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Elon Musk, Tech, Retail Sales, and Subway (Podcast) · Bloomberg Intelligence

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Speaker 1: We want to talk tech podcast Countery Business Day, we
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Speaker 1: bring you interview with market Rose and Bloomberg experts. We
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Speaker 1: don't know what the Center podcast or wherever you listen
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Speaker 1: to podcast, and that Bloomberg big cricket fin out Dan
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Speaker 1: Ives as much of a cricket you don't think, Fan,
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Speaker 1: I'm just well, he wasn't. He went to State College Pennsylvania,
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Speaker 1: which is no mean feat by the way, from New
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Speaker 1: York to watch wrestling and State Wrestling. Now, granted they're
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Speaker 1: one of the best in the country, but Dan Ives
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Speaker 1: he covers technology, uh for wet Bush Securities and mandep
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Speaker 1: siting here from Bloomberg and in Tellvision they're in our
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Speaker 1: Bloomberg and act the broker studio. Dan, let's start with you, Tesla.
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Speaker 1: I follow you on Twitter, and by the way, folks
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Speaker 1: follow Dan Ives on Twitter. He's got a good Twitter
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Speaker 1: game there, um, and you're not too happy with him
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Speaker 1: sticking around at Twitter. El So Tesla. So the problem
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Speaker 1: is Elon Musk is supposed to run Tesla, right, but
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Speaker 1: he's obsessed with Twitter to the point where he like
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Speaker 1: changes the algorithms that we all have to read all
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Speaker 1: of his tweets. He said, he was gonna pick someone
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Speaker 1: else stand down before Christmas, and now it's like the
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Speaker 1: end of this year, maybe beginning of four. Dan, what
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Speaker 1: is the deal with your dog? Yeah? I mean look
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Speaker 1: the goal post from Musk because we've seen four continue
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Speaker 1: to get pushed out. And I think when it comes
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Speaker 1: to Twitter, you know clearly that's been less of an
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Speaker 1: overhanging the last few months. But I think investors want
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Speaker 1: to see Musts Weezer focused on Tesla, on SpaceX and
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Speaker 1: some of them. Any kind of focus doesn't have to
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Speaker 1: be a laser, just a little bit of focus on Tesla.
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Speaker 1: Right it was, And I think what we've seen the
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Speaker 1: last few months like part of why Tesla stockstone where
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Speaker 1: it has it. They meet strategic decision in terms of
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Speaker 1: the price cuts, which have been massive home run successes.
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Speaker 1: But I think when you will get the Twitter cut
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Speaker 1: prices and they raise prices, what are they doing over there? Look,
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Speaker 1: I think they're trying to find the equilibrium unsupplied the man.
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Speaker 1: I mean, I think in China throwing spaghetti at the wall.
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Speaker 1: I mean, come on, man, it's Tesla. Why don't you
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Speaker 1: just make a decision and stick to it? Because there's
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Speaker 1: so many questions I have. I'm so glad you came
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Speaker 1: in here. Dan, It's great, it's great. I was listening
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Speaker 1: to Ross Gerber last night. He was on Bloomberg Business
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Speaker 1: Week with Carol Master, and I think he made a
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Speaker 1: ton of great points without being a jerk, you know.
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Speaker 1: I mean, he doesn't want to offend Elon, but he
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Speaker 1: is a big shareholder who's trying to get a board
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Speaker 1: seat right now, and he was saying, we gotta rain
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Speaker 1: this guy in, we gotta get him back to Tesla,
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Speaker 1: and we need a succession plan, right because if anything
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Speaker 1: happens to Elon. Musk talk about key man risk, he
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Speaker 1: has nobody in place. Kimball is not gonna come and
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Speaker 1: run it. Right. Look, I think the bigger thing, as
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Speaker 1: Ross has talked about, is really more as competition grows,
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Speaker 1: you know, in the U S and globally, you just
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Speaker 1: want to make sure that strategically they're both defensive and
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Speaker 1: offensively positioned. And I think from Musk, you know, his investors,
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Speaker 1: that's a huge part of the premium. We saw what
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Speaker 1: happened with the Twitter situation, you know, call it from
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Speaker 1: October to December. Big part that was the Twitter overhang.
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Speaker 1: But that's why you need sure that strategy and it
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Speaker 1: must is going to talk. We'll be there in austin
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Speaker 1: March first the big plan. So I think investors are
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Speaker 1: trying to see what is that? What does that mean
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Speaker 1: about production in the future? All right, so good. I
3:15
Speaker 1: mean there's a ton of tech news out there. We
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Speaker 1: could just spend all day on this stuff. The one
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Speaker 1: that got my attentionous Airbnb. I've used it once and
3:23
Speaker 1: it was because it was a Bloomberg sponsored Airbnb. I'm
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Speaker 1: still in the hotel mode, man, Dave, talk to me
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Speaker 1: about Airbnb, their business. I mean, I mean the stock
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Speaker 1: at great number, stock up twelve point four percent today, well,
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Speaker 1: and talking about raising prices. This is a company that
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Speaker 1: has benefited from you know, pent up travel demand price increases.
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Speaker 1: They don't have to take down prices to drive demand.
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Speaker 1: And look, it's a very robust business model. Out of
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Speaker 1: all the marketplace companies you you don't include Ruber, Lift, Door, Dash,
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Speaker 1: this is the model that generates over even dumb margins
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Speaker 1: and and that is what investors like it can convert
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Speaker 1: you know, free cash flow. On our ten billion dollar
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Speaker 1: run rate, you've got two billion in free cash flow
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Speaker 1: every year. Now, granted, they're going to run into tougher
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Speaker 1: comps because they did very well during the pandemic. Well
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Speaker 1: guess what, coming out of the pandemic, they did even better.
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Speaker 1: And so now they are running into tougher comps even
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Speaker 1: though they have the category leadership in alternative accommodations and
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Speaker 1: they are adding users like you and they will continue
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Speaker 1: to do. No, no, they're not adding Paul's money. Is
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Speaker 1: not an alternative accommodation. I'm a four seasons guy, but
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Speaker 1: I did stay at a Verbo condo out in Veil
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Speaker 1: last week. But that's only because I didn't make the reservation. Somebody, well,
4:37
Speaker 1: how was it awesome? Fantastic? But that's just because Veil
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Speaker 1: was amazing. Yeah, but I mean, are you guys like
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Speaker 1: Airbnb people? Are you? I have gone both ways in
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Speaker 1: terms of accommodation, and um, yeah, I don't really. I'm
4:52
Speaker 1: like you, though I would prefer to stay at like
4:54
Speaker 1: the bierssha half. I don't need I don't need to
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Speaker 1: stay in somebody else's apartment. But there are a lot
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Speaker 1: of shitsu wations where people have some sit condos that
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Speaker 1: they're they're only investing in to do. Airbnb or Verbo
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Speaker 1: is Airbnb who owns verbo. Verbo is owned by Expedia.
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Speaker 1: And look, they have competition, but the repeat rates in
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Speaker 1: that eighteen to thirty four year old cohors that's what
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Speaker 1: my kids. That is where Airbnb is really hitting off,
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Speaker 1: and and they continue to do very well the repeat transactions.
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Speaker 1: That too, they don't have to spend much on sales
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Speaker 1: and marketing. The Google marketing span for Airbnb is the
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Speaker 1: least out of all the O t A. So it's
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Speaker 1: that's why you see that high leverage in the business model.
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Speaker 1: That's it. My daughter travels the world nothing but Airbnb.
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Speaker 1: I don't know actually does it Anyway? Dan, what's your
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Speaker 1: best idea out there? Credit card? No, they are off
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Speaker 1: the doll They're off the doll. I was very good
5:46
Speaker 1: for the first X number of years. Alright, So Dan,
5:50
Speaker 1: what's your best idea that you're talking to clients about
5:51
Speaker 1: these days? And well, I mean, look, Tack, as we've
5:54
Speaker 1: talked about, it's is under own is either going to
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Speaker 1: the year since two thousand nine? Is that right? Yeah?
5:59
Speaker 1: I mean look to sell off. Right. The New York
6:03
Speaker 1: City cab driver was barrassed on tech coming into this year,
6:06
Speaker 1: and that's why in my opinion, I still look at
6:09
Speaker 1: names like Microsoft. I look at names like Salesforce, which
6:14
Speaker 1: is one where I think activism puts a floor in
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Speaker 1: and I think there's a huge some of the parts
6:18
Speaker 1: that you could see significant movement there. And our top
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Speaker 1: pick continues to be Apple. I think it will again
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Speaker 1: regain that three trillion mark cap. Are you ever gonna
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Speaker 1: get an Apple car? Is this ever gonna happen? Look,
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Speaker 1: I think the big thing now as you're talking about
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Speaker 1: this AI arms race, Game of Thrones, Chat, GPT, Microsoft, Google,
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Speaker 1: the disaster last week with bard Apple, They're gonna come
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Speaker 1: out we believe this summer, you know, with significant AI functionality.
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Speaker 1: But it all is leading and Germans talked about this,
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Speaker 1: you know, we believe the car. It's a matter of
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Speaker 1: when not if that comes out. Two thous What are
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Speaker 1: they gonna do with their AI product? We've had Siri
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Speaker 1: for more than a decade, right, and she's not very smart? Um,
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Speaker 1: not nice? Well, I don't know if she's intended to
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Speaker 1: be as smart as like an AI chat bot. Um,
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Speaker 1: But does that mean series gonna be able to do
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Speaker 1: stuff beyond you know, say, shall I google that for you? Well?
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Speaker 1: I think Look, they've been spending. We've eight to ten
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Speaker 1: billion on AI and they have something that no other
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Speaker 1: company in the world has. It's two billion, and that's
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Speaker 1: the installed base. So I think when you comes to AI,
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Speaker 1: this is something I think Cooper Tino is extremely focused on.
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Speaker 1: And it just goes back to many of the innovations
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Speaker 1: in rear view mirror. Yet again, Cook and Apple, you know,
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Speaker 1: proved the naysayer is wrong. Man, Deep One are the
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Speaker 1: biggest AI bets right now. I mean, it's been so
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Speaker 1: huge in the news. Dan talks about the cab driver
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Speaker 1: negative on tech, but has got to be positive on
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Speaker 1: chat GPT, right, I mean, everybody's tried this thing. I
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Speaker 1: think there is that hype aspect around chat GPT. But
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Speaker 1: at the same time, you can't take Google or Alphabet
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Speaker 1: out of the equation. I mean, I know their disaster,
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Speaker 1: it was a disaster, the bar demo, but look, this
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Speaker 1: company still is the leader when it comes to the data.
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Speaker 1: The number of apps that have over a billion dollars
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Speaker 1: billion users, you know, so they have almost five or
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Speaker 1: six of their apps that have over a billion users,
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Speaker 1: has a lot of proprietary data. I mean, how can
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Speaker 1: you be negative on Alphabet if you're positive on chat GPT.
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Speaker 1: They have a monopoly of search, so I mean, who
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Speaker 1: doesn't want a monopoly? And and look I I think
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Speaker 1: I mean it talks about incremental you know, negative in
8:29
Speaker 1: terms of being taking some share. But I still think
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Speaker 1: Google is the powerhouse when it comes today. I learned
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Speaker 1: from their Cardshact moment last week that ultimately to improve
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Speaker 1: on the AI functionality. But it just shows that's why
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Speaker 1: Amazon and Jassy Apple they're not rushing anything out, but
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Speaker 1: no doubt in the della popping the champagne. In terms
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Speaker 1: of Chat GPT, Hey mendep just real quickly, um, Meta, Google,
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Speaker 1: Digital advertising? What's the call for this year? I think
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Speaker 1: the sentiment is too negative talking about you know, tech
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Speaker 1: under owned. I had the pocket that has done the
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Speaker 1: worst is digital ad companies and Meta has been a
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Speaker 1: cost cutting story so far. But I think there will
9:08
Speaker 1: be a cyclical rebound at some point with digital ads,
9:11
Speaker 1: and it's more likely given what we are seeing, you know,
9:14
Speaker 1: in terms of the overall sentiment that these companies have
9:17
Speaker 1: hit trough valuations and now it's about just you know,
9:20
Speaker 1: sequential increase in top one well Meta just picking that stock.
9:23
Speaker 1: It's kind of the poster child for digital advertising. Still
9:25
Speaker 1: down to a trial and twelve month basis. That's a
9:28
Speaker 1: bad news. The good news is it's up forty seven
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Speaker 1: percent this year in so maybe some of the buyers
9:34
Speaker 1: coming into this name on a longer term basis. Sorry,
9:36
Speaker 1: good stuff. Tech round Table kicking off this two hours
9:39
Speaker 1: segment with Dan I've senior equity analysts at wed Bush Securities,
9:42
Speaker 1: wearing the casual wear very well today in the Bloomberg
9:45
Speaker 1: in an Actor broker studio, plus Mandy of Saint Bloomberg Intelligence,
9:48
Speaker 1: senior tech anles. We're like getting these guys together, they
9:50
Speaker 1: know what they're talking about. I'll be like the round
9:52
Speaker 1: table off things tech. We're gonna more coming up. This
9:56
Speaker 1: is Bloomberg. Good Morning. We had some pretty strong retail
10:02
Speaker 1: sales number the consumers still out there, so maybe the
10:04
Speaker 1: Fed can uh, you know, maybe keep rates higher for longer.
10:08
Speaker 1: That's kind of seems to be a little bit of
10:09
Speaker 1: a bet out there. Robert Teeter, head of Investment Policy
10:11
Speaker 1: and Strategy Group at Silver Crust Asset Management Joints us
10:14
Speaker 1: here in our Bloomberg Interactive Broker Studio. So Robert, busy
10:17
Speaker 1: time for you professionals out there, We've got lots of
10:20
Speaker 1: earnings to deal with. We've got lots of ECO data,
10:23
Speaker 1: CPI yesterday, retail sales today. When you put it all together,
10:26
Speaker 1: what are you telling your clients these days? I think
10:29
Speaker 1: we're sort of sorting through a matrix here of on
10:31
Speaker 1: the economy side, are are things getting better or worse?
10:34
Speaker 1: And things seem to be getting a little bit better.
10:36
Speaker 1: And on the inflation side, which is a critical influence
10:39
Speaker 1: for evaluation, uh, things seem to be slowing a bit
10:42
Speaker 1: in terms of their improvement, but also getting better. And
10:44
Speaker 1: so I think that the back and forth here is
10:46
Speaker 1: largely between the interaction between those two and assessing whether
10:49
Speaker 1: this this good news that you get on the economy side,
10:52
Speaker 1: how bad is that for inflation right now? I don't
10:54
Speaker 1: think it's too bad. But you see some of the
10:55
Speaker 1: reaction that we had yesterday to the CPI data, the
10:58
Speaker 1: reaction today to strong retail sales. I think that tells
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Speaker 1: me we're going to be in a bit of a
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Speaker 1: tug of war here as we continue to fight through
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Speaker 1: these two issues. Well, doesn't the Fed have to raise
11:05
Speaker 1: rates further? I mean, I got a great message um yesterday,
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Speaker 1: who what NEIL data sent me a message saying, like,
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Speaker 1: what does the FED have to show for four or
11:14
Speaker 1: seventy five basis points of break takes? I mean stocks
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Speaker 1: are down what fifercent from their highs, So that's that's
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Speaker 1: one thing, I guess. But um unemployments at three point
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Speaker 1: four percent, right, we're all spending like crazy. Airbnb has
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Speaker 1: after the last month they were up. I mean, that's
11:31
Speaker 1: just a sign of what's going on out there. It
11:34
Speaker 1: sure is, and I do think it indicates that the
11:36
Speaker 1: FED will will certainly continue to increase. I think in
11:38
Speaker 1: twenty five basis point increments, maybe another fifty or seventy
11:41
Speaker 1: five in total, and stay there for a long time.
11:44
Speaker 1: I have a little bit of a contrarian take on
11:46
Speaker 1: the economic side of things, and that I feel that
11:48
Speaker 1: that each month that the economy UH stays robust, it's
11:51
Speaker 1: more time for inflation to come down. So well, all
11:53
Speaker 1: those things that you stated are true. The FED hasn't
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Speaker 1: made progress in financial conditions, hasn't made progress in uh,
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Speaker 1: you know, softening the labor market, but there has been
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Speaker 1: progress in inflation, and I think so long as that
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Speaker 1: continues without the economy falling apart, we have a chance
12:05
Speaker 1: for a pretty good outcome. All right, we're about I
12:08
Speaker 1: don't know away through this earning season. Um, what are
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Speaker 1: you takeaways? Yeah, I think there's been a lot of
12:15
Speaker 1: strong signals from earning seasons. So while earnings haven't been
12:17
Speaker 1: that exciting, under the surface, there have been some pockets
12:20
Speaker 1: of strength, and I think the strength is coincided with
12:22
Speaker 1: the message we're hearing from the economy. So consumer discretionary
12:25
Speaker 1: has clearly been a strong source of earnings. You've heard
12:27
Speaker 1: from the banks in terms of the consumer remaining resilient.
12:30
Speaker 1: I think that's encouraging. And we've seen some strength in
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Speaker 1: the industrial space as well, and I think that plays
12:34
Speaker 1: into a couple of themes that are unfolding right now.
12:37
Speaker 1: You know, first and foremost among those reshoring, and so
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Speaker 1: I think there are some pockets of remaining strength in
12:41
Speaker 1: the economy. I think you have to be very careful
12:43
Speaker 1: in terms of earnings. That top line number might not
12:45
Speaker 1: be too exciting, but there are some areas to find
12:47
Speaker 1: a good earning scrop. It's intu. I'm just looking at
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Speaker 1: the a function that hooked me up with a while. Uh.
12:52
Speaker 1: And for the SP five hundred, again we're about companies
12:56
Speaker 1: in SP FID of reported five point three sales growth
13:00
Speaker 1: your year, but earnings declined by two point four percent.
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Speaker 1: So there's that margin pressure. Certainly is some margin pressure,
13:07
Speaker 1: and I think coming back a bit to normal. So
13:09
Speaker 1: you know, my mapping of it is to say margins
13:11
Speaker 1: get back to where they were in twenty nineteen, which
13:13
Speaker 1: says there's still a little bit of downside pressure on margins.
13:16
Speaker 1: I think revenues will continue to remain strong in those
13:18
Speaker 1: areas that I mentioned, and so it does playing a
13:20
Speaker 1: picture of you know, basically flat earnings growth in terms
13:23
Speaker 1: of outlook for this year, but with some opportunities below
13:25
Speaker 1: the surface. Flat. So SMP earnings flat from two. That's
13:30
Speaker 1: better than a stick in the eye, right, I think
13:31
Speaker 1: it is, I really do. I think there's there are
13:33
Speaker 1: a lot of transformations going on. And so whether it's
13:35
Speaker 1: this theme of a you know, a rolling recession or
13:38
Speaker 1: I prefer to think of it as different parts of
13:39
Speaker 1: the economy, in different parts of the economic cycle. There
13:42
Speaker 1: are these areas that are continuing to produce strong earnings growth.
13:45
Speaker 1: It's just not enough to boost the overall level. Consumer
13:47
Speaker 1: discretionary industrials are pretty small relative to tech and financials. Yeah,
13:50
Speaker 1: I'm looking at energy just again on this e A function, earnings,
13:54
Speaker 1: a revenue of fifteen percent year over year, earnings up
13:57
Speaker 1: sixty seven percent year of a year or so. You know,
13:59
Speaker 1: it's kind of goes the question, boy, energy has been
14:01
Speaker 1: good for the first time in a long time over
14:03
Speaker 1: the last couple of years. Have I missed it totally?
14:06
Speaker 1: Just go back into my you know, two year treasury
14:09
Speaker 1: yield at four points six. It's it's an interesting question
14:13
Speaker 1: to ponder. I mean, I don't think that the upside
14:15
Speaker 1: is going to be what it was in the past.
14:17
Speaker 1: But I think if you look through all those all
14:19
Speaker 1: those sectors on there, and I love the e A
14:21
Speaker 1: function as well, Uh, the areas that have had strength,
14:23
Speaker 1: all indications are that they will continue to have strength.
14:26
Speaker 1: So the key question is just valuation. And in my view,
14:28
Speaker 1: the overall valuation on the market will be influenced a
14:31
Speaker 1: lot more by the interest rate and inflation picture, which
14:33
Speaker 1: I see improving. So to answer your question, I do
14:35
Speaker 1: think there's still some opportunity in energy as well as
14:37
Speaker 1: those other areas that are showing learnings growth. What do
14:40
Speaker 1: you think about other regions? I mean, we focus on
14:42
Speaker 1: the US obviously because we're here, but um, there could
14:46
Speaker 1: be you know, something we're missing out on. Overseas. E
14:49
Speaker 1: M was very popular at the beginning of the year.
14:52
Speaker 1: Everyone said, Oh, Europe's gonna avoid this recession. How does
14:55
Speaker 1: it look to you now? I think all of those
14:57
Speaker 1: have been an an interesting sort of one time time
15:00
Speaker 1: trade that maybe has a little bit of of of
15:02
Speaker 1: legs left to it in terms of evaluation disparity against
15:05
Speaker 1: the U S and that recovery in Europe, the reopening
15:07
Speaker 1: of China playing into e M. So I do think
15:09
Speaker 1: there's still a bit of opportunity there, but longer term,
15:12
Speaker 1: when we step back and look at the demographic picture,
15:15
Speaker 1: when we look at the productivity picture, where we look
15:17
Speaker 1: at where companies are locating that are producing growth, most
15:20
Speaker 1: of those opportunities are in the U S. Yeah, I
15:21
Speaker 1: mean we're talking to e A function. So I noticed
15:25
Speaker 1: obviously there's a yellow drop down box you can choose
15:28
Speaker 1: your index. I put in the stock six D instead
15:30
Speaker 1: of the S and P five and it's dramatically different. Um,
15:34
Speaker 1: and well, look it's the same trend but stronger. So
15:37
Speaker 1: sales growth is like super boosted up twelve percent, and
15:41
Speaker 1: earnings the declines are only one and a half percent,
15:44
Speaker 1: So I guess that's really kind of a reopening story
15:46
Speaker 1: for Europe as well. I think it is. I think
15:48
Speaker 1: both Europe and Asia a little bit behind the US
15:50
Speaker 1: in terms of the reopening cycle, the reopening cycle from
15:53
Speaker 1: from the economy, So again, there may be a little
15:55
Speaker 1: bit more opportunity there, but longer term, the demographic picture
15:58
Speaker 1: and productivity in the US just looks a lot. By
16:00
Speaker 1: the way, are you worried coming back home, um about
16:03
Speaker 1: the housing situation here, because we really haven't had, um uh,
16:09
Speaker 1: any serious injuries from raised rates so far. Right, six
16:13
Speaker 1: percent seven percent Mortgage rates make affordability kind of off
16:17
Speaker 1: the charge, so anybody who wanted to sell is gonna
16:19
Speaker 1: maybe rent instead, and anybody who wanted to buy, um
16:22
Speaker 1: the same goes for them. But if we start to
16:24
Speaker 1: see job losses, we could start to see four sales
16:27
Speaker 1: and then big price drops. That's that's a great area
16:30
Speaker 1: of focus for US. I think we're not in the
16:32
Speaker 1: danger zone yet, but we could be if these rates
16:34
Speaker 1: continue to remain high towards the end of the year
16:37
Speaker 1: and if we don't see progress on inflation by the
16:39
Speaker 1: end of the year. For now, you have a situation
16:41
Speaker 1: where a lot of people who bought homes are are
16:43
Speaker 1: still in very good shape. They bought them, you know,
16:46
Speaker 1: to three years ago, before the move higher in prices,
16:49
Speaker 1: and you have a slowdown and activity. Of course, we
16:51
Speaker 1: saw a few green shoots in housing earlier in the
16:53
Speaker 1: year when rates cooled a bit, so we think there's
16:55
Speaker 1: the potential for that to happen again as we get
16:57
Speaker 1: later into the year, more progress on inflation. Well, look,
16:59
Speaker 1: I about to close on a property. Uh, and I'm
17:02
Speaker 1: paying a much higher mortgage rate than I would like
17:04
Speaker 1: or I would have paid a year ago, but I
17:05
Speaker 1: fully expect to refinance in twelve months, so hopefully that
17:09
Speaker 1: still works up. I look, you know, I'm trying to
17:10
Speaker 1: get Tom Keene out of the triple leverage all cash
17:13
Speaker 1: fun and now I'm saying, hey, you can go buy
17:14
Speaker 1: a two year note and get four point six. How
17:18
Speaker 1: are you guys thinking about fixed income ine after just
17:21
Speaker 1: a brutal Yeah, I think there are some good opportunities
17:24
Speaker 1: in fixed income, and you don't have to be too
17:26
Speaker 1: aggressive on the duration or credit front to pick up
17:28
Speaker 1: pretty good returns. So that's an area where we've been
17:31
Speaker 1: constructive and encouraging clients to to not go into all cash,
17:34
Speaker 1: but rather to go out a little bit. Uh, not
17:36
Speaker 1: be long duration. You don't have to be to get
17:38
Speaker 1: good returns and not take a lot of excessive credit risk.
17:40
Speaker 1: There's no reason to. And it plays a much more
17:43
Speaker 1: constructive role into portfolio than it did three years ago. See. Yeah, no,
17:47
Speaker 1: I've this is what we've been hearing U and it
17:49
Speaker 1: makes sense to me for sure. Um, I just wonder
17:53
Speaker 1: it doesn't really help financial conditions if I'm getting four
17:56
Speaker 1: point six percent of my two year right, So the
17:59
Speaker 1: fed I inc Is going to be the variable that
18:02
Speaker 1: could blow down this house of cards because they either
18:06
Speaker 1: have to keep raising or we have to all wait
18:09
Speaker 1: through what another year of another two years of inflation
18:14
Speaker 1: that's just unacceptably high. I mean, we have the smartest
18:16
Speaker 1: people in the world coming out and now suggesting they
18:18
Speaker 1: raise the target, and I'm thinking, wait, this is not good.
18:20
Speaker 1: Two percent is already too much inflation, so three percent
18:23
Speaker 1: is worse. Yes, I think that's right. I don't think
18:26
Speaker 1: it makes a lot of sense to raise the target.
18:28
Speaker 1: I think you hit on the key theme, though we
18:29
Speaker 1: do have to be patient. I don't think inflation is
18:31
Speaker 1: coming down quickly, but as long as it's heading in
18:34
Speaker 1: the right direction, I think it gives people a lot
18:35
Speaker 1: of encouragement in terms of planning for businesses or planning
18:38
Speaker 1: its consumers. While the problem is is getting better, that's
18:41
Speaker 1: much more important at the pace. I agree with you,
18:43
Speaker 1: it may take a while, and so we may be
18:44
Speaker 1: looking at a situation where we're getting out towards the
18:46
Speaker 1: end of the year and we're still not uh near
18:48
Speaker 1: the two percent target that the FED is set, although
18:50
Speaker 1: there are pockets within the CPI construction where you do
18:53
Speaker 1: see those numbers coming down a bit, and I think
18:55
Speaker 1: you've seen share pal starting to refer to some of
18:57
Speaker 1: the progress that's been made, and I think that's a
18:59
Speaker 1: good thing. I think out will continue through the year,
19:01
Speaker 1: but it will take some patience to get there. Just
19:02
Speaker 1: about thirty seconds. How much more earnings risk do you
19:05
Speaker 1: think is still out there in terms of estimates, Yeah,
19:07
Speaker 1: it's it's it's another area of focus for us as well.
19:10
Speaker 1: I do think the pressure is there on the margins side.
19:12
Speaker 1: I've been a little bit less focused on that top
19:14
Speaker 1: line number and willing to accept the sort of flat
19:16
Speaker 1: outcome with the recognition that there will be some big
19:18
Speaker 1: positive and negative numbers beneath the surface. There. One theme
19:21
Speaker 1: that we heard throughout the earning season was companies really
19:23
Speaker 1: focused on efficiency. So whether that's being careful with regard
19:26
Speaker 1: to labor costs, are continuing to deploy technology, efficiencies are there,
19:30
Speaker 1: so companies might manage a bit better than expected on margins. Alright,
19:33
Speaker 1: good stuff as always Robert Teeter, head of Investment Policy
19:36
Speaker 1: and Strategy Group at Silver Crest Asset Management, and I
19:39
Speaker 1: think you can see him on Bloomberg Television at one
19:41
Speaker 1: thirty pm today with Cretty Guptas. So if you want
19:44
Speaker 1: more Robert Teeter and his good thoughts on the markets,
19:46
Speaker 1: that's where you can find it. Lots of earnings already
19:52
Speaker 1: under the belt. We've got some more to go here.
19:55
Speaker 1: But this market, as we've seen over the last couple
19:56
Speaker 1: of days, still focus pretty intently on the federal Reserve,
19:59
Speaker 1: on lation. We've got the CPI print yesterday, we got
20:02
Speaker 1: some really strong retail sales today. Let's check in with
20:06
Speaker 1: the professional kind of looks at this stuff for a living,
20:08
Speaker 1: trying to Pence, chief Investment officer for Pence Capital Management. Uh.
20:12
Speaker 1: He is an Army veteran, so we think driving for
20:15
Speaker 1: his army service there driving thanks so much for joining
20:18
Speaker 1: us here. Lots of ECO data, lots of earnings. When
20:21
Speaker 1: you sift through it all, what are some of your
20:23
Speaker 1: takeaways here as you look towards Well, I think there's
20:28
Speaker 1: two There's there's two big things. The first one is
20:31
Speaker 1: no one told the consumer don't fight the FED. When
20:35
Speaker 1: you look at retail sales and coming up, and we
20:39
Speaker 1: had just a good report today and with employment strong, uh,
20:44
Speaker 1: with with basically balance sheets in good shape, you know,
20:48
Speaker 1: consumers not necessarily slowing down. And I think that that's
20:51
Speaker 1: that's beginning to put some pressure on the FED of
20:54
Speaker 1: what they're thinking about going forward with it with interest rates.
20:56
Speaker 1: So I think that's a that's a big issue. Consumers
20:59
Speaker 1: still see to be strong and they still can still
21:01
Speaker 1: have their buying. So how high do you think the
21:04
Speaker 1: FED has to go to get real traction on financial conditions? Well,
21:08
Speaker 1: I think you're probably looking at you. For the longest
21:11
Speaker 1: of time they're saying terminal rates was you know, maybe
21:14
Speaker 1: between five five. We think that that now may move
21:18
Speaker 1: out a little bit to five fifty. But uh, one
21:22
Speaker 1: of the things that people aren't quite paying attention to
21:24
Speaker 1: his lag effects uh. And and where you know company
21:27
Speaker 1: the market. You know, FED does something in two days,
21:30
Speaker 1: market adjust in two hours, but consumers and businesses it
21:34
Speaker 1: takes them weeks and months sometimes to adjust to they're
21:38
Speaker 1: changing capital cost. And so I think that we're under
21:41
Speaker 1: appreciating the fact that this last hundred fifty basis points
21:44
Speaker 1: of hikes, uh, really haven't worked their way into the
21:48
Speaker 1: market yet. Uh. And I think this is why at
21:51
Speaker 1: some point the FED does need to pause, and the
21:54
Speaker 1: pause is going to be long because the consumers and
21:57
Speaker 1: businesses kind of have to catch up with the decisions
21:59
Speaker 1: of wants them to make. Give us a sense of dryden?
22:03
Speaker 1: Does you think here we see rates moving higher for
22:05
Speaker 1: a lot of folks. That makes fixed income much more
22:08
Speaker 1: attractive relative to the last you know, decade and certainly
22:12
Speaker 1: relative to last year and performance was so terrible. Um,
22:15
Speaker 1: how do you think about fixed income? What's your kind
22:17
Speaker 1: of your strategy there? Well, you know, absolutely, I think
22:20
Speaker 1: that this is quite significant. You know, we went for
22:23
Speaker 1: decades where the market was the Tina market. There was
22:26
Speaker 1: you know, there is no alternative, and now I think
22:29
Speaker 1: we're in what I call the baby market. Uh. And
22:31
Speaker 1: that stands for bonds or back, y'all. Uh And and
22:38
Speaker 1: I think it's true when you can get when you
22:40
Speaker 1: can get a two year north of four percent and trasury,
22:44
Speaker 1: I think that changes that gives It gives really invest
22:48
Speaker 1: or something that they really haven't had in over a decade.
22:51
Speaker 1: And so it makes a much better alternative to you know,
22:55
Speaker 1: what's going on in the market. And they have, you know,
22:58
Speaker 1: for a retail and ester to be able to get
23:02
Speaker 1: a two year treasury north of four it changes how
23:07
Speaker 1: they think about risk, It changes how they think about
23:10
Speaker 1: long term investing. And I think that that's exceedingly important
23:14
Speaker 1: for advisors and people pay attention. We're getting back, like said,
23:18
Speaker 1: bonds are back, y'all, and we need to pay close
23:20
Speaker 1: attention to that. And we have a cross asset reporter,
23:23
Speaker 1: Katie Greifeld, she's coming on and about ten minutes to
23:26
Speaker 1: talk to us about the fact that investors can earn
23:29
Speaker 1: more in cash than they can in the S and
23:30
Speaker 1: P right now and and and everyone hates this rally um.
23:34
Speaker 1: You know, even people who are in it are saying,
23:37
Speaker 1: this is just a bear market rally. It's gonna falter um.
23:41
Speaker 1: What what signs do you look for for that, you know,
23:45
Speaker 1: market pivot to happen. Well, so there's a difference in
23:49
Speaker 1: the market pivot and true true, true. I'm talking about
23:53
Speaker 1: the market like what signs do we we're up fiftcent
23:56
Speaker 1: from the October lows, you know, does that hold or
23:58
Speaker 1: do we come back down? I think we're ahead of ourselves.
24:02
Speaker 1: But I think one of the big things is you
24:04
Speaker 1: cannot discount human emotion. Everybody was so happy to see
24:10
Speaker 1: the end of it. Basically was a sea change. You
24:13
Speaker 1: kind of took off that jacket and put on the
24:16
Speaker 1: new one. So I think we saw this early rally uh,
24:19
Speaker 1: more like a relief rally if anything else. Uh. And
24:23
Speaker 1: so now we're going to have to look through the
24:25
Speaker 1: rest of this quarter for validation of that and also
24:30
Speaker 1: the realization that we made. You know that I think
24:32
Speaker 1: that the idea that a bad recession is coming uh
24:37
Speaker 1: maybe coming off the table, and that it looks like
24:39
Speaker 1: a little small recession or no recession. And we're kind
24:43
Speaker 1: of in that camp. But I think it's important to
24:46
Speaker 1: pay attention to we haven't seen the last hundred fifty
24:49
Speaker 1: basis points of hikes really work its way through the
24:53
Speaker 1: business decisions yet. So I think that that's why we
24:56
Speaker 1: have to be a little cautious. So I don't mind
24:59
Speaker 1: the rally, but I think that we have to make
25:02
Speaker 1: sure that we're being cautious to have this first and
25:04
Speaker 1: second quarter. But I don't see I don't see a
25:07
Speaker 1: technical recession occurring first or second quarter. You know, we
25:11
Speaker 1: have positive GDP grow, so you're not gonna see if
25:13
Speaker 1: it happens. It's not having a third quarter, so's pushed out, tried.
25:17
Speaker 1: And what are you doing with new capital coming into
25:19
Speaker 1: your firm here? How cautious are you being? How are
25:22
Speaker 1: you allocating it at this time? Well, first, the first
25:27
Speaker 1: thing we're doing is allocating the fixed income piece because
25:30
Speaker 1: we think that that's almost a no brainer, right uh.
25:33
Speaker 1: And that we are looking at putting the fixed income
25:36
Speaker 1: to work in the in the two year uh, and
25:38
Speaker 1: things with short of that, because if we get a pivot,
25:40
Speaker 1: you know you're gonna get it based on clipping a
25:42
Speaker 1: good coupon and some and some capital gains out here,
25:46
Speaker 1: you know, twenty four or six months. But then what
25:48
Speaker 1: we're really paying close attention to is the fact that
25:52
Speaker 1: you know, on the consumer side, you have a Barbell consumer,
25:55
Speaker 1: so you have the luxury goods doing fine, you have
25:59
Speaker 1: the low into the retail doing pretty good. Uh. It's
26:02
Speaker 1: in the middle we're staying away from so your barbell consumer.
26:05
Speaker 1: But then also we take a good close look at payments. Uh.
26:08
Speaker 1: You know, as inflation rises, ticket you tickets go up, right,
26:12
Speaker 1: but payments are being able to maintain their margins. So
26:14
Speaker 1: companies that are involved in payments uh and travel in
26:18
Speaker 1: luxury spence. And we think also, I think defense is
26:20
Speaker 1: going to continue to be a good segment. I don't
26:23
Speaker 1: I don't see the war in the Ukraine uh ending.
26:27
Speaker 1: I think there's gonna be changes. But even if it does,
26:30
Speaker 1: even if it ended tomorrow, you have a tremendous amount
26:34
Speaker 1: of money that's got to go into defense. Because the
26:37
Speaker 1: NATO countries have learned their lesson and they're all committing
26:39
Speaker 1: to this two percent. Um you're gonna have nineteen countries
26:43
Speaker 1: instead of nine, and so they've got to replantis arsenals.
26:45
Speaker 1: So we think defense is a good play. Uh for
26:48
Speaker 1: a couple of years, solid earnings. Geo politics at all
26:51
Speaker 1: a worry. I mean especially with um, you know Chinese
26:54
Speaker 1: relations U S. China relations m getting more and more
26:58
Speaker 1: sour every day. Yeah, it creates moments of volatility. Um.
27:06
Speaker 1: But you know, a bad thing hurts China more than
27:10
Speaker 1: it hurts anything else anybody else. They they need a
27:13
Speaker 1: strong economy to keep their people uh in place. Uh.
27:18
Speaker 1: And so I think there's there's risks that people aren't
27:20
Speaker 1: fully appreciating on the China thing. But the geop political situation,
27:24
Speaker 1: I think the whole world's watching Russia uh, and they're
27:27
Speaker 1: gonna watch what happens over the next several weeks if
27:29
Speaker 1: Russia tries to have a offensive uh to break out
27:33
Speaker 1: of their defensive perimeter. But you know when I think
27:37
Speaker 1: of what the world is learning is that uh, you
27:41
Speaker 1: know uh Ukrainian you know this old cost you know
27:44
Speaker 1: you I gotta thank for a hundred and seventy three
27:48
Speaker 1: point two to build it? All right, Frank, stuff all right, right?
27:50
Speaker 1: And try to pen CEO of Pence Capital Management Riding
27:53
Speaker 1: is a army veterans, So we thank him for his service.
27:56
Speaker 1: Just getting some thoughts on these markets. We're gonna have
27:58
Speaker 1: more coming up this this bloomberg. I want to move
28:05
Speaker 1: to another sector that I really love, UM because I
28:07
Speaker 1: like to eat out, and that's restaurants. And you want
28:09
Speaker 1: to talk restaurants and all that kind of stuff. Um,
28:12
Speaker 1: like Cracker Bowl is one of my faves. And and
28:14
Speaker 1: I don't know if you're you should say that publicly.
28:16
Speaker 1: I love crackerbout the country get canceled, I could get
28:19
Speaker 1: cancel I love it. Mike Haylen, he does this stuff
28:21
Speaker 1: for a living. He's a senior restaurant's analyst with Bloomberg Intelligence.
28:24
Speaker 1: So my gradiet to the broader call on restaurants coming up.
28:29
Speaker 1: But first I want to start off with Subway. I
28:31
Speaker 1: always thought this was public, but it's a private company
28:34
Speaker 1: and it's rumored that it might be sold. Here talk
28:37
Speaker 1: to us about what's going on with Subway. What do
28:39
Speaker 1: you know? Yeah, Unfortunately, like you said, uh, it's private.
28:44
Speaker 1: So uh you know, I've been digging for information the
28:47
Speaker 1: last couple of days and some of the some of
28:48
Speaker 1: the data points like same starce sales and it's hard
28:51
Speaker 1: hard to find any bad ones, right, and so only
28:53
Speaker 1: they only report the good ones. Um. But yeah, from
28:57
Speaker 1: what I understand, Um, you know they're looking to sell.
29:01
Speaker 1: I don't know if the timing is so great with
29:03
Speaker 1: with the rising interest rates over the last year. Um,
29:07
Speaker 1: but you know from what we're here and they're looking
29:09
Speaker 1: to sell and they think they can get about ten
29:10
Speaker 1: billion for it, So who picks them up? I think
29:15
Speaker 1: it's gotta be p I think it's got to be
29:17
Speaker 1: private equity. So UM, there's two big multi unit operators
29:23
Speaker 1: in our space, UM, you know, UM Restaurant Brands and YUM.
29:31
Speaker 1: I don't see either one of those making a play
29:33
Speaker 1: for it. UM Restaurant Brands. UH is really focused on
29:38
Speaker 1: UM turning around Tim Horton's UH in Canada, which which
29:43
Speaker 1: they've made some progress there, and also Burger King in
29:46
Speaker 1: the United States, which is gonna be a pretty heavy lift.
29:49
Speaker 1: They're investing for million over the next two years in
29:53
Speaker 1: there alongside their franchisees to help boost results there. Uh.
29:58
Speaker 1: So I think they have their hands full. Young Brands.
30:01
Speaker 1: The other one, UM uh you know Young Brands right
30:06
Speaker 1: now is doing really well right UM, and so that's
30:11
Speaker 1: the name that comes up. But they're they're trading at
30:14
Speaker 1: five times leverage, that's the long term target, you know.
30:17
Speaker 1: Tacking on ten billions to that bound she is is
30:20
Speaker 1: going to shoot their their leverage ratio up pretty significantly. Uh.
30:26
Speaker 1: I don't know if I think it's just kind of
30:28
Speaker 1: a too big of a pill to swallow for them, right, Um,
30:33
Speaker 1: so PE takes it up, and then, by the way,
30:35
Speaker 1: it's not as interesting to us anymore. Right, what if
30:38
Speaker 1: PE takes it, I'd like to see what they pay
30:40
Speaker 1: for it. Evaluation. That kind of stuff isn't actual. You
30:42
Speaker 1: want to see kind of valuation. That's a good point.
30:44
Speaker 1: But mar but Mike, what are the publicly traded UH
30:48
Speaker 1: companies that you like? Paul and I went to Chipotle
30:50
Speaker 1: the other day and the line was, I think it
30:54
Speaker 1: may have gone out the door at one point when
30:56
Speaker 1: we were in there. Um, and it's a long store,
30:58
Speaker 1: so a lot of they just don't have enough employees. Yeah,
31:03
Speaker 1: they're still they're still cranking. Um, yeah, they're still cranking.
31:09
Speaker 1: And you know it's a market by market thing. You know,
31:11
Speaker 1: they reported earnings recently and I think their stores or
31:15
Speaker 1: so are are are fully staffed. So so it kind
31:18
Speaker 1: of depends on the market. Um, it just goes up
31:23
Speaker 1: into the right. I mean, it's pretty impressive. Yeah, it's
31:27
Speaker 1: been a good run. Fourth quarter though, was you know,
31:30
Speaker 1: we saw some chinks in the armor, right, Um, you
31:33
Speaker 1: know they're they're garlic garlic Guahios steak limited time offer
31:40
Speaker 1: did not do as well as Brisket the year prior,
31:43
Speaker 1: traffic dropped about four percent year over year. Uh. You know,
31:47
Speaker 1: Same Star sales came in lighter than expected. So you know,
31:51
Speaker 1: we're not really you know, the jury is not out yet,
31:55
Speaker 1: but there could be some minor pushback here with some
31:58
Speaker 1: of the low and middle income consumers over there with
32:02
Speaker 1: the with the aggressive price increases we've seen there. So
32:05
Speaker 1: they increased prices probably more than any of the other
32:08
Speaker 1: chains that we covered over the last two years. Um,
32:11
Speaker 1: you know, and their three years sames ourselves. Even though
32:14
Speaker 1: the trend accelerated by five fifty basis points in the quarter. Uh,
32:18
Speaker 1: it's still one of the strongest performers post pandemic um
32:23
Speaker 1: in our coverage universe, if not the the strongest. Will
32:26
Speaker 1: see how the rest of earnings pans out. So listen,
32:29
Speaker 1: there's a lot of really good things going on over there.
32:32
Speaker 1: But you know, we're really curious as opposed to the
32:36
Speaker 1: cracker barrel Old Country, that stock chart is a disaster.
32:41
Speaker 1: As much as Paul loves the Country Boy Breakfast, Um,
32:45
Speaker 1: you're not making any money on this one. Well, so,
32:48
Speaker 1: so it's been tough. Um. You know, they have a
32:52
Speaker 1: high percentage of of older customers right, people that are
32:57
Speaker 1: repired and they're pulling back on their spending. People that
33:00
Speaker 1: might be a little more afraid of COVID over the
33:03
Speaker 1: last couple of years, so less likely to go into
33:06
Speaker 1: the restaurant family. Dining in general has been pressured more
33:10
Speaker 1: than pretty much any of of the you know, subcategories
33:14
Speaker 1: in the restaurant industry. So yeah, it's been that's been
33:17
Speaker 1: a particularly difficult place to play, for sure. Most of
33:21
Speaker 1: their customers aren't taking the PJ from a rubit of Veil.
33:24
Speaker 1: Probably not so anyway, But Mike, I was out of
33:26
Speaker 1: Veil last week and a lot of the restaurants they
33:29
Speaker 1: were only seating maybe two thirds or three quarters at
33:31
Speaker 1: the table because they still don't have staff. So that
33:34
Speaker 1: still seems to be an issue. But I'd love to
33:37
Speaker 1: get your call here. What are you telling clients about
33:39
Speaker 1: the restaurants space here? How do we play it? Sure? So,
33:43
Speaker 1: uh well, it looks like, you know, Veil needs an
33:46
Speaker 1: influx of ski bums. Yes, it sounds like to me
33:50
Speaker 1: maybe maybe the lift ticket has just gotten Yeah it's
33:56
Speaker 1: a lot of money. I just bought one for Park City.
33:58
Speaker 1: Uh yeah, it's definitely not cheap. Um So yeah, you know,
34:04
Speaker 1: January December was pretty bad, which they're surprising. December sales
34:08
Speaker 1: were bad, which is a surprising because we were laughing
34:10
Speaker 1: some O Macron impact and they've had a nice rebound
34:13
Speaker 1: here in January. But we think it's gonna be short lived,
34:17
Speaker 1: right because we're laughed in that O Macron outbreak last year,
34:22
Speaker 1: and so in mid February or so well that that
34:25
Speaker 1: tail winds gonna start to go away, you know. And
34:28
Speaker 1: we just think that all of the aggressive um price
34:33
Speaker 1: increases right to combat inflation and all the other inflationary
34:36
Speaker 1: aspects um that that are hurting consumer wallets, we think
34:41
Speaker 1: it's eventually going to take their toll in the restaurant space,
34:44
Speaker 1: so um. You know, we think quick service franchise, heavily
34:49
Speaker 1: franchise chains changed with scale, so think you know McDonald's,
34:53
Speaker 1: think of Dominoes. We think those chains will will outperform
34:57
Speaker 1: uh this year. And it's the casual dining chains that
35:01
Speaker 1: own a lot of the restaurants have a lot of
35:03
Speaker 1: operating leverage in their model. You know, if they see
35:07
Speaker 1: some pressure on the sales line, it's gonna, all right,
35:10
Speaker 1: continue to squeeze their margins. All right, My great stuff
35:12
Speaker 1: as always my Kevin, senior restaurant analysts for Bloomberg Intelligence.
35:17
Speaker 1: This is Bloomberg lots of earnings data, after lots of
35:24
Speaker 1: ECO data out there, CPI yesterday, retail sales jobs. I
35:28
Speaker 1: need a professional to give me some perspective here, and
35:30
Speaker 1: that's what we call on Gina Martin Adams. She's the
35:33
Speaker 1: chief equity strategist for Bloomberg Intelligence. So, Gina, you do
35:38
Speaker 1: this for a living, You've been doing it for decades.
35:40
Speaker 1: How do you put it all together and make a
35:43
Speaker 1: coherent call for Yeah, I think that's a great question,
35:47
Speaker 1: because we are in very unique times, you know. I
35:50
Speaker 1: think we first need to acknowledge the fact that even
35:52
Speaker 1: though people such as myself and and you guys there
35:57
Speaker 1: have been in this market for decades, we've been in
35:59
Speaker 1: the market in the decades of experience of decelerating CPI,
36:04
Speaker 1: we've never experienced inflation to the green we experienced inflation
36:08
Speaker 1: in two and that inflation spike has serious consequences for
36:13
Speaker 1: investment strategies going forward. I do think it's really important,
36:18
Speaker 1: most important, though, to keep your eye on the earning
36:20
Speaker 1: stream and what's happening in earnings and the expectations for
36:23
Speaker 1: earnings over the course of this year will most likely
36:26
Speaker 1: drive stock prices. It's no coincidence that stock prices struggled
36:30
Speaker 1: last year as earnings came off of their peak. We've
36:35
Speaker 1: now discovered, you know, over the course of the last
36:37
Speaker 1: several months, that earnings didn't the peak at the end
36:39
Speaker 1: of one which does help explain the market's weakness throughout,
36:45
Speaker 1: even though the economy appears to be rather stable. Inflation
36:49
Speaker 1: is the biggest reason for that earnings peak. We saw
36:52
Speaker 1: inflation pike last year. It created a crunch in margins.
36:56
Speaker 1: The inflation deceleration absolutely essential in in order to create
37:02
Speaker 1: a margin bottom. So what do you expect in terms
37:05
Speaker 1: of SMP earnings this year, Gina? We had Robert teter
37:09
Speaker 1: On from Silver Crest Asset Management who said he thinks
37:12
Speaker 1: earnings are going to be flat. Yeah. The first question
37:17
Speaker 1: I have to ask back is which version of earnings?
37:19
Speaker 1: Because I think this is incredibly important right now and
37:21
Speaker 1: it's really missing from the discussion. Operating earnings or sort
37:25
Speaker 1: of adjusted consensus comparable earnings are what most strategists and
37:30
Speaker 1: most analysts forecast, and on a on an adjusted basis,
37:34
Speaker 1: we too expect a very modest decline, we expect something
37:37
Speaker 1: close to two to five percent ultimately um A lot
37:41
Speaker 1: of thats so on how much energy drops. If you
37:45
Speaker 1: look at adjusted EPs, adjusted EPs is already down seven
37:50
Speaker 1: from its peak and likely falls another closer to seven percent.
37:54
Speaker 1: So which EPs is also very important because when you're
37:59
Speaker 1: only looking at consensus comparable EPs numbers over the last year,
38:02
Speaker 1: you would have thought earnings were still rising. Well, what
38:05
Speaker 1: do I have on E A. Wh When I pull
38:07
Speaker 1: up E A and I look at sales growth at
38:09
Speaker 1: five point three percent, earnings growth negative two point four percent,
38:12
Speaker 1: what are we looking at just as numbers now an
38:18
Speaker 1: adjusted number. So what we're doing, and I think this
38:21
Speaker 1: is really important, is you've you've got to keep track
38:24
Speaker 1: of which version of earnings you're looking at, because if
38:26
Speaker 1: you're looking at adjusted versus unadjusted earnings, you also get
38:29
Speaker 1: a very different perspective on where valuations are. And I
38:34
Speaker 1: think this is the struggle right now is and it
38:36
Speaker 1: is always the struggle. At major cyclical turning points in
38:39
Speaker 1: the market, companies do have major write off Let's think
38:42
Speaker 1: about just one example, Ribbyan and Amazon. You get a
38:46
Speaker 1: completely different perspective of Amazon's earnings when you think about
38:50
Speaker 1: the Ribban write offs. Then when you look at a
38:52
Speaker 1: consensus comparable operating learnings number for Amazon, the result is
38:57
Speaker 1: really incredible distortions and valuations as well, which makes this
39:00
Speaker 1: point in the in the market cycle really difficult for investors.
39:04
Speaker 1: Really adds as the complexity. So where do we go here, Gina?
39:09
Speaker 1: I mean, how should I think about these markets? I
39:11
Speaker 1: got the markets are still done double digits from the high,
39:14
Speaker 1: but boy, they're up off the lows at October low.
39:19
Speaker 1: I don't know where to go here? What do you
39:20
Speaker 1: tell an investors? Yeah, and our view was at the
39:24
Speaker 1: October low, we had priced a pretty significant earning surcession.
39:28
Speaker 1: We've done in our fair value models at that point
39:30
Speaker 1: in time, we wrote that the market was already anticipating
39:33
Speaker 1: somewhere between a five and fifteen percent contraction and earnings
39:36
Speaker 1: depending upon where you're boging for fet funds. Right is,
39:40
Speaker 1: so we had already gone through a process of pricing
39:42
Speaker 1: a fairly significant downdraft coming. We're now experiencing that downdraft
39:47
Speaker 1: in the earning stream on an adjusted basis um, and
39:51
Speaker 1: we'll continue to experience that in the early part of
39:54
Speaker 1: that said, the rally that we've we've had in the
39:57
Speaker 1: market since the October lows does look to be a
40:00
Speaker 1: bit overdone in our view. In particular, the leadership and
40:04
Speaker 1: the rally is very suspicious. If we're moving into a
40:07
Speaker 1: climate where economic growth is somewhat stable, inflation is decelerating
40:11
Speaker 1: but nonetheless a little too sticky, and the Fed has
40:14
Speaker 1: to keep policy rates higher. Leadership in large cap growth
40:19
Speaker 1: is very suspicious and subject to correction. So I think
40:22
Speaker 1: you've got a lot of potential movement beneath that top line.
40:26
Speaker 1: As the market looks a little bit overbought in the
40:28
Speaker 1: short run, some of the excess inflation of the October
40:32
Speaker 1: to January period probably needs to blow off. So we
40:35
Speaker 1: look at UH the SMP broken down into eleven industry
40:39
Speaker 1: groups here to day, the leaders, to your point, Gina,
40:43
Speaker 1: are consumer discretionary stocks and then I t so tech stocks.
40:48
Speaker 1: Does that mean to you that, um, you know, investors
40:52
Speaker 1: are just so thrilled that two is over and they're
40:54
Speaker 1: just buying the worst performers of this year. Or are
40:58
Speaker 1: they did they do tax loss harvesting at the end
41:01
Speaker 1: of last year, Now they're getting back into those since
41:03
Speaker 1: they got the right off. Are they were they shorting
41:07
Speaker 1: these stocks, and this is now a short covering rally. Yeah,
41:11
Speaker 1: I think it's a combination of all three of those.
41:13
Speaker 1: Those are all excellent points and certainly all part of
41:16
Speaker 1: the explanation for why stocks of rallies since October, but
41:20
Speaker 1: not all of it, right, I mean, some of the
41:22
Speaker 1: rallies since October is probably going to continue to stick
41:25
Speaker 1: because consumer discretionary, as an example, not all of consumer
41:29
Speaker 1: discretionaries large cap growth. Sure, you've got the Amazon and
41:32
Speaker 1: Testless of the world, but then on the other end
41:33
Speaker 1: of the spectrum, you've got some pretty tremendous value opportunities
41:37
Speaker 1: that emerged in consumer discretionary and some hyper cyclical industries
41:41
Speaker 1: that tend to perform very well in an environment where
41:43
Speaker 1: the economy is moving into recovery from recession. So I
41:47
Speaker 1: think there's some opportunities there. Very similarly, with tech, you've
41:50
Speaker 1: got a combination of big cap, defensive growth and value
41:55
Speaker 1: segments like the semiconductor space, where you know, I expectations
42:00
Speaker 1: were completely obliterated and are now starting to recover a
42:03
Speaker 1: little bit in intercipation of a cycle emerging. So you know,
42:07
Speaker 1: I think you've really even got to go beneath the
42:09
Speaker 1: sector level, right down to the industry level and even
42:12
Speaker 1: the stock level at this point in the cycle, to
42:15
Speaker 1: look for where you see those deeper values, where you
42:18
Speaker 1: see sort of less exposure to interest rate risk going forward,
42:22
Speaker 1: where recession in the earning stream has largely been priced.
42:27
Speaker 1: I mean, those are the opportunities that we're looking for
42:29
Speaker 1: to um emerge as winners over the course of Gina.
42:33
Speaker 1: Not that you don't have enough on your play right now,
42:35
Speaker 1: but I'm going to ask you to help us book
42:37
Speaker 1: our show over the next couple of days. Should we
42:39
Speaker 1: book a small cap portfolio manager? Small caps something to
42:43
Speaker 1: take a look at? Yeah, I we absolutely think small
42:46
Speaker 1: caps are something to take a look at. You know,
42:48
Speaker 1: the small cap bear market is much longer in duration
42:51
Speaker 1: than the large cap bear market, so deep value has
42:54
Speaker 1: emerged in the small cap space. You're looking at a
42:56
Speaker 1: group that's trades roughly one and a half nearly two
42:59
Speaker 1: standard deviation below large caps valuation multiples and has been
43:03
Speaker 1: in a bear market since March of small caps also
43:07
Speaker 1: have been in a bottoming process for longer. Remember the
43:10
Speaker 1: October lower lows in the SMP five hundred were not
43:12
Speaker 1: confirmed by small caps, which made their lowest low in
43:15
Speaker 1: June UM and have been sort of waffling around and
43:20
Speaker 1: trying to get a little bit of a lift, but
43:22
Speaker 1: not a tremendous amount of love, and underloved spaces are
43:25
Speaker 1: always the spaces where we want to dig for for
43:28
Speaker 1: some diamonds UM in the rough. I think that small
43:31
Speaker 1: caps do present a really strong opportunity provided we all
43:36
Speaker 1: we have indeed price that recession and we're moving into
43:39
Speaker 1: some form of recovery here in the short term. It's
43:41
Speaker 1: so confusing to me UM, probably because we don't focus
43:44
Speaker 1: on it as much. But you've also got choices to
43:47
Speaker 1: make in small caps. Do you go with the Russell
43:49
Speaker 1: two thousand, do you go with the SMP six hundred.
43:52
Speaker 1: There's Jeff Menton has a story on all these crazy
43:56
Speaker 1: technical indicators like the momentum indicate you're moving average convergent divergence,
44:02
Speaker 1: which sounds like it's just made up UM, and I
44:06
Speaker 1: just don't know UM where to go when I look
44:09
Speaker 1: at small caps. Yeah, I think that's a good point.
44:12
Speaker 1: But even the small cap benchmark manager really looks at
44:16
Speaker 1: only the top segment of small cap, the small cap
44:19
Speaker 1: Russell two thousand index, So for the most part, you're
44:22
Speaker 1: looking at the S and P six hundred as your
44:24
Speaker 1: most investable opportunities within small caps. Maybe you extend that
44:28
Speaker 1: to uh, you know, the top the thousands of fifteen
44:31
Speaker 1: hundred of the Russell two thousand. There are some signals
44:36
Speaker 1: in the small cap index, you know, just works closely
44:39
Speaker 1: with our small cap strategist, might Casper to derive those
44:42
Speaker 1: comments to drive that commentary on the MACDI and the
44:45
Speaker 1: mac D has given us a signal that small caps
44:50
Speaker 1: maybe running out of steam with a negative crossover in
44:54
Speaker 1: positive territory. That's a lot of gobbledegod, but it basically
44:57
Speaker 1: means is we probably have all right, reach some sort
45:01
Speaker 1: of short term top and small cast. That doesn't mean
45:03
Speaker 1: that opportunities are still there. Paul the stuff, Paul the
45:06
Speaker 1: moving average, convergence, divergence. So's a negative aspect and positive
45:10
Speaker 1: territory for sure. Cross am I'm buying that or my
45:13
Speaker 1: selling it? Gina Martin Adams. She covers all things on
45:15
Speaker 1: the strategy side for Bloomberg Intelligence. Thanks for listening to
45:20
Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to
45:24
Speaker 1: interviews with Apple Podcasts or whatever podcast platform you prefer.
45:28
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three
45:33
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45:35
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