Latest / Bloomberg Intelligence / Stocks, CVS, Tech Deals, and Cybersecurity (Podcast)

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Stocks, CVS, Tech Deals, and Cybersecurity (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. We have a in
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Speaker 1: our studio today, met a Bloomberg alumn coming back. Kelly
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Speaker 1: Cox joins this year US investment analysts at E Touro
0:30
Speaker 1: and a proud graduate of the University of North Carolina
0:33
Speaker 1: at Chapel Hill. That's okay, we'll allow her in the
0:35
Speaker 1: studio here. Callis have you back? Oh yeah, We're back
0:39
Speaker 1: and forth and all about it before. But it's so
0:41
Speaker 1: great to be here. And I'll put that aside with
0:43
Speaker 1: good stuff. I tell you, last year was so bad. Uh.
0:47
Speaker 1: And I know I follow you on Twitter closely. I
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Speaker 1: know you make all the historical analogies and analyzes. What
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Speaker 1: are you kind of telling? What are you what are
0:54
Speaker 1: you telling your clients for about? Can we kind of
0:57
Speaker 1: regroup here? Well? Hopefully for our own c entity? Um?
1:00
Speaker 1: WELLO was painful. I mean no doubt about that anyway
1:03
Speaker 1: you slice it. We're still in a challenging environment. Rates
1:07
Speaker 1: are still high, quite high. The FED doesn't seem to
1:10
Speaker 1: be backing off too much, and chances are they won't
1:12
Speaker 1: back off unless we hit a recession, and obviously nobody
1:15
Speaker 1: wants that. That's the worst case scenario. So we're hoping
1:18
Speaker 1: we can avoid a recession right now. So far, so good.
1:22
Speaker 1: But if we do avoid a recession, we're just cautioning
1:24
Speaker 1: people against the fact that we are in a high
1:27
Speaker 1: rate environment and that's still a challenging operating environment for companies.
1:31
Speaker 1: So I don't think we're there yet, but we're getting closer. So,
1:34
Speaker 1: I mean, it's a relatively high rate environment. But we've
1:38
Speaker 1: heard a couple of people say we're getting back to
1:40
Speaker 1: basics in terms of investing UM. People like bonds again
1:43
Speaker 1: after the horrible year of UM. Jeremy Siegel thinks it's
1:49
Speaker 1: the decade for dividends, which is kind of cool. I mean,
1:53
Speaker 1: you're no longer going to get meme stocks, these crazy
1:55
Speaker 1: home runs, get rich off of nothing with your stimmies.
1:58
Speaker 1: But maybe you know, with dedicated a savings plan and investments,
2:03
Speaker 1: you can you know, grow UM your wealth with income
2:06
Speaker 1: and reinvestments. What do you think, Well, I think you're right, Matt.
2:09
Speaker 1: I think investors have been forced to shift their mindsets
2:12
Speaker 1: towards what's working now and how they can make money
2:15
Speaker 1: now because yields are just so healthy and stocks and
2:19
Speaker 1: other risk assets just aren't working. And I think it's
2:21
Speaker 1: a healthy balance, right, Like you have to have a
2:23
Speaker 1: little bit of growth, a little bit of both, excuse me.
2:27
Speaker 1: But at the same time, you know, we kind of
2:28
Speaker 1: got too far on the growth side of the equation
2:30
Speaker 1: and we're coming back, you know. I think it's really important.
2:33
Speaker 1: I mean, investors are learning a lot of lessons right now,
2:35
Speaker 1: but they're also being forced to pay attention to the
2:38
Speaker 1: financial strength of companies that they invest in, and companies
2:41
Speaker 1: that actually rise and fault with the economy. That some
2:44
Speaker 1: are even economically resistant, the more defensive stocks. So, you know,
2:49
Speaker 1: I think it's a good shift back, and I think
2:51
Speaker 1: it's going to teach, you know, retail investors in general
2:54
Speaker 1: a lot about how markets work. So what are some
2:56
Speaker 1: of the sectors you like here? Um, I mean there's
2:59
Speaker 1: something to choose. Some are to belief from a evaluation perspective,
3:02
Speaker 1: um that we're beaten down where you kind of taught
3:06
Speaker 1: tongue your client to start doing some work. So I'm
3:09
Speaker 1: generally a cup have full person, I said a few
3:11
Speaker 1: minutes ago. It's a challenging environment, but I'm also looking
3:15
Speaker 1: to the fact that you know, we know a bowl
3:18
Speaker 1: market is after this. We don't know how we get there,
3:21
Speaker 1: but we know that cycles exist in the stock market,
3:23
Speaker 1: and we will eventually get back into that bowl, even
3:25
Speaker 1: if it is painful from here until now. So we're hoping,
3:29
Speaker 1: you know, by one step or another, we get there soon.
3:32
Speaker 1: And our customers are longer term. Retail investors are longer
3:35
Speaker 1: term investors, so we're encouraging them to sew their seeds
3:39
Speaker 1: for the next bull market because eventually we see inflation slowing.
3:42
Speaker 1: The Feed is committing to get committed to get rates down,
3:45
Speaker 1: so you know, we think it's time to prepare for that. Wait,
3:47
Speaker 1: why do you mean the FED is committed to get
3:49
Speaker 1: rates down? I mean inflation, Okay, But the thing is
3:53
Speaker 1: in the FED might not need to cut if we
3:56
Speaker 1: don't have a recession, if we get this soft landing
3:59
Speaker 1: that Over the past few days more people have been
4:02
Speaker 1: optimistic about um the FED could hold at five or
4:06
Speaker 1: five and a quarter depending on where they get right.
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Speaker 1: But we're in a restrictive environment right now. The FED
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Speaker 1: has said that, so eventually they're hoping to get rates
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Speaker 1: back down and get inflation back down. Their target is
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Speaker 1: two percent so for inflation correct. So we're trying to
4:20
Speaker 1: get back to that low inflation environment, and we think
4:23
Speaker 1: that low rates would come after that. So if you're
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Speaker 1: a long term investor, it's a great environment to prepare
4:28
Speaker 1: for what's coming next and maybe you know, load up
4:30
Speaker 1: on those cyclicals in the case that we don't hit
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Speaker 1: that recession. Of course, be guarded here, you know, look
4:35
Speaker 1: at a barbell, look at you know, possibly hedging your positions.
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Speaker 1: But we're down about from the highs, and we're seeing
4:41
Speaker 1: a lot of value in the financials, the industrials, the
4:45
Speaker 1: more cyclical stocks, So you know, why not take a
4:48
Speaker 1: look the balanced portfolio that's sixty forty portfolio that a
4:51
Speaker 1: lot of folks grew up on that did not work
4:53
Speaker 1: last year with fixed income pretty much across the board
4:56
Speaker 1: down double digits. UM. I don't im an equity person.
5:00
Speaker 1: When I see people tell me we have historic declines
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Speaker 1: in fixed income in I'm just naturally calling up my
5:07
Speaker 1: advisors and let's just buy some bonds. What are you
5:09
Speaker 1: kind of thinking about the fixed income space this year? Well, Paul,
5:12
Speaker 1: that's smart. I think a lot of financial advisors are
5:15
Speaker 1: telling their clients to do that. Uh, yeah, you're right.
5:18
Speaker 1: We saw a pretty unprecedented year when it came to
5:20
Speaker 1: stock and bond of clients. And I think that's why
5:22
Speaker 1: it was so painful, because it felt like nothing worked. Uh.
5:26
Speaker 1: You know, usually when stocks fall, bonds compensate for it,
5:29
Speaker 1: and that just didn't happen. Uh. And we think as
5:31
Speaker 1: we had into a recession obviously, or we don't know
5:34
Speaker 1: if a recession is coming. Excuse me, but you know,
5:36
Speaker 1: if we had into a recession, we could see people
5:39
Speaker 1: lean more on bonds for their safety. You know, we're
5:41
Speaker 1: already seeing that too with the tenure coming down from
5:44
Speaker 1: about four point five percent to three point five percent. So,
5:48
Speaker 1: you know, never say never. We don't know what happens
5:50
Speaker 1: in the future. I don't have a crystal ball, but
5:51
Speaker 1: you'd think that there there would have to be some
5:53
Speaker 1: balance coming back out there. In terms of valuations. I mean,
5:58
Speaker 1: I look at this stock market and think we're still
6:01
Speaker 1: not looking at cheap stocks, right, Um, in terms of
6:05
Speaker 1: the broader market, we're still looking at seventeen times earnings,
6:08
Speaker 1: so or or eighteen times earnings. So where do you
6:12
Speaker 1: think we need to go before you start putting your
6:14
Speaker 1: money to work in a in a hefty way. Well,
6:18
Speaker 1: if you think about it, seventeen or eighteen times earnings
6:21
Speaker 1: is about average for what we've seen over the past decade.
6:23
Speaker 1: And this past decade has not been average. I'll give you.
6:26
Speaker 1: I was going to say it's a zero inters rate decade,
6:29
Speaker 1: but yeah, correct, correct, Like there's context there. But I
6:32
Speaker 1: think it's also important to remember that there are there's
6:35
Speaker 1: a lot of dispersion insectors. UM tech does look expensive still,
6:39
Speaker 1: um some cyclicals do look a little bit cheaper. I
6:42
Speaker 1: thought it was interesting, you know that the stocks that
6:44
Speaker 1: actually did really well last year, the industrials of the world,
6:47
Speaker 1: the materials of the world, are still attractively valued when
6:50
Speaker 1: you look at their price to free cash flow. So
6:52
Speaker 1: I think that there's still a little bit of you know,
6:55
Speaker 1: rebalancing that needs to be done there. But you know,
6:57
Speaker 1: at the same time, I wouldn't be talked to see
7:00
Speaker 1: the market accept evaluation here except the current valuations here.
7:04
Speaker 1: If we don't fall into a recession. Yeah, that's one
7:07
Speaker 1: of the things we're speaking with Kylie Cox, us investment
7:09
Speaker 1: analyst at tro the question about evaluation. You kind of
7:12
Speaker 1: have to talk about earnings as we get to kick
7:15
Speaker 1: off another earning season at the end of this week
7:17
Speaker 1: with some of the big banks UM people calling out
7:20
Speaker 1: earnings risk as a material risk to this market here
7:23
Speaker 1: that estimates have not come down enough. Um, how do
7:27
Speaker 1: you think about that? So earnings for us are the
7:30
Speaker 1: determinant one of the things we're watching as we question
7:33
Speaker 1: if we're heading into a recession, because typically you see
7:36
Speaker 1: earnings fall about s ANDP earnings I'm talking fall about
7:40
Speaker 1: during recession. That's the average of all recessions we've seen
7:43
Speaker 1: since nineteen fifty. Right now, it looks like earnings could
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Speaker 1: drop about you know, two to five in the fourth quarter,
7:51
Speaker 1: or you know, we're talking backwards, so they could have
7:54
Speaker 1: dropped two to four percent in the fourth quarter. You know,
7:56
Speaker 1: that's nowhere nearer recession. That doesn't look like a bad
8:00
Speaker 1: hit to us yet. So we're watching earnings to judge
8:03
Speaker 1: the degree of this pullback, if you know, if it
8:06
Speaker 1: falls into recessionary territory and if it justifies stocks possibly
8:11
Speaker 1: finding the bottom again. Um, And we think earnings are
8:14
Speaker 1: the thing to watch. Obviously the job market, I mean,
8:16
Speaker 1: the job market has the leading indicators that we're not
8:18
Speaker 1: seeing a ton of weakness and yet, but earnings will
8:21
Speaker 1: ultimately tell us I think where it settled out here,
8:23
Speaker 1: and right now, we think the market has priced in
8:26
Speaker 1: a slight earnings pullback and that's what we're seeing. That's
8:28
Speaker 1: that's the kind of argument to there's there's earnings risk
8:31
Speaker 1: out there. The kind of argument is that the markets
8:32
Speaker 1: price that in already. Yeah, I just don't know. I
8:35
Speaker 1: have no idea, But I think once we get past
8:37
Speaker 1: this cycle, I'm like, all right, I'm done with the
8:39
Speaker 1: earnings risk story. But you mean once we get pastor
8:43
Speaker 1: well this this next quarter, oh, I see Q four.
8:46
Speaker 1: So once we get you know, basically Friday's big bank earnings.
8:49
Speaker 1: I mean, how much does that matter to you when
8:51
Speaker 1: when we when we see the numbers on Friday, how
8:53
Speaker 1: closely we need pay attention because they're like six or
8:56
Speaker 1: seven big banks reporting on Friday. Well, big banks are
8:59
Speaker 1: the forefront of the economy. I think you need to
9:01
Speaker 1: pay attention to them. We've heard a lot of cautious
9:03
Speaker 1: rhetoric coming out of the banks, but overall their earnings
9:06
Speaker 1: have been decent. They've been surprising to the upside. I
9:09
Speaker 1: was actually parsing through earnings data last night, and I
9:11
Speaker 1: thought it was interesting that a lot of services sectors
9:15
Speaker 1: are expected to see the bigger earnings hit in this
9:17
Speaker 1: quarter in subsequent quarters, which is interesting if you think
9:20
Speaker 1: about it, because the balance that we saw last year
9:22
Speaker 1: was a lot of services spending less good spending. So
9:25
Speaker 1: coming into this earning season, I'm going to be watching
9:27
Speaker 1: the services sectors. You know, banks fall into that, Um,
9:30
Speaker 1: they're very consumer oriented. Um. You know, the more software
9:34
Speaker 1: companies fall into that because I just travel, for example,
9:38
Speaker 1: because I just don't think that there has been enough
9:41
Speaker 1: pessimism priced in there and the commentary is gonna matter. Yep,
9:45
Speaker 1: Absolutely forward guidance, all that good stuff. Kelly Cox us
9:49
Speaker 1: investment analysts for Etorro, joining us live here in the
9:51
Speaker 1: Bloomberg Interactive Broker Studio, U n C grad former reporter
9:55
Speaker 1: at Bloomberg's Analysts at four or five shops, and now
9:59
Speaker 1: she's got her at E Touro based in Charlotte, North Carolina.
10:03
Speaker 1: Thanks so much for joining us in studio. So that's
10:06
Speaker 1: it for me, Met on the earning stress story. Once
10:07
Speaker 1: we get past the next three or four weeks, I
10:09
Speaker 1: got all my guidance for three that's it. I mean,
10:13
Speaker 1: I think everybody's gonna give guidance that's gonna assume a
10:15
Speaker 1: modest kind of slowdown slash recession. And then, you know,
10:18
Speaker 1: I feel like we could get a kitchen sync quarter
10:20
Speaker 1: because because of because the recession was such a huge worry,
10:25
Speaker 1: especially a couple of weeks ago. You know, people have
10:27
Speaker 1: gotten more optimistic recently, but the work has been done
10:29
Speaker 1: on the earnings reports, and I feel like a lot
10:32
Speaker 1: of CEOs will say I'm throwing everything at this quarter.
10:40
Speaker 1: We have a CEO in the studio with us. Wendy
10:44
Speaker 1: Thomas joins us. She runs Secure Works NASDAC ticker s
10:48
Speaker 1: c w X. They are security as a service company, right,
10:54
Speaker 1: Wendy tell us a brief history of Secure Works and
10:57
Speaker 1: what you're doing. Sure, So, Securic has been through an
11:00
Speaker 1: important transformation to a security sas platform to really address
11:05
Speaker 1: the challenges we've seen in security over the last twenty
11:08
Speaker 1: plus years. So we were founded as a security services
11:12
Speaker 1: organization and then looking to address security challenges largely with
11:16
Speaker 1: very expert security folks. But what we found is that
11:20
Speaker 1: that we needed a new technology, machine learning AI approach
11:24
Speaker 1: to solving securities challenges, and that's what we launched a
11:27
Speaker 1: few years ago, the TAGES platform, and so our business
11:30
Speaker 1: model has been in a pretty significant transition to addressing
11:33
Speaker 1: security through that plant. So what do you expect in
11:36
Speaker 1: three As you know, Paul and I talked to so
11:38
Speaker 1: many people who say to us that cybersecurity is one
11:41
Speaker 1: of the number one issues, one of the number one
11:43
Speaker 1: threats facing companies, And of course we report on so
11:47
Speaker 1: many hacks and thefts and data leaks over the past,
11:50
Speaker 1: not just this year, but over the past five or
11:52
Speaker 1: six or seven years. UM, how does the growth look
11:56
Speaker 1: to you from from this transition vantage point? Sure? I
12:00
Speaker 1: mean our growth has been outsized in comparison to the
12:04
Speaker 1: market in terms of our tageous XDR platform. What what
12:07
Speaker 1: I see more generally in the security space, Clearly there's
12:10
Speaker 1: a broader economic backdrop right now in terms of pressure,
12:14
Speaker 1: but security is simply something that companies cannot just dispense with.
12:19
Speaker 1: What I see right now is that companies have an
12:21
Speaker 1: opportunity with with the type of technology that TAGES brings
12:26
Speaker 1: to actually reduce their total security spend, kind of like
12:28
Speaker 1: you didn't need a you'll need a separate camera from
12:31
Speaker 1: your phone or separate GPS device from your phone. You
12:33
Speaker 1: can consolidate your security spend into a platform approach to
12:36
Speaker 1: save money and get a better security posture. Broadly, speaking
12:40
Speaker 1: with the clients, do you deal with Wendy, what percentage
12:43
Speaker 1: of their tech spend every every year is cybersecurity versus
12:47
Speaker 1: maybe just hardware upgrades of software upgrades. Yeah, it's a
12:50
Speaker 1: great question because rules of thumb are really important when
12:52
Speaker 1: you're trying to look at your spend, and there's a
12:54
Speaker 1: couple of I would look at depending on your industry,
12:57
Speaker 1: somewhere between four and as much as ten percent of
13:00
Speaker 1: your total I T spend is generally on security. That's
13:03
Speaker 1: what that's what good looks like. If you want to
13:06
Speaker 1: translate that into employees on average, we see see organizations,
13:11
Speaker 1: not the largest organizations, but you know, your small medium
13:14
Speaker 1: businesses six hundred dollars per employee on average for a year,
13:18
Speaker 1: but can be as much as again depending on your
13:22
Speaker 1: business model and your I T estate. So um, we
13:26
Speaker 1: have heard kind of conflicting reports in terms of I
13:30
Speaker 1: T spending plans. For the most part, it seems that
13:32
Speaker 1: people are gonna pull back on I T spending. But
13:35
Speaker 1: we were talking with Honora Rata Rata and man Deep
13:38
Speaker 1: Sing yesterday from Business Bloomberg Intelligence, and they were saying
13:43
Speaker 1: that in some places, for instance, in cloud, you're gonna
13:45
Speaker 1: see an increase in spending three. I feel like, if
13:48
Speaker 1: you're going to increase your cloud spend, you've got to
13:50
Speaker 1: be boosting your security spend as well. Is that wrong? No?
13:53
Speaker 1: I think the mix of spend is absolutely shifting. So
13:56
Speaker 1: it may be that the total is under pressure, but
13:58
Speaker 1: the mix to get the yield in terms of automation
14:01
Speaker 1: for your business and flexibility UH is going to go
14:04
Speaker 1: up in areas like cloud and security. So we continue
14:07
Speaker 1: to see security spend um increasing year over year. I
14:12
Speaker 1: think the question is where's the opportunity to make a
14:16
Speaker 1: step function change in your security investments to again get
14:20
Speaker 1: your get your security posture much higher relative to the
14:24
Speaker 1: breaches we continue to see in the marketplace. So for
14:26
Speaker 1: secure works, what's your typical customer and what's their typical
14:31
Speaker 1: need that you're trying to kind of meet for them?
14:33
Speaker 1: Sure that the typical customer needs UH simple security, and
14:38
Speaker 1: they don't want to have to bring a large security
14:40
Speaker 1: staff in house. They want to make sure that their
14:43
Speaker 1: business is up and running and that they don't have
14:45
Speaker 1: damages from breaches, and that they can ensure themselves. From
14:48
Speaker 1: a cyber insurance perspective, we check all of those those boxes.
14:52
Speaker 1: They as cyber insurance. We do not sell cyber insurance,
14:57
Speaker 1: but by having a costure yes, absolutely late and in
15:01
Speaker 1: fact it's if you've if you've read the headlines. Because
15:03
Speaker 1: of all the breaches over the past few years, the
15:06
Speaker 1: cyber insurance market is really contracted in terms of much
15:09
Speaker 1: more rigorous underwriting and rising rates. So the ability to
15:13
Speaker 1: demonstrate controls around the part of your business that generates
15:17
Speaker 1: your revenue or your cash flow is an important part
15:19
Speaker 1: to being able to cost effectively ensure your organization. I see. So,
15:24
Speaker 1: just like with car insurance, if I can demonstrate that
15:27
Speaker 1: I have a decent security system on my vehicle, I'll
15:31
Speaker 1: get a discount from my insure that ensure cyber insurance
15:35
Speaker 1: is the same with businesses. They'll say, all right, if
15:36
Speaker 1: you have secure works, we'll give you a better rate.
15:39
Speaker 1: Show me that. And so we work with cyber insurers
15:41
Speaker 1: around incident response as well as putting the kinds of
15:46
Speaker 1: security controls in place that help those customers reduce that
15:50
Speaker 1: that rate. Where do you think your clients are just
15:52
Speaker 1: maybe companies in general are under investing today, and as
15:56
Speaker 1: it relates to their cybersecurity platform, they tend to undervest
16:02
Speaker 1: in two two areas. One, they try to go it
16:04
Speaker 1: alone with people. That just doesn't make a lot of sense.
16:06
Speaker 1: You can actually get more for less spend by having
16:10
Speaker 1: an expert partner like secure works. So they try to
16:12
Speaker 1: do it in house. Okay, they do, and it had
16:15
Speaker 1: just given the diversity of skill sets required in security
16:18
Speaker 1: today because you let the technology do what it does
16:21
Speaker 1: in terms of the XDR platform, so the people who
16:24
Speaker 1: are then working on the things that the platform can't
16:26
Speaker 1: solved need to be much more expert. And the second
16:29
Speaker 1: is it remains true that just the basics of security
16:33
Speaker 1: prevention can prevent the majority of security attacks. And so
16:37
Speaker 1: when we see the ability to have a second way
16:39
Speaker 1: to authenticate that it is you logging into the system,
16:43
Speaker 1: that goes a long way to preventing a large number
16:45
Speaker 1: of the sort of commodity criminal cyber attacks. I look
16:49
Speaker 1: at your stock tickers, s C w X on the
16:52
Speaker 1: nasdack UM and I put it up against you know,
16:56
Speaker 1: the NASDAC or the Russell two thousand or the Technology
17:00
Speaker 1: index on the Russell, it looks like you've really outperformed
17:04
Speaker 1: in booms and underperformed in busts. Uh, why do you
17:09
Speaker 1: think that is? Why? Why are investors making more volatile,
17:13
Speaker 1: dramatic moves with your stocks? And they are. There's to
17:16
Speaker 1: two elements to that. One is our business model has
17:19
Speaker 1: been in a transition from a services led organization to
17:23
Speaker 1: a technology lead approach to security, and in the midst
17:26
Speaker 1: of exiting some of those non strategic services, the total
17:30
Speaker 1: top line has been under pressure, which is why we
17:33
Speaker 1: talk about the TAGES platform and the air are associated
17:37
Speaker 1: with that growing eighty percent year over a year, you know,
17:40
Speaker 1: two million lesson three years after launch. So it's it's
17:43
Speaker 1: a rapidly growing area of security and emerging market trend.
17:47
Speaker 1: So you do need investors to look underneath the covers
17:50
Speaker 1: to see the opportunity in the in the valuation and
17:53
Speaker 1: the business transition. We're gonna hit this at the end
17:56
Speaker 1: of this year. We've said we're gonna exit probably more
17:59
Speaker 1: than eight percent of the news on the new platform,
18:01
Speaker 1: so the end of that time is coming. Michael Dell
18:04
Speaker 1: is your largest shareholder, is your chairman of the board.
18:07
Speaker 1: What's it like working from Michael Dell? He is an
18:09
Speaker 1: amazing entrepreneur. So this is an individual who understands how
18:14
Speaker 1: to grow businesses, is invigorated around going businesses and really
18:18
Speaker 1: going to speak to their their pain points. He is
18:22
Speaker 1: a big supporter of the the importance of merging security
18:26
Speaker 1: with the technology story for ce i os and not
18:29
Speaker 1: just s sos, and sees a lot of synergies in
18:31
Speaker 1: terms of those types of investments that must be fascinating
18:34
Speaker 1: and and a little scary. I would think Wendy Thomas uh,
18:37
Speaker 1: CEO and president of Secure Works public trader company s
18:41
Speaker 1: cw X there in town speaking at the need Him conference,
18:44
Speaker 1: which is a great conference. A lot of really cool
18:46
Speaker 1: small mid cap tech media names are good. Friend Lauren
18:49
Speaker 1: Martin is a big, big part of that team there
18:51
Speaker 1: and need Him so good to see Secure Works out
18:54
Speaker 1: in front of clients. Good to see everybody out and
18:56
Speaker 1: about doing stuff. I want to get to the story here.
19:01
Speaker 1: Microsoft gonna potentially invest ten billion dollars open ai and
19:07
Speaker 1: open ai, which would give it an Open AI evaluation
19:10
Speaker 1: about twenty nine billion dollars. So I'm going to start
19:13
Speaker 1: with the most basic with an a Rock Rana, he's
19:15
Speaker 1: our Bloomberg Intelligence. What is open AI? What for? For
19:20
Speaker 1: you know, I mean Mats a lot. You know, he's
19:22
Speaker 1: not as tex savvy as Iron, but so for mats
19:24
Speaker 1: sake and maybe for some of our listeners, what is
19:26
Speaker 1: open AI? So you have a number of artificial intelligence
19:31
Speaker 1: companies that are basically building algorithms to make you know,
19:35
Speaker 1: some kind of function good. So they have a they
19:37
Speaker 1: have a product called chat GPT and it works like
19:40
Speaker 1: a search function. I mean, you go and type in
19:42
Speaker 1: and says, you know, how should I invest and will
19:44
Speaker 1: give you a very complicated answer or a very simple
19:47
Speaker 1: answer to any of those things. So it is it
19:49
Speaker 1: is really products like that or anything that enhances the
19:55
Speaker 1: insights that anybody can can can get on the data.
19:58
Speaker 1: That's underline. So it it is a bit, it's it's
20:01
Speaker 1: it's not as complicated as it sounds. It's practically it's
20:03
Speaker 1: like a search box. Sounds like Watson again, but exactly,
20:08
Speaker 1: you are absolutely right. It is like Watson. But the
20:12
Speaker 1: results for chat GPT has been really good. And Microsoft
20:16
Speaker 1: is already an investor. It's not as if it's not
20:18
Speaker 1: an investor right now, UM, but it's it seems that
20:22
Speaker 1: the company has a very high valuation and somebody might
20:25
Speaker 1: want to take it. So a I'd like to see
20:27
Speaker 1: chat gpt, then take on Watson on Jeopardy, Yes, and
20:31
Speaker 1: be jing and buh what do they call it? When
20:36
Speaker 1: it kind of like turns human? Is Is it possible
20:39
Speaker 1: that it's going to develop its own Was it? No?
20:42
Speaker 1: There was? There was? There was? Wasn't there a Google
20:46
Speaker 1: UM employee who was worried that the AI they were
20:50
Speaker 1: developing had become sentient? Do you remember that? Yeah, there's
20:56
Speaker 1: a lot of that stories. But to remember it's not
20:57
Speaker 1: as if, you know, Microsoft is just going to use
21:00
Speaker 1: the chat GPT function. They're basically going to look at
21:04
Speaker 1: the algorithms and the way this is written and then
21:06
Speaker 1: and most likely again this is just my speculation, it's
21:09
Speaker 1: going to be UM enhance the productivity features of a
21:13
Speaker 1: lot of their suites that they have, you know, let's
21:15
Speaker 1: say office suite or LinkedIn or being for search. Think
21:20
Speaker 1: about it this way. If you are a salesperson and
21:22
Speaker 1: you walk in every day and say, you know you
21:24
Speaker 1: are your best bet today is to go out and
21:26
Speaker 1: make a sales pitch to Paul because the likelihood of
21:30
Speaker 1: him closing a deal over the next few days is
21:32
Speaker 1: very high. And that really is what is going to
21:34
Speaker 1: drive a lot of the next generation insights for all
21:38
Speaker 1: software packages. All right, So Microsoft, maybe ten billion dollars,
21:45
Speaker 1: that seems like if I'm thinking about this space, I
21:47
Speaker 1: kind of feel like it validates the space a little bit.
21:50
Speaker 1: Is certainly validates open AI. How do you think about it? No,
21:55
Speaker 1: it's it is truly in that same case. And I
21:57
Speaker 1: can tell you, you know, just like an emerging technologies,
22:01
Speaker 1: there are probably hundreds and hundreds of new AI companies
22:04
Speaker 1: all over the world that are trying to figure the
22:06
Speaker 1: same thing out, you know, whether that's based on images
22:09
Speaker 1: so image recognition, speech recognition, vision, or for that matter,
22:14
Speaker 1: natural language processing. Almost every technology companies building some capabilities
22:19
Speaker 1: within their product portfolio. So think of this from a
22:22
Speaker 1: Microsoft as more of an R and D going into
22:25
Speaker 1: you know, a new company where if they can you know,
22:28
Speaker 1: I'm assuming there is some commercial agreement here that they
22:31
Speaker 1: can use these products to to enhance the value of
22:34
Speaker 1: what they do. All right, That's uh an interesting story.
22:38
Speaker 1: I think we have a jumping off point from which
22:41
Speaker 1: Paul and I can dig down into a deep rabite GPT.
22:44
Speaker 1: We're gonna be I go, and we're gonna we're gonna
22:47
Speaker 1: get into this. Okay. I want to quickly ask you
22:49
Speaker 1: about Apple on our because it seems like, um, some
22:53
Speaker 1: investors may have been taken by surprise or Broadcast may
22:56
Speaker 1: have been taken by surprise as Apple intends to develop
23:00
Speaker 1: its own products and no longer use those that it
23:03
Speaker 1: gets from others like broad Company. We've known this for
23:06
Speaker 1: a long time, right, Intel was cut out a while back,
23:09
Speaker 1: and Claw Calm has told investors like, yeah, this is
23:13
Speaker 1: what we get like ten billion revenue from them, but
23:15
Speaker 1: that's gonna dwindle over time. For Broadcom, it seems like
23:18
Speaker 1: they were kind of counting on this future revenue streat.
23:21
Speaker 1: I think. I think from you know, I would say
23:24
Speaker 1: I don't want to comment on the guys who are
23:26
Speaker 1: losing in this case, only because you know, you would
23:29
Speaker 1: expect a company like Apple to make sure they have
23:31
Speaker 1: full control over the supply chain as well as the
23:34
Speaker 1: parts that come in, you know. But from my side,
23:36
Speaker 1: and this is far more than just cost control or
23:38
Speaker 1: supply chain management. It is really about dictating what the
23:42
Speaker 1: next generation products are going to be, because frankly speaking,
23:45
Speaker 1: Apple is not going to tell them what they are
23:47
Speaker 1: working on for their next generation products in the case
23:50
Speaker 1: of chips for example, or processor for example. UM they
23:53
Speaker 1: got rid of Intel and they you know, they're developing
23:56
Speaker 1: their own processors and that really has helped them to
24:00
Speaker 1: see double digit growth rate in their higher end mac books.
24:04
Speaker 1: UM and that is because the mptwo processor is is
24:07
Speaker 1: pretty amazing, or the mband processor before that, and that's
24:10
Speaker 1: far better than what Intel could do. So from my side,
24:12
Speaker 1: I think they're not just going to jump off call
24:15
Speaker 1: com because they're going to save some money unless they
24:17
Speaker 1: have a product that's better than that UM And I
24:19
Speaker 1: think that's that the reason for that is that's going
24:21
Speaker 1: to drive innovation from their side. So I mean, is
24:26
Speaker 1: this what's Apple gonna do? Are they gonna ensure this stuff?
24:29
Speaker 1: I mean, that's kind of seems to be the thing
24:31
Speaker 1: now again again, it's going to you know, it's going
24:35
Speaker 1: to take some time for us to figure out. I
24:37
Speaker 1: think a lot of this would be they develop their
24:39
Speaker 1: own you know, design than they're going to do somebody
24:42
Speaker 1: like a t M c T S MC as Money
24:43
Speaker 1: said yesterday, to develop those particular chips and they're gonna
24:47
Speaker 1: put it in their products. But one of the big
24:49
Speaker 1: things is going to be the product may have features
24:52
Speaker 1: that may be used in the next generation iPhones that
24:55
Speaker 1: you know, may or may not be on paper at
24:58
Speaker 1: this point, because they're looking out ahead years down the
25:01
Speaker 1: road of what some of these things can do that
25:04
Speaker 1: is not the current capabilities or may not be even
25:06
Speaker 1: part of the product designed for either Welcome or broadcom. Alright,
25:10
Speaker 1: good stuff. Lots of movement there in the tech space,
25:13
Speaker 1: as always, Apple discussions, Microsoft, some of the big names
25:17
Speaker 1: doing big things as they always do. And so when
25:19
Speaker 1: we got that, we talked to on a rock run
25:21
Speaker 1: and we talked to Man Deep sing. Those are the
25:23
Speaker 1: tech anlems. We just type I go, we just type
25:26
Speaker 1: B I go. And just to remember, everybody, Bloomberg Intelligence
25:29
Speaker 1: is the best research shop on Wall Street. We've got
25:33
Speaker 1: like four hundred analysts all around the world covering two
25:36
Speaker 1: thousand companies, a hundred twenty industries, equity, fixed income, commodities,
25:41
Speaker 1: you know, all that kind of stuff. Cars and I
25:43
Speaker 1: just saw Michael Dean walking around. I know, Chael Deane
25:45
Speaker 1: We've got Kevin Tynan. We got the best car analysts
25:47
Speaker 1: in the world. Yeah. So if you have a Bloomberg terminal,
25:50
Speaker 1: beat I go and you can actually call up and
25:51
Speaker 1: talk to these analysts, just like in the old days.
25:57
Speaker 1: Let's stuck fixed income. Those are bonds, Matt, that's credit,
26:00
Speaker 1: that's that kind of stuff. I'm the stocks guy. I
26:03
Speaker 1: just my job is to tell a good story, you know,
26:06
Speaker 1: forecasting earning, Slap a multiple on it, and we're good
26:08
Speaker 1: to go. But fixing comes a whole different animal. That's
26:10
Speaker 1: why I bring in the smart people. George Bori, chief
26:12
Speaker 1: investment strategist for Fixed. Them with fixing, come with all
26:16
Speaker 1: Spring Global Investments, Pride of Milwaukee. But you're based here
26:20
Speaker 1: in New York, right, I'm in New York. Okay, So
26:22
Speaker 1: I thought I thought you guys were all like in
26:25
Speaker 1: that mononymy Falls campus. Yeah, well not many of us.
26:28
Speaker 1: So you guys have an outpost here. We have an
26:30
Speaker 1: office here in York, which is what's great. It's uh,
26:32
Speaker 1: it's kind of a branch office, but but still a
26:34
Speaker 1: good hub for the team. Good stuff, George, you know
26:38
Speaker 1: what I mean. Two, You know it as well as anybody.
26:41
Speaker 1: Brutal brutal year for fixed income. I'm wondering how you're
26:44
Speaker 1: you're thinking about going forward. Let's just forget about twenty two.
26:47
Speaker 1: And I'm sure you're gonna tell your boss during a review.
26:49
Speaker 1: Let's just forget about twenty two. It didn't happen. What
26:51
Speaker 1: are you focusing on in twenty three? Well, thanks for
26:53
Speaker 1: having me on the show. First off, it's always great
26:55
Speaker 1: to be back in studio. It's been a while, and
26:58
Speaker 1: I love being on the radio segment. But you know,
27:00
Speaker 1: as as a fixed income investor, I think there's kind
27:02
Speaker 1: of one central message that we've been kind of working with.
27:05
Speaker 1: And you know, we've coming out of about ten to
27:07
Speaker 1: fifteen years of a lot of financial repression, and the
27:10
Speaker 1: whole notion of like there's no alternative, the whole Tina
27:13
Speaker 1: notion has changed, and our view is that there is
27:17
Speaker 1: an alternative. There is an alternative going forward, and the
27:19
Speaker 1: alternative is fixed income. The Feds done a tremendous amount
27:23
Speaker 1: of work to get cash rates up to sort of
27:26
Speaker 1: a more typical or more normal rate. The macroeconomics around
27:30
Speaker 1: us are still calibrating. We expect inflation to ultimately come
27:34
Speaker 1: down over the course of this year, but it's gonna
27:36
Speaker 1: be kind of a choppy road. It's not it's not
27:38
Speaker 1: gonna be one way in directional. But when we look
27:41
Speaker 1: across fixed income, fixed income can do what it's supposed
27:45
Speaker 1: to do, and and that's really generated very consistent and
27:50
Speaker 1: steady and predictable stream of income. It's not sexy, it's
27:53
Speaker 1: not wildly exciting, but it's pretty gratifying when it shows
27:57
Speaker 1: up when it's supposed to and there's some predict ability
28:00
Speaker 1: there for people to sort of build out their wealth
28:03
Speaker 1: and their portfolios and immunize their liability. And I think
28:06
Speaker 1: that's the point. I think it is pretty exciting UM
28:09
Speaker 1: for students of the market. What we have seen over
28:11
Speaker 1: the last ten years was obviously crazy drama and you
28:16
Speaker 1: had you know, central banks performing financial repression, pushing everybody
28:22
Speaker 1: out the risk curve. You know, it's the kind of UM,
28:27
Speaker 1: it's the kind of uh uh artificial UM market atmosphere
28:34
Speaker 1: that nobody understands with UM with consequences that are unpredictable,
28:40
Speaker 1: and that's not great. Although some people may have made
28:43
Speaker 1: a lot of money, a lot of other people got crushed.
28:45
Speaker 1: But you didn't get to put to use anything that
28:48
Speaker 1: you learned in school, anything that you read in books, right,
28:50
Speaker 1: And now we're getting back to an era where I think, um,
28:54
Speaker 1: you can actually take lessons that you that you've that
28:57
Speaker 1: you've built up over years and put them to work
29:00
Speaker 1: in the market in a conservative way. You can build
29:02
Speaker 1: a portfolio, save money, and and and and build and
29:05
Speaker 1: build income. And that's a good thing I think for
29:08
Speaker 1: most investors. We we do as well. And and when
29:11
Speaker 1: we think about fixed income, like I said, it really
29:13
Speaker 1: does kind of does three things. Actually, one is income,
29:16
Speaker 1: and we know that, you know, sort of a fixed
29:19
Speaker 1: income portfolio's return is ultimately going to be that income.
29:22
Speaker 1: And so the recognition that I can get it today
29:25
Speaker 1: that there is an alternative to sort of capture that income,
29:28
Speaker 1: you know, is front and center. The second is just
29:30
Speaker 1: being able to weather volatility. You think back where yields
29:33
Speaker 1: were a year or so ago, not a lot of
29:35
Speaker 1: cushion in that trade, and so when volve struck, you know,
29:38
Speaker 1: prices fell pretty quickly. Today we have a much greater
29:42
Speaker 1: cushion in the in the sort of the bond market
29:44
Speaker 1: world to allow us to deal with a lot more uncertainty.
29:47
Speaker 1: And then the last it's just diversification. As we all know,
29:50
Speaker 1: the sixty strategy didn't work out so well last year.
29:53
Speaker 1: But with bond yields now sort of more consistent with
29:56
Speaker 1: a kind of what we'd call more typical economic backdrop,
29:59
Speaker 1: it least some cushion against inflation, a little bit of
30:02
Speaker 1: cushion against unexpected sort of shocks. That should allow fixed
30:06
Speaker 1: income to provide some diversification against other things. And so
30:10
Speaker 1: it's the income, it's the break even and and and
30:13
Speaker 1: um and volatility cushion and then the diversification. And that's
30:17
Speaker 1: what's exciting about fixed it. How do we know when
30:20
Speaker 1: you know, what we've seen with this foreigner fitty basis
30:23
Speaker 1: points in the past twelve months, is the FED essentially
30:26
Speaker 1: forcing the market to reprice assets and and the whole
30:30
Speaker 1: process um and the intervention that we've seen over the
30:35
Speaker 1: past decade. That's kind of a sionara to that. How
30:38
Speaker 1: do we know when that process is over? Um, you know,
30:42
Speaker 1: when we can start working from square one? Yeah, that's
30:45
Speaker 1: that's a great question, and that you know, we talked
30:47
Speaker 1: to clients about that, we talk amongst ourselves on the
30:50
Speaker 1: investment teams, and you know, it's it's hard to sort
30:53
Speaker 1: of narrow it down to one but but if we
30:55
Speaker 1: look back through the last sort of fifty sixty seventy years,
30:58
Speaker 1: FED cycles have all to really been determined, or at
31:01
Speaker 1: least the sort of the peak in that cycle has
31:03
Speaker 1: typically aligned. When the Feds sort of base rate you
31:07
Speaker 1: can define it by FED funds or the three month
31:09
Speaker 1: T bill, whichever you prefer, is above kind of the
31:13
Speaker 1: spot level of inflation, well, then you can decidedly say
31:16
Speaker 1: the Fed is kind of ahead of the curve, and
31:19
Speaker 1: we know inflation, we're going to get data on Thursday,
31:21
Speaker 1: we'll get an updated number, but a kind of let's
31:24
Speaker 1: call it a six percent type of level on inflation
31:27
Speaker 1: right now, and the Feds still at four fifty, you
31:29
Speaker 1: know they're they're they're not ahead of the curve. Now,
31:32
Speaker 1: the market is hoping, and so are we, that inflation
31:34
Speaker 1: is going to continue to trend lower, and at some
31:36
Speaker 1: point in the first half of this year, we think
31:39
Speaker 1: those sort of two lines will cross. Fed funds will
31:42
Speaker 1: ultimately be above where inflation sort of is at the time.
31:47
Speaker 1: We think that's gonna happen around five percent. And it's
31:50
Speaker 1: at that point that the Fed can become a lot
31:53
Speaker 1: more symmetric in their messaging. They don't have to be
31:56
Speaker 1: so exclusively um hawkish. And then this sort of the
32:00
Speaker 1: expectation about where's the next move going to come where
32:03
Speaker 1: we're seeing some of that hopefulness get priced into the
32:06
Speaker 1: to the front end of the curve, specifically in FED funds.
32:09
Speaker 1: I think that's a little optimistic. We think that actual
32:11
Speaker 1: trade is probably more into next year rather than this year.
32:14
Speaker 1: But the symmetry or the distribution of that that next
32:17
Speaker 1: step that's gonna unfold over the course of the year.
32:20
Speaker 1: But the thing we're looking for, or the point, the
32:23
Speaker 1: data point that we're looking for, is is once FED
32:25
Speaker 1: funds is sort of above that spot rate of inflation,
32:28
Speaker 1: then we can focus on other things other than just inflation.
32:32
Speaker 1: Until we get to that point, it's sort of all
32:34
Speaker 1: inflation all the time, all right, George. I mean, if
32:36
Speaker 1: I want to go out on the risk spectrum a
32:39
Speaker 1: little bit and play in the high yield space, is
32:41
Speaker 1: that fulls? Is that a fulls Errand because everybody's telling
32:45
Speaker 1: me there's a recession next year, how do you think
32:47
Speaker 1: about high yield? I mean, typically, you know, the rule
32:50
Speaker 1: of thumb is, you know, avoid avoid high yield going
32:53
Speaker 1: into recession. As as you mentioned, you know, it's a
32:55
Speaker 1: sort of a low grade risk, a low grade play
32:57
Speaker 1: on kind of equity vall. You know, if we look
33:00
Speaker 1: at at high but but I think the dominant factor
33:02
Speaker 1: in markets today is just simply yield. And so you know,
33:06
Speaker 1: as investors sort of recalibrate portfolios, there's a very strong
33:09
Speaker 1: technical to sort of capture that yield. And we look
33:11
Speaker 1: at a market like high yield. And when high yield
33:14
Speaker 1: typically is yielding between eight and ten percent, which is
33:16
Speaker 1: roughly where it is today, you know, high yield as
33:19
Speaker 1: an asset class tends to have very attractive future returns.
33:23
Speaker 1: Going back to that break even and sort of volatility cushion,
33:26
Speaker 1: you can absorb a lot of sort of market volatility
33:29
Speaker 1: as well as kind of credit migration and ultimately default
33:32
Speaker 1: risk when your average yield is sort of eight to
33:34
Speaker 1: ten percent. So while we're cautious about the economic outlook
33:38
Speaker 1: and there's we need to do some work and make
33:40
Speaker 1: sure that we're picking the right credits, making sure that
33:42
Speaker 1: your pencil sharp and you're you're really attuned to the
33:45
Speaker 1: right type of companies. The value is just simply the yield,
33:48
Speaker 1: and the yield is ultimately the cushion that's what I
33:51
Speaker 1: earn in in high yield and say, you know, eight
33:54
Speaker 1: to ten running yield says nothing about compression. A little
33:57
Speaker 1: bit of compression and you could see, you know, solid
34:00
Speaker 1: double digit returns in high yield this year, which is
34:02
Speaker 1: exactly what we're expecting. That's what I'm talking about. Yeah, absolutely,
34:06
Speaker 1: I mean, and especially great if you don't have the
34:10
Speaker 1: kind of recession that we were worried about a couple
34:11
Speaker 1: of weeks ago. It seems like a lot of more
34:14
Speaker 1: commentators have gotten some optimism in the last few weeks
34:17
Speaker 1: that a soft landing is possible, that we're not going
34:19
Speaker 1: to see Matthew Mish said nine percent defaults possible um
34:23
Speaker 1: this year, but it's looking less likely, at least from
34:26
Speaker 1: the people we've talked to over the past couple of weeks. Yeah. Well,
34:29
Speaker 1: I mean, we're cautious on the economic outlook. You know,
34:32
Speaker 1: we think things will soften up this year. There's a
34:34
Speaker 1: very healthy and robust debate going across our investment teams.
34:37
Speaker 1: Is that a hard landing? Is it a soft landing?
34:39
Speaker 1: My personal view, and I think the view of many
34:42
Speaker 1: of the folks on the team is that it's just
34:44
Speaker 1: going to be a very sluggish and ungratifying year. From
34:48
Speaker 1: a pure growth perspective, it doesn't mean we careen into
34:51
Speaker 1: a recession, and rather than sort of expecting a really
34:54
Speaker 1: hard landing, we're going through a massive rotation. And when
34:57
Speaker 1: we talk about things like high yield, you know there's
35:00
Speaker 1: different ways to play it. If you don't want to
35:02
Speaker 1: play the duration component, you can still harbor yourself in
35:05
Speaker 1: the front end of the curve, capture two thirds three
35:08
Speaker 1: quarters of that yield and take much less risk. And
35:11
Speaker 1: so to us fixed income, the beauty of it right
35:14
Speaker 1: now is that you can finesse your view and really
35:17
Speaker 1: pick the spots that are gonna work for you. If
35:19
Speaker 1: you want just pure your yielded income, things like short
35:22
Speaker 1: duration hiw yield or full full sector how yield can work.
35:26
Speaker 1: If you want longer duration, maybe you should think about
35:28
Speaker 1: municipal bonds. Municipals have been very well protected, uh they're
35:32
Speaker 1: performing very nicely and it's a good sort of duration
35:36
Speaker 1: anchor in your portfolio. And if you just want the
35:39
Speaker 1: broad market, there's always kind of the straight up the
35:42
Speaker 1: middle core and core plus strategy. So there's a lot
35:45
Speaker 1: to chew on here with with some pretty and fairly
35:48
Speaker 1: predictable returns that we think will work well for folks
35:51
Speaker 1: in their portfolios. All right, good stuff, George Boy. George,
35:54
Speaker 1: thanks so much for joining us here. George Boy, chief
35:56
Speaker 1: investment strategist for fixed income at all Spring, a mobal
36:00
Speaker 1: investments group. Well, a little healthcare M and A And
36:05
Speaker 1: as I've always said, in the next life, I'm want
36:07
Speaker 1: to come back as a healthcare m and a banker
36:09
Speaker 1: because those guys just get paid every year. There's always deals,
36:13
Speaker 1: And here's another one. CBS health Core is exploring an
36:16
Speaker 1: acquisition of oak Street Health, which one's primary care centers
36:20
Speaker 1: for Medicare recipients. That's according to people familiar with the matter. Uh,
36:24
Speaker 1: the deal could value oak Street at more than ten
36:26
Speaker 1: billion dollars in full enterprise values. Let's break this deal
36:29
Speaker 1: down and we can do with Jonathan um Palmer. He
36:32
Speaker 1: is a senior equity research channels and team leader covering
36:34
Speaker 1: all healthcare for Bloomberg Intelligence. Jonathan, thanks so much for
36:38
Speaker 1: joining us here. Just give us the kind of the
36:40
Speaker 1: the key points here on what is another big deal
36:43
Speaker 1: in that healthcare space? Yeah, hide fall Matt, thanks for
36:46
Speaker 1: having me on. You know this week is the JP
36:48
Speaker 1: Morgan Healthcare conference out in San Francisco. That's where I'm
36:51
Speaker 1: at right now, and it's really the seminal event in
36:54
Speaker 1: the healthcare investment landscape. And we see a lot of
36:57
Speaker 1: deal noise typically around this event, and this year is
37:00
Speaker 1: really no different. There's been a couple of small therapeutic
37:03
Speaker 1: deals that have been announced. But you know, as you
37:05
Speaker 1: saw yesterday, there's a media speculation that CBS might acquire
37:09
Speaker 1: oak Street uh for ten billion dollars and and really
37:13
Speaker 1: this comes as not much of a surprise, to be
37:15
Speaker 1: honest with you. Um, CBS has talked about wanting to
37:18
Speaker 1: acquire companies in the primary care space. That's what Oak
37:22
Speaker 1: Street does, and they've been rumored to be kicking the
37:25
Speaker 1: tires on you know, uh oak Street another company called
37:28
Speaker 1: Cano Health, and according to you know, our news reporters,
37:33
Speaker 1: they've lost out on Amazon's bid for for one Medical.
37:36
Speaker 1: So there's a lot going on in this space. Pharmacies
37:39
Speaker 1: don't really want to be in the pharmacy business anymore.
37:43
Speaker 1: You know, you've seen Walgreens do a deal with Village
37:46
Speaker 1: m D. You saw right, Aid just cut their CEOs
37:51
Speaker 1: yesterday and replace her as they're not doing too well.
37:54
Speaker 1: So there's a lot going on, and there's a lot
37:56
Speaker 1: that's happening, you know where these companies want to become
37:59
Speaker 1: more healthcare service providers instead of just you know, a
38:02
Speaker 1: retail pharmacy. At the end of the day, how how
38:06
Speaker 1: has healthcare M and A held up in a year
38:10
Speaker 1: looking back that was really not good for for deals
38:15
Speaker 1: in other industries, And I mean, what are we going
38:18
Speaker 1: to expect in three Yeah, it's a good question. I
38:21
Speaker 1: think there's a couple of things at play here. You know,
38:24
Speaker 1: we had the pandemic, and depending on which subsector of
38:28
Speaker 1: healthcare the company companies were in, you know, it filled
38:31
Speaker 1: the coffers for some, you know, the visors, and Maderna
38:34
Speaker 1: Is obviously generated a lot of cash with their vaccine
38:37
Speaker 1: revenues and put that money to work. We saw a
38:40
Speaker 1: lot of the diagnostic test makers, you know, take the
38:43
Speaker 1: COVID cash if they generated, and put it back in
38:45
Speaker 1: into the market via M and A. Last year was
38:48
Speaker 1: a touch slower relative to maybe two thousands twenty one,
38:51
Speaker 1: but you know, health care is a pretty profitable industry
38:54
Speaker 1: and returns on capital are good, so you know, I
38:57
Speaker 1: think we'll see more deals happened this year. I mean,
39:00
Speaker 1: as public markets have reset for a lot of subsectors.
39:04
Speaker 1: You know, prices are down. Whether private valuations you know,
39:07
Speaker 1: follow us quickly, I think remains to be seen. But
39:10
Speaker 1: you know, there's there's definitely a tenor here at this
39:13
Speaker 1: conference that will see more deals. And you know, Matt,
39:17
Speaker 1: here's what's fascinating about the healthcare space and the JP
39:19
Speaker 1: Morgan conference. JP Morgan is hosting their annual conference where
39:23
Speaker 1: they big a bunch of healthcare companies together. It's in
39:25
Speaker 1: San Francisco every year. It's the biggest conference in the
39:28
Speaker 1: industry by far. So who attends, well, everybody, global companies
39:31
Speaker 1: from around the world, global institutional investor clients at JP
39:35
Speaker 1: Morgan from around the world. And then guess what, everybody
39:38
Speaker 1: else comes to San Francisco who was interested in healthcare,
39:41
Speaker 1: like like Jonathan Palmer, and investors and bankers from other
39:46
Speaker 1: Wall Street firms because they know that everybody in the
39:49
Speaker 1: healthcare space who means anything is in San Francis. I
39:52
Speaker 1: think I read that there are almost fifty thousand people
39:55
Speaker 1: in San Francisco for the conference and only eight thousand
39:58
Speaker 1: are getting in. So it's at least for people who
40:02
Speaker 1: are hanging around the bars and restaurants on the sidelines
40:06
Speaker 1: trying to get deals done right. So exactly, So, Jonathan,
40:09
Speaker 1: this is really amazing. I don't see it in too
40:11
Speaker 1: many other industries. But just give us a sense of
40:13
Speaker 1: the history of this JP Morgan conference and and kind
40:16
Speaker 1: of what it means to the healthcare industry. Well, you
40:19
Speaker 1: guys have to nail on the head. I mean, it's
40:21
Speaker 1: it is the seminal event in the healthcare investment space.
40:24
Speaker 1: It's it's been going on for over thirty years. It
40:27
Speaker 1: actually used to be run by a bank called the
40:29
Speaker 1: Handbracking Quest. JP Morgan bought back in the day there,
40:34
Speaker 1: you know, when they were acquiring you know, everybody bought
40:36
Speaker 1: the four Horsemen, the four investment banks in San fran
40:40
Speaker 1: and and really the traditions kind of carried on since then.
40:43
Speaker 1: I mean, you come to this meeting or there's this
40:46
Speaker 1: investment conference, and there's meetings happening everywhere on the street, corners,
40:50
Speaker 1: in coffee shops at Starbucks, and free hotel lobby seat
40:54
Speaker 1: has taken. I think half of my meetings are in
40:57
Speaker 1: coffee shops and hotel lobbies while I'm here. It's really
41:00
Speaker 1: just outstanding, you know, the level of participation by the
41:04
Speaker 1: industry and after not being in person after two years,
41:08
Speaker 1: you know, there's there's probably a little bit of a
41:11
Speaker 1: drive here to get some stuff done that we're back
41:13
Speaker 1: in person and you know, can see people face to
41:16
Speaker 1: face across the table. So what is kind of the
41:18
Speaker 1: vibe there in San Francisco as it relates to health
41:21
Speaker 1: care is there? Is it generally maybe are there any
41:25
Speaker 1: regulatory concerns that are out there or is it just
41:28
Speaker 1: full speed ahead here? Yeah? I think it depends a
41:31
Speaker 1: little bit on the subsector. You know, different there's different drivers,
41:35
Speaker 1: whether you're in therapeutics or health care services or medical products.
41:39
Speaker 1: I mean at the stuff I I look at, you know,
41:41
Speaker 1: on the healthcare services side, which is what we're talking
41:43
Speaker 1: about with CVS and and Oak Street, there's definitely, you know,
41:48
Speaker 1: uh a theme here that you know, companies want to
41:51
Speaker 1: expand their umbrella, move into new markets or adjacent markets,
41:56
Speaker 1: and you know that's happening with Ernest. You know, we've
41:59
Speaker 1: seen a fair number of you know, good announcements for
42:03
Speaker 1: companies in kind of the product space, pre announcing strong revenues.
42:07
Speaker 1: It seems like four Q is shaping up to be,
42:10
Speaker 1: you know, pretty much in line for most companies, and
42:12
Speaker 1: we're starting to see guidance on two thousand twenty three
42:15
Speaker 1: that looks generally in line with consensus. So the the
42:18
Speaker 1: underlying um you know, I think attitude here is is
42:22
Speaker 1: pretty positive, and you know, we're still kind of waiting
42:25
Speaker 1: to see how things shake out with we have a recession.
42:28
Speaker 1: But you know, at the end of the day, people
42:30
Speaker 1: still get sick, you know, still need to take drugs,
42:32
Speaker 1: still need to go to the hospital and get procedures done.
42:34
Speaker 1: Healthcare is a really defensive space alright, So, um, what
42:39
Speaker 1: what should we expect in terms of the stocks this year?
42:42
Speaker 1: I mean M and A is one thing, stock performance
42:46
Speaker 1: is another, and everybody got wiped out last year? Um
42:50
Speaker 1: house healthcare going to do this year? Yeah? Again, I
42:54
Speaker 1: think it depends on the subsector. You know, I think
42:57
Speaker 1: therapeutics had a rough year last year. We're starting to
43:00
Speaker 1: see some good data come across from a number of
43:02
Speaker 1: different companies. That's positive. You know, I think as M
43:05
Speaker 1: and A maybe picks up in that sector as well,
43:07
Speaker 1: that will support valuations. You know, some of the more
43:10
Speaker 1: defensive names in healthcare, like I cover the drug distributors.
43:14
Speaker 1: I mean they had banner years last year. You know,
43:17
Speaker 1: McKesson I think was up fifty plus percent. You know,
43:20
Speaker 1: I don't think they're likely to see another up fifty
43:22
Speaker 1: percent year this year. But at the same time, the
43:25
Speaker 1: back drop is positive, and you know, there's still still
43:29
Speaker 1: things they can do to push revenue growth in EPs growth.
43:32
Speaker 1: So you know, overall, I'm pretty positive on the on
43:35
Speaker 1: the sector. You know, we had a tough year, like
43:37
Speaker 1: I said, in some of the subsectors in two thousand
43:39
Speaker 1: twenty two. But you know, for the most part, you know,
43:42
Speaker 1: even if there's a recession, you know, the world economy
43:45
Speaker 1: as it as it relates to healthcare, carry on, all right, Johnathan,
43:48
Speaker 1: If you see any of those vaccine geniuses out there
43:51
Speaker 1: that did such a great job, by a beer, put
43:53
Speaker 1: it on my tab, okay, because they did a phenomenal
43:56
Speaker 1: job and kind of change the at least my view
43:58
Speaker 1: a little bit on some of the healthcare What bang
44:00
Speaker 1: them about the high drug costs, But man, and we
44:02
Speaker 1: needed the vaccines. Did they come through and come through quickly?
44:06
Speaker 1: Uh So, pat on the back for a lot of
44:07
Speaker 1: those folks. Thanks for listening to the Bloomberg Markets podcast.
44:13
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
44:16
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
44:20
Speaker 1: on Twitter at Matt Miller, three pt on Fall Sweeney.
44:24
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
44:27
Speaker 1: can always catch us worldwide at Bloomberg Radio