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Markets, Banks, UPS, and Novo (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller.
• 0:05
  Speaker 2: Every business day we bring you interviews from CEOs, market pros,
• 0:09
  Speaker 2: and Bloomberg experts, along with essential market moven news.
• 0:14
  Speaker 1: Bind the Bloomberg Markets Podcast on Apple Podcasts or wherever
• 0:17
  Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
• 0:20
  Speaker 1: Matt Miller, Paul Sweeney here in a Bloomberg Interactive Broker studio.
• 0:23
  Speaker 3: We are streaming on YouTube. Go check it out there.
• 0:25
  Speaker 1: Search Bloomberg Global News and you'll get the feed there.
• 0:29
  Speaker 3: Nancy Curtin joins us.
• 0:30
  Speaker 1: She is a partner Global CEO and Head of Investment
• 0:32
  Speaker 1: Advisory at Alti Global, based in London, but joining us
• 0:36
  Speaker 1: live here in our Bloomberg Interactive Broker studio. Nancy, thanks
• 0:38
  Speaker 1: so much for joining us here. I'm just gonna put
• 0:41
  Speaker 1: I'm gonna ask you guys for your big picture perspective,
• 0:44
  Speaker 1: because twenty twenty two you couldn't hide anywhere. Equities got crushed,
• 0:47
  Speaker 1: bonds you got crushed This year better, particularly if you're
• 0:51
  Speaker 1: in some big cap tech names. How are you, guys
• 0:54
  Speaker 1: at ALTI Global looking at the market right now?
• 0:57
  Speaker 4: Okay, Well, first of all, thank you very much for
• 1:00
  Speaker 4: having me. Delighted to be here. First of all, we
• 1:03
  Speaker 4: entered twenty twenty three thinking it would be a better
• 1:05
  Speaker 4: year for risk assets. You know, back to back declines
• 1:08
  Speaker 4: in stocks and bonds quite unusual. It's only happened about
• 1:11
  Speaker 4: two percent of the dime in one hundred years. And
• 1:14
  Speaker 4: also sentiment was incredibly verish. But where are we now,
• 1:17
  Speaker 4: because now the market has risen, we've remain invested throughout
• 1:20
  Speaker 4: the year. Actually we've increased risk exposure slightly. So where
• 1:24
  Speaker 4: do we go from here? Look, trees don't grow into
• 1:27
  Speaker 4: the skies, So the first comment is, you know, don't
• 1:30
  Speaker 4: expect markets to be in a linear trend upward from here.
• 1:33
  Speaker 4: And we've seen some wobbles already this morning. That is
• 1:35
  Speaker 4: healthy a consolidation for markets. But what do we think
• 1:40
  Speaker 4: we think, Look, the Fed will be successful in bringing
• 1:44
  Speaker 4: inflation down. We already see some encouraging signs. Headline inflation
• 1:48
  Speaker 4: three percent remembers nine percent a year ago, so that's encouraging.
• 1:52
  Speaker 5: There's some sticky bits.
• 1:54
  Speaker 4: In core inflation, but we do think the Fed will
• 1:56
  Speaker 4: be successful in bringing inflation down. And looking to twenty
• 2:00
  Speaker 4: twenty four, which is what we'll start to do a
• 2:02
  Speaker 4: couple of weeks away September, we start to look forward
• 2:05
  Speaker 4: to next year. We think the outlook for a FED pause,
• 2:09
  Speaker 4: if not pivot, is encouraging for risk assets.
• 2:13
  Speaker 2: But because of a recession, right, I mean, the FED
• 2:16
  Speaker 2: can't raise rates five hundred and fifty bases points without
• 2:18
  Speaker 2: pushing us into a recession.
• 2:20
  Speaker 4: You know, let's talk about the reality of the data
• 2:24
  Speaker 4: coming in has.
• 2:25
  Speaker 5: Been incredibly encouraging.
• 2:27
  Speaker 4: I can't say that there may not be a mild recession,
• 2:30
  Speaker 4: but I'll tell you the soft landing narrative is getting
• 2:32
  Speaker 4: some increased credibility from the economic data. Let's just take
• 2:36
  Speaker 4: a first look at the consumption numbers. Pretty strong. Have
• 2:40
  Speaker 4: you traveled lately? I mean it's boomy, Okay, so you
• 2:43
  Speaker 4: know the consumer still has pent up savings from the pandemic.
• 2:47
  Speaker 4: They are using this to travel and experience obviously goods
• 2:52
  Speaker 4: less so. But actually, we think the interesting thing this
• 2:55
  Speaker 4: year is the US economy has been much less interest
• 2:59
  Speaker 4: rates since.
• 3:00
  Speaker 5: What do I mean by that?
• 3:01
  Speaker 4: Seventy five percent of mortgages over thirty years are below
• 3:06
  Speaker 4: four percent. In other words, they locked in lower rates
• 3:09
  Speaker 4: a couple of years ago, companies the same things locked
• 3:12
  Speaker 4: in lower interest rates, net interest cost us a percentage
• 3:16
  Speaker 4: of profitability has been declining, not rising, declining. Then we
• 3:21
  Speaker 4: have some fiscal spending one and a half trillion. These
• 3:24
  Speaker 4: are multi year programs, but that's additive. And finally, one
• 3:28
  Speaker 4: of our long term themes is we think that companies
• 3:31
  Speaker 4: will be investing, capex is likely to increase, and that
• 3:35
  Speaker 4: will be a support for economic growth looking forward. So
• 3:39
  Speaker 4: yet we could have a mild recession. But I have
• 3:42
  Speaker 4: to say the soft landing is getting a lot of
• 3:45
  Speaker 4: validation from the economic numbers.
• 3:47
  Speaker 2: I have to push back on that. Paul Go, you
• 3:49
  Speaker 2: don't want to though, right because you're hoping for a
• 3:50
  Speaker 2: soft landing.
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  Speaker 3: I'm all in.
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  Speaker 2: I just feel like, you know, the curve, the three
• 3:55
  Speaker 2: month ten year inversion is typically not this wrong. We've
• 3:59
  Speaker 2: got M two money supply contraction and Gary shillings that
• 4:04
  Speaker 2: we got the I just so I was hanging out
• 4:05
  Speaker 2: with Gary Shilling on Sunday. But the thing is, I think,
• 4:10
  Speaker 2: you know, the wealthy people might still have savings, but
• 4:14
  Speaker 2: I feel like the bottom eighty percent maybe don't have
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  Speaker 2: any left, and we could be getting to the edge
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  Speaker 2: of a cliff.
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  Speaker 3: Here for them.
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  Speaker 4: Well, let's go into the capex spend because we haven't
• 4:26
  Speaker 4: had capital expenditures in over a decade. Like companies, why
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  Speaker 4: you know, why do you need to invest when labor
• 4:32
  Speaker 4: costs are like really low and money's free and commodity
• 4:36
  Speaker 4: prices are a week But we think the companies will
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  Speaker 4: be investing. This is one of the surprises we think
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  Speaker 4: for economic growth ahead.
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  Speaker 5: Already.
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  Speaker 4: Capex in the second quarter GDP number was up ten percent.
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  Speaker 4: In the recent second quarter earnings, companies in the S
• 4:51
  Speaker 4: and P reported a fifteen percent increasing capex. Why do
• 4:55
  Speaker 4: I go on about capex because it expands the productive
• 4:58
  Speaker 4: potential of the economy to surprise on the upside. And
• 5:02
  Speaker 4: by the way, did you see the labor productivity numbers
• 5:05
  Speaker 4: three point seven percent? Let me see three point seven percent.
• 5:09
  Speaker 4: That's up from one point two in the first quarter.
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  Speaker 4: And remember labor productivity is a subtraction from inflation to
• 5:17
  Speaker 4: get your unit labor costs. Okay, so let's go back
• 5:19
  Speaker 4: to your inverted deal curve and decline and money supply. Sure,
• 5:23
  Speaker 4: these are normally harbingers of recessionary activity, but I would
• 5:27
  Speaker 4: also point to the fact that eal curves have begun
• 5:29
  Speaker 4: to steepen in the last week or so. We think
• 5:32
  Speaker 4: this will be a trend that will continue to see.
• 5:35
  Speaker 4: And as I said, we think there are some solid
• 5:37
  Speaker 4: things that will support economic growth that.
• 5:39
  Speaker 5: Weren't there in the past.
• 5:41
  Speaker 4: Keep a close eye on capex, on shoine of manufacturing activity,
• 5:45
  Speaker 4: spending on jen Ai, spending on energy efficiency, and taking
• 5:49
  Speaker 4: advantage of the fiscal stimulus.
• 5:51
  Speaker 1: All right, so I've been overweight all the Miracle seven stocks,
• 5:55
  Speaker 1: so I've just been killing it. Can I, now, you know,
• 5:59
  Speaker 1: change the asset out and maybe go smaller, MidCap, try
• 6:02
  Speaker 1: to take advantage of increased capital spending, increased economic growth.
• 6:05
  Speaker 1: Can I take my profits in those big names.
• 6:08
  Speaker 4: Well, I wouldn't take your profits, right because we really
• 6:12
  Speaker 4: you know, the infrastructure layer of Jenai is in the
• 6:15
  Speaker 4: early innings here. I would try to look more broadly
• 6:19
  Speaker 4: beyond the Magnificent seven, those other companies that will contribute
• 6:22
  Speaker 4: to development of the infrastructure layer. We can't have Jenai
• 6:26
  Speaker 4: and large language models without an infrastructure layer. So we
• 6:29
  Speaker 4: do need a lot of building there. But you're right,
• 6:33
  Speaker 4: you know they're expensive. They've discounted a lot of good news,
• 6:36
  Speaker 4: and so what we've done is we've leaned into the underperformers,
• 6:40
  Speaker 4: particularly MidCap, less small cap, MidCap, more quality oriented, less leverage,
• 6:46
  Speaker 4: more exposed to what I call this onshine of manufacturing
• 6:49
  Speaker 4: theme cap x expend et cetera. So we've leaned into
• 6:53
  Speaker 4: value and MidCap because they're forty percent cheaper than you are,
• 6:57
  Speaker 4: Magnificent seven, and they trade at multi decade discounts versus
• 7:01
  Speaker 4: history and large caps as well. So that's one of
• 7:03
  Speaker 4: the things that we've done more recently.
• 7:06
  Speaker 2: Maybe just buy the equal weight to S and P
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  Speaker 2: five hundred.
• 7:08
  Speaker 3: That's so fun.
• 7:09
  Speaker 2: I mean, if you think the rest, if you think
• 7:12
  Speaker 2: the rest of the stocks are going to catch up
• 7:14
  Speaker 2: to your mech spw ring, Yeah, equal weighted.
• 7:16
  Speaker 1: Okay, all right, So what are some you know, we
• 7:19
  Speaker 1: had the news today Moody's kind of dumping on the
• 7:22
  Speaker 1: banks again.
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  Speaker 3: It seems like kind of old news.
• 7:24
  Speaker 1: How concerned are you at all with the US banking
• 7:28
  Speaker 1: system or maybe the global banking I'm sorry, where.
• 7:30
  Speaker 5: Was Moody's back in March? I'm sorry?
• 7:32
  Speaker 4: I mean, like months later we wake up and say,
• 7:36
  Speaker 4: the small and regional banks have a bit of a well,
• 7:39
  Speaker 4: there's you know, they're funding costs of risen and they've
• 7:41
  Speaker 4: got exposure to commercial real estate a trillion and a
• 7:44
  Speaker 4: half of that.
• 7:44
  Speaker 5: That remains a risk, right, but.
• 7:46
  Speaker 4: We've known that risk since March. That hasn't prevented markets
• 7:50
  Speaker 4: from moving higher. We think this is a multi year development.
• 7:53
  Speaker 4: In other words, we're we're not going to crash overnight
• 7:56
  Speaker 4: from commercial real estate. But I do wonder where these
• 7:58
  Speaker 4: rating agencies were back in March while we're doing the
• 8:02
  Speaker 4: downgrades now.
• 8:03
  Speaker 1: All right, So that's a way of saying that you're
• 8:05
  Speaker 1: not overly concerned about the US banking system or the
• 8:08
  Speaker 1: regional bank It is.
• 8:09
  Speaker 5: It is.
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  Speaker 4: Look, you know, banking is hugely important to economic growth,
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  Speaker 4: and so you know regional banks are you know where
• 8:16
  Speaker 4: you go small and medium sized businesses. And we do
• 8:19
  Speaker 4: think lending will be more constrained. We've seen that in
• 8:21
  Speaker 4: the SLEWS number seen your Loan Officer survey have come
• 8:24
  Speaker 4: down a bit. But we don't think it's enough to
• 8:26
  Speaker 4: slow the economy certainly into a deep recession, right, you know,
• 8:30
  Speaker 4: mild recession, slow down, soft landing. It's all a bit nuanced.
• 8:34
  Speaker 4: But don't forget cap expending, which we think will.
• 8:37
  Speaker 1: Be sad is a takeaway from today, No question about it.
• 8:40
  Speaker 1: You're based in London. How are things in London? Because
• 8:42
  Speaker 1: I'm not going because it's too crowded.
• 8:45
  Speaker 4: Okay, tourism is on fire. You go down Region Street,
• 8:48
  Speaker 4: you can't even move. But look London, as I call
• 8:51
  Speaker 4: a special child category. It's got lots of issues from
• 8:55
  Speaker 4: Brexit to higher level of inflation, to slower growth to
• 9:00
  Speaker 4: have you seen interest rates? Ah, God, don't get me started.
• 9:03
  Speaker 4: It also has you know, a stock market that's very
• 9:07
  Speaker 4: commodity and oil sensitive and bank sensitive.
• 9:10
  Speaker 5: So it's a bit of a special child.
• 9:13
  Speaker 6: Now.
• 9:13
  Speaker 4: In terms of international exposure, we like Europe much more.
• 9:16
  Speaker 4: We're getting exposure to industrial shares, cappac spend, luxury still
• 9:20
  Speaker 4: continues to be quite strong. Our positive vertings growth in
• 9:24
  Speaker 4: Europe despite the fact that economic growth has been pretty muted.
• 9:27
  Speaker 5: So that's been where we've had exposure.
• 9:30
  Speaker 3: All right, Nancy, thanks so much for coming in.
• 9:31
  Speaker 1: Really appreciate you coming in live into our Bloomorg Interactive
• 9:34
  Speaker 1: Broker studio.
• 9:35
  Speaker 3: What's our takeaway today?
• 9:36
  Speaker 2: We have to get Nancy back, is my takeaway. My
• 9:39
  Speaker 2: takeaways We have to get her back. But Capex it's
• 9:41
  Speaker 2: on that keepech for sure.
• 9:42
  Speaker 1: Nancy's a Partner Global CIO head of Investment Advisor read
• 9:45
  Speaker 1: Alte Global based in London, but again joining us.
• 9:47
  Speaker 3: Here in our Bloomberg studios and Eyork. We appreciate that.
• 9:50
  Speaker 7: You're listening to the team.
• 9:52
  Speaker 8: Ken's our live program Bloomberg Markets weekdays at ten am
• 9:55
  Speaker 8: Eastern on Bloomberg dot Com, the iHeartRadio app, and the
• 9:59
  Speaker 8: Bloomberg Business or listen on demand wherever you get your podcasts.
• 10:05
  Speaker 1: Matt Miller, Paul Sweeney here in the Bloomberg Interactor Broker Studio. Yes,
• 10:08
  Speaker 1: we are streaming live on YouTube and go over and
• 10:10
  Speaker 1: check it out. Just search Bloomberg Global News. Let's talk transportationation,
• 10:15
  Speaker 1: Let's talk trucks, all that fun stuff. Lee Claskow joins us.
• 10:18
  Speaker 1: He sector head Senior annalys Freight, Transportation and Logistics. That's
• 10:21
  Speaker 1: a big title. It's a lot bigger than when I
• 10:23
  Speaker 1: knew him. But he's a Bloomberg intelligence. He does it all,
• 10:26
  Speaker 1: from the ships to the trucks, to the to the
• 10:28
  Speaker 1: railroads and all that stuff in between.
• 10:30
  Speaker 3: Ups Lee.
• 10:32
  Speaker 1: United Parcel Service Big Brown had some disappointing numbers. My
• 10:36
  Speaker 1: question is are there disappointing numbers and their guidance Is
• 10:40
  Speaker 1: it a result of their new Teamsters contract or is
• 10:42
  Speaker 1: it reflecting economy slowing down? Maybe people aren't getting as
• 10:46
  Speaker 1: many boxes as they used to. What's driving it?
• 10:48
  Speaker 9: Right?
• 10:49
  Speaker 10: Well, first off, if you can call me can whenever
• 10:50
  Speaker 10: you want.
• 10:51
  Speaker 3: But you know, they had actually.
• 10:53
  Speaker 2: A barn of fire, Lee Clasgow barn of fire.
• 10:56
  Speaker 10: They had actually a pretty decent print on the second quarter,
• 10:59
  Speaker 10: but they did guide down and you know, we expect
• 11:03
  Speaker 10: the increase in costs from that new labor agreement is
• 11:07
  Speaker 10: going to be maybe a dollar in EPs headwind. That's
• 11:10
  Speaker 10: kind of really how we're thinking about it. Obviously, that's
• 11:14
  Speaker 10: assuming they're not going to be able to mitigate that
• 11:17
  Speaker 10: through productivity gains pricing, and that is what they're going
• 11:22
  Speaker 10: to do. You know, management said that probably in the
• 11:25
  Speaker 10: spring they're gonna they're gonna.
• 11:26
  Speaker 11: Probably lay out how they're going to get back.
• 11:29
  Speaker 10: To twelve percent margins on their domestic business. And that's
• 11:32
  Speaker 10: something that you know, we're relatively bullish about because UPS
• 11:36
  Speaker 10: has shown their ability to really embrace not only technology,
• 11:40
  Speaker 10: but also to go into verticals or businesses that are
• 11:43
  Speaker 10: a lot more profitable, like healthcare or the small to
• 11:46
  Speaker 10: mid sized shipper.
• 11:49
  Speaker 2: You know, I heard you on surveillance this morning talking
• 11:52
  Speaker 2: about this ups story as well as the Yellow Yellow story.
• 11:57
  Speaker 2: And I not note that they got emergency hunting last night.
• 12:00
  Speaker 2: Did that's seventeen percent to nice?
• 12:03
  Speaker 3: Is that not usury? Is that not a usury level?
• 12:06
  Speaker 6: Yeah?
• 12:06
  Speaker 10: I mean what I know, I don't cover Yellow, but
• 12:09
  Speaker 10: what I know about the deal is that it's just
• 12:11
  Speaker 10: it's debt, so just to finance them while they're trying
• 12:14
  Speaker 10: to sell everything. The government is supposed to be made
• 12:17
  Speaker 10: whole before they're able to get paid on that seventeen percent.
• 12:20
  Speaker 11: So I mean, what do they have refinance?
• 12:23
  Speaker 2: Just just selling their trucks and warehouses, right because they're
• 12:26
  Speaker 2: not any customer that was going to use Yellow. As
• 12:28
  Speaker 2: soon as they heard there was going to be a strike,
• 12:31
  Speaker 2: was like, let's find another trucker right now.
• 12:33
  Speaker 11: So yeah, this is not a restructuring. This is liquidation.
• 12:36
  Speaker 10: And their trucks are old, their trailers are old. If
• 12:39
  Speaker 10: you see them on the road relative to its peers,
• 12:41
  Speaker 10: you'd be like, that's not a great looking truck. They're
• 12:44
  Speaker 10: very old. They've had issues with that for.
• 12:46
  Speaker 7: A long time.
• 12:47
  Speaker 10: They don't own a lot of the facilities that they operated,
• 12:50
  Speaker 10: and they lease a lot of them, but there are
• 12:53
  Speaker 10: going to be some facilities that they could they could
• 12:55
  Speaker 10: sell and to raise that money to pay back and
• 12:57
  Speaker 10: only the government, but also that new round of financing.
• 13:01
  Speaker 2: All right, So we'll wrap that up and put it
• 13:03
  Speaker 2: to the side. In terms of ups, Can they not
• 13:07
  Speaker 2: raise prices significantly.
• 13:09
  Speaker 11: Well, they can.
• 13:10
  Speaker 10: Well, let's take a step back. They can raise prices
• 13:15
  Speaker 10: which will mitigate the inflationary pressures that they're facing. The
• 13:18
  Speaker 10: first year of the new labor contract, there's a big
• 13:21
  Speaker 10: step up in costs for them, so it kind of
• 13:23
  Speaker 10: barbells in the first year. In the five year in
• 13:25
  Speaker 10: terms of the step up, it's around a three point
• 13:27
  Speaker 10: three k gar in terms of inflationary pressure, and that
• 13:30
  Speaker 10: includes not only the wages that they're getting paid, but
• 13:33
  Speaker 10: also the benefits. So if you look at it through
• 13:36
  Speaker 10: the whole five years, it's really not that bad. But
• 13:38
  Speaker 10: the first step up is going to be a big headwind.
• 13:41
  Speaker 10: So you know, we think that they can go back
• 13:43
  Speaker 10: to earnings growth in twenty twenty four.
• 13:45
  Speaker 3: Matt's wondering what Caker is, but we'll get back to
• 13:47
  Speaker 3: that later.
• 13:47
  Speaker 2: I mean, I mean, this is just one of those
• 13:50
  Speaker 2: phrases that you throw around and I think it's another
• 13:53
  Speaker 2: thing that I always forget, But I'll.
• 13:56
  Speaker 10: Let compound an annual growth rate.
• 13:58
  Speaker 2: Okay, bo, there you go. You to bring it back
• 14:00
  Speaker 2: up in this next question. I think a lot of
• 14:02
  Speaker 2: listeners are like, hey, thanks Matt, Thanks Matt.
• 14:04
  Speaker 7: I didn't know what.
• 14:05
  Speaker 3: Kegar was either, exactly Matt's favorite.
• 14:08
  Speaker 1: One of Matt's favorite functions on the Bloomberg Kriminal is
• 14:10
  Speaker 1: comp get comparative returns.
• 14:13
  Speaker 3: So I put that up.
• 14:13
  Speaker 1: For UPS and FedEx. UPS over the last five years
• 14:17
  Speaker 1: is compounding and annual growth in the stock price eleven
• 14:20
  Speaker 1: point seventy five percent, a little bit better than they
• 14:22
  Speaker 1: s and p FedEx only three point four percent. Why
• 14:25
  Speaker 1: has UPS been rewarded more in the stock market versus FedEx?
• 14:29
  Speaker 3: Is it a different model?
• 14:31
  Speaker 10: Yeah, it really depends on the timeframe you're looking at,
• 14:33
  Speaker 10: Like this year, FedEx has been on fire relative to UPS.
• 14:37
  Speaker 2: But I like the comp function because it just defaults
• 14:39
  Speaker 2: to five years, and I think that's a great time
• 14:42
  Speaker 2: period to look at.
• 14:43
  Speaker 10: And over that five year period, you know, UPS started
• 14:47
  Speaker 10: right sizing their network, selling businesses that maybe didn't make
• 14:50
  Speaker 10: a lot of money, like they're less than truckload business.
• 14:52
  Speaker 10: The same business that Yellow was in LTL LTL less
• 14:55
  Speaker 10: than truckload and they were a unionized carrier, and they
• 14:58
  Speaker 10: were they were getting on a good year one hundreds
• 15:02
  Speaker 10: to two hundred basis points in margins. It was just
• 15:04
  Speaker 10: not a great business. So they sold that. They're investing
• 15:07
  Speaker 10: heavenly in technology. They are automating their facilities, you know,
• 15:12
  Speaker 10: they're they're reducing the numbers of o's or mistakes like
• 15:15
  Speaker 10: if the wrong shipment goes on the wrong.
• 15:17
  Speaker 11: Truck by half. They're just they're.
• 15:20
  Speaker 10: Doing really just a great job in their investment cycle.
• 15:24
  Speaker 10: And not only that, like I said earlier, they're focusing
• 15:26
  Speaker 10: on more profitable businesses. They're focusing on the healthcare businesses
• 15:30
  Speaker 10: and the small to mid sized businesses.
• 15:32
  Speaker 6: They had a.
• 15:33
  Speaker 10: Somewhat of an outsider. She was a board member, Carol Toomey.
• 15:35
  Speaker 10: She came into CEO a couple of years ago. I
• 15:37
  Speaker 10: think it's like two years nep by now, and she's
• 15:40
  Speaker 10: really done an excellent job. People were very you know,
• 15:44
  Speaker 10: kind of not sure if she was the right person,
• 15:47
  Speaker 10: but she's proved all of her critics wrong and UPS
• 15:51
  Speaker 10: has really been operating on all cylinders.
• 15:54
  Speaker 2: But now if their costs are going to go up
• 15:56
  Speaker 2: and they have to raise prices. Does this give FedEx
• 15:59
  Speaker 2: a chance to take a way more share and do
• 16:01
  Speaker 2: better well?
• 16:02
  Speaker 10: UPS on their call this morning they called out that
• 16:04
  Speaker 10: about one point two million packages per day were diverted
• 16:09
  Speaker 10: because of the potential for the strike, and they said
• 16:13
  Speaker 10: about a third of that went to FedEx, about a
• 16:15
  Speaker 10: third of that went to the US Postal Service, and
• 16:17
  Speaker 10: another third once is regional carriers that you and I
• 16:19
  Speaker 10: probably don't know the names of smaller players, and you
• 16:23
  Speaker 10: know they will probably win back some of that freight FedEx.
• 16:27
  Speaker 11: Some of it might be.
• 16:28
  Speaker 10: Sticky, but at the end of the day, you know,
• 16:30
  Speaker 10: a shipper will use a particular FedEx or UPS not
• 16:33
  Speaker 10: just on price, but a lot of it has to
• 16:35
  Speaker 10: do its service. And if they were with UPS before
• 16:37
  Speaker 10: because of service, are probably going to go back to
• 16:40
  Speaker 10: UPS real quick.
• 16:42
  Speaker 3: Were we in a supply chain? Are we kind of fixed?
• 16:44
  Speaker 3: Do you think just a global supply chain?
• 16:46
  Speaker 7: Right?
• 16:46
  Speaker 3: What are something?
• 16:46
  Speaker 11: Is always it fixed?
• 16:47
  Speaker 8: Yeah?
• 16:47
  Speaker 10: No, because every week it's something new, right, Okay, Like
• 16:50
  Speaker 10: it's whether the Canadian West Coast ports just got you know,
• 16:54
  Speaker 10: that just ended, So there's always something different, you know,
• 16:57
  Speaker 10: the Panama Canal, there's not enough water for.
• 16:59
  Speaker 3: Ships, Is that right?
• 17:00
  Speaker 12: Uh?
• 17:00
  Speaker 10: Yeah, they have They have to operate with less freight
• 17:03
  Speaker 10: on them, and it makes it a lot more expensive
• 17:05
  Speaker 10: than to send the freight through the Panama Canal.
• 17:07
  Speaker 1: There's a great book I read about the building of
• 17:09
  Speaker 1: the Panama can I forget who wrote it, but it
• 17:11
  Speaker 1: is an awesome book.
• 17:12
  Speaker 3: It's a great story. Makes me I want to go
• 17:13
  Speaker 3: to the Panama.
• 17:13
  Speaker 11: Can app When did you read that? I'm going to
• 17:15
  Speaker 11: guess you read that twenty years ago.
• 17:16
  Speaker 3: No, couple three years ago, maybe before you.
• 17:18
  Speaker 7: There's a drought there the lake that fills it up.
• 17:20
  Speaker 7: Is that's the problem? All right?
• 17:22
  Speaker 1: Ten seconds, Leek clasical transportation analyst Bloomberg Intelligence joins us.
• 17:26
  Speaker 8: You're listening to the tape cans Are live program Bloomberg
• 17:29
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 17:33
  Speaker 8: tune in app, Bloomberg dot Com, and.
• 17:35
  Speaker 7: The Bloomberg Business App.
• 17:36
  Speaker 8: You can also listen live on Amazon Alexa from our
• 17:39
  Speaker 8: flagship New York station just say Alexa playing Bloomberg eleven thirty.
• 17:45
  Speaker 3: All right, what kind of the news today?
• 17:46
  Speaker 1: One of the news drivers this morning has been Moodies
• 17:48
  Speaker 1: downgrading the credit ratings of a bunch of the regional
• 17:52
  Speaker 1: super regional banks. It seems like where were you when
• 17:55
  Speaker 1: we needed your butt? Here we are Chris Whalen joins us,
• 17:57
  Speaker 1: Chairman of Whale and Global Advisors. We always look to
• 18:00
  Speaker 1: talk to Chris, particularly about the banks. I mean, Chris,
• 18:03
  Speaker 1: help us out. You're an expert in this rating stuff
• 18:06
  Speaker 1: in the banks. Chris, what do you think about Moodies
• 18:08
  Speaker 1: and their call here?
• 18:11
  Speaker 13: The Moody's action today was very specific. They were looking
• 18:15
  Speaker 13: at certain banks and they took the decision to downgrade them.
• 18:18
  Speaker 13: What I think, and that's going to come more. We're
• 18:21
  Speaker 13: going to see a lot more of this because they're
• 18:23
  Speaker 13: adjusting their entire ratings complex for banks to the changes
• 18:27
  Speaker 13: we see in the market and to the higher interest rates.
• 18:30
  Speaker 13: So the basil obviously is going to reduce profitability. So
• 18:34
  Speaker 13: there's a lot of negatives that they're adjusting to. But
• 18:37
  Speaker 13: the thing we have to be aware of is that
• 18:39
  Speaker 13: when you see a sovereign downgrade for the United States,
• 18:43
  Speaker 13: and we can no longer ignore a S and P
• 18:45
  Speaker 13: as we have for the past decade. Right, we have
• 18:47
  Speaker 13: two of them now, so everybody's going to have to
• 18:49
  Speaker 13: use double level plus instead of triple A. And what
• 18:53
  Speaker 13: that means is that the big banks, the ones that
• 18:55
  Speaker 13: get uplift because there's an assumption of sovereign support, are
• 19:00
  Speaker 13: going to go down a notch. And and I think
• 19:03
  Speaker 13: you can assume all the agencies will have to adjust.
• 19:06
  Speaker 13: In Japan they give you two notches for the big banks.
• 19:09
  Speaker 13: In Europe they give you two notches because there's an
• 19:12
  Speaker 13: assumption that they're going to bail them out. In the
• 19:14
  Speaker 13: US not so much. You know, if any man for why.
• 19:19
  Speaker 2: Not after what we just saw, you know, we got
• 19:22
  Speaker 2: we got dec.
• 19:24
  Speaker 13: You know, we're tempting fate. When we have politicians who
• 19:28
  Speaker 13: think they can borrow money forever and who go around
• 19:31
  Speaker 13: worried about global warming and ESG instead of doing their jobs,
• 19:36
  Speaker 13: then this is what happens. People in the Buiden administration
• 19:40
  Speaker 13: were terribly surprised. And it just shows you how how
• 19:43
  Speaker 13: there's a lack of seriousness in Washington on fiscal issues.
• 19:47
  Speaker 13: It's stunning on both sides. By the way, By the.
• 19:50
  Speaker 2: Way, Chris I was, I sat down with Gary Shielding
• 19:53
  Speaker 2: to talk about a lot of this stuff on Sunday afternoon, right,
• 19:56
  Speaker 2: And the one the one question or the one problem
• 20:02
  Speaker 2: that we don't really see clearly is the possibility of
• 20:04
  Speaker 2: a debt bomb. You know, if we're continually running trillion
• 20:07
  Speaker 2: dollar deficits, yeah, zero percent or at two or three percent,
• 20:12
  Speaker 2: it's no big deal. But once you climb to five
• 20:15
  Speaker 2: and a half to six, it starts to get worrisome.
• 20:18
  Speaker 2: So what point is it too difficult for the United
• 20:21
  Speaker 2: States to service it's growing debt.
• 20:24
  Speaker 13: Well, it's not just the United States. There's a whole
• 20:27
  Speaker 13: raft of sovereign issuers underneath the US, including all the
• 20:31
  Speaker 13: agencies you have, all the states and the cities which
• 20:35
  Speaker 13: ultimately depend on support from the federal government implicitly. Right,
• 20:39
  Speaker 13: So there's a lot going on. And if we do
• 20:41
  Speaker 13: a funding, say at the beginning of next year, where
• 20:45
  Speaker 13: we're also doing an emergency bailout for a couple of
• 20:48
  Speaker 13: cities that have been downgraded and can't issue bonds anymore
• 20:52
  Speaker 13: at the old spreads, right, So the pricing is going
• 20:55
  Speaker 13: to continue to change. Obviously throughout the whole complex. Pricing
• 20:59
  Speaker 13: is going up credit and then some of them are
• 21:01
  Speaker 13: going to be downgraded. I think New York City is
• 21:04
  Speaker 13: going to be downgraded. So we'll be back in the seventies,
• 21:07
  Speaker 13: you know, and I don't think the US is ready
• 21:10
  Speaker 13: for that because we have so much debt at the
• 21:13
  Speaker 13: federal level.
• 21:14
  Speaker 3: But it makes sense, you know what I thought. I
• 21:16
  Speaker 3: saw Amanda Gordon, who.
• 21:17
  Speaker 2: Covers like Hoidy Toydy parties, right, big charity events out
• 21:22
  Speaker 2: at the Hamptons and stuff. She had a piece out
• 21:26
  Speaker 2: covering John Paulson who talked about the rising crime that
• 21:30
  Speaker 2: he's witnessing here in New York and talking about how
• 21:32
  Speaker 2: all his friends are moving down to Florida. Then I
• 21:35
  Speaker 2: saw another piece that New York is going to open
• 21:39
  Speaker 2: a migrant relief center on Randall's Island for another I
• 21:42
  Speaker 2: think two thousand immigrants, but we're already supporting fifty seven
• 21:47
  Speaker 2: two hundred. If you have the big tax payers moving
• 21:52
  Speaker 2: to West Palm Beach and we're bringing in, you know,
• 21:55
  Speaker 2: tens of thousands of immigrants, is it going to be
• 21:57
  Speaker 2: a problem for our tax base and for rising cost.
• 22:01
  Speaker 13: Well, obviously, you know New York is predicated on having
• 22:05
  Speaker 13: a very strong commercial foundation. They're the ones who pay
• 22:09
  Speaker 13: for everything, all the infrastructure you see in New York City,
• 22:13
  Speaker 13: the metro everything. You can't do it as a residential community, man,
• 22:18
  Speaker 13: You just can't. There's not enough revenue. And if you
• 22:21
  Speaker 13: were to tax the owners of apartments or you could
• 22:25
  Speaker 13: call them tenants, really they are in the same boat.
• 22:29
  Speaker 13: You can't possibly tax them enough to pay for everything.
• 22:32
  Speaker 13: So I think you'll see reduction in services. The progressive
• 22:36
  Speaker 13: mandate that says everybody is owed housing and support as
• 22:39
  Speaker 13: soon as they show up, and you know a smile, right,
• 22:42
  Speaker 13: is going to change because I think all of these
• 22:45
  Speaker 13: legacy cities in the northern tier are going to have
• 22:47
  Speaker 13: to downsize rather dramatically. It's going to look like Detroit
• 22:51
  Speaker 13: because remember, you know these cities were here for industrial
• 22:54
  Speaker 13: purposes two centuries ago. Why are they here today? What's
• 22:57
  Speaker 13: their economic Aggressionale right, Texas knows why it's here today.
• 23:01
  Speaker 13: They're here to make money. But I'm not sure you
• 23:04
  Speaker 13: want to live down there. You know what's so funny
• 23:06
  Speaker 13: is a lot of my business friends have moved south
• 23:08
  Speaker 13: to Florida and Texas, but they don't spend the summer there.
• 23:11
  Speaker 2: No, all my friends who moved to Florida keep track
• 23:15
  Speaker 2: of the days that they're here in New York, like
• 23:17
  Speaker 2: I can't stay for another three days or else I'm
• 23:19
  Speaker 2: going to get text.
• 23:20
  Speaker 13: But listen, there are literally hundreds of thousands, if not
• 23:23
  Speaker 13: millions of people who work in mortgage finance and real
• 23:27
  Speaker 13: estate and everything else who have moved out of California
• 23:30
  Speaker 13: New York and have gone to Texas and Florida because
• 23:32
  Speaker 13: of cost. They literally cannot have a person servicing and
• 23:36
  Speaker 13: performing loan in California today. Too expensive. You might be
• 23:41
  Speaker 13: able to do distress assets, but you certainly can't do
• 23:44
  Speaker 13: bread and butter, you know, servicing, because it's just so
• 23:47
  Speaker 13: expensive to create that seat for that employee. Can't do it.
• 23:51
  Speaker 13: All right, Well, these states have to come up with
• 23:53
  Speaker 13: a reason to exist. I don't care whether it's California,
• 23:56
  Speaker 13: New York, Illinois. They all have to go back to
• 23:59
  Speaker 13: the drawing board, say why are we here? How do
• 24:01
  Speaker 13: we make money? You know? And that's gonna be a
• 24:04
  Speaker 13: tough conversation in New York. I think it's.
• 24:06
  Speaker 3: Probably gotta start in Washington, many would say. Chris Whalen.
• 24:10
  Speaker 1: Chris Whalen is a chairman Whale and Global Advisors. Give
• 24:13
  Speaker 1: us us some color here on kind of what we
• 24:15
  Speaker 1: heard from Moody chair at the bank downgrade and Chris
• 24:17
  Speaker 1: suggesting that it's not just the US government, but it
• 24:19
  Speaker 1: will trickle down to you know, everything underneath the US government,
• 24:23
  Speaker 1: including states and cities, and that's where we might you know,
• 24:26
  Speaker 1: really see something.
• 24:28
  Speaker 8: You're listening to the team can's are live program Bloomberg
• 24:31
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg dot com,
• 24:35
  Speaker 8: the iHeartRadio app and the Bloomberg Business app, or listen
• 24:38
  Speaker 8: on demand wherever you get your podcasts.
• 24:42
  Speaker 1: Nancy Tangler, c IO at Laffer Tangler Investments, joins us. Nancy,
• 24:47
  Speaker 1: thanks much for joining us. Tg l R is a
• 24:51
  Speaker 1: new ETF. Tell us about it.
• 24:55
  Speaker 12: Oh gosh, thanks so much. Pre advertising, Yeah, we much
• 25:00
  Speaker 12: TTLR today. It's an actively managed dividend growth strategy. So
• 25:06
  Speaker 12: we focus and always have by the way, since nineteen
• 25:09
  Speaker 12: eighty four when I got into the business. We focus
• 25:12
  Speaker 12: on relative yield because management at large cap companies set
• 25:16
  Speaker 12: the dividend policy based on what they think long term
• 25:19
  Speaker 12: sustainable earnings powers is. So it's a great shortcut. We
• 25:23
  Speaker 12: don't have to worry as much about earning estimates as
• 25:27
  Speaker 12: we do. Are they able to pay the dividend? Are
• 25:29
  Speaker 12: they able to grow the dividend? And then being an
• 25:31
  Speaker 12: industry leader, which are the names that we own with
• 25:33
  Speaker 12: great management teams that rounds out the portfolio, so it
• 25:36
  Speaker 12: acts differently than maybe a more traditional equity income strategy.
• 25:40
  Speaker 12: We don't have utilities in this portfolio. We have one
• 25:42
  Speaker 12: rate because we're looking for growth at the end of
• 25:44
  Speaker 12: the day, just like every other investor.
• 25:46
  Speaker 2: So Nancy Matt Miller here, Hi, thanks for joining us.
• 25:49
  Speaker 2: I'm mat What what holdings do you have in the ETF.
• 25:53
  Speaker 2: What are the biggest stocks that you're allocating.
• 25:57
  Speaker 12: Well, So one of our largest holdings is d which
• 26:01
  Speaker 12: you know we bought at because of a great capital
• 26:03
  Speaker 12: allocation plan they reached at one point they were returning
• 26:06
  Speaker 12: almost one hundred percent of free cash flow to investors.
• 26:09
  Speaker 12: But in addition, as time has passed, we're going to
• 26:11
  Speaker 12: get VMware in this transaction as well that should be
• 26:14
  Speaker 12: closing soon. And the AI bump, which has really driven
• 26:18
  Speaker 12: the stock this year, but dividend growth has been five
• 26:21
  Speaker 12: year annualized about twenty four percent. So that's that's one
• 26:25
  Speaker 12: of our largest holdings. We are overweight tech in this portfolio,
• 26:28
  Speaker 12: which you maybe wouldn't normally think about in a dividend
• 26:32
  Speaker 12: growth strategy, but there actually are a lot of great companies.
• 26:35
  Speaker 12: Oracle would be another one that pay the dividend, you know,
• 26:38
  Speaker 12: have a yield about in line with the market a
• 26:40
  Speaker 12: little bit above, and they're growing in about twelve percent
• 26:42
  Speaker 12: a year. And oh, by the way, they're probably the
• 26:44
  Speaker 12: cheapest AI generative AI cloud computing platform. So that's kind
• 26:50
  Speaker 12: of given the stock a new burst.
• 26:52
  Speaker 3: So we AI antie.
• 26:53
  Speaker 2: A lot of people have been saying AI bubble to
• 26:55
  Speaker 2: me over the past couple of days. Analysts on the
• 26:57
  Speaker 2: street are using that term.
• 27:01
  Speaker 3: Do you think this is an AI bubble?
• 27:04
  Speaker 12: I don't. I think a couple of things. First of all,
• 27:08
  Speaker 12: we know we have a very tight labor force. You're
• 27:10
  Speaker 12: not dragging the baby boomers back in with the networth
• 27:13
  Speaker 12: of about seventy five trillion collectively, so we're going to
• 27:16
  Speaker 12: be living with this, with this tight labor market for
• 27:19
  Speaker 12: some time. And if you go back and look historically
• 27:22
  Speaker 12: in other periods of tight labor markets, what you'll see
• 27:25
  Speaker 12: is that tech spending as a percent of GDP goes
• 27:28
  Speaker 12: up pretty dramatically one to two percent. And then in
• 27:31
  Speaker 12: addition to that, you get the earnings flowing through to
• 27:34
  Speaker 12: the company. So technology stocks have always outperformed in period
• 27:37
  Speaker 12: previous periods of labor shortage. This one is predicted by
• 27:41
  Speaker 12: the government to go from twenty fifteen where they think
• 27:44
  Speaker 12: it began all the way through twenty forty seven. So
• 27:47
  Speaker 12: I would use weakness in these stocks to add I mean,
• 27:50
  Speaker 12: the question is can they monetize. Microsoft has shown us
• 27:53
  Speaker 12: that they intend to monetize a generative AI with their
• 27:56
  Speaker 12: co pilot offering.
• 27:58
  Speaker 1: So for this TF, what's a I guess, what's a
• 28:03
  Speaker 1: model name to put in there? In terms of dividend
• 28:05
  Speaker 1: yield and dividend growth? What do you guys look for
• 28:08
  Speaker 1: in order to put that into this portfolio.
• 28:11
  Speaker 12: So we start with the valuation, which is relative yield,
• 28:14
  Speaker 12: and what we're looking for is our companies who have
• 28:18
  Speaker 12: a dividend paying culture, so they are committed to the dividend.
• 28:22
  Speaker 12: They sometimes state, as McDonald's does, that it's a portion
• 28:24
  Speaker 12: of what they think long term sustainable earnings power is,
• 28:27
  Speaker 12: but most of these companies it's implied. So we own
• 28:31
  Speaker 12: some of the usual suspects that you would expect to
• 28:34
  Speaker 12: see in an equity income strategy. So home Depot would
• 28:37
  Speaker 12: be an example. We also own we just have been
• 28:42
  Speaker 12: adding to our positions in Starbucks, we own Walmart. But
• 28:45
  Speaker 12: then we also have this exposure overweight a pretty big
• 28:47
  Speaker 12: overweight to industrials and then a modest overweight to technology.
• 28:51
  Speaker 12: So these companies have long histories of paying the dividend
• 28:55
  Speaker 12: and it gives us information as well as it contributes
• 28:58
  Speaker 12: pretty materially the total turn, especially the dividend growth part.
• 29:02
  Speaker 2: Did you do you know channel checks? Looking at the
• 29:05
  Speaker 2: appetite for new ETFs. Obviously last year was a banner
• 29:08
  Speaker 2: year for ETF launches. We've seen them slow down a
• 29:13
  Speaker 2: little bit this year. Still strong growth though. What's your
• 29:17
  Speaker 2: view on the ETF nancy as an investment vehicle?
• 29:22
  Speaker 12: So I just just finished the second edition of my book,
• 29:25
  Speaker 12: The Women's Guide to Successful Investing, and has a whole
• 29:28
  Speaker 12: chapter on ETFs. I think they play a very important
• 29:31
  Speaker 12: role in investors' portfolios. This particular strategy would serve as
• 29:36
  Speaker 12: a core that you would sort of decorate around with
• 29:40
  Speaker 12: more aggressive, higher risk ETFs. We launched it because our
• 29:46
  Speaker 12: minimums are pretty high and we were turning away a
• 29:48
  Speaker 12: lot of people that were interested in working with us.
• 29:50
  Speaker 12: So this is one way we can, you know, make
• 29:52
  Speaker 12: our strategy accessible to them, and it's been it's been
• 29:58
  Speaker 12: an interesting experience and the launch went off pretty well today.
• 30:01
  Speaker 12: So we're pretty happy about that.
• 30:02
  Speaker 2: The expense ratio is a little bit steep, ninety five
• 30:06
  Speaker 2: basis points. Does that stay there or do you bring
• 30:09
  Speaker 2: it down once you get more flows.
• 30:11
  Speaker 12: I think we bring it down. I mean I also
• 30:14
  Speaker 12: wrote a whole chapter on how fees are the biggest
• 30:16
  Speaker 12: erodor of total return and so you need to pay
• 30:19
  Speaker 12: attention to that. So we're very committed in our in
• 30:21
  Speaker 12: our wealth practice, and then with this fund to be
• 30:25
  Speaker 12: a reasonable access point for individuals and to add value
• 30:28
  Speaker 12: above and beyond the benchmark, which we've been able to
• 30:31
  Speaker 12: do historically in our separately managed accounts.
• 30:34
  Speaker 2: I thought, Paul, we could ask Nancy about Apple, you know,
• 30:38
  Speaker 2: because it's been it's a bug in your bonnet.
• 30:40
  Speaker 1: It is to be in your bonnet exactly. So Nancy,
• 30:43
  Speaker 1: you look at you mentioning your overweight tech. How frustrating
• 30:46
  Speaker 1: is it to see a company as great as Apple
• 30:49
  Speaker 1: with a cash flow it has to pay a dividend
• 30:52
  Speaker 1: less than one percent.
• 30:54
  Speaker 12: I know when we got into that stock, this is
• 30:57
  Speaker 12: the crazy thing. I don't think anyone remembers. This was
• 31:00
  Speaker 12: at three percent and twenty thirteen. It was above the
• 31:03
  Speaker 12: tenure at that time, and they were growing the dividend,
• 31:06
  Speaker 12: So we actually began accumulating our positions that at that
• 31:09
  Speaker 12: point added to it over the years. Have basically sold
• 31:13
  Speaker 12: the majority of our holdings. But this particular ETF does
• 31:16
  Speaker 12: have a small allocation, about two and a half percent
• 31:20
  Speaker 12: to that particular stock, and I think it is important
• 31:23
  Speaker 12: that management continues to grow the dividend, but they could
• 31:26
  Speaker 12: continue to grow it in a lot more aggressive fashion.
• 31:29
  Speaker 12: So I am a little bit frustrated by that and
• 31:31
  Speaker 12: some of the other great you know technology companies, cloud
• 31:34
  Speaker 12: computing like Google and even Amazon. The only way you
• 31:38
  Speaker 12: can generate income off of those is to sell covered calls,
• 31:40
  Speaker 12: So but we're not doing that in this Do buybacks?
• 31:44
  Speaker 2: Do cash buybacks make you feel any better?
• 31:47
  Speaker 12: I mean yes, but I mean it's more sentiment in
• 31:51
  Speaker 12: my view, just like splitting a stock. But yeah, like
• 31:55
  Speaker 12: Service Now just announced they are engaging in their first
• 31:59
  Speaker 12: share by back. You know that's going to put a
• 32:02
  Speaker 12: floor under the stock at some point. But so we
• 32:05
  Speaker 12: look at that. It's important to us, but it's not
• 32:07
  Speaker 12: our overriding concern. And when we're when we're looking for
• 32:10
  Speaker 12: new names.
• 32:10
  Speaker 1: Yeah, looking at Apple, the indicated yield zero point five percent,
• 32:14
  Speaker 1: that's the bad news. I guess the good news is
• 32:16
  Speaker 1: they've five year net growth seven point two six percent,
• 32:20
  Speaker 1: so they are growing it. But again a lot of
• 32:22
  Speaker 1: folks like myself think we could see we should see you,
• 32:24
  Speaker 1: you know, to two and a half three percent divid
• 32:26
  Speaker 1: in yield on that name, but that's not how they
• 32:28
  Speaker 1: view their use of cash. Nancy Tangler, thanks so much
• 32:31
  Speaker 1: for joining us. Nancy is the CIO of Laffertangler Investments
• 32:36
  Speaker 1: and their new ETF out today looking at dividends and
• 32:41
  Speaker 1: dividend growth. Tg l R is the ticker you're listening.
• 32:45
  Speaker 8: To the tape. Catch are live program Bloomberg Markets weekdays
• 32:48
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• 32:51
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• 32:53
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• 32:54
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• 33:02
  Speaker 1: Matt Miller, Paul Sweeney live here in the Bloomberg Interactive
• 33:05
  Speaker 1: Broker Studio.
• 33:06
  Speaker 3: We are streaming on.
• 33:07
  Speaker 1: YouTube, so just head over to YouTube and search Bloomberg
• 33:10
  Speaker 1: Global News and that'll bring you to the video feed.
• 33:13
  Speaker 1: I want to get right to our next guest, Margie
• 33:14
  Speaker 1: Petel senior portfolio manager a all Spring Global Investments, joins us,
• 33:20
  Speaker 1: marg I want to get the benefit here of your experience.
• 33:22
  Speaker 1: Here we're pretty much through earnings for this cycle. What
• 33:26
  Speaker 1: are your takeaways?
• 33:28
  Speaker 14: Well, once again, the second quarter surprised on the upside
• 33:31
  Speaker 14: like the first quarter did. Shows that companies are in
• 33:33
  Speaker 14: good shape. Revenues are okay, profit margins are following up,
• 33:37
  Speaker 14: which is very important, and really there is no saw
• 33:40
  Speaker 14: in the companies are seeing any kind of a broad
• 33:42
  Speaker 14: brush decline and economic activities. So the outwork for third
• 33:46
  Speaker 14: quarterbooks at least reasonable, so maybe better than people have
• 33:49
  Speaker 14: been thinking. And the whole thought or recession once again
• 33:52
  Speaker 14: seems to be be pushed out a little bit over
• 33:55
  Speaker 14: the horizon.
• 33:56
  Speaker 2: So Margo, when are you When is your expectation or
• 34:00
  Speaker 2: a recession? Because all the signs are there, and I
• 34:03
  Speaker 2: realized that the current and backward looking data still aren't
• 34:07
  Speaker 2: as bad. On the other hand, the Fed raised interest
• 34:11
  Speaker 2: rates five hundred and fifty basis points in like a
• 34:13
  Speaker 2: year and a half, so it's coming right.
• 34:16
  Speaker 14: Well, it's coming that we may have to wait longer
• 34:19
  Speaker 14: than people think. I think two several reasons. One, corporations
• 34:23
  Speaker 14: has spent the last decade of near zero rates, restructuring
• 34:27
  Speaker 14: the balance sheets, so they really aren't a sensitive to
• 34:30
  Speaker 14: higher short term rates as they have been in previous cycles.
• 34:33
  Speaker 14: Same thing with consumers who are having a little bit
• 34:35
  Speaker 14: of a slow down in housing, but many homeowners are
• 34:38
  Speaker 14: able again to refinance, locking long term low rates on
• 34:42
  Speaker 14: the houses, so they're not actually heard. And in fact,
• 34:44
  Speaker 14: i'd say the margins consumers are probably benefiting from getting
• 34:47
  Speaker 14: higher rates on their savings. With unemployment at three point
• 34:51
  Speaker 14: six percent, it's very, very hard to say that we're
• 34:54
  Speaker 14: on the Brinker recession, and especially when there's no sector
• 34:57
  Speaker 14: of the economy you can point to that's about ready
• 34:59
  Speaker 14: to tumble distress to feed over into some kind of
• 35:02
  Speaker 14: a general recession. So I just don't see a recession
• 35:05
  Speaker 14: any time in your time.
• 35:06
  Speaker 1: Well, margre given that background, is it reasonable for some people,
• 35:11
  Speaker 1: like in the fixed income space, maybe take on some
• 35:13
  Speaker 1: incremental risk in terms of maybe moving out in duration,
• 35:16
  Speaker 1: maybe even moving to high yield.
• 35:18
  Speaker 3: How do you think about that?
• 35:20
  Speaker 14: Well, high yield has not been very risky last year
• 35:23
  Speaker 14: or this year. It's actually still the best performing part
• 35:26
  Speaker 14: in the fixed income market when you look at maturity
• 35:29
  Speaker 14: adjusted and I think it will still be probably above
• 35:32
  Speaker 14: average compared to treasuries. The way I look at treasuries,
• 35:36
  Speaker 14: we have such an enormous amount of supply that has
• 35:38
  Speaker 14: to come, that has to be absorbed. That says to
• 35:41
  Speaker 14: be that we may have a relative scarcity of corporate
• 35:44
  Speaker 14: credits that people would like to buy versus treasuries. So
• 35:47
  Speaker 14: we might actually see old spreads, the amount of extrebo
• 35:50
  Speaker 14: to get in corporates over treasuries shrink from these levels.
• 35:53
  Speaker 14: And remember defaults throwing a little over three percent, So
• 35:57
  Speaker 14: even in the high old market, you're not seeing much distress.
• 36:01
  Speaker 1: So all right, if no real recession this year, I mean,
• 36:04
  Speaker 1: how should we think about this equity market, which has
• 36:07
  Speaker 1: really been driven this year by those magnificent seven stocks.
• 36:11
  Speaker 1: Do we start to try to rotate maybe out of them,
• 36:13
  Speaker 1: or maybe try to diversify way out of them into
• 36:16
  Speaker 1: some mid cap stocks, maybe some cyclical names.
• 36:20
  Speaker 14: Well, I still think the better trade is with larger
• 36:22
  Speaker 14: cap stocks because we don't really know what's going to happen. Secondly,
• 36:27
  Speaker 14: it looks as if growth in the second half of
• 36:29
  Speaker 14: the year will continue to be I think very very modest,
• 36:32
  Speaker 14: so high growing companies will be hard to find so
• 36:34
  Speaker 14: I think that some of the very large cap stocks
• 36:36
  Speaker 14: have been favorites so far this year may well continue
• 36:40
  Speaker 14: to perform because they still have the guaranteed growth. So
• 36:43
  Speaker 14: we're looking more for large cap companies where they have
• 36:46
  Speaker 14: either an industry that's on the secular up swing or
• 36:49
  Speaker 14: looks as if they can continue to have above their maturities.
• 36:53
  Speaker 2: That's pretty amazing because it seems like Margie the biggest companies.
• 36:59
  Speaker 3: On the S and P five hundred.
• 37:02
  Speaker 2: Then you know Apple, Microsoft, Amazon, and Nvidia, Alphabet Meta,
• 37:09
  Speaker 2: maybe Tesla. These companies you're looking at as growth companies
• 37:13
  Speaker 2: but also in a sense safe havens.
• 37:17
  Speaker 14: Well that's right, and ever since the first quarter when
• 37:19
  Speaker 14: they all produce pretty good earnings, they have act to
• 37:22
  Speaker 14: a safe haven. Certainly they have enormously liquid balance sheets
• 37:26
  Speaker 14: that they are safe haven. And I think from here
• 37:28
  Speaker 14: on the market's going to look at these stocks more individually.
• 37:32
  Speaker 14: For example, we saw Apple really come down a bit
• 37:35
  Speaker 14: since they've reported rather disappointing results, and the other some
• 37:38
  Speaker 14: of the other fag names of Microsoft, Meta have produced
• 37:42
  Speaker 14: very good results, and so those have continued to tuggle
• 37:45
  Speaker 14: on in advance. So we think it's really going to
• 37:47
  Speaker 14: be determined by results. Are these high growing stocks still
• 37:51
  Speaker 14: high growing or any of them running into roadblocks that
• 37:54
  Speaker 14: may take them down, So we think it'll be more individual.
• 37:56
  Speaker 14: We still think in general the larger companies will tend
• 37:59
  Speaker 14: to do well because they have all the strengths to
• 38:02
  Speaker 14: operate in a low growth market.
• 38:05
  Speaker 3: Margy.
• 38:06
  Speaker 1: Earlier today, Matt and I were talking with a guest
• 38:08
  Speaker 1: who's firm launched an ETF today that focuses on dividends,
• 38:12
  Speaker 1: dividend growth, and dividend yield.
• 38:15
  Speaker 3: How do you think about dividends?
• 38:18
  Speaker 14: Well, I think dividends are nice, and in a slow
• 38:21
  Speaker 14: growth market, which I think will now be in, probably
• 38:24
  Speaker 14: dividends will be a bigger component of total return for
• 38:27
  Speaker 14: stocks than we've seen over the last say five years
• 38:30
  Speaker 14: or so. However, I still think it comes down to
• 38:32
  Speaker 14: individual stocks, not so much a dividend rate, because often
• 38:36
  Speaker 14: stock set up high dividend yields are likely to be
• 38:39
  Speaker 14: equity under performers. Stocks of low dividends are likely to
• 38:42
  Speaker 14: raise their dividends over time. So rather than ETF one
• 38:46
  Speaker 14: size fits all, we'd rather just look at companies that
• 38:49
  Speaker 14: have we think the ability to raise their dividends or
• 38:51
  Speaker 14: reasonable dividends for the growth rate or likelihood to raise
• 38:55
  Speaker 14: their dividends.
• 38:56
  Speaker 2: Are those companies going to be some of the same
• 39:00
  Speaker 2: that are the Magnificent seven? I mean, are they going
• 39:03
  Speaker 2: to be growth companies, safe havens and able to raise dividends.
• 39:08
  Speaker 14: Well, I think companies are pretty cautious about raising their dividends,
• 39:12
  Speaker 14: more so than buying back stock. So we still think
• 39:15
  Speaker 14: that the technology sector will have companies that raise their dividends.
• 39:19
  Speaker 14: We think the industrial sector has turned the corner and
• 39:22
  Speaker 14: we think they're likely to have higher cash flow and
• 39:25
  Speaker 14: raiser dividends. And even in some of the healthcare names
• 39:29
  Speaker 14: healthcare books as if it's under a cloud hangover from
• 39:32
  Speaker 14: COVID and different things. But we think even there we
• 39:34
  Speaker 14: should see some modest increases in dividends over the next.
• 39:38
  Speaker 7: Year or two.
• 39:39
  Speaker 1: How about energy, Margie, We're looking at wtach crude oil
• 39:43
  Speaker 1: just under eighty two dollars a barrel, up from about
• 39:45
  Speaker 1: sixty seven to sixty eight just about five weeks ago.
• 39:48
  Speaker 1: So how do you guys think about the energy space.
• 39:52
  Speaker 14: We have a very modest exposure and energy because we
• 39:56
  Speaker 14: really aren't interested in making a plate on the price
• 39:59
  Speaker 14: of oil. We think there's a lot of roadblocks politically
• 40:03
  Speaker 14: for some companies really expanding their earnings where they might
• 40:06
  Speaker 14: like to. So we're kind of form on the sector.
• 40:10
  Speaker 1: All right, Margie, We really appreciate getting a few minutes
• 40:13
  Speaker 1: of your time. Margie Ptel, Senior portfolio manager at all
• 40:16
  Speaker 1: Spring Global Investment. Still keeping a relatively optimistic outlook on
• 40:22
  Speaker 1: the risk assets even in a slower growth environment.
• 40:24
  Speaker 8: You're listening to the tape Cat's are live program Bloomberg
• 40:27
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• 40:31
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• 40:33
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• 40:34
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• 40:37
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• 40:43
  Speaker 1: Matt Miller, Paul Sweeney here in a Bloomberg Interactive at
• 40:45
  Speaker 1: Brokers Studio, or streaming live on YouTube, which is Head
• 40:48
  Speaker 1: over to that intraweb thing and search Bloomberg Global News
• 40:52
  Speaker 1: and don't take You'll find our video feed there. Eli Lilly, Novo, Nordisk,
• 40:57
  Speaker 1: two big farmer companies all time highs today. Look at
• 41:01
  Speaker 1: those charts, they're just absolutely monster charts, particularly in the
• 41:04
  Speaker 1: last twenty years.
• 41:05
  Speaker 3: So We're going to figure out what's going on there.
• 41:07
  Speaker 1: Something about an obesity drug here and reducing heart attacks.
• 41:11
  Speaker 1: All good news, all big news, But we need to
• 41:13
  Speaker 1: get talked to somebody who's actually an expert in this stuff.
• 41:16
  Speaker 1: Michael Shaw, Senior industry analyst at Bloomberg Intelligence. He's based
• 41:20
  Speaker 1: in London. Mikey, thanks so.
• 41:21
  Speaker 3: Much for joining us here.
• 41:22
  Speaker 1: Could you tell us what is going on with the
• 41:25
  Speaker 1: Novo Nordisk by and also by extension, Eli Lilly, what's
• 41:31
  Speaker 1: going on today?
• 41:33
  Speaker 9: Yeah, So, Novo basically had a landmark trial readout, so
• 41:38
  Speaker 9: I looked at WIGOVI and cardiovascular outcomes. Now, the base
• 41:41
  Speaker 9: case for this was a seventeen percent risk reduction on
• 41:45
  Speaker 9: CARDIOVASCAR outcomes, and really with a result we sawt of
• 41:48
  Speaker 9: like a home run result. So it actually reported a
• 41:50
  Speaker 9: twenty percent benefit. And what's more is that all drivers
• 41:55
  Speaker 9: of the compet at endpoint, so heart failure and KINDIVASCAR death,
• 42:02
  Speaker 9: they all drove that benefit.
• 42:03
  Speaker 6: So really a home run result for Novo.
• 42:06
  Speaker 3: That, Mikey.
• 42:07
  Speaker 2: The the main question people ask me, and that I
• 42:10
  Speaker 2: also want to know the answer to about these drugs
• 42:13
  Speaker 2: is what could the long term effects be? You know,
• 42:17
  Speaker 2: if you're shooting yourself in the leg with these every
• 42:20
  Speaker 2: week for the next you know, ten years.
• 42:22
  Speaker 11: What happens to your body?
• 42:25
  Speaker 9: Well, I think it's clear that we've seen, you know,
• 42:27
  Speaker 9: we've seen substantial weight loss associated with these products. So
• 42:31
  Speaker 9: Novo's Wigovi's got about well, showed up to eighteen percent,
• 42:36
  Speaker 9: to Zeppetite showed more than twenty percent.
• 42:38
  Speaker 6: In terms of the.
• 42:39
  Speaker 9: Side effects, well, I mean initially, you know, the glping
• 42:43
  Speaker 9: one class in general is associated with GI side effects,
• 42:46
  Speaker 9: so gashri intestinal side effects, things like nausea, vomiting, et cetera.
• 42:52
  Speaker 9: You know, this is a class of drug that's that's
• 42:54
  Speaker 9: been used for years in diabetes, and you know, there
• 43:00
  Speaker 9: have have been kind of anecdotal reports of things like
• 43:04
  Speaker 9: suicidal ideation that we've seen in the in the news recently.
• 43:07
  Speaker 2: Hang on out, so what say, what is it suicide?
• 43:11
  Speaker 6: Suicidal ideation?
• 43:13
  Speaker 9: Yes, but you got to also remember, you know, you know,
• 43:17
  Speaker 9: these these patients you know OBC, and they could be
• 43:20
  Speaker 9: actually other other things contributing to that. So nothing's been
• 43:24
  Speaker 9: seen in you know, nothing was seen in the clinical
• 43:26
  Speaker 9: trials and the large clinical trials, So you know, I think.
• 43:30
  Speaker 6: The safety of these drugs is kind of well.
• 43:32
  Speaker 9: Documented and and you know, there's been a lot of
• 43:35
  Speaker 9: experience already with with diabetes.
• 43:37
  Speaker 2: All right, So just to sort out what's on the
• 43:38
  Speaker 2: market here and who owns it the.
• 43:41
  Speaker 1: One Mic and his team did a big report on
• 43:44
  Speaker 1: just this whole places obesity stuff.
• 43:47
  Speaker 2: I mean, I'm I think this could be a game
• 43:50
  Speaker 2: changer for the Western world. Uh, you know, obviously if
• 43:53
  Speaker 2: there are no long term side effects, I don't want
• 43:55
  Speaker 2: to be giving birth to a three eyed fish later.
• 43:57
  Speaker 2: But uh so Novo nor Disc does we gov and
• 44:02
  Speaker 2: ozempic right, those are both from Novo nor Disc And
• 44:05
  Speaker 2: then Lily has tears zeppatide as well as re retattrue tide.
• 44:17
  Speaker 6: Is that right, Yeah, that's correct.
• 44:19
  Speaker 3: Yeah, So.
• 44:21
  Speaker 9: Basically we gave you in a zempiic are both the
• 44:23
  Speaker 9: same molecules, just we gave you the higher days that's
• 44:26
  Speaker 9: marketed or approved in obesity. Zempick is approved in diabetes.
• 44:32
  Speaker 9: Tozeptide is marketed under the brand name Munjari for diabetes,
• 44:36
  Speaker 9: and it should get approved in you know, towards the
• 44:39
  Speaker 9: end of the year for obesity. And then rettrue Tide
• 44:42
  Speaker 9: is a compound that they've got in there in their
• 44:46
  Speaker 9: in their pipeline which has yeah, which is you know,
• 44:49
  Speaker 9: shown potentially better data than totide on weight loss. So
• 44:52
  Speaker 9: that's something coming through the pipeline, all right.
• 44:54
  Speaker 1: But the anytime I talk to you, Mikey or Sam,
• 44:58
  Speaker 1: it always comes down Sam Faz, your partner in crime.
• 45:01
  Speaker 1: It always comes down to who pays for this stuff?
• 45:03
  Speaker 1: So who pays for this stuff in the big markets
• 45:06
  Speaker 1: around the country.
• 45:07
  Speaker 2: I saw I saw by the way that the University
• 45:09
  Speaker 2: of Texas has taken these drugs off of its insured
• 45:15
  Speaker 2: coverage coverage list because the University of Texas system was
• 45:19
  Speaker 2: paying five million dollars a month for its employees to
• 45:22
  Speaker 2: get hold of these things.
• 45:25
  Speaker 9: So yeah, So I mean that's a key question at
• 45:27
  Speaker 9: the moment given the size of the well, the potential
• 45:29
  Speaker 9: size of this indication. You know, historically, what we've seen
• 45:32
  Speaker 9: with these drugs is b see. You know, it's been
• 45:35
  Speaker 9: kind of more of a lifestyle choice. It's been an
• 45:37
  Speaker 9: out of pocket market. But we haven't seen the weight
• 45:40
  Speaker 9: loss data that that's you know, associated with these drugs historically.
• 45:45
  Speaker 9: So now with this outcomes data in hand, that's really
• 45:47
  Speaker 9: going to drive broad reinbursement, and I think it's going
• 45:50
  Speaker 9: to be tough for pairs to kind of not cover
• 45:53
  Speaker 9: these drugs. Is that, you know, if we're GOV showing
• 45:55
  Speaker 9: a twenty percent reduction and kind of carti of out
• 45:59
  Speaker 9: of their risk and cool that heart failure is kind
• 46:01
  Speaker 9: of one of the leading causes of death in the US.
• 46:04
  Speaker 9: And also it has you know, cost associated with it,
• 46:06
  Speaker 9: which are kind of a significant burden on the healthcare system.
• 46:09
  Speaker 9: So you know, the long long term savings you know
• 46:12
  Speaker 9: that these drugs could potentially offer, you know, are going
• 46:15
  Speaker 9: to be huge.
• 46:15
  Speaker 6: It's kind of of.
• 46:17
  Speaker 2: Course, you could achieve the same savings or certainly similar
• 46:20
  Speaker 2: savings that people would just eat less ice cream and
• 46:23
  Speaker 2: go to the gym more often. Right, So that's the
• 46:25
  Speaker 2: that's the problem, true too, that the insurance that the
• 46:28
  Speaker 2: companies paying for the insurance probably have, like my employees
• 46:31
  Speaker 2: either make horrible choices and take this drug and then
• 46:35
  Speaker 2: I pay five million dollars a month, or my employees
• 46:38
  Speaker 2: make good choices and I don't pay anything and no
• 46:41
  Speaker 2: one needs to take drugs.
• 46:44
  Speaker 6: Yeah, that's true. True, that's true too.
• 46:47
  Speaker 1: All right, Mikey, All right, that's your BC side. I
• 46:50
  Speaker 1: got my plays there and I know how to do that.
• 46:52
  Speaker 1: Another big area that we'd love to see some breakthroughs
• 46:55
  Speaker 1: and maybe your companies will do it. It's just kind
• 46:57
  Speaker 1: of dementia broadly defined. As the world population ages, it
• 47:01
  Speaker 1: becomes a bigger and bigger problem for a lot more people.
• 47:04
  Speaker 1: What's what's your industry, what's the farmer? What's a BioPharm
• 47:07
  Speaker 1: market in industry? What are they doing there?
• 47:10
  Speaker 9: I mean we've seen I mean it's not my area
• 47:13
  Speaker 9: of area of focus, but we've we've obviously seen the
• 47:17
  Speaker 9: kembe from Bigen and Essie come through, and then we've
• 47:20
  Speaker 9: got Lily with d nanamap, so you know, these are
• 47:23
  Speaker 9: treatments for Alzheimer's. Limbeck as well has got has shown
• 47:28
  Speaker 9: kind of positive data for Alzheimer's agitation, so that's like
• 47:32
  Speaker 9: a supplemental indication for one of their drugs for results
• 47:37
  Speaker 9: resultsy So you know these are you know, this is
• 47:40
  Speaker 9: an area where you know the success rate has has
• 47:43
  Speaker 9: not always been high, and you know drugs associated with
• 47:48
  Speaker 9: being developed in these eras are kind of highly risk adjusted.
• 47:51
  Speaker 9: So yeah, I guess it remains to be seen. It's
• 47:56
  Speaker 9: not an area that I focus on a particular. So
• 48:00
  Speaker 9: my colleague, you know, Sam Fazzelli, to look at that please,
• 48:03
  Speaker 9: But there's certainly kind of developments in the in the pipeline, all.
• 48:07
  Speaker 1: Right, So what's next for you know, the Eli Liliza
• 48:10
  Speaker 1: of the world, the the Novo's, I mean, these sacks
• 48:14
  Speaker 1: all time highs.
• 48:14
  Speaker 3: What do you think they do?
• 48:15
  Speaker 1: Are they continue to go out and and buy what
• 48:18
  Speaker 1: they can't develop? It seems like every Monday we come
• 48:20
  Speaker 1: in and there's a big farm at m and a t.
• 48:22
  Speaker 2: Rate and does anybody else make one of these appetites
• 48:25
  Speaker 2: of pressant shots?
• 48:28
  Speaker 9: Yes, I mean we've seen kind of a Rally and Amjin,
• 48:31
  Speaker 9: We've seen a rally and Viking, both of them have
• 48:33
  Speaker 9: JLP one drugs in their pipeline. Other companies include Zealand,
• 48:39
  Speaker 9: Alti Mune and Fizes also got like an oral JLP
• 48:44
  Speaker 9: one as well, So several companies developing these jlping one
• 48:48
  Speaker 9: drugs for obesity. In terms of what's next in the space,
• 48:53
  Speaker 9: so I think we're going to constantly see this back
• 48:55
  Speaker 9: and forth between Lily and Novo on the on the
• 48:59
  Speaker 9: innovation front, So we've uh Lily, Nova's got goo v
• 49:03
  Speaker 9: Lily is going to bring into zeppatide. Nova's then got
• 49:06
  Speaker 9: Cagari Semma, which is a combination product and then we've
• 49:10
  Speaker 9: also recently seen, you know, really strong data for retis
• 49:13
  Speaker 9: true Tide, which is a triple agonist, unlike to Ze Petite,
• 49:18
  Speaker 9: which is a dual agonist, so it's targeting three three
• 49:22
  Speaker 9: things instead of two.
• 49:23
  Speaker 1: All right, So, Mikey, it's really important for you and
• 49:25
  Speaker 1: for healthcare investors to follow where different drugs are in
• 49:28
  Speaker 1: the regulatory pipeline. You guys actually have a model of that,
• 49:31
  Speaker 1: don't you.
• 49:33
  Speaker 9: Yeah, we have a track. We have a model on
• 49:35
  Speaker 9: the syste Yeah, we have a track on the system.
• 49:37
  Speaker 1: And it's the best as best on Wall Street by far.
• 49:41
  Speaker 1: Who's the person that manages that again, who's the person?
• 49:45
  Speaker 6: Oh yeah, so Sam and I look at it.
• 49:48
  Speaker 1: Yeah, all right, it's the best on the street. They
• 49:50
  Speaker 1: track every single get to it. We'll find it. I'll
• 49:54
  Speaker 1: get it for you in a second. But it's it's
• 49:55
  Speaker 1: just the best. If you're a healthcare geek, you have
• 49:58
  Speaker 1: to have this same because you have to know where
• 50:00
  Speaker 1: drugs are, when the tests are coming, all that kind
• 50:02
  Speaker 1: of stuff.
• 50:03
  Speaker 3: And the Bloomberg Intelligence guys do that.
• 50:05
  Speaker 1: Mike you Shaw, Senior industry antals Bloomberg Intelligence. I appreciate
• 50:08
  Speaker 1: getting some time there. Eli Lilly Novo both all time highs.
• 50:13
  Speaker 8: Here today, you're listening to the tape cats Are Live
• 50:15
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• 50:26
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• 50:32
  Speaker 1: Ryan Lockwood joins it sees the CFO of Carparts dot
• 50:36
  Speaker 1: Com trades on the Nasdaq. PRTs is a symbol company
• 50:39
  Speaker 1: went public back in two thousand and seven. They did
• 50:43
  Speaker 1: a secondary offering very adroitly in twenty twenty when they
• 50:46
  Speaker 1: stuck got a nice pop from the pandemic.
• 50:49
  Speaker 3: Ryan, thanks so much for joining us here. Again.
• 50:52
  Speaker 1: I'm looking at your long term chart and just looks
• 50:53
  Speaker 1: like a lot of other pandemic charts where you have
• 50:56
  Speaker 1: this surge in twenty twenty as people behaviors chain during
• 51:00
  Speaker 1: the pandemic, and then it's been kind of a slow
• 51:02
  Speaker 1: bleed off after we get post pandemic. Here, talk to
• 51:05
  Speaker 1: us how your business kind of changed during that you know,
• 51:08
  Speaker 1: twenty twenty period, pre that period during the pandemic and
• 51:12
  Speaker 1: kind of where we are now.
• 51:14
  Speaker 15: Yeah, so our business thanks for having me. Our business
• 51:17
  Speaker 15: did change a little bit, but actually a lot of
• 51:19
  Speaker 15: the change came from a new management team that came
• 51:21
  Speaker 15: in twenty nineteen. So part of what we did was
• 51:24
  Speaker 15: revitalize the business and focus it more on the customer.
• 51:28
  Speaker 7: You know, we.
• 51:28
  Speaker 15: Obviously benefited from some of the stimulus and some of
• 51:32
  Speaker 15: the online shopping that came from e commerce, but combined
• 51:35
  Speaker 15: with that, we changed to a more stockship model that
• 51:38
  Speaker 15: it provides more value to the customer. We improve the website.
• 51:41
  Speaker 15: So there's a lot of things going on as part
• 51:42
  Speaker 15: of the story.
• 51:43
  Speaker 1: What are the drivers of your business? Like when I
• 51:47
  Speaker 1: look at your financial model, what are the key drivers
• 51:49
  Speaker 1: that I need to get right?
• 51:51
  Speaker 15: I think the key drivers for our business what you're
• 51:53
  Speaker 15: going to see over the next three to five years
• 51:55
  Speaker 15: is a combination of reasonable revenue growth with with combined
• 52:00
  Speaker 15: with operating leverage. So there's a lot of things we
• 52:03
  Speaker 15: can do to improve marketing, expense, fulfillment expense, fixed operating leverage.
• 52:08
  Speaker 15: And we've done a lot of improvements over time. They've
• 52:11
  Speaker 15: all been relatively sticky, and we continue to drive improvements
• 52:14
  Speaker 15: over the next you know, three to five years all.
• 52:16
  Speaker 1: Right, so what give me a sense of kind of
• 52:18
  Speaker 1: who your customer is and kind of how do they
• 52:22
  Speaker 1: really interact with Carparks dot Com.
• 52:25
  Speaker 15: Yeah, so our customer is going to be generally a
• 52:27
  Speaker 15: value oriented, do it yourselfer who is relatively sophisticated or
• 52:32
  Speaker 15: looking to do some easy jobs and save some money.
• 52:35
  Speaker 15: Compared to brick and mortar stores, we're fifty to sixty
• 52:38
  Speaker 15: percent cheaper. So if someone's willing to wait one or
• 52:40
  Speaker 15: two days to get their part online, they can have
• 52:43
  Speaker 15: significant value. And that's especially useful at a time like this.
• 52:48
  Speaker 1: All right, so how do I you know in your business,
• 52:51
  Speaker 1: how do you drive top line demands? Is just having
• 52:55
  Speaker 1: more stuff, more skews that they may need or is
• 52:59
  Speaker 1: it marketing promotion?
• 53:00
  Speaker 3: How do you try it drive your top line?
• 53:02
  Speaker 15: You know, for us driving top line, you know, there's
• 53:05
  Speaker 15: a lot of value that we provide high quality parts,
• 53:08
  Speaker 15: but what we're really looking to do is take the
• 53:09
  Speaker 15: stress out of car repair. If you have a car
• 53:12
  Speaker 15: that's out of warranty, that check engine that comes on,
• 53:14
  Speaker 15: there's not really a great resource for people. And that's
• 53:17
  Speaker 15: what we try to do is provide information, high quality parts,
• 53:21
  Speaker 15: great value pricing and if you can't put it on yourself,
• 53:24
  Speaker 15: we'll even connect you to a local mechanic. So we're
• 53:26
  Speaker 15: really trying to provide a one stop shop for customers
• 53:31
  Speaker 15: that takes the stress out.
• 53:32
  Speaker 2: Of car repair.
• 53:33
  Speaker 3: So help.
• 53:34
  Speaker 1: You know, it seems like what we understand here in
• 53:35
  Speaker 1: the post pandemic world that Detroit says it's going to
• 53:38
  Speaker 1: build fewer cars, So the days of seventeen and a
• 53:40
  Speaker 1: half million SAR might be over. Maybe it's fifteen fifteen
• 53:43
  Speaker 1: and a half million cars. That means cars got to
• 53:46
  Speaker 1: I guess, lasts longer, use cars, all that kind of stuff.
• 53:49
  Speaker 3: Is that good for your business? Definitely?
• 53:52
  Speaker 15: I think that's that's right when you look at SAR.
• 53:55
  Speaker 15: You know, we had obviously a very lower SAR, you know,
• 53:58
  Speaker 15: kind of coming into this year and part of last
• 54:00
  Speaker 15: year due to interest rates. SAR might come down, but
• 54:03
  Speaker 15: cars definitely have been lasted longer. They're going to commute
• 54:05
  Speaker 15: last longer, and I think consumers are going to try
• 54:07
  Speaker 15: to drive value by repairing their car having it lasts longer,
• 54:12
  Speaker 15: and I think we're a great resource for them.
• 54:15
  Speaker 1: Talk to us about I'm not sure if this is
• 54:17
  Speaker 1: part of your business model, but we've seen in another
• 54:19
  Speaker 1: retail spaces by now Pay Later. Is that something you
• 54:23
  Speaker 1: guys offer? Is that a driver?
• 54:25
  Speaker 3: How do you think about that? Yeah, that is a driver.
• 54:27
  Speaker 15: So over the last couple of years, we've seen buy Now,
• 54:30
  Speaker 15: Pay Later actually triple. It was running pretty steady around
• 54:34
  Speaker 15: two and a half percent of revenue for e commerce,
• 54:36
  Speaker 15: and recently it popped up. At the end of Q
• 54:39
  Speaker 15: two it was running seven point nine percent, So we
• 54:42
  Speaker 15: have seen a large uptake in that. I think it's
• 54:45
  Speaker 15: a way that consumers are trying to balance the needs,
• 54:48
  Speaker 15: their everyday needs with their car repair needs.
• 54:51
  Speaker 1: You know, it's funny you go to the Consumer Electronics
• 54:53
  Speaker 1: show and it's really an auto show, you know, with
• 54:56
  Speaker 1: a little bit of technology around it. I mean, I
• 54:58
  Speaker 1: think the auto industry, you know, controls way more than
• 55:01
  Speaker 1: half the space they're out there in Vegas. How has
• 55:05
  Speaker 1: like the computerization, the increase in technology and automobiles, How
• 55:10
  Speaker 1: has that impacted your business?
• 55:12
  Speaker 6: There?
• 55:13
  Speaker 15: Actually hasn't been that much as an impact. You know.
• 55:15
  Speaker 15: What we sell is a lot of the normal everyday
• 55:18
  Speaker 15: items you need to repair your car. So even with
• 55:21
  Speaker 15: a highly electric cut fied vehicle or even an EEV
• 55:25
  Speaker 15: like a Tesla, they still have headlights, tail lights, door handles,
• 55:29
  Speaker 15: ac compressors, radiators, all the normal nuts and bolts you
• 55:32
  Speaker 15: might call it that go into a car. Even the
• 55:34
  Speaker 15: most modern of all cars still has those basics.
• 55:37
  Speaker 1: Okay, So you're not getting into the electronics and that
• 55:40
  Speaker 1: type of stuff. That's something that you know, an onneer
• 55:42
  Speaker 1: would have to go to the dealer or something like that.
• 55:45
  Speaker 15: That's correct, Yeah, and I think those are usually very durable.
• 55:48
  Speaker 15: So the ecu as you might call it, inside of
• 55:51
  Speaker 15: a car that manages the brains of everything is very robust.
• 55:55
  Speaker 15: The things that go out for people are the everyday
• 55:57
  Speaker 15: items like the AC compressor, the window regulator that makes
• 56:00
  Speaker 15: the window.
• 56:00
  Speaker 7: Go up down.
• 56:01
  Speaker 1: So is your competition kind of just my local car
• 56:04
  Speaker 1: dealer in town.
• 56:07
  Speaker 15: Our local competition is going to be really the brick
• 56:09
  Speaker 15: and mortar, the big brick and mortars you might think about,
• 56:11
  Speaker 15: or maybe a dealership where I think people that don't
• 56:15
  Speaker 15: know about us might just walk in and pay three
• 56:18
  Speaker 15: hundred dollars for a headlight without realizing that they could
• 56:20
  Speaker 15: come to our website wait one or two days. You know,
• 56:23
  Speaker 15: we cover ninety eight percent of the country and two
• 56:25
  Speaker 15: day shipping, they could buy that same part for one
• 56:27
  Speaker 15: hundred and thirty five dollars.
• 56:28
  Speaker 3: So it's interesting.
• 56:29
  Speaker 1: I'm just kind of wondering again kind of the growth
• 56:32
  Speaker 1: of the business. It seems like, can you acquire customers?
• 56:37
  Speaker 1: Can you market and say hey, you can do this,
• 56:39
  Speaker 1: Like I'm not a handy person. I'm not a but
• 56:41
  Speaker 1: if you say, hey, you can install this headlight.
• 56:44
  Speaker 15: That's exactly right. So we recently just launched a line
• 56:47
  Speaker 15: of YouTube instructional videos starting with a four to foot
• 56:50
  Speaker 15: and fifty. It's the nation's most popular car, showing you
• 56:53
  Speaker 15: how to replace a lot of parts on that. We're
• 56:55
  Speaker 15: going to the Dodge Ram And we also recently launched
• 56:58
  Speaker 15: a Spanish language version of this channel to kind of
• 57:01
  Speaker 15: hit more audiences and make people feel comfortable that they
• 57:03
  Speaker 15: can do these repairs themselves.
• 57:04
  Speaker 1: That makes sense, all right, Ran, Thanks for taking the time.
• 57:06
  Speaker 1: Appreciate learning a little bit about your company and kind
• 57:09
  Speaker 1: of its expectations and kind of how the what are
• 57:12
  Speaker 1: the drivers of this company? Ryan Lockwood, He's a CFO
• 57:14
  Speaker 1: carparks dot com. You can check out the stock it
• 57:17
  Speaker 1: is trades on the Nastaq p r TS.
• 57:22
  Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
• 57:25
  Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever.
• 57:29
  Speaker 3: Podcast platform you prefer. I'm Matt Miller.
• 57:32
  Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three.
• 57:35
  Speaker 3: And I'm Faul Sweeney. I'm on Twitter at pt Sweeney.
• 57:38
  Speaker 1: Before the podcast, you can always catch us worldwide at
• 57:41
  Speaker 1: Bloomberg Radio