 5: Basically. And I'll tell you the big thing that we've
19:07
Speaker 5: noticed is a couple of things. One is, a lot
19:10
Speaker 5: of people are focused on the downstream device. Who's going
19:12
Speaker 5: to be the next big electric, who's going to be
19:14
Speaker 5: the next Tesla, who's going to be the next Panasonic
19:17
Speaker 5: or CTL in terms of the battery manufacturing. But before
19:20
Speaker 5: I worked for the government, I worked in the chip industry,
19:22
Speaker 5: and we expect this to go just like the chip industry,
19:24
Speaker 5: where costs down will be king, and cost down will
19:27
Speaker 5: come from innovations in the supply chain and in the adjacencies,
19:30
Speaker 5: things like fast charge, things like power electronics on board
19:34
Speaker 5: the vehicle, new ways to make batteries, all the way
19:37
Speaker 5: upstream to mining lithium. So while the while a lot
19:40
Speaker 5: of investors tend to be focused on those very downstream devices,
19:44
Speaker 5: the truth is lithium is king and it will be
19:47
Speaker 5: for decades going forward, just like oil and gas has
19:50
Speaker 5: been king for a century, just like silicon has been
19:53
Speaker 5: king in the semiconnuctor industry and yet created trillions of
19:56
Speaker 5: dollars of wealth by modifications and wealth generally in the
20:00
Speaker 5: supply chain and in the adjacencies. So it's going well,
20:03
Speaker 5: We're finding a lot of good tech. Where does lithium
20:06
Speaker 5: come from? And then how are you investing in that? Yeah,
20:09
Speaker 5: if we go all the way upstream, let me start
20:11
Speaker 5: by saying, there is no better time for investors in
20:14
Speaker 5: the private markets. And this is a counter two to
20:16
Speaker 5: thought from what you read in the mainstream media. Investing
20:18
Speaker 5: in the kinds of technologies that we're investing in because
20:21
Speaker 5: the needs of the end users are increasing, and by
20:24
Speaker 5: needs I mean lowering costs and improving performance. There's a reason
20:28
Speaker 5: one week ago today the Biden administration put in tariffs
20:31
Speaker 5: that are one hundred percent for electric vehicles coming from China.
20:35
Speaker 5: That happened because the US automotive groups lobbied for that
20:39
Speaker 5: to happen. They know those cars will sell. A lot
20:42
Speaker 5: of the mainstream media says nobody wants to buy electric vehicles.
20:45
Speaker 5: They just leave off the second phrase unless they're lower costs.
20:50
Speaker 5: But when we go all the way back up to mining,
20:52
Speaker 5: it's notable what the big companies are doing. Last fall,
20:54
Speaker 5: after I was here talking to Paul, actually Exon announced
20:57
Speaker 5: that they want to become lithium suppliers. They're going to
21:00
Speaker 5: do it is to leverage their own downhole and refining
21:04
Speaker 5: capabilities and to adopt and scale something called direct lithium
21:07
Speaker 5: extraction or in my industry they call it DLE daily.
21:12
Speaker 5: It's a new way to extract and refine lithium and
21:15
Speaker 5: it's like it sounds, it's direct. If you can remove
21:18
Speaker 5: process steps and use less water, use less energy, you
21:21
Speaker 5: end up with a lower cost production. So prices of
21:25
Speaker 5: lithium in the market have been fluctuating substantially these last
21:28
Speaker 5: five six years, where the cost of manufacturing has stayed
21:31
Speaker 5: the same.
21:32
Speaker 2: So where you guys would play in that, for example,
21:35
Speaker 2: like I know that's Exxon's investment, you'd be investing in
21:38
Speaker 2: the technology that would make direct to mining lithium precisely.
21:41
Speaker 5: Precisely. In our fund one, we invested in a company
21:44
Speaker 5: called Summit Nanotech and Canada that is now scaling in
21:47
Speaker 5: Chile with one of the big lithium suppliers to supply
21:50
Speaker 5: that tech to lower the cost.
21:52
Speaker 2: When you go fully, when you go further up the
21:56
Speaker 2: supply chain, is that where it lands for you in
21:58
Speaker 2: lithium you're not looking at like graph or cobalt or
22:01
Speaker 2: other stuff.
22:01
Speaker 5: Yes, thanks Alex, you know they claim, Paul and as
22:04
Speaker 5: claimed they don't know a lot here, but they clearly do.
22:06
Speaker 2: Yes, I know, I know, I lot.
22:11
Speaker 5: That's great. That's just by Midwestern heritage speaking their modesty.
22:19
Speaker 5: But the the the answer is we look at it all.
22:22
Speaker 5: Graph fight, it's it's fascinating. Even graphite. There is not
22:25
Speaker 5: only a tightening on the supply, but it's mostly in China.
22:31
Speaker 5: So there's massive moves for the supply chains coming out
22:34
Speaker 5: of China being localized for cost reasons as well as
22:36
Speaker 5: geopolitical reasons. But we look at it all from from graphite,
22:40
Speaker 5: cobalt sulfur actually is a technology that can be used
22:43
Speaker 5: in batteries lithium, and then downstream from that to things
22:47
Speaker 5: like new microchips that enable power control and can lower
22:50
Speaker 5: the cost of electric vehicles.
22:51
Speaker 4: Do we need to be concerned about the security of
22:55
Speaker 4: the resources for all these electric vehicle components, like are
23:00
Speaker 4: they in China that that's a risk or are there
23:02
Speaker 4: in parts of the world where it's a risk to
23:04
Speaker 4: the US and others?
23:06
Speaker 5: Is that a risk? The short answer is yes, there's
23:09
Speaker 5: a long or more nuanced ance or graphite and lithium
23:12
Speaker 5: in particular, depending on which material you're talking about, eighty
23:15
Speaker 5: to ninety five percent of its processed in China, but
23:17
Speaker 5: it's not sourced in China, which means there really is
23:21
Speaker 5: an opportunity, especially with the advent of technology that lowers
23:24
Speaker 5: manufacturing costs, to move that supply chain out of China
23:28
Speaker 5: because the resource itself is not in China. However, magnetic materials,
23:33
Speaker 5: the core called rare earth elements that are used in
23:36
Speaker 5: magnetic materials for electric motors, most of that is in China.
23:40
Speaker 5: So there's been a ten to twenty year research effort
23:43
Speaker 5: in the Western world to find to develop new magnets
23:46
Speaker 5: that don't require rare earths, and those are all going
23:48
Speaker 5: to becoming commercial in the next three to five years
23:51
Speaker 5: as well.
23:52
Speaker 2: I was talking to a graphie producer yesterday who doesn't
23:57
Speaker 2: and he was talking about the tariffs or put on.
24:00
Speaker 2: I know you mentioned EV's in particular, but then the
24:03
Speaker 2: nuance of say the raw materials going to Canada or Mexico,
24:08
Speaker 2: and then because we have a free trade agreement, they
24:10
Speaker 2: just come into the US. And so there's a huge
24:12
Speaker 2: price discrepancy versus what you're willing to pay for localized
24:17
Speaker 2: materials versus how cheap China can get it. How do
24:20
Speaker 2: you solve for that because that's really going to be
24:23
Speaker 2: about lowering the costs, which is really technology, which is
24:25
Speaker 2: really you.
24:27
Speaker 5: It's really a good question, and I'm not being a politician.
24:30
Speaker 5: I don't know how to handle it from a policy
24:32
Speaker 5: perspective because there are loopholes that you can go through
24:36
Speaker 5: in Mexico and Canada, et cetera. Ultimately, the answer is
24:39
Speaker 5: things like graphite. There's graphite all over the world. That
24:41
Speaker 5: the largest graphite mine in North America is in Becancoorp,
24:45
Speaker 5: north of Montreal, and that's natural graphite. There's also something
24:49
Speaker 5: called synthetic graphite where you can manufacture the graph height
24:52
Speaker 5: from carbon, and there are big oil producers that are
24:55
Speaker 5: looking at doing that as well, right to grow their
24:57
Speaker 5: business in that direction. So in my view as a
24:59
Speaker 5: technical and as a technology investor, it is fine the
25:03
Speaker 5: innovations that can lower the cost for localized supply. And
25:06
Speaker 5: I think there'll be bumps in the road between now
25:08
Speaker 5: an adoption of that technology in terms of what's happening
25:10
Speaker 5: worldwide geopolitics, but I think ultimately it's localized supply that
25:14
Speaker 5: will win the game.
25:16
Speaker 4: Where does mister Tesla get his batteries, Where's Elon Musk
25:20
Speaker 4: get his batteries for his car.
25:22
Speaker 5: You know, I used to joke on Capitol Hill when
25:24
Speaker 5: I worked for the government that if you peel the
25:27
Speaker 5: t off the factory, the gigafactory in Nevada, you see
25:30
Speaker 5: a big Panasonic logo underneath it. Originally it was a
25:33
Speaker 5: Panasonic deal that they cut and embedded themselves together in
25:37
Speaker 5: supply chain. They since have expanded to LG and CTL
25:41
Speaker 5: and others. So CTL is the big dominant battery supplier
25:45
Speaker 5: in the electric vehicle supply chain that's in China. But they,
25:49
Speaker 5: you know, they've onshore manufacturing, and as American citizen, I
25:52
Speaker 5: don't think it's about even before IRA became an active Panasonic, LG, Samsung,
25:57
Speaker 5: they'd all announced twenty gig one hours of manufacturing in
25:59
Speaker 5: the US.
26:00
Speaker 4: All right, Jeff, thanks so much for joining us. Doctor
26:02
Speaker 4: Jeff Chairperlin, CEO Volta Energy Technologies, Joining s here on
26:05
Speaker 4: a Bloomberg and Director Burgos.
26:08
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
26:12
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26:15
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26:18
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26:22
Speaker 1: Just say, Alexa, play Bloomberg eleven thirty.
26:26
Speaker 2: I'm Alex seel longtied Paul Sweeney. This is Bloomberg Intelligence Radio.
26:29
Speaker 2: We make sure you're up to date on all the
26:31
Speaker 2: news that you need to know in business and finance.
26:34
Speaker 2: We have great analysts that cover at two thousand companies
26:36
Speaker 2: and one hundred and thirty industries worldwide. We also have
26:39
Speaker 2: a huge staple of reporters all around the world, and
26:42
Speaker 2: we're going to one of them now on this story.
26:44
Speaker 2: So apparently ASML and Taiwan Semiconductor Manufacturing so TSMC have
26:50
Speaker 2: ways to disable the world's most sophisticated chip making machines
26:55
Speaker 2: in the event that China invades Taiwan. It's basically the
26:59
Speaker 2: idea of here's a ca'll switch your press the button
27:01
Speaker 2: and all of a sudden those machines stop working. Really,
27:03
Speaker 2: it's something right, Isn't that sounding tucky, doesn't it?
27:05
Speaker 8: Though?
27:06
Speaker 2: Let's get to the guy behind the story. Deerdrik Basil
27:09
Speaker 2: joins us Bloomberg Dutch government reporter. He joins us on
27:12
Speaker 2: Zoom from Amsterdam. It's a real pleasure and I know
27:14
Speaker 2: you're staying up late for us, so thank you very much.
27:17
Speaker 2: As well, are working late for us? I should say,
27:19
Speaker 2: walk us through this story? What do we know?
27:23
Speaker 9: Hiah? Thanks for having me. Yeah, what we reported exactly
27:26
Speaker 9: is that ASAML has a so called kill switch and
27:31
Speaker 9: it can use it on his most sophisticated machine, does
27:35
Speaker 9: the EUV machine or the extreme ultra hided machine. And
27:39
Speaker 9: this basically means they can kill the machine remotely when
27:43
Speaker 9: they choose to. And this capability was indeed discussed in
27:47
Speaker 9: the context of a possible Taiwan invasion and was discussed
27:51
Speaker 9: at least with the Dutch government. So yeah, it's an
27:56
Speaker 9: important capability in a very sensitive geopolitical company.
28:01
Speaker 4: So I guess it's it sounds good. I mean from
28:06
Speaker 4: your reporting, is there a belief that this really can
28:09
Speaker 4: be achieved, because it sounds like something that could be
28:13
Speaker 4: I don't know, hijacked or something. It just it seems
28:16
Speaker 4: like it's too good to be true.
28:20
Speaker 8: Yeah.
28:20
Speaker 9: The sort of thing is ACML has contact with when
28:25
Speaker 9: the machines to do updates the machine need anyways, uh,
28:30
Speaker 9: And this connection they have can also be used for
28:33
Speaker 9: this capability. So it's not a building kill switch, but
28:36
Speaker 9: it's a capability that can be used for different purposes.
28:40
Speaker 9: And yet what we have heard is that a ISMAEL
28:43
Speaker 9: has told government officials that they can do this if
28:47
Speaker 9: that is what they decide to do.
28:49
Speaker 2: So so I'm assuming though that officials say in China
28:53
Speaker 2: might not like that, Like is that a legal thing
28:56
Speaker 2: to do?
28:59
Speaker 9: Yeah, Like an invasion is also not really legal, I guess,
29:03
Speaker 9: so if you end up in such a context, you
29:06
Speaker 9: need to ask different questions. But yeah, that's that's the
29:11
Speaker 9: context we're talking about. If an invasion would happen, then
29:15
Speaker 9: this is a possibility.
29:18
Speaker 4: So but I guess today China is still a SML's
29:23
Speaker 4: biggest market, isn't you know, even after some restrictions.
29:27
Speaker 9: Yeah, close too. Yeah, like TMC is the biggest client,
29:31
Speaker 9: but China as a as a country is definitely a
29:34
Speaker 9: big market for as well. Yeah, so what are not
29:37
Speaker 9: for this? Not for this machine though, not for the
29:40
Speaker 9: eu V most sophisticated extreme ulti virus machine. That machine
29:44
Speaker 9: isn't allowed to be exported to China.
29:46
Speaker 2: Ah okay, So the machines that a SML does export
29:50
Speaker 2: to China, does that have this quote unquote kill switch?
29:55
Speaker 9: So this know, we were talking about the eu V.
29:57
Speaker 9: So that's the most sophisticated machine, and you have plenty
30:00
Speaker 9: of them in Taiwan, and that's why it's essential that
30:06
Speaker 9: two let This capability exists in the context of the
30:10
Speaker 9: Taiwan invasion, but has been subject to export control for
30:15
Speaker 9: a while. They have been pushed by the US and
30:19
Speaker 9: they have been mostly focused on this EUV machine. The
30:22
Speaker 9: most sophisticated is no chip machines that he needs. Those
30:26
Speaker 9: machines to the most phisticated chips you need for any
30:30
Speaker 9: ai development or any military purpose, and those machines aren't
30:35
Speaker 9: in China at the moment.
30:37
Speaker 4: These machines aren't cheap, are they. What's one of these
30:39
Speaker 4: big chip making machines.
30:40
Speaker 5: What do they go for?
30:42
Speaker 9: You said this, This eu V is I think it's
30:45
Speaker 9: about like two hundred million apiece something like that.
30:49
Speaker 2: Yeah, And SML does something very unique, not very unique.
30:53
Speaker 2: They do something unique in the semi space right there.
30:56
Speaker 2: You can also license. It's a lithography, right, it's like
30:59
Speaker 2: the machine you need to make the chips. Can you
31:00
Speaker 2: walk me through what exactly that company does and then
31:04
Speaker 2: why it becomes so important to the sector.
31:07
Speaker 9: Yeah, So basically, ASML is the only company able to
31:12
Speaker 9: make this machine, and like all the generation chip machines,
31:16
Speaker 9: you have more company that they are able to make
31:18
Speaker 9: those but to make the best chips with the lowest
31:22
Speaker 9: nanometers you need for what I mentioned ai those machines
31:28
Speaker 9: she needs for those chips. ASML at the moment is
31:30
Speaker 9: the only company that can make them, so yeah, that
31:34
Speaker 9: gives them an important, massive market position, and yeah, you
31:39
Speaker 9: also end up in a geopolitical struggle as we see
31:42
Speaker 9: right now.
31:43
Speaker 4: Yep, absolutely all right, Dieterrek, thank you so much for
31:45
Speaker 4: joining us. Die Derek Bazil, Dutch government reporter for Bloomberg News,
31:49
Speaker 4: joining us from Amsterdam via zoom. Again, ASML TSMC big
31:54
Speaker 4: chip makers, apparently they can disable chip machines if China
31:59
Speaker 4: invades Taiwan. You think about that cybersecurity, and it just
32:02
Speaker 4: kind of goes to the issue of this what seems
32:04
Speaker 4: to be a growing technology cold war between you know,
32:09
Speaker 4: it's called it China and the West broadly defined it.
32:12
Speaker 4: I'm not sure how you do that, but again, governments
32:16
Speaker 4: are making plans. Companies here we see from this reporting
32:19
Speaker 4: are making plans.
32:20
Speaker 2: But this also devetails with Vault Energy that we spoke
32:24
Speaker 2: to in the last hour, So that company makes investments
32:28
Speaker 2: in technology that can help reshore the supply chains for
32:32
Speaker 2: batteries and storage. Right, So think like lithium, how to
32:35
Speaker 2: extract lithium more cheaply and more cost efficiently. It's all
32:39
Speaker 2: part of the same story. How do you decouple after
32:43
Speaker 2: a few decades of coupling when you're a company, whether
32:46
Speaker 2: it's tech, whether it's rare rare earths, whether it's another
32:50
Speaker 2: asset as a CEO, how do you capital allocate from that?
32:56
Speaker 8: Right?
32:56
Speaker 2: Like some companies like a Caterpillar, they make their stuff,
32:59
Speaker 2: they train technologies. For example, it's an age back company.
33:02
Speaker 2: They make stuff in China and sell to China. Right,
33:05
Speaker 2: So their China sales might be fine, and then maybe
33:07
Speaker 2: you're you're insulated, but otherwise I would think it'd be
33:10
Speaker 2: very very difficult.
33:11
Speaker 4: Yeah, And you know, and one of the companies that
33:14
Speaker 4: I think when I think of just China risk broadly defined,
33:16
Speaker 4: I think of Apple. I mean, you know, twenty percent
33:19
Speaker 4: of their sales go there. It's obviously a huge growth market.
33:22
Speaker 4: It's also critical to the supply chain, as we just
33:25
Speaker 4: kind of learned a little bit here from DEETS reporting
33:28
Speaker 4: in terms of where the chips come from and where
33:31
Speaker 4: their hardware is manufactured in China. If you're Tim Cook, boy,
33:36
Speaker 4: I don't know how you manage that. I guess you
33:37
Speaker 4: just kind of.
33:38
Speaker 9: Go to India.
33:39
Speaker 4: You go to India, but that's going to take a
33:41
Speaker 4: long time as we're told to build that whole infrastructure out.
33:44
Speaker 4: But I guess if you're Tim Cook, you go to
33:46
Speaker 4: China as often as you can and try to, you know,
33:50
Speaker 4: just try to keep a good I guess dialogue going
33:52
Speaker 4: with the government officials or to keep the status quo going.
33:56
Speaker 2: Yeah, and we were talking about that when we had
33:58
Speaker 2: a great story about maybe Tim cook succession plan and
34:01
Speaker 2: sort of you know, do you need a full time
34:03
Speaker 2: China ambassador? Basically as a as a company, you need
34:08
Speaker 2: to have someone who can really help secure that relationship.
34:11
Speaker 2: In addition to all the other stuff like capital allocat
34:13
Speaker 2: you frend of an ends like invate his job.
34:16
Speaker 4: Elon Musk's job has also got a lot of exposure
34:18
Speaker 4: to their you know, CEOs. Jamie Dimond has been over
34:21
Speaker 4: there recently for Japo Warton Chase, So a lot of
34:23
Speaker 4: CEOs you know, going over to China trying to I guess,
34:27
Speaker 4: maintain decent relationships in the face of governments.
34:32
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
34:36
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
34:40
Speaker 1: Auto with the Bloomberg Business app. You can also listen
34:42
Speaker 1: live on Amazon Alexa from our flagship New York station.
34:46
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
34:50
Speaker 2: Let's go to the bond market. Here we are seeing
34:52
Speaker 2: a little bit bit into the bond market. Ira Jersey,
34:54
Speaker 2: Bloomberg Intelligence Chief US interest rate strategist, is joining us.
34:58
Speaker 2: IRA the mark it supposedly the narrative is that it's
35:02
Speaker 2: waiting for Nvidia. What does the bond market do with Nvidia.
35:06
Speaker 10: I don't know if the bond market's going to do
35:08
Speaker 10: a whole heck of a lot with you know, story
35:10
Speaker 10: stocks in particular, But the bond market is, you know,
35:13
Speaker 10: still waiting for the Fed. We have a ton of
35:15
Speaker 10: Fed speak this week. We have the minutes coming out tomorrow,
35:18
Speaker 10: So the bond market's going to kind of be on
35:20
Speaker 10: edge as to you know, when the Fed's gonna cut,
35:23
Speaker 10: how do they see the balance sheet shaping up? And
35:26
Speaker 10: you know, you've had a lot of speakers like I
35:28
Speaker 10: literally just before walking on, we finished up with with
35:31
Speaker 10: Governor Chris Waller, who you know, gave not anything significantly
35:36
Speaker 10: different than what Jay Powell has been saying, but certainly
35:39
Speaker 10: certainly some details that you know, I have people talking
35:43
Speaker 10: about the future of monetary policy and things like what
35:46
Speaker 10: is our star, what is the neutral FED fund rate?
35:49
Speaker 10: And where should it be given given the current environment?
35:52
Speaker 4: All Right, For all of the listeners and viewers out
35:54
Speaker 4: there who maybe don't have a Bloomberg terminal in front
35:56
Speaker 4: of them, one of the most widely used functions is
35:59
Speaker 4: ea ECO go. It gives you a nice list of
36:02
Speaker 4: all the economic data that's released by the government so
36:06
Speaker 4: you can stay on top of it all. And of
36:08
Speaker 4: course on there is for tomorrow FOMC meeting minutes. My
36:13
Speaker 4: question iras who cares because we hear these FED people
36:19
Speaker 4: speaking all day every day except for like a fifteen
36:21
Speaker 4: minute blackout every quarter. Did the minutes really tell something
36:26
Speaker 4: since these folks are always speaking anyway.
36:29
Speaker 10: It does, and it tells you a couple of different things.
36:32
Speaker 10: I mean, firstly, it tells you the entire committee, right,
36:36
Speaker 10: because there are certain people who speak more frequently in
36:39
Speaker 10: front of the media. For example, Raphaelbostik of Atlanta FED.
36:43
Speaker 10: He's on TV all the time, right, he was on
36:46
Speaker 10: Bloomberg Television not so long ago like yesterday. We also
36:50
Speaker 10: have we also have you know, Chris Waller speaks a lot,
36:53
Speaker 10: so it but it gives you all nineteen members view
36:57
Speaker 10: and then you know who believes what in a more
37:00
Speaker 10: SYNCD fashion, then you can maybe glean from a lot
37:03
Speaker 10: of the Q and as that wind up generating a
37:05
Speaker 10: lot of headlines. But it's hard to kind of get
37:07
Speaker 10: a complete narrative of where what everyone is thinking. So
37:11
Speaker 10: I think that the minutes are useful. They're also useful
37:13
Speaker 10: from analytical perspective. What we use the minutes for in
37:16
Speaker 10: determining where we think the future path of policy is
37:20
Speaker 10: going to be is we compare what's being said to
37:24
Speaker 10: other periods, and so we actually have a model and
37:27
Speaker 10: natural language processing model that says the FED is hawkish
37:31
Speaker 10: and dubbish. And the nice thing about the minutes it
37:33
Speaker 10: says a few members, most members, some members, and we're
37:37
Speaker 10: able to get an idea about how many members have
37:39
Speaker 10: that view, which is not something you can get from
37:42
Speaker 10: the post meeting press conference, which is not something you
37:44
Speaker 10: can necessarily get from just listening to you know, three
37:47
Speaker 10: or four or five speakers instead of all nineteen That's
37:50
Speaker 10: where I wanted to kind be pretty helpful.
37:52
Speaker 4: I saw on your research, which I do read despite
37:56
Speaker 4: you know all what, Yeah, I read it grudgingly because
38:00
Speaker 4: it's great stuff. In their natural language processing model you
38:05
Speaker 4: use for the minutes, what is that all about?
38:09
Speaker 10: Yeah, So our model basically takes every sentence that it
38:13
Speaker 10: has to do with monetary policy and the economy within
38:16
Speaker 10: the minutes. We also do the same thing for the
38:18
Speaker 10: post meeting press conference, for the prepared remarks that Jay
38:21
Speaker 10: Powell makes, and tries to determine whether or not it's
38:24
Speaker 10: a little bit hawkish, a little bit dubvish, neutral, or
38:26
Speaker 10: very hawkish or very dubbsh. And in doing that we
38:29
Speaker 10: can then wait it right. That's the advantage of the
38:31
Speaker 10: minutes over some of the other over some of the
38:34
Speaker 10: other models that you can potentially use that are similar.
38:38
Speaker 10: Where the minutes I have other indicators. For example, it
38:42
Speaker 10: says a member thinks, which means one person, right, Whereas
38:45
Speaker 10: if it says many members think, then that's less than half,
38:48
Speaker 10: but more.
38:49
Speaker 5: Than a couple, right, more than three or four.
38:51
Speaker 10: So you wind up with probably a better overall gauge
38:55
Speaker 10: of how hawkish or dubvish the FED is, and what
38:58
Speaker 10: our model shows right now as of the last meeting minutes,
39:02
Speaker 10: which will probably remain the same this week this week presumably,
39:07
Speaker 10: is that they're very neutral. They're basically right in line
39:09
Speaker 10: with what would be an on hold FED. And that's
39:13
Speaker 10: very consistent with what we're seeing now. I suspect that
39:16
Speaker 10: unless the economic data deteriorates or improves very significantly, like
39:21
Speaker 10: you see in optic and inflation, that the FED will
39:24
Speaker 10: probably remain in that neutral territory with a little nuance there,
39:28
Speaker 10: which just means that they're going to be on hold.
39:30
Speaker 10: And you know, Chris Waller said today that he thinks
39:32
Speaker 10: that rates are going to be on hold at least
39:34
Speaker 10: until the fourth quarter.
39:35
Speaker 5: Bostic said the same thing.
39:37
Speaker 10: So those are those are indicators that the minutes have,
39:40
Speaker 10: you know, at least are in line with the other
39:43
Speaker 10: speakers that you hear in them, you know in the.
39:46
Speaker 2: Media, Bostic talking up neutral. As for what is neutral,
39:50
Speaker 2: I feel like J. Powell in the last press conference
39:52
Speaker 2: really didn't take that bait. How do you view what
39:56
Speaker 2: the neutral rate is and how important is that to
39:59
Speaker 2: the conversation right now?
40:01
Speaker 10: Well, so, ex ante, it's very difficult to determine what
40:04
Speaker 10: the neutral rate is, right, because you don't know what
40:06
Speaker 10: the propensity for people to take loans are and how
40:11
Speaker 10: high or how low interest rates need to be versus
40:14
Speaker 10: inflation or some other measure for you know, where interest
40:18
Speaker 10: rates are going to you know, not increase inflation or
40:21
Speaker 10: decrease inflation, and there's really realistically no way to know that,
40:24
Speaker 10: which is the reason why you get these cycles. The
40:28
Speaker 10: idea though, and I think this is what everyone in
40:30
Speaker 10: the academic land and you know, rate strategists all over
40:33
Speaker 10: the world we're talking about, is, given how low we
40:36
Speaker 10: think the neutral rate was between twenty ten and twenty nineteen,
40:40
Speaker 10: has that moved up? And the answer is unequivalentally, yes,
40:43
Speaker 10: it just it had to.
40:44
Speaker 8: Right.
40:44
Speaker 10: We're in a much more we're in a tighter labor
40:46
Speaker 10: market environment. We don't have the same type of globalization
40:51
Speaker 10: pushing pushing down goods costs that we had ten years ago.
40:55
Speaker 10: So all of those things are probably true. The problem
40:57
Speaker 10: is nobody really can guestimate the magnitude.
41:00
Speaker 5: There's a lot of models to do that.
41:01
Speaker 10: You know, is it two and a half percent, which
41:03
Speaker 10: is kind of what the FED seems to think that
41:05
Speaker 10: it is based on the dop plot. Some people think
41:08
Speaker 10: it's a bit higher than that. I actually think it
41:10
Speaker 10: probably is a little bit higher than that. But the
41:13
Speaker 10: you know, but there's no realistic way to know beforehand
41:17
Speaker 10: exactly where our star is. But you have to you
41:19
Speaker 10: have to guess if you're if you're a member of
41:21
Speaker 10: the FED or any central bank, because otherwise you don't know,
41:25
Speaker 10: you know, are we restrictive or are we not. I'd
41:28
Speaker 10: argue that the FED probably is modestly restrictive, maybe not
41:31
Speaker 10: restrictive enough, but they are certainly, you know, more restrictive
41:35
Speaker 10: than they were when interest rates were at zero.
41:37
Speaker 4: Hey, I'm just looking at the ten year treasury just
41:39
Speaker 4: in the last i don't know, three to four weeks,
41:41
Speaker 4: it's kind of come down and yield from four to
41:43
Speaker 4: seventy range down to about four forty. Does that tell
41:46
Speaker 4: us anything or is that just kind of trading within
41:49
Speaker 4: a range?
41:51
Speaker 5: Yeah, I think we've hit that range.
41:52
Speaker 10: We talked I think it was last week, Paul, where
41:55
Speaker 10: we were mentioning on that that kind of four thirty
41:58
Speaker 10: to four fifth might be the new range for now
42:02
Speaker 10: until we get a significant regime shift. It's not telling
42:06
Speaker 10: us much of anything except that again, the market is
42:09
Speaker 10: still pricing for the Federal Reserve at some point in
42:12
Speaker 10: the not too distant future will be lowering interest rates.
42:15
Speaker 10: And that's why you have the continued inversion of the
42:19
Speaker 10: yield curve where the ten year yield is lower than
42:21
Speaker 10: the two year yield. But even that has contracted quite
42:25
Speaker 10: a lot. Right that was as much as one hundred
42:27
Speaker 10: basis points between the two and now it's less than fifty.
42:31
Speaker 10: It's forty ish basis points right now. So that's just
42:35
Speaker 10: saying that at some point the Fed's going to cut.
42:37
Speaker 10: When the Fed cuts, ten year yields are probably going
42:39
Speaker 10: to rally a little bit. But we're already priced for
42:41
Speaker 10: at least part of that cutting cycle.
42:44
Speaker 2: All right, IIRA, thanks a lot. We really appreciate you.
42:46
Speaker 2: Thank you very much. Our Jersey Bloomberg Intelligence Chief US
42:49
Speaker 2: interest rate strategist adjoining us there.
42:51
Speaker 4: And the way to get all that research, Alex is
42:54
Speaker 4: BI space r ate. B I rate will get you
42:58
Speaker 4: to all the interest rate analysis for our Jersey and
43:00
Speaker 4: his team on a global basis.
43:02
Speaker 6: You pull up.
43:03
Speaker 4: There's stuff about Canada, there's stuff about Asia, China and
43:07
Speaker 4: all different languages on this dashboard, but it is the
43:09
Speaker 4: global view of interest rates.
43:11
Speaker 2: And you can't beat them. You just really can't, Like,
43:13
Speaker 2: I mean, you can't be the model that goes through
43:15
Speaker 2: and looks at speeches like you just can't beat.
43:17
Speaker 4: That a large like a language model.
43:19
Speaker 7: I don't know. There's also a MOSAD, the Israeli Intelligence Agency,
43:24
Speaker 7: uses a very similar type of software to look at
43:30
Speaker 7: conversations that they intercept. We use the same thing for
43:33
Speaker 7: conference calls and.
43:36
Speaker 5: Well yeah, no sentiment, yeah.
43:38
Speaker 7: Just to look for keywords and whatever so you don't
43:41
Speaker 7: have to sit there and listen a long thing.
43:43
Speaker 2: Well, I listen to conference calls all day.
43:45
Speaker 5: I have just spent a career doing it.
43:46
Speaker 8: I mean, come on.
43:47
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