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Amazon, Real Estate, & Tech Sector · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you.
0:05
Speaker 1: Along with my co host Lisa Brahma Waits. Each day
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Speaker 1: we bring you the most noteworthy and useful interviews for
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Speaker 1: you and your money, whether at the grocery store or
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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Well, Amazon reported earnings after the
0:21
Speaker 1: bell yesterday, showing the first drop year over year since
0:26
Speaker 1: early t seventeen in their earnings, and the longer that
0:29
Speaker 1: investors have to digest this, the more investors to like,
0:33
Speaker 1: you know what, we actually kind of like Amazon more,
0:35
Speaker 1: actually a little bit lower to discount and shares have
0:37
Speaker 1: come back at one point down more than eight percent,
0:40
Speaker 1: now down two point six percent. Joining us now to
0:43
Speaker 1: discuss Alex web technology calumnist for a Bloomberg opinion, Joining
0:47
Speaker 1: from London. So, Alex, We've been talking about it all morning,
0:50
Speaker 1: Amazon shares falling. It does seem though that they are stabilizing.
0:55
Speaker 1: Why do you think? I mean, I think that usually
0:59
Speaker 1: when Amazon spends money, it goes somewhere which does wind
1:04
Speaker 1: market share and generate returns, Um. On the one hand,
1:07
Speaker 1: we've gotten spending money on on improved deliveries in acceleration
1:12
Speaker 1: the pacer which prime orders get delivered. And secondly, it
1:16
Speaker 1: looks as though they are taking a bit of a
1:18
Speaker 1: hit on on the margin for Amazon Web services, the
1:22
Speaker 1: hugely successful cloud operations. But the motivation for that might
1:26
Speaker 1: be about defending its market share. That by by cutting prices,
1:30
Speaker 1: they are fending off the incursions of the likes of
1:33
Speaker 1: Microsoft in particular, but also perhaps Google and Ali barber Um.
1:37
Speaker 1: And you know, if you're defending market share, then it's
1:40
Speaker 1: defensible to maybe sacrifice a little bit of profitability. So Alex,
1:44
Speaker 1: you know, this is a company that's kind of dialed
1:46
Speaker 1: up expenses, dialed down expenses, you know, kind of depending
1:49
Speaker 1: upon maybe either kind of what they what they need
1:52
Speaker 1: to invest in and maybe what kind of profits they
1:54
Speaker 1: want to show the street. Are we do you get
1:56
Speaker 1: the sense that maybe the company is getting into a phase,
1:59
Speaker 1: uh of higher expenses. I think it certainly looks as
2:03
Speaker 1: though the competitive challenges are increasing. Um. That's happening both
2:06
Speaker 1: when it comes to e commerce and cloud and therefore,
2:09
Speaker 1: you know, warrants opening the checkbook a little bit. The
2:15
Speaker 1: you know, AWS profits are still disproportionately huge. You know,
2:20
Speaker 1: they account for two thirds of the overall profit of
2:24
Speaker 1: the business. UM, we are yet to see whether really
2:28
Speaker 1: the pushes from the likes of Walmart and Target can
2:31
Speaker 1: make a real incursion into this e commerce space. I
2:35
Speaker 1: think that there starts something like e commerce accounts for
2:38
Speaker 1: ten percent of all retail in the US, and Amazon's
2:42
Speaker 1: about of that. So until we see any meaningful shift
2:47
Speaker 1: on that dial um, then I think people can be
2:50
Speaker 1: very confident in the Amazon's trajectory. So let's talk about
2:53
Speaker 1: a WS, the cloud computing service sector of Amazon that
2:58
Speaker 1: was also a disappoint a minute, and it arguably is
3:01
Speaker 1: You're making the argument this morning a more significant disappointment
3:05
Speaker 1: than the increased spend, and I'm wondering why people seem
3:09
Speaker 1: to be shruggling that off. I think maybe the perhaps
3:13
Speaker 1: the arguments of the rationale for that for that slight
3:16
Speaker 1: decline are emerging. It might be we don't really know,
3:19
Speaker 1: but we might be that, as we said, it is
3:20
Speaker 1: about defending market share and UM and you know, it
3:25
Speaker 1: still is the biggest player in that space by quite
3:28
Speaker 1: some some distance, and the sort of expenditure you need
3:31
Speaker 1: to to you know, challenge in in essentially data centers
3:36
Speaker 1: is significant. You know, these chips, you know, server chips
3:39
Speaker 1: from Intel costs sort of ten twelve thousand dollars a pop,
3:43
Speaker 1: and if you've got hundreds of them, that's a huge outlay.
3:45
Speaker 1: So it's not that once you have a competitive advantage there,
3:48
Speaker 1: it is quite hard to displace. Um. Nonetheless, the competitors
3:51
Speaker 1: in the space are very well capitalized and not to
3:54
Speaker 1: be trifled with. And you know, as long but as
3:58
Speaker 1: long as Amazon continues to throw off cash and be
4:00
Speaker 1: happy to reinvest it, then then you know it's it's
4:04
Speaker 1: by no means a sort of it's still a very
4:07
Speaker 1: healthy business. So how about one of the businesses that
4:10
Speaker 1: may not be as healthy, and that's the grocery business.
4:13
Speaker 1: And I remember them buying something like a Whole Foods
4:15
Speaker 1: or something a year or two ago. Did they disclose
4:18
Speaker 1: much about their grocery business? Is that something that they
4:22
Speaker 1: think is going to be a growth forever in the future.
4:25
Speaker 1: I mean generally that the push from Amazon into into
4:28
Speaker 1: bricks and mortar is a play which I'm yet to
4:33
Speaker 1: see fully explained and quite how that the margin profile
4:37
Speaker 1: of that will hold up. But UM, you know that
4:40
Speaker 1: the numbers they've disclosed from from Whole Foods, um, you
4:45
Speaker 1: know that it does seem to have declined in the
4:47
Speaker 1: most recent quarter. I think physical stores you're in your
4:50
Speaker 1: growth excluding currency effects fell by about one percent. Now
4:54
Speaker 1: that's not a trend that people will be happy to see.
4:56
Speaker 1: But you know, the Amazon argument will be, well, it's
4:59
Speaker 1: you an't necessarily to be making the sales in the stores.
5:01
Speaker 1: They were kind of perhaps a lost leader where you
5:03
Speaker 1: go out, people see it in there, and then they
5:05
Speaker 1: might go online and buy things. Nonetheless, I don't think
5:07
Speaker 1: it seems terribly compelling. Um, you know, story to tell investors.
5:12
Speaker 1: Thank you so much for being with us, Alex Webb,
5:15
Speaker 1: and for all of your commentary throughout the morning. Alex
5:17
Speaker 1: Webb is a Bloomberg Opinion technology calmness. You create all
5:20
Speaker 1: his columns, as well as all the other fantastic work
5:23
Speaker 1: put out on O P. I N go on the
5:26
Speaker 1: Bloomberg terminal or Bloomberg dot com slash Opinion if you
5:30
Speaker 1: go to the web. You know, I was just chatting
5:47
Speaker 1: with Lisa Affair and I was saying, you know, we
5:49
Speaker 1: haven't we don't really talk that much about risk arbitrage
5:51
Speaker 1: and trading around deals that used to be such a
5:54
Speaker 1: big part of the market. I feel like we don't
5:56
Speaker 1: talk about it enough, but I think we can change
5:58
Speaker 1: that a little bit. Right now, you'll have Sharon It's
6:00
Speaker 1: portfolio manager for dree House Capital Management in Chicago, joins
6:03
Speaker 1: us on the phone. You have, thanks so much for
6:05
Speaker 1: joining us. Let's start with the risk arbitrage part of
6:09
Speaker 1: the market. Give us a sense of you know, how
6:12
Speaker 1: vibrant that is. What kind of returns are risk arbitraders
6:15
Speaker 1: getting these days? Sure, well, thanks for having me on.
6:18
Speaker 1: You know, at a at a holistic level. Today, UH,
6:21
Speaker 1: annual spreads or I guess gross spreads are sitting at
6:23
Speaker 1: a just under four percent, so call it three point
6:26
Speaker 1: six percent as of quarter end. UM. There's been in
6:29
Speaker 1: the middle part of this decade quite a boom in
6:31
Speaker 1: and obviously traditional murder arbitrage activity UM. In the most
6:35
Speaker 1: recent quarter that has died down UM, partly because of
6:39
Speaker 1: the global economic concern to geopolitical tensions, etcetera. But what
6:43
Speaker 1: we're seeing is still quite a bit of deal activity UM,
6:46
Speaker 1: not only in traditional merger arbitrage, which again you know
6:49
Speaker 1: investors can expect kind of a four percent gross return
6:52
Speaker 1: depending on when deals closed. People are looking for a
6:55
Speaker 1: mid single digits, potentially an upper single digits rate to
6:58
Speaker 1: return annualize UM. But we're also seeing a bunch of
7:01
Speaker 1: non traditional quote unquote event or deal activity, which is
7:05
Speaker 1: also driving the the avenger of an investing landscape. How
7:09
Speaker 1: easy is it to get it right what you're dealing
7:11
Speaker 1: with this, UH at a time of such bifurcated results
7:15
Speaker 1: often Sure, Yeah, that's a great question. It's something that
7:18
Speaker 1: we've spent a lot of time focusing on. Really, the
7:20
Speaker 1: bifurcation not only in in risk are, but in in
7:23
Speaker 1: other parts of the market as well, credit and even
7:25
Speaker 1: equity valuations. But UM has been a driving force of
7:28
Speaker 1: l but specifically for risk are, we really have seen
7:31
Speaker 1: a bifurcation where the quote unquote safe spreads UM, just
7:35
Speaker 1: like we're seeing in yield, there's a there's a flight
7:37
Speaker 1: to quality. People are trying to hide out in in
7:40
Speaker 1: these safe spreads ones, the ones that don't have either
7:43
Speaker 1: you know, contentious litigation or regulatory overhang UM or cross
7:47
Speaker 1: border UH concerns getting tied up in in government UH
7:52
Speaker 1: tip for TAD if you will. UH. Those spreads are
7:54
Speaker 1: really compressed in overly tight, and then you have this
7:57
Speaker 1: air pocket in the middle of the risk arbitract spectrum
8:00
Speaker 1: where there aren't very many deals that live in the
8:03
Speaker 1: you know, mid to sing upper single digits range for
8:06
Speaker 1: a grosser rate to return. So then what you're left
8:08
Speaker 1: with is a handful or a slew of deals that,
8:11
Speaker 1: again for either regulatory purposes or geopolitical purposes, are sitting
8:15
Speaker 1: essentially at coin flips. So if you think about it
8:18
Speaker 1: in an implied probability standpoint, the really safe spreads are
8:22
Speaker 1: trading in the upper implied probability. The overall deal universe
8:26
Speaker 1: is still trading around implied probability, which is somewhat in
8:31
Speaker 1: line with its historical range. But there's a whole slew
8:34
Speaker 1: of deals that are sitting essentially at coin flips, so
8:37
Speaker 1: implied probabilities. Again, these are deals that are either need
8:40
Speaker 1: Chinese approval UH, deals that need or are being under
8:45
Speaker 1: a new FTC guideline, particularly in the healthcare space, where
8:48
Speaker 1: there's a lot of concern as to what the rules
8:52
Speaker 1: of the game are. So that's that's really what's been
8:54
Speaker 1: driving this bifurcation. And obviously, you know you nailed it
8:57
Speaker 1: on the head getting getting the ones right is significant
9:00
Speaker 1: and obviously drives returns, but just as importantly as avoiding
9:04
Speaker 1: the blow ups is really what's important. Obviously, you know,
9:07
Speaker 1: at the beginning of eighteen with n XPN Qualcom, there
9:10
Speaker 1: was a lot of carnage in the space that kind
9:12
Speaker 1: of reset spreads a little wider. And now it's been
9:15
Speaker 1: a while since there's been a big blow up. But
9:16
Speaker 1: avoiding those is is equally, if not more important than
9:20
Speaker 1: getting the ones right. So you have when I started
9:23
Speaker 1: on Wall Street in the mid eighties, all the big
9:25
Speaker 1: investment banks had big risk are trading desk and that
9:29
Speaker 1: was kind of the really cool place to be. Who's
9:32
Speaker 1: investing and who's playing in the risk are market? Uh?
9:35
Speaker 1: These days, yeah, I mean I think you still have
9:37
Speaker 1: dedicated funds to risk arb, both in in the liquid
9:41
Speaker 1: space and obviously in the LP space. I think what's
9:43
Speaker 1: what's evolved over time is uh, a broader spectrum, if
9:47
Speaker 1: you will, a catalyst spectrum for events space investing, So
9:51
Speaker 1: event driven investing, anything from obviously activism gets a lot
9:55
Speaker 1: of attention, but really you know, any sort of corporate actions, recapitalizations,
9:59
Speaker 1: refinance things, pushing out maturity walls understanding either seismic shifts
10:05
Speaker 1: and industries or regulatory concerns. So I think the the
10:09
Speaker 1: investor base and the number of strategies that one is
10:12
Speaker 1: able to utilize as really broadened out. So it's not
10:15
Speaker 1: just you know, the traditional murder arb levered play that
10:19
Speaker 1: was prevalent as you referenced in the eighties and nineties. Today,
10:22
Speaker 1: you know, we employ on our fund a multi strategy approach,
10:25
Speaker 1: and one of the things that really allows us to
10:28
Speaker 1: take advantage of dislocations and shifts in the market is
10:31
Speaker 1: that's when that creates new opportunity for us, and we're
10:33
Speaker 1: able to you know, in a quarter where you know,
10:36
Speaker 1: Q three had the lowest deal activity both from number
10:40
Speaker 1: and value in the last five years, going back to
10:42
Speaker 1: Q four of teens. So in a quarter like that
10:45
Speaker 1: where there's no deal activity, you still have plenty of
10:48
Speaker 1: other pockets to invest along the catalyst spectrum. Excuse me,
10:53
Speaker 1: so you know that's sorry, Go ahead, no, no, you have.
10:55
Speaker 1: I wanted to get into something that you said earlier,
10:57
Speaker 1: which is avoiding blow ups, and um, when you think
11:01
Speaker 1: when I think of avoiding blow ups, I think of
11:03
Speaker 1: soft bank, and I think of the we work situation
11:06
Speaker 1: in the uber declines, etcetera. Um, what do you make
11:11
Speaker 1: of the recent I p O is that I either
11:13
Speaker 1: fizzled in post ip O treating or that failed to
11:16
Speaker 1: get off the ground. Yeah, you know, I think this
11:19
Speaker 1: year has been an interesting year for I p O
11:20
Speaker 1: s because it's been uh somewhat of a hit or
11:23
Speaker 1: miss year. Um. Traditionally i pos performed performed well. Obviously,
11:26
Speaker 1: you want to be able to tap capital markets in
11:28
Speaker 1: the future, so you try and price these appropriately and
11:31
Speaker 1: so that they performed well. This year has been driven
11:34
Speaker 1: by a few large I p O s. U. I
11:36
Speaker 1: p O s broadly are there's less um kind of
11:40
Speaker 1: the traditional traditional ones that are going. But obviously the
11:43
Speaker 1: few large ones have accounted for the bulk of the activity,
11:46
Speaker 1: which is actually something that we're seeing in murder arbit
11:49
Speaker 1: trash as well. This year is going to end up
11:50
Speaker 1: being a you know again quote unquote a good year
11:53
Speaker 1: or healthy year for for murder arb in terms of volumes,
11:56
Speaker 1: but it's really going to be driven by a few
11:59
Speaker 1: key deals. Um, what we're seeing is that there's less
12:02
Speaker 1: uh bread than the activity and in smaller deals. So
12:05
Speaker 1: you know, I think, uh, we watch the I p
12:07
Speaker 1: O is very closely because I think they're they're a
12:09
Speaker 1: good um U forecaster of general capital markets exposure and
12:14
Speaker 1: in financing capabilities. UM we participate in a lot of
12:18
Speaker 1: UH financing deals UH in particularly in the healthcare space.
12:21
Speaker 1: That also is is a good harbinger of UH capital
12:24
Speaker 1: markets appetite and people's willingness to fund and lend. Obviously,
12:29
Speaker 1: when you have a few situations that unfold that that
12:32
Speaker 1: hurt hurt investors, there's a period of kind of licking
12:36
Speaker 1: the wounds and in resetting of not only expectations, but
12:40
Speaker 1: resetting of of risk risk appetite. And in the merger
12:43
Speaker 1: arbitrarge space where you'll see there is is kind of
12:46
Speaker 1: spreads well wide and now people will reassess, people will
12:48
Speaker 1: require a higher rate of return, which is not surprising
12:52
Speaker 1: in a in a investment vehicle or in a in
12:55
Speaker 1: a particular pocket of the market where you know, again,
12:58
Speaker 1: if if the implied probability is ninety five scent of
13:00
Speaker 1: the time time you're going to be right five percent
13:03
Speaker 1: you're gonna be wrong. The math dictates that when you're wrong,
13:05
Speaker 1: it's going to hurt more than when you're right. Yeah,
13:07
Speaker 1: that's why it's so important to avoid the blow us.
13:10
Speaker 1: You have Sharon, Thank you so much for being with us.
13:12
Speaker 1: You have Sharon, his portfolio manager at dry House Capital Management,
13:16
Speaker 1: coming to us from Chicago. Interesting to hear about avoiding
13:20
Speaker 1: the blow ups. Asymmetrical returns. I think they call it,
13:23
Speaker 1: you know, when they blows up. Boy, that's big. Yeah. Well,
13:26
Speaker 1: I think that asymmetrical returns are something that some analysts
13:30
Speaker 1: over at soft Bank are focusing on in this era
13:51
Speaker 1: of ultra low interest rates. Is it still good to
13:54
Speaker 1: invest in real estate? Joining us now, Melissa Reagan had
13:58
Speaker 1: of research for new real estate writing us in our
14:00
Speaker 1: bloom Biger Active Brokers studios. Melissa, we've seen already such
14:03
Speaker 1: a big run up in the prices of real estate
14:06
Speaker 1: around the nation, particularly in coastal cities. How much more
14:10
Speaker 1: upside at this point is there left? I'd say a
14:14
Speaker 1: lot still a lot left. And by that I say
14:17
Speaker 1: that because of the fundamentals that you see in real estate.
14:19
Speaker 1: So if you think about apartments, for example, having one
14:23
Speaker 1: of its strongest years on record from an occupancy perspective,
14:25
Speaker 1: occupancies over that's the Hyacinths two thousand, that's nineteen years,
14:30
Speaker 1: and rents are growing three to four percent, sometimes seven
14:33
Speaker 1: eight percent, depending on the sun Belt market you're in.
14:35
Speaker 1: So the fundamentals are there to support pricing. So is
14:39
Speaker 1: this still a big regional play as it relates to apartments? Again,
14:43
Speaker 1: you mentioned the sun Belt, I've kind of we've always
14:45
Speaker 1: heard that, I guess, So is it still regional play?
14:48
Speaker 1: It is, absolutely. I mean it depends on sort of
14:51
Speaker 1: the property type, but I would say in general, yeah,
14:53
Speaker 1: the sun Belt is really strong. Right, You've got the
14:54
Speaker 1: strong in migration coming from millennials right there, starting to
14:58
Speaker 1: form families and are thinking about where to want Where
15:01
Speaker 1: Where am I want to live? Where do I want
15:02
Speaker 1: to live? Right? And the Sunbelt offers a great quality
15:06
Speaker 1: of life, has a deep job pool, more affordable and
15:11
Speaker 1: this is where millennials want to be driving real estate.
15:13
Speaker 1: So this has been a theme for a while. It's
15:16
Speaker 1: a talk about some of the other investments that nuvine
15:18
Speaker 1: has been making, such as cell towers, billboards and healthcare
15:23
Speaker 1: related of the cell tower business. This is a great business.
15:26
Speaker 1: It is a great business. Please absolutely, so in this
15:31
Speaker 1: we have a healthcare technology theme for real estate investing.
15:35
Speaker 1: Why because it's generated higher risk adjustice returns in the
15:38
Speaker 1: last decade, and we think that's true going forward given
15:41
Speaker 1: the strong tail winds behind technology driven real estate. So
15:44
Speaker 1: that can be data center, cell towers, just extend billboards,
15:47
Speaker 1: depending on how you want to categorize it. Look at
15:52
Speaker 1: when you drive down the highway. I thought we talked
15:53
Speaker 1: about that. That's not what I'm talking about. Gains? Is it?
15:56
Speaker 1: Absolutely margins? Growing lows midmid single digit tons of free
16:00
Speaker 1: cash flow? I took them public back in the day. Absolutely,
16:02
Speaker 1: look at you, all right, there are some electronics that
16:05
Speaker 1: there are some electronic that are much more technology focus,
16:08
Speaker 1: but either way, so so yeah, So how we see
16:12
Speaker 1: the world is that these are the sectors, the technology
16:14
Speaker 1: healthcare driven sectors are the ones that are going to
16:16
Speaker 1: continue to generate higher risk and justic returns relative to
16:19
Speaker 1: just you know, your your traditional real states still going
16:22
Speaker 1: to give you that solid income, but higher risk justice.
16:25
Speaker 1: Here's what I'm thinking about as you talk how do
16:28
Speaker 1: you avoid the blow ups as we were talking about
16:30
Speaker 1: earlier in the show, because when you talk about apartments,
16:33
Speaker 1: sure the Sun Belt might be doing all right, but
16:35
Speaker 1: there's certainly cities that aren't. When you talk about health
16:37
Speaker 1: care properties, you can think about hospital chains that have
16:40
Speaker 1: been overbuilt and overbetded and need to get you know,
16:43
Speaker 1: cut down, and are need to have their debt restructured.
16:46
Speaker 1: So where are the potholes here that you're avoiding absolutely?
16:51
Speaker 1: So that's a great point when you talk about healthcare
16:52
Speaker 1: and you think about something like skill nursing, right, and
16:55
Speaker 1: so that that is where you've seen a lot of
16:57
Speaker 1: operators in that space strong go with their margins, not
17:00
Speaker 1: be able to turn a profit. Dad has been a
17:03
Speaker 1: huge struggle area for healthcare real estate. But when I
17:06
Speaker 1: think about healthcare real estate, we look at it from
17:08
Speaker 1: a life science perspective, which is driven a lot by
17:11
Speaker 1: biotech VC funding, which is not going anywhere drugs, right,
17:15
Speaker 1: the tenants in that space they make drugs that's not
17:17
Speaker 1: going anywhere. And then we also look at it from
17:20
Speaker 1: a medical office perspective, where you're not it's not a
17:23
Speaker 1: direct play on the hospital not buying the hospital, you're
17:26
Speaker 1: buying the medical office that maybe campus adjacent or even
17:29
Speaker 1: off campus, but is strong demand right from baby boomers
17:32
Speaker 1: aging needing new hips, new knees. That's how we think
17:37
Speaker 1: about avoiding the potholes. But yes, there are many of them.
17:40
Speaker 1: Those are the sectors we really like do you avoid
17:42
Speaker 1: markets that may be overheated. It's such as kind of
17:46
Speaker 1: the coastal areas like you know again the northeast, the
17:50
Speaker 1: west coast, are those too highly priced that you can't
17:52
Speaker 1: generate the returns you like? Absolutely? So what we've done
17:56
Speaker 1: is we have built a relative value model for every
18:01
Speaker 1: metro and by property type. And so what that says
18:03
Speaker 1: to us is, all right, you have to put in
18:06
Speaker 1: what is your initial yield going into these markets? And
18:08
Speaker 1: to your point, if it's really low, you're not going
18:10
Speaker 1: to get no matter how good the fundamentals are, You're
18:12
Speaker 1: just not going to get the growth, even if the
18:14
Speaker 1: growth is very strong. And so we've built these models
18:17
Speaker 1: so we can tell you on the fly this market
18:20
Speaker 1: is a better value because you get the growth, but
18:23
Speaker 1: the initial yield is higher, and so we're trying to
18:25
Speaker 1: we're doing that on the fly and dynamically so we
18:28
Speaker 1: know kind of any given day, quarter month, where to
18:31
Speaker 1: place the capital. Is there one city you absolutely would
18:34
Speaker 1: not buy in great question, really hard to answer, right
18:40
Speaker 1: because if you think about how how real estate works, right, location, location, location,
18:45
Speaker 1: and so there are macro plays. Certainly cities we would
18:50
Speaker 1: want to not put as much capital into but real estate,
18:53
Speaker 1: you have to remember, at the end of the day
18:54
Speaker 1: is very much micro location, location location, So that's a
18:58
Speaker 1: heart You can't you couldn't just black line an entire city,
19:01
Speaker 1: but if you could, would would would you invest in
19:04
Speaker 1: the dream mall in the swamps of Jersey? Probably not?
19:08
Speaker 1: So it's a great it's a great it's a great point. Right,
19:10
Speaker 1: And when you think about our thirty five tomorrow cities,
19:12
Speaker 1: which you could go online and look at cities that
19:15
Speaker 1: are not on their St. Louis is not on their
19:17
Speaker 1: Detroit's not on their really tiny cities, Birmingham's on their
19:20
Speaker 1: Why these are places that are losing population? I wouldn't
19:24
Speaker 1: just not great robust demographic fundamentals. Well it's a Reagan.
19:28
Speaker 1: You'll have to come back and elaborate a head of
19:31
Speaker 1: research for Nevin real Estate. Thank you for being with us. Well,
19:48
Speaker 1: we're just starting to get some earnings from the technology companies.
19:51
Speaker 1: We had some disappointing numbers as some of the semiconductor
19:54
Speaker 1: names earlier in the week. We had Amazon last night
19:56
Speaker 1: disappointing numbers that stock was down as much as seven
19:58
Speaker 1: or eight percent. It's only down one point repercent here
20:00
Speaker 1: as the market rallies, they get a sense of kind
20:02
Speaker 1: of what we should be looking forward to as it
20:04
Speaker 1: relates to tech earnings. Welcome David Garretty, chief market strategist
20:07
Speaker 1: for laid long Companies, also a partner at bt block,
20:11
Speaker 1: joining us live here on our Bloomberg Interactive Broker studio. So, David,
20:14
Speaker 1: let's start with Amazon. That last night kind of a
20:16
Speaker 1: the obviously missed on earnings, A guidance on the profitability
20:19
Speaker 1: side again a little bit light, I kind of, I guess,
20:22
Speaker 1: raising concerns for some investors, like here we go again
20:25
Speaker 1: back into investment spend. Um, what do you make out
20:28
Speaker 1: of the Amazon numbers last night? Well, I think in
20:30
Speaker 1: terms of what we're seeing, um, you know, not bad numbers.
20:34
Speaker 1: If we look in terms of some of the high
20:36
Speaker 1: growth areas for the company, I around cloud computing, Amazon
20:39
Speaker 1: Web services, you know, numbers there were up fairly solid
20:42
Speaker 1: thirty five percent a year every year. People who are
20:44
Speaker 1: inclined to pick nits might say, well, that was a
20:46
Speaker 1: deceleration from the year every year growth of thirty seven
20:49
Speaker 1: the quarter before. But thirty five or thirty seven you
20:52
Speaker 1: still got a fairly robust number, especially against the backdrop
20:55
Speaker 1: we're we're looking about of the U. S economy being
20:58
Speaker 1: in recession um relative their forward guidance. I mean, Amazon
21:02
Speaker 1: has always sandbagged the numbers and and certainly things are
21:05
Speaker 1: set up right now going into the fourth quarter where
21:07
Speaker 1: the U. S. Consumer looks to be relatively okay, where
21:10
Speaker 1: an unemployment levels are so you know, I think broader
21:13
Speaker 1: numbers are for four percent industry wide retail increase in
21:17
Speaker 1: in the fourth quarter. But obviously Amazon is getting going
21:19
Speaker 1: to do a multiple of that, just given how how
21:22
Speaker 1: much they've strengthened themselves and given their investments in the
21:25
Speaker 1: quarter to strengthen their prime offering to deliver goods within
21:28
Speaker 1: one day, and also the fact that they staffed up
21:31
Speaker 1: here ahead of the holiday quarter. Let's talk about the clouds,
21:34
Speaker 1: in particular cloud computing with respect to a w S,
21:37
Speaker 1: because that was a big disappointment as well. And it's
21:39
Speaker 1: amazing how significant a proportion of the profits of Amazon
21:44
Speaker 1: come from AWS. Really, so what happened there In terms
21:48
Speaker 1: of AWS, you certainly are seeing greater competition coming in
21:51
Speaker 1: from Microsoft Azure Service. Now one might argue how these
21:56
Speaker 1: companies put their numbers together as they report them in
21:59
Speaker 1: terms of at aws. The revenue number was nine billion.
22:02
Speaker 1: If you look at Microsoft's you know, cloud computing numbers,
22:05
Speaker 1: they're saying they're doing eleven point two billion, which would
22:07
Speaker 1: make them look larger. But even if you disaggregated the
22:11
Speaker 1: Microsoft numbers just focused on Azure alone, Azure's growth rate
22:15
Speaker 1: in the third quarter was six year every year, which
22:18
Speaker 1: arguably is well ahead of thirty. So it looks as
22:22
Speaker 1: if Amazon is developing competition also in terms of looking
22:26
Speaker 1: at cloud computing. While we don't have the numbers now,
22:28
Speaker 1: we will have them from Google after the clothes on
22:30
Speaker 1: Monday as to how they've been doing in terms of
22:33
Speaker 1: their own cloud offering. So clearly not necessarily a WS
22:37
Speaker 1: Amazon Web services game right now. They may still be
22:40
Speaker 1: the market leader, but they have others who are intent
22:43
Speaker 1: on catching up. Earlier this week, we had Facebook CEO
22:47
Speaker 1: Mark Zuckerberg appear before Congress for most of the day,
22:51
Speaker 1: a kind of quite a grilling. Wonder what you thought
22:54
Speaker 1: about A his performance and B. This is signal that
22:58
Speaker 1: big U S tech is really under a new microscope
23:02
Speaker 1: by the US regulators. Well, it may not necessarily be
23:06
Speaker 1: tech widely, but it certainly is Facebook specifically. UM I
23:10
Speaker 1: mean and one might argue that the speech that Zuckerberg
23:14
Speaker 1: had given prior to the Capitol Hill testimony, the speech
23:18
Speaker 1: he gave at Georgetown University, where he was trying to
23:21
Speaker 1: say that Facebook and in terms of what's being advertised
23:24
Speaker 1: on it, should be protected by the First Amendment rights.
23:28
Speaker 1: But the fact of the matter is, if we deal
23:30
Speaker 1: with other media organizations such as this, there are standards
23:34
Speaker 1: that have to be observed in terms of the truthfulness
23:37
Speaker 1: from a factual standpoint of the content that's being represented.
23:41
Speaker 1: And to the extent that Zuckerberg refuses to draw a
23:44
Speaker 1: line on making sure that either a there's factual truth
23:48
Speaker 1: in the political advertising that's being put onto its platform,
23:52
Speaker 1: or be just decides to step away from all political
23:56
Speaker 1: advertising entirely because it's not really a very large part
23:59
Speaker 1: of the business, So why sacrifice their integrity to do it?
24:03
Speaker 1: You know, Mark Zuckerberg refuses to step away from a
24:06
Speaker 1: position that has people saying that Facebook really is disinformation
24:10
Speaker 1: for profit as a business model. Did you know that facts?
24:13
Speaker 1: We were supposed to be doing facts all this time.
24:15
Speaker 1: That's what I understand. You don't say, all right, I
24:17
Speaker 1: want to shift gears a little bit and talk about Twitter,
24:20
Speaker 1: because Twitter share is still down today after yesterday's nearly decline,
24:25
Speaker 1: And I'm just wondering how bad you thought the results
24:29
Speaker 1: were given the fact that they're proving that they can
24:31
Speaker 1: actually increase their user base, which had been a question
24:34
Speaker 1: for a while, right, Well, there's still going to be
24:37
Speaker 1: a greater risk going into the forward twelve months around
24:40
Speaker 1: the election cycle that you know, these users may very
24:43
Speaker 1: well be bots. So I think that there's still some
24:46
Speaker 1: skepticism that could be applied. You're not buying it. You
24:48
Speaker 1: don't think that they actually have increased their user base
24:50
Speaker 1: that much. Um, it's entirely possible that they may not.
24:54
Speaker 1: And the other evidence for basing that on well, I
24:56
Speaker 1: mean just in terms of how they've gone through and
24:58
Speaker 1: had to purge their user ace in the past, and
25:01
Speaker 1: that we're going into a point from a political cycle
25:04
Speaker 1: where you're going to see um efforts ramped up. I
25:07
Speaker 1: mean not to say that it's a Twitter issue, but
25:10
Speaker 1: you know, Facebook themselves came out and said, oh, we've
25:12
Speaker 1: just you know, shut down four campaigns on our platform.
25:15
Speaker 1: Twitter do this in real time. I mean, they don't
25:17
Speaker 1: wait until like one big sweet moment, do they. I
25:20
Speaker 1: mean it remains to be seen. I would say that
25:23
Speaker 1: the problems that you've got with Facebook, I mean, Twitter
25:26
Speaker 1: is basically Facebook writt small. I mean, so I would
25:29
Speaker 1: say that, you know, tech as a whole is not
25:31
Speaker 1: going to be subject necessarily to scrutiny, although arguably one
25:34
Speaker 1: might say that it's going to. But I would say
25:36
Speaker 1: that the tip of the iceberg here really has to
25:38
Speaker 1: do with the social media companies. And granted, Facebook this
25:41
Speaker 1: year has been, you know, a phenomenal stock. I think
25:43
Speaker 1: it's been up th percent. Uh, not a bad return,
25:48
Speaker 1: but still, you know a company that arguably going forward
25:50
Speaker 1: faces greater headwinds than not. The same would apply relative
25:54
Speaker 1: to Twitter. Do you think these social media companies will
25:56
Speaker 1: be more regulated by the US? Well, I think that
26:00
Speaker 1: they need to meet the standards that other more traditional
26:03
Speaker 1: media and news organizations have to meet. So from that standpoint,
26:07
Speaker 1: time to time to get them out of the sandbox
26:09
Speaker 1: and put them into the pool with everybody else. David Garritty,
26:13
Speaker 1: thank you so much as always for being with us
26:16
Speaker 1: and giving us your thoughts. Interesting to hear about the
26:18
Speaker 1: idea of whether the user base really has increased all
26:22
Speaker 1: that much, raising that issue ahead of the U s election.
26:26
Speaker 1: David Garretty, chief market strategist for laid Law and Co.
26:28
Speaker 1: And also a partner at bt Block, joining us here
26:32
Speaker 1: in our interactive broker studios. Thanks for listening to the
26:36
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
26:39
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26:43
Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
26:45
Speaker 1: Abram Woyd's I'm on Twitter at Lisa Abram Woyds one.
26:48
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26:51
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