Latest / Bloomberg Intelligence / Bloomberg Intelligence: Deere Cuts Profit Outlook, U.S Retail Sales Drop

Transcript

Bloomberg Intelligence: Deere Cuts Profit Outlook, U.S Retail Sales Drop · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
0:09
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
0:13
Speaker 2: weekdays at ten am Eastern on Apple Car playing Android
0:17
Speaker 2: Otto with the Bloomberg Business App. Listen on demand wherever
0:20
Speaker 2: you get your podcasts, or watch us live on YouTube.
0:25
Speaker 3: Let's get a beat on how the US farmer's doing here,
0:27
Speaker 3: and we can do that through Deer. Deer is a
0:30
Speaker 3: company obviously we all know and love, and their customers
0:33
Speaker 3: buy and large are farmers, and Deer reports some numbers
0:37
Speaker 3: a little bit disappointing here. Chris Chiolino joins us. He
0:40
Speaker 3: covers all the big ag and machinery companies for Bloomberg Intelligences,
0:44
Speaker 3: based down in Princeton, New Jersey. Chris, how did Deer
0:47
Speaker 3: do this quarter and what's their outlook?
0:51
Speaker 4: The quarter was great, really much better than we anticipated
0:55
Speaker 4: across the board, beats both top line and margins for
0:58
Speaker 4: most of the businesses. But the outlook was the disappointment
1:02
Speaker 4: of the quarter. They cut net income guidance by about
1:05
Speaker 4: five percent, and that's largely reflective of incremental weakness in
1:10
Speaker 4: the ag business, specifically the large jag business. And there's
1:14
Speaker 4: really two components to that one europe Deer now plans
1:18
Speaker 4: to underproduce production, underproduce retail demand due to some weakness
1:22
Speaker 4: in Central and Eastern Europe given the conflict there, So
1:26
Speaker 4: they're going to try to bring down inventories.
1:28
Speaker 5: They're already under producing in Brazil as well.
1:30
Speaker 4: And then the second component of the cut was really
1:33
Speaker 4: some additional softness beginning to transpire here in North America.
1:38
Speaker 4: We saw some of the order velocity start to moderate,
1:41
Speaker 4: So demand seems to kind of be trending towards the
1:43
Speaker 4: low end of their down ten to fifteen percent industry outlook.
1:47
Speaker 5: When it comes to lar jag equipment.
1:49
Speaker 6: Yeah, let's get through some of these here. Production precision
1:51
Speaker 6: ag net sales for their yearly forecast, they're looking down
1:54
Speaker 6: twenty percent worse, and estimated construction and forestry net sales
1:58
Speaker 6: down five to ten percent, bag and turfnut sales down
2:01
Speaker 6: ten to fifteen percent. Yiki, is this a early cycle,
2:05
Speaker 6: mid cycle or late cycle read on the economy.
2:09
Speaker 4: I mean we're we're early in an ag downturn. Last
2:12
Speaker 4: year was a peak production levels. You know, historically you
2:17
Speaker 4: don't have one year downturn, so I would suspect this
2:20
Speaker 4: is kind of the beginning of a multi year downturn,
2:23
Speaker 4: and some of the numbers that you're seeing that your
2:25
Speaker 4: reference on their guidance are well below you know, market
2:29
Speaker 4: retail demand expectations, suggesting that you know, they have some
2:33
Speaker 4: more work to do on bringing down inventory levels to
2:37
Speaker 4: more manageable levels, with really the goal of setting up
2:40
Speaker 4: production for twenty five in line with retail demand.
2:43
Speaker 3: All right, So if John Tucker goes on too a
2:45
Speaker 3: lot to get you know, maybe a backo for his
2:48
Speaker 3: estate in the Jersey Shore, he can get one, right,
2:51
Speaker 3: There's plenty of there on the lot. Can can he
2:53
Speaker 3: get some? Can he get a deal?
2:56
Speaker 4: There's no shortage of tractors and equipment on the lot.
3:00
Speaker 4: You could get new, you could get used, kind of
3:02
Speaker 4: take your pick. Values continue to kind of come down
3:06
Speaker 4: here over the last twelve months, and I suspect you'll
3:08
Speaker 4: see further pressure on the US side new equipment pricing,
3:13
Speaker 4: you know, deers kind of guiding to one and a
3:16
Speaker 4: half percent, which is kind of below historical averages. And
3:20
Speaker 4: remember we're coming off of you know, three years of
3:22
Speaker 4: really strong phenomenal pricing. So returning to I would say
3:27
Speaker 4: below normal historical trend, which will also be a drag
3:30
Speaker 4: on margins.
3:31
Speaker 6: Caterpillar had a different kind of read, and I appreciate
3:34
Speaker 6: they also do metals and mining and stuff. So is
3:35
Speaker 6: it going to be the diversified players that are going
3:38
Speaker 6: to really win on this?
3:40
Speaker 4: Yeah, So, I you know, constructions holding up certainly better
3:44
Speaker 4: than the farmer and then the ag economy a couple
3:48
Speaker 4: of different moving pieces there. I mean, you still have
3:50
Speaker 4: a tremendous amount of infrastructure related funds and government stimulus
3:54
Speaker 4: coming through the system that will not only be kind
3:57
Speaker 4: of a tail wind here in twenty four, but even
3:59
Speaker 4: twenty five. I've been twenty six, so I think that
4:02
Speaker 4: certainly helps offset some of the cyclical headwinds facing both.
4:06
Speaker 5: The resie or non residential markets.
4:09
Speaker 4: But if you look at the farm economy almost kind
4:11
Speaker 4: of a completely different story. You look at crop prices,
4:14
Speaker 4: which are ultimately the biggest driver of farm income and
4:18
Speaker 4: equipment purchases. Corn soy weeat down you know, twenty five
4:22
Speaker 4: thirty five percent plus, So that's beginning to trickle through
4:25
Speaker 4: to farm incomes. Farmer incomes are going to be down
4:27
Speaker 4: twenty six percent this year, and I suspect we'll be
4:30
Speaker 4: under further pressure as we exit the year too, all.
4:33
Speaker 3: Right, Chris Gielino, thank you so much. We appreciate that.
4:35
Speaker 3: Chris Chilino. He covers all the big ag and construction,
4:38
Speaker 3: all those really cool companies that are industrial America. Again,
4:42
Speaker 3: our good friends of Deer had a good quarter. As
4:44
Speaker 3: Chris said, bro their guidance weaker than expected, and I
4:47
Speaker 3: guess with farmer incomes down so much. That makes a
4:50
Speaker 3: lot of sense because they don't have money in the pocket,
4:52
Speaker 3: they can't go out and buy new tractors and stuff
4:54
Speaker 3: like that.
4:56
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. We'll catch us
4:59
Speaker 2: a love I have week days at ten am Eastern
5:01
Speaker 2: on applecar Play and androyd Otto with the Bloomberg Business Act.
5:05
Speaker 2: You can also listen live on Amazon Alexa from our
5:08
Speaker 2: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
5:14
Speaker 3: Let's go to a plet a discussion about retail sales.
5:17
Speaker 3: What we might We saw the government numbers come out
5:20
Speaker 3: for the month of January weeker than expected. I don't
5:22
Speaker 3: know how much of that is seasonal versus, you know,
5:25
Speaker 3: kind of something more substantial. But our next guest does,
5:29
Speaker 3: Mary Shore is a senior equity analysts at Colombia thread
5:32
Speaker 3: Needle Investments joining us via zoom from Boston, mass So, Marie,
5:38
Speaker 3: what what do you make of the you know, retail
5:39
Speaker 3: sales numbers we had today? How concerned should we be?
5:44
Speaker 7: Yeah, it's a great question.
5:45
Speaker 1: When I look at the pretty significant slowdown that we
5:48
Speaker 1: saw in January, I think it really reflects two things.
5:52
Speaker 1: Number one, unfavorable lab which is transitory, but also the
5:56
Speaker 1: shift back to the pre holiday trend. So when I
6:00
Speaker 1: really dig through the data, I see a continuation of
6:03
Speaker 1: three themes that we really discussed throughout last year, which
6:08
Speaker 1: is the consumer stretched and continues to spend more on
6:12
Speaker 1: services over goods and within goods on needs over once.
6:17
Speaker 1: We also continue to see weak demand in categories that
6:20
Speaker 1: were strong during the pandemic, like home and sporting goods
6:24
Speaker 1: and electronics. And then the third theme is e commerce
6:28
Speaker 1: taking backshare from the stores. So I kind of look
6:32
Speaker 1: at this report and say, it's really more of the
6:34
Speaker 1: same as to what we saw throughout twenty twenty three.
6:38
Speaker 6: So if we go to the needs over once and
6:41
Speaker 6: spending on services, when we start to get the retailers reporting,
6:45
Speaker 6: how do we read that dynamic into those retailers.
6:49
Speaker 1: Yeah, it's a great question. It's really going to vary
6:51
Speaker 1: by categories. So I think we're going to see continued
6:54
Speaker 1: growth in categories like food and health and wellness and wellness.
7:00
Speaker 1: I would also include in there some of the active
7:04
Speaker 1: wear brands like a Lulu Lemon for instance, in some
7:08
Speaker 1: of the athletic footwear brands, and then again continued weakness
7:13
Speaker 1: in categories like home electronics, sporting goods, and I would
7:19
Speaker 1: say kind of flatish results in apparel. The problem is
7:23
Speaker 1: that a lot of those latter categories tend to be
7:25
Speaker 1: the higher margin category, so they are weighing on the
7:30
Speaker 1: top line but also weighing on margin.
7:32
Speaker 3: All right, I'm asking on behalf of Alex here talk
7:34
Speaker 3: to us about the luxury end of the market. That's
7:36
Speaker 3: where she plays. What are we seeing there?
7:39
Speaker 1: Yeah, we're still seeing pretty weak results from the luxury
7:43
Speaker 1: players really globally speaking, of course, there's things happening in China,
7:48
Speaker 1: but also in North American Europe. They're talking more about
7:52
Speaker 1: macro pressures, and I think what's happening is that luxury
7:55
Speaker 1: consumer spending more on services like travel, and some of
8:00
Speaker 1: the luxury players that have more exposure to what I
8:03
Speaker 1: would call the aspirational luxury category. So maybe the kind
8:08
Speaker 1: of mid tier consumers that were stretching to buy some
8:11
Speaker 1: of those higher price goods. You know, that consumer has
8:15
Speaker 1: really slowed, and so any luxury player with greater exposure
8:20
Speaker 1: to that kind of aspirational luxury part of the category,
8:24
Speaker 1: I think is feeling the pressure more than some of
8:27
Speaker 1: like the true luxury players, like I would say in
8:30
Speaker 1: our Mes or Chanelle, those are the brands that seem
8:33
Speaker 1: to be holding.
8:34
Speaker 8: Up the best.
8:35
Speaker 6: Yeah, their mez story is just amazing. Okay, just to
8:38
Speaker 6: be clear on myself, I don't do luxury. I only
8:42
Speaker 6: do sales. Okay, I like luxury on sale, but I
8:45
Speaker 6: like that the like out in it, that kind of stuff.
8:49
Speaker 6: This means nothing to the guys in the studio right now.
8:51
Speaker 9: How many pairs of shoes do you have?
8:53
Speaker 3: Let's star A nice question.
8:54
Speaker 6: Oh, I know, I actually can do this from my
8:56
Speaker 6: old team. I don't think it's as many as you
8:59
Speaker 6: think it is. I think it's like maybe thirty.
9:03
Speaker 9: What, wow, I have two.
9:06
Speaker 7: Okay, Mari back me up.
9:08
Speaker 6: Thirty is like a very reasonable amount. But I asked
9:12
Speaker 6: this because we only see a lot of sales when
9:14
Speaker 6: you got to get the inventory out the door. Am
9:16
Speaker 6: I going to be a happy consumer? Or am I
9:18
Speaker 6: going to be a sad consumer?
9:19
Speaker 7: This year? Yeah?
9:21
Speaker 1: Again, it really varies by category and brand, but I
9:24
Speaker 1: would say overall, the inventory this year was in a
9:28
Speaker 1: much better place than what we saw last year when
9:31
Speaker 1: demand really first started to slow and all of the
9:35
Speaker 1: companies found themselves sitting on access goods. I would say
9:39
Speaker 1: as we moved into twenty twenty three, the inventory was
9:42
Speaker 1: better controlled. So when you looked at a lot of
9:45
Speaker 1: the company's results, the gross margin rate was actually stronger
9:50
Speaker 1: than a lot of investors were expecting. Part of that was,
9:54
Speaker 1: you know, lower promotions, lower markdowns.
9:57
Speaker 7: Than what we saw the prior year.
9:59
Speaker 1: So as we moved the the holiday, I would say
10:02
Speaker 1: most of the promotions we saw I would classify as
10:05
Speaker 1: in line with plan. I don't think we saw super
10:08
Speaker 1: aggressive promotions, and that really reflects the fact that most
10:12
Speaker 1: of the brands and retailers are sitting on pretty lean
10:16
Speaker 1: inventories right now and continue to manage their inventory very conservatively,
10:21
Speaker 1: just given the week demand backdrop.
10:23
Speaker 3: This is said for me exactly, So Mari, how about
10:27
Speaker 3: like it's some of the dollar stores for example. I'm
10:29
Speaker 3: not sure how that really works out. Do they benefit
10:32
Speaker 3: when times get a little tough because maybe people trade
10:35
Speaker 3: down to the dollar stores order their typical customers, they
10:39
Speaker 3: feel it more acutely, How do they play these days?
10:43
Speaker 7: Yeah, it's a great question.
10:45
Speaker 1: Typically you see both happening simultaneously, right, so you would
10:48
Speaker 1: see their core customer come under pressure, but that be
10:53
Speaker 1: off set by the more kind of mill income consumer
10:55
Speaker 1: trading down into those discount formats, whether it be dollar
10:59
Speaker 1: stores or even some of the off pricers like Burlington
11:03
Speaker 1: and Ross that cater to a lower income consumer. I
11:06
Speaker 1: think this cycle we saw kind of a delayed trade
11:10
Speaker 1: down from the middle income consumer, but as we kind
11:13
Speaker 1: of moved through Q four and into this year, I
11:16
Speaker 1: think that should be more pronounced and really help some
11:19
Speaker 1: of those discount formats. I also think what's happening with
11:23
Speaker 1: the dollar stores you've seen Walmart, I think take a
11:26
Speaker 1: lot of share, right. You can see it in their
11:28
Speaker 1: results when you compare Walmart to know the family Dollar business,
11:33
Speaker 1: which is owned by Dollar Tree and Dollar General. So
11:36
Speaker 1: I think you have a lot of things happening at
11:38
Speaker 1: the same time, but overall, a weaker macro backdrop should
11:42
Speaker 1: be a positive for those discount formats.
11:44
Speaker 6: Also, it's weird. It's like dollar stores are no longer
11:46
Speaker 6: really dollar stores, Like they're like five dollars stores and
11:50
Speaker 6: their inventory is like horrific, I mean in some of them.
11:54
Speaker 7: Yeah yeah, I saw. Sorry, go ahead, Oh no, go ahead.
11:59
Speaker 6: I was gonna say, like, going in one, you're like,
12:01
Speaker 6: this is like scrape and bottom of the barrel of inventory,
12:04
Speaker 6: like it is. It is not a pretty shelf site.
12:07
Speaker 7: Yeah.
12:08
Speaker 2: Yeah.
12:08
Speaker 1: I think a lot of the dollar stores have kind
12:10
Speaker 1: of struggled with the store standards and the service levels
12:14
Speaker 1: to that point, and both Dollar Tree and Dollar General
12:18
Speaker 1: have talked about investing in vetter, inventory management systems, more
12:23
Speaker 1: labor in the stores to help improve the store shopping experience.
12:28
Speaker 3: All right, Marie, thanks so much for joining us. Marie Shore,
12:30
Speaker 3: senior equity analysts at Columbia thread Needle Investments, joining us
12:34
Speaker 3: via zoom from Boston, Massachusetts. Thread Needle, originally a London based,
12:39
Speaker 3: UK based investment firm, announced Columbia Thread Needle because they
12:43
Speaker 3: were required by COMBIA.
12:44
Speaker 6: They have great, great analysts.
12:46
Speaker 3: They do. They're very good at best.
12:47
Speaker 6: Yep, you know Bloomberg Intelligence.
12:49
Speaker 3: Yea, all good.
12:50
Speaker 6: Let's put it there.
12:51
Speaker 3: All good, all good, Yeah, but good read on the
12:53
Speaker 3: retailers here. So I was like paying attention to the retailers,
12:56
Speaker 3: you know, whether it's the walmarts or you know, the
12:59
Speaker 3: luxury you just get a great view of kind of
13:00
Speaker 3: how the consumer's really hanging in there and generally has
13:03
Speaker 3: been hanging in there for the luxury. I'm waiting for
13:05
Speaker 3: them to say China's back, baby, they're buying mainland, they're traveling,
13:10
Speaker 3: and we haven't heard that.
13:11
Speaker 6: I don't know if it's gonna happen, to be honest,
13:13
Speaker 6: if it hasn't happened at this time, it's really hard
13:15
Speaker 6: to make that case. Plus even if China, even if
13:17
Speaker 6: they say that, will investors be that willing to buy
13:20
Speaker 6: that narrative? When they got burned in the first quarter
13:23
Speaker 6: of last year from that, yeah.
13:25
Speaker 3: Part of that was the Chinese traveler. They couldn't fly anywhere.
13:28
Speaker 3: But now that's getting a little bit better, so maybe
13:30
Speaker 3: that'll that'll help.
13:32
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
13:36
Speaker 2: weekdays at ten am Eastern on Apple car Playing and
13:39
Speaker 2: broud Otto with the Bloomberg Business app. Listen on demand
13:42
Speaker 2: wherever you get your podcasts or watch us live on YouTube.
13:46
Speaker 3: But it's got a sense of where we're going with
13:48
Speaker 3: this market. I don't know whether it's time to jump
13:51
Speaker 3: off the big calf tech train that's worked so well
13:54
Speaker 3: for so long and maybe take a look at some
13:56
Speaker 3: of the smaller midcaps, maybe some value. You don't know
13:59
Speaker 3: where to go. Oh here, David Coodle's got some thoughts
14:01
Speaker 3: here because he does this stuff for a living. He's
14:03
Speaker 3: a founder, chief executive officer and chief investment officer Mainstay
14:07
Speaker 3: Capital Management, joining us of via zoom from Troy, Michigan.
14:11
Speaker 3: It's a lovely town. I've been there once, David. What
14:14
Speaker 3: say you here? I mean for a lot of investors
14:18
Speaker 3: that Magnificent seven has worked so well for so many people.
14:22
Speaker 3: Do you just stay with the you know, with that horse,
14:25
Speaker 3: or do you try to maybe look for some value
14:26
Speaker 3: in small cap mid cap maybe some of the sectors
14:29
Speaker 3: that I have lagged.
14:31
Speaker 8: Yeah, you know the in good morning, good morning, Paul I.
14:35
Speaker 8: When we look across the market and we know that
14:38
Speaker 8: the Magnificent seven had a great year last year of
14:40
Speaker 8: about one hundred and ten percent, and we now have
14:45
Speaker 8: a Fab five that excludes Tesla and Apple that's doing
14:50
Speaker 8: very well this year. And you know the concern is is,
14:55
Speaker 8: you know, can we see a sell off in a
14:56
Speaker 8: video with this meteoric rise? Can we see a sell
14:59
Speaker 8: off in these stocks?
15:00
Speaker 3: Of course we can.
15:02
Speaker 8: It wouldn't be surprised at five or ten percent or
15:04
Speaker 8: even more at any given time, given the rally that
15:07
Speaker 8: we've had and the Magnificent seven this year and the
15:10
Speaker 8: Fab five last year. But our overall thesis we like
15:15
Speaker 8: growth over value and mega cap tech and profitable tech
15:21
Speaker 8: is our most favorite sector last year and coming into
15:24
Speaker 8: this year. And we look forward, we look over the
15:27
Speaker 8: next three years. At the annual growth rate of the
15:30
Speaker 8: Magnificent seven, it's four times that of the rest of
15:34
Speaker 8: the S and P five hundred. If we look at
15:36
Speaker 8: profit margins, they're going to expand at a lot higher
15:41
Speaker 8: rate than the other four hundred and ninety three stocks.
15:45
Speaker 8: You take out Apple and Tesla, those numbers get even bigger.
15:49
Speaker 8: So we're still on growth over value, all right, I'm sorry,
15:53
Speaker 8: growth over value, large over small. We had a rally
15:57
Speaker 8: in small at the end of last year. In small
15:59
Speaker 8: caps a little bit here recently, but small caps, you
16:03
Speaker 8: know the problem with small caps have if you become
16:05
Speaker 8: a good small cap stock. Soon you become a good
16:08
Speaker 8: mid cap so you could become a good mid cap stock.
16:10
Speaker 8: So the Russell two thousand by definition has that kind
16:13
Speaker 8: of problem. And in the environment we're in with higher rates,
16:16
Speaker 8: it's tough for small caps. And then finally we like
16:18
Speaker 8: the US over foreign.
16:21
Speaker 6: So David, to that point, what do you do then,
16:25
Speaker 6: Like all those trades are working, all those trades have
16:28
Speaker 6: been working, do you just kind of put the positions
16:30
Speaker 6: on and then sit tight and then wait for all
16:32
Speaker 6: that to play out.
16:34
Speaker 8: Yeah, Well, the approach we're taking is yes, we are,
16:38
Speaker 8: you know, very dominant in Nasdaq one hundred. You know,
16:41
Speaker 8: those megacap gross stocks were dominant there. We're diversified in
16:47
Speaker 8: some other areas and need to be in the income
16:52
Speaker 8: portion of our portfolio. The thing that's worked so well
16:54
Speaker 8: last year and into this year is holding the ultra
16:58
Speaker 8: short term bonds with high yields. The bond indecks, the
17:03
Speaker 8: us I agreated bond indecks was you know, was slightly
17:07
Speaker 8: or only slightly up last year when the we look
17:12
Speaker 8: at these ultra short term bonds with high yield of
17:15
Speaker 8: six or seven percent. So if that's the income portion
17:19
Speaker 8: with this growth dominant portion for equities. That's a formula
17:23
Speaker 8: that's still working for a diversified portfolio.
17:27
Speaker 3: So, David, I know you prefer us over international markets,
17:32
Speaker 3: but I see you mentioned China here in your notes,
17:35
Speaker 3: and I'm sorry Japan, and I've heard more about Japan
17:38
Speaker 3: in the last six months that I have in the
17:39
Speaker 3: last twenty years. What's going on in Japan from an
17:42
Speaker 3: investment peru.
17:43
Speaker 8: Yeah, we've heard more about Japan in the last six
17:45
Speaker 8: months than we have in the last thirty five years.
17:49
Speaker 8: Because we're right, we're bumping up. We're bumping up against
17:55
Speaker 8: that high that was set in December of you know,
17:58
Speaker 8: nineteen eighty nine when I was walking around the Stanford
18:01
Speaker 8: campus learning about investing, right, I mean, it's that long ago.
18:06
Speaker 8: That giant trough that that we're coming into in Japan
18:09
Speaker 8: has some things going for it. You know, it's still
18:11
Speaker 8: the easy monetary policy. Uh, they have the capital flows
18:15
Speaker 8: coming from China. You know, China is nearly uninvestable at
18:18
Speaker 8: this point. And then President Trump comes out and says,
18:23
Speaker 8: if he gets elected, I'm going to put his sixty
18:25
Speaker 8: percent tariff on all Chinese goods, I mean, with everything
18:28
Speaker 8: else that's wrong in China with evergrand the real estate
18:31
Speaker 8: sector all that, you know, more bad news coming. And
18:36
Speaker 8: you know, so they've they've been doing a lot from
18:39
Speaker 8: a stimulus standpoint, but that stock market continues to be,
18:44
Speaker 8: you know, mired in a down draft. The if we
18:49
Speaker 8: look at Europe, Europe is is near recession, kind of
18:53
Speaker 8: in and out of recession. The UK is in recession
18:56
Speaker 8: and actually just found out that Japan unexpectedly got it
19:00
Speaker 8: second quarter of negative growth. But we've just got a
19:02
Speaker 8: easy monetary policy. Capital flows there, Valuations are starting to
19:07
Speaker 8: get a little bit lofty, but it's it's still investible.
19:11
Speaker 6: What do you make of the BOJ and then getting
19:14
Speaker 6: off of you'll curve control? Like does that factor in
19:17
Speaker 6: to like you're thinking, like, clearly there's a carry trade
19:19
Speaker 6: that's going to unwind really fast. Clearly that's going to
19:22
Speaker 6: affect the treasury market. Does that affect you, David?
19:25
Speaker 8: It affects us in that we're watching what the yen
19:28
Speaker 8: is doing because the end it just continues to weaken
19:32
Speaker 8: and and they've come in, they've intervened. The BOJ has
19:35
Speaker 8: intervened several times. But you know when they do, those
19:39
Speaker 8: tend to be temporary fixes. Those tend to be just
19:43
Speaker 8: temporary in nature, and you know, our concern there, really
19:47
Speaker 8: our concern now is with the economy in a more
19:51
Speaker 8: fragile state. You know, what will they do in April?
19:53
Speaker 8: Will they finally raise rates? I mean what they've continued
19:56
Speaker 8: to do while the US went through their mass of
20:00
Speaker 8: you know, five hundred and twenty five basis point increase
20:03
Speaker 8: in rates from zero, Europe raising rates. We have Japan
20:08
Speaker 8: there that's just maintained this easy monetary policy. They've made
20:12
Speaker 8: some adjustments, but they've got a weak currency that continues
20:15
Speaker 8: the weaken easy monetary policy. And you know, we'll see
20:20
Speaker 8: but that the moves that they've made have been have
20:23
Speaker 8: been just just minor, almost you know, non events in
20:29
Speaker 8: terms of if they really started the type monetary policy,
20:33
Speaker 8: which they haven't.
20:34
Speaker 3: So, David, we're about seventy five percent of the way
20:36
Speaker 3: through the S and P five hundred earnings. Any themes
20:39
Speaker 3: for you, any takeaways for you, any any changes to
20:41
Speaker 3: your portfolio based on what you're seeing.
20:44
Speaker 8: No, I mean, we know we're beating expectations again, earnings
20:48
Speaker 8: coming out better than expected. We're beyond that earnings recession
20:54
Speaker 8: we had last year. And now seeing earnings doing quite well.
20:59
Speaker 8: So I mean we're encouraged by that because that's what
21:01
Speaker 8: we want to see with the FED. Well, we're so
21:05
Speaker 8: concerned about the FED, obviously, but no, we're it's really
21:09
Speaker 8: supporting where we're at in terms of growth versus value.
21:13
Speaker 8: I think, you know, as we get into the second
21:16
Speaker 8: half of the year, we think we have some volatility
21:18
Speaker 8: here for a few more months. We get into second
21:20
Speaker 8: half of the year and we start to see the
21:22
Speaker 8: rate cuts come. If that's June, let's say that they start,
21:25
Speaker 8: and just and remember that just weeks ago we were
21:28
Speaker 8: looking at March for rate cuts to start. If rate
21:32
Speaker 8: cuts do start that soon, and I think it could
21:35
Speaker 8: maybe even be longer, then then we can come in.
21:39
Speaker 8: Then we can feel more comfortable about dipping into small cap,
21:41
Speaker 8: dipping into cyclicals. But right now, I mean, we're encouraged
21:46
Speaker 8: by earnings and it's supporting the areas that we like.
21:49
Speaker 3: Right all right, David, If I find myself in Troy,
21:52
Speaker 3: Michigan this summer, would you recommend to pay a visit
21:55
Speaker 3: to the Waterford Oaks wave Pool.
21:57
Speaker 6: Well, I love wave pools, even though they're creepy and weird.
22:02
Speaker 8: I think you should, and if you do, give me
22:03
Speaker 8: a call and we'll go down there and have some fun.
22:06
Speaker 8: That sounds like a lot of fun.
22:07
Speaker 3: I've been to Troy. I did one of my internal
22:10
Speaker 3: audit visits when I was a pain Webber to the Troy,
22:12
Speaker 3: Michigan Pain Webber branch. Had had a good time there
22:15
Speaker 3: for a week. Good good folks at there. David Kodla,
22:17
Speaker 3: thanks so much for joining U. David Coudla, Founder chief
22:20
Speaker 3: executive officer and chief investment strategist at Mainstay Capital. Manage It.
22:26
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
22:30
Speaker 2: weekdays at ten am Eastern on applecar Play and androyd
22:33
Speaker 2: Otto with the Bloomberg Business Act. You can also listen
22:36
Speaker 2: live on Amazon Alexa from our flagship New York station
22:40
Speaker 2: Just Say Alexa playing Bloomberg eleven thirty.
22:44
Speaker 3: Big TAKEE story yesterday was about commercial real estate in
22:47
Speaker 3: this country, particularly office space, and how we're seeing that
22:50
Speaker 3: marked down pretty substantially. There's some trades actually happening, and
22:53
Speaker 3: then Alex and I were just talking to earlier this
22:55
Speaker 3: morning saying, boy, when are some of these smart real
22:57
Speaker 3: estate equity dudes going to comment or do debts coming out,
23:00
Speaker 3: come into the market and start making some long term investment.
23:03
Speaker 3: Scott Kelly is one of them. He is a founder
23:04
Speaker 3: and CEO of Ato's Capital real Estate. He joins us
23:07
Speaker 3: here in a Bloomberg Interarctive Broker Studio. Were also joined
23:10
Speaker 3: by Abigail Doolittle, markets reporter for Bloomberg News. She's going
23:12
Speaker 3: to help us here kind of get through this story. Here,
23:14
Speaker 3: Scott talk to us about how you guys at your
23:17
Speaker 3: firm are kind of viewing the commercial real estate market
23:20
Speaker 3: in this country. Is it time to maybe start bottle fishing?
23:24
Speaker 10: I think it is. I think it's the beginning of
23:26
Speaker 10: what's going to be a long process of working things out.
23:29
Speaker 10: We have a company called waiver Tree Property Partners, which
23:32
Speaker 10: is in the business of buying distressed real estate loans
23:37
Speaker 10: and properties here in the US, and interestingly, the loans
23:44
Speaker 10: are not as concentrated as they have been in the past.
23:47
Speaker 10: When you look at the big real estate investment opportunities,
23:51
Speaker 10: whether it was the RTC, whether it was Lehman's bankruptcy,
23:56
Speaker 10: Bear Starns Lehman, the loans tended to be pretty con
24:00
Speaker 10: and traded. Today, I think you find a wide variety
24:04
Speaker 10: of lenders, including a lot of regional banks which are
24:09
Speaker 10: which which hold a lot a lot of these real
24:11
Speaker 10: estate loans. So we think it's going to be a
24:13
Speaker 10: big opportunity. It's not just going to be an office.
24:17
Speaker 10: Apartments are going to be a big opportunity as well.
24:20
Speaker 10: We think that it's important to buy good real estate.
24:23
Speaker 10: At the end of the day. You know, cheap doesn't
24:26
Speaker 10: get cheap enough if you don't buy the right thing.
24:28
Speaker 10: So you know, the better properties are going to continue
24:32
Speaker 10: to perform, okay, But I think there's a real opportunity
24:34
Speaker 10: for bottom fishing now and over the next several years.
24:37
Speaker 11: So speaking of cheap Scott, the last time you've joined us,
24:40
Speaker 11: and you've been kind enough to give us your time
24:41
Speaker 11: over the last six months or so preparing for what
24:44
Speaker 11: you've called an epic opportunity last year, both from the
24:47
Speaker 11: gain side and the pain side. I think that we've
24:50
Speaker 11: talked about office buildings here in New York going as
24:52
Speaker 11: cheap as twenty five cents on the dollar. I know
24:54
Speaker 11: it's very regional. What are our buildings, are properties loans
24:58
Speaker 11: starting to trade, and what our valuation is looking coming
25:00
Speaker 11: in as so far in the first wave of this well.
25:04
Speaker 10: Again, it goes market by market. But you know, particularly
25:08
Speaker 10: for absolute office buildings or going to be minus office buildings,
25:14
Speaker 10: the big talk in the industry is to convert. If
25:16
Speaker 10: you look at Manhattan as example, too much office space,
25:20
Speaker 10: too little residential. You know, it's too expensive to live
25:23
Speaker 10: here and there's too much office space. And the notion
25:27
Speaker 10: is that some of these buildings are going to be
25:29
Speaker 10: converted from office to residential. That is a very tall
25:34
Speaker 10: order you're.
25:35
Speaker 6: Going to do right, like you just don't like flip
25:37
Speaker 6: a switch and say bye.
25:38
Speaker 5: Right.
25:38
Speaker 10: And because light and elevators are the too big light
25:43
Speaker 10: access and elevators are the big issues. The floor plates
25:47
Speaker 10: on office buildings tend to be too big to be
25:49
Speaker 10: laid out really well for apartment Interestingly, the older office buildings,
25:53
Speaker 10: which have smaller floor plates are easier to adapt. But
25:58
Speaker 10: we did one through PTM in Washington, d C. It's
26:02
Speaker 10: not easy to do, and I think it's really kind
26:06
Speaker 10: of overblown in terms of how big an opportunity that is.
26:09
Speaker 10: The Other thing I would say, just in terms of converting,
26:12
Speaker 10: is it's going to take a lot of public private
26:16
Speaker 10: cooperation to make that happen. The economics in terms of
26:22
Speaker 10: tax breaks, help and financing. You know, governments are going
26:29
Speaker 10: to have to find a way to get these buildings viable,
26:32
Speaker 10: and it's going to mean working with the private sector
26:34
Speaker 10: in a way that might appear to some to be
26:36
Speaker 10: too generous to the private sector.
26:38
Speaker 11: But so in terms of those values though, and understanding
26:41
Speaker 11: that it is market by market, region by region. If
26:43
Speaker 11: you had to put just a spectrum on it, twenty
26:45
Speaker 11: five cents if that's New York City, but if you
26:47
Speaker 11: are you able to say some sort of average, just
26:50
Speaker 11: to give our listeners an idea of how painful it
26:53
Speaker 11: is and could be.
26:54
Speaker 10: Well, I think previous less than half. And you know
26:57
Speaker 10: you're going to see things that go for buildings that
27:01
Speaker 10: in their current use can barely pay their property taxes.
27:04
Speaker 10: So you know you're going to see it values at
27:08
Speaker 10: a at a low But but again, is it good
27:12
Speaker 10: value even if it appears cheap.
27:15
Speaker 4: Sale?
27:16
Speaker 11: We're not closed, but doledge, there's a few properties buildings
27:19
Speaker 11: out there pretty.
27:20
Speaker 6: When my mortgage rate is three year percent or lower.
27:23
Speaker 7: So I'm not your target audience.
27:25
Speaker 3: So do you prefer to buy the actual real estate
27:27
Speaker 3: itself or the mortgage behind it?
27:31
Speaker 10: It is really deal by I think you have to
27:34
Speaker 10: be flexible because you've got to deal usually with the
27:38
Speaker 10: senior lender with a refinancing UH package and with squeezing
27:45
Speaker 10: out the equity, partnering with the equity, cramming down the
27:47
Speaker 10: equity that the structure needs to be I think typically
27:52
Speaker 10: up in the capital structure, so either buying the real
27:55
Speaker 10: estate if the senior lender you know, wants to go
27:59
Speaker 10: through the FOK and just sell the real estate, or
28:02
Speaker 10: coming into a structured alternative. But I think importantly our
28:07
Speaker 10: perspective is that we have to be able to get
28:09
Speaker 10: control of the operations of the real estate because again,
28:13
Speaker 10: particularly through this syndicator model, a lot of people that
28:18
Speaker 10: really didn't know what they were doing, that would never
28:20
Speaker 10: would have passed the muster for institutional real estate capital,
28:25
Speaker 10: got into the business and they're the ones that are
28:28
Speaker 10: in the deepest trouble.
28:29
Speaker 6: So because of people like you, though, that can do
28:32
Speaker 6: that homework and then step in, will there not be
28:35
Speaker 6: a gigantic commercial real estate crisis. It's just going to
28:39
Speaker 6: be like years of sussing out this stuff and finding
28:42
Speaker 6: the right price.
28:43
Speaker 10: Yes, I think there will be years of.
28:46
Speaker 6: But nothing disastrous.
28:48
Speaker 10: Well, it will be disastrous for the people to get
28:50
Speaker 10: wiped out, you know what I mean, whether that happens
28:52
Speaker 10: overnight or over a period of a couple of years,
28:56
Speaker 10: a lot of these people are going to get wiped out.
28:58
Speaker 10: And you know, I think, I think it a disaster
29:02
Speaker 10: for some is an opportunity for others.
29:05
Speaker 11: And speaking of disaster, Scott, when you joined us in August,
29:07
Speaker 11: you alluded to the idea that the regional banking that
29:09
Speaker 11: there could be some kind of a banking crisis worse
29:12
Speaker 11: than what people were anticipating in lo and behold the
29:14
Speaker 11: second most popular article on the Blueberg terminal Today, dozens
29:18
Speaker 11: of banks rapidly piled up commercial property loans. Speak to
29:20
Speaker 11: us about the regulation and what you see ahead here.
29:23
Speaker 10: Well, I think, interestingly, the big banks aren't that exposed
29:28
Speaker 10: to commercial real estate. If you look at JP Morgan, Goldman, Sachs, Morgan, Stanley.
29:32
Speaker 10: We've done the analysis on those banks and there I
29:35
Speaker 10: think they've learned their lessons and they're not that exposed
29:38
Speaker 10: to commercial real estate. The middle sized banks a little
29:42
Speaker 10: bit more so. It's the smaller banks that have an
29:46
Speaker 10: inordinate concentration of commercial real estate loans. And I think
29:50
Speaker 10: part of the reason was that there was very little
29:53
Speaker 10: commercial loan demand during COVID. People weren't starting new businesses.
29:57
Speaker 10: They weren't you opening new restaurants and stores, and the
30:00
Speaker 10: sort of bread and butter business of a smaller bank
30:02
Speaker 10: didn't really exist. So they poured a lot of money
30:06
Speaker 10: into real estate, and they did so with floating rate debt.
30:09
Speaker 10: Although everybody's against their cap. The floating rate debt pretty
30:13
Speaker 10: much with very short maturities, So that's the big refinancing
30:17
Speaker 10: wave that's hitting these smaller in regional banks.
30:21
Speaker 6: All right, thanks so much, really appreciate you guys. Scott Kelly,
30:23
Speaker 6: founder and CEO of ATOS Capital real Estate, and Abigail
30:26
Speaker 6: thank you so much, Bloomer correspondent for bringing us this interview.
30:32
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
30:36
Speaker 2: weekdays at ten am Eastern on applecar Play and Android
30:39
Speaker 2: Auto with the Bloomberg Business. You can also listen live
30:42
Speaker 2: on Amazon Alexa from our flagship New York station Just
30:46
Speaker 2: Say Alexa playing Bloomberg eleven thirty.
30:50
Speaker 6: We're gonna talk about Cisco. Do you have a tidbit thing?
30:53
Speaker 9: Did you just remember this is Cisco with a C,
30:57
Speaker 9: not Cisco with an ass the food services and distribution
31:02
Speaker 9: company whose trucks are always ahead of me in the
31:04
Speaker 9: Lincoln Tunnel, slowing my commute.
31:07
Speaker 6: That Cisco is also quite interesting. They have a huge,
31:11
Speaker 6: huge business model. It's enormous. It's like a company. I
31:13
Speaker 6: want to get in there and figure out what's going.
31:15
Speaker 9: So if you like a particular restaurant and see a
31:17
Speaker 9: Cisco with an S truck parked out front, they have
31:20
Speaker 9: the food services company? Does that mean the fund is tablecloths,
31:23
Speaker 9: all the things, but also like prepared foods, don't they?
31:26
Speaker 6: But like I think they're real businesses like tables and
31:29
Speaker 6: silverware and the stuff. The guts. Okay, see we got
31:33
Speaker 6: something there. Let's go to Cisco though, the one with
31:35
Speaker 6: the sea that's stock down about two percent, it's it's
31:39
Speaker 6: off its lows though. Let's bring in a woojin Ho.
31:42
Speaker 6: He's Boomberg Intelligence senior technology analysts to break it all down.
31:46
Speaker 6: Wujin Is did anything really surprise you with Cisco? Like,
31:50
Speaker 6: in some ways we knew the environment was going to
31:52
Speaker 6: be soft, We knew they were going to have to
31:55
Speaker 6: integrate a takeover and that was going to have some churn.
31:58
Speaker 6: What was a big standout?
32:00
Speaker 12: Well, I think you're you're right there, Alex. I think
32:03
Speaker 12: the after the job loss leak or job cuts leak
32:07
Speaker 12: from last quarter, I think there were expectations that there
32:10
Speaker 12: were going to be cut the estimates, uh, you know,
32:13
Speaker 12: and you know quite quite frankly, the big standout for
32:15
Speaker 12: me was that the cuts were big enough, you know,
32:18
Speaker 12: five percent op x cuts. That's part of the course
32:21
Speaker 12: for what Cisco typically does. But at the end of
32:24
Speaker 12: the day, I mean, given the stock reaction based on reports,
32:27
Speaker 12: it looks like there were a lot of a lot
32:28
Speaker 12: of this was expected, you.
32:30
Speaker 3: Know, which I followed the Cisco name for decades. I mean,
32:34
Speaker 3: it's one of the founding Silicon Valley tech names based
32:38
Speaker 3: in San joseric smack in the middle, you know, Silicon Valley.
32:41
Speaker 3: What are they not getting right here? The stock hasn't
32:44
Speaker 3: worked for a long time, and it just what from
32:46
Speaker 3: your perspective, what are they just missing here?
32:49
Speaker 12: Well, let's let's talk about large cap stocks in general, right,
32:53
Speaker 12: If we if we think about the big bangs, right,
32:57
Speaker 12: or let's say Microsoft, the the old tech guard, Microsoft, Google, right,
33:03
Speaker 12: they all really lead on a cloud software transition. If
33:09
Speaker 12: we think about it from the hardware old guard, Cisco, Dell,
33:13
Speaker 12: HPE or the old HP. There's still relatively a hardware business,
33:18
Speaker 12: so you're not going to get the fast, sexy growth
33:22
Speaker 12: from the hard hardware business. I mean, if you look
33:24
Speaker 12: at Cisco, you know, after the estimate cuts fifty two
33:28
Speaker 12: billion for fiscal twenty four, that brings them back to
33:31
Speaker 12: twenty twenty four levels, right, So you're not getting the
33:34
Speaker 12: growth that people want, and also you're not getting the
33:37
Speaker 12: margin profiles that you want as well. So that's why
33:41
Speaker 12: the multiples are lower and the growth is shallower.
33:43
Speaker 6: So has the stock then rerated for that? I mean
33:46
Speaker 6: from what we say, we kind of knew that was coming.
33:48
Speaker 6: So are we at a right level right valuation for it?
33:51
Speaker 4: Yeah?
33:52
Speaker 12: So if I look at the historical evaluation for for Cisco,
33:56
Speaker 12: it's trading around thirteen times right now. GO typically trades
34:01
Speaker 12: roughly around fifteen to seventeen times, so it was it
34:04
Speaker 12: was priced to be cut right now. Now, the question
34:08
Speaker 12: is what does the pending Splunk deal do and does
34:12
Speaker 12: that help reinvigorate growth. Now, what I will say is
34:14
Speaker 12: that estimates, consensus estimates probably won't bake in this Splunk deal,
34:19
Speaker 12: which adds about another eight percent on sales, neutral to
34:23
Speaker 12: earnings their term, but it could spark earnings growth if
34:26
Speaker 12: they start bringing op x or operating margins for Splunk
34:32
Speaker 12: more in line to where Cisco is today.
34:35
Speaker 3: So you know it's alex I mean over the last
34:38
Speaker 3: five years, I'm using the comp function comp which is
34:40
Speaker 3: one of Matt Miller's favorite functions. So over the last
34:43
Speaker 3: five years, this stock has compounded three percent per year,
34:47
Speaker 3: Cisco s and P five and fourteen and a half percent,
34:49
Speaker 3: the S and P information technology sector twenty six percent.
34:53
Speaker 3: So it's really really underperformed going forward, which I guess
34:56
Speaker 3: over the next several quarters. What what Cisco's saying about
35:00
Speaker 3: their customers and inventory and you know what are they
35:05
Speaker 3: I mean cutting this forecast suggests that they don't have
35:08
Speaker 3: a lot of great visibility here.
35:10
Speaker 12: Yeah, so if you remember the server and storage cycle
35:17
Speaker 12: from a year ago, Cisco is going through that right now.
35:21
Speaker 12: Part of it is because of the supply chain glut
35:24
Speaker 12: all of a sudden, Their customers got their equipment two
35:29
Speaker 12: quarters ago and they're taking their time implementing it. So
35:33
Speaker 12: you know, typical cycles are roughly five to six quarters.
35:39
Speaker 12: I was running through the numbers and we're talking about
35:43
Speaker 12: anywhere between twenty seven to thirty percent declines for the
35:46
Speaker 12: next two to three quarters for Cisco, and they're probably
35:49
Speaker 12: not going to get out of it and return to
35:50
Speaker 12: growth until I'm sorry for the networking business, not sales
35:55
Speaker 12: for the networking business, but I don't think they won't
35:59
Speaker 12: get out of this decline until the second half of
36:01
Speaker 12: fiscal year, which is about a year from now.
36:03
Speaker 5: Right.
36:04
Speaker 12: So yeah, again, the model is going to be reworked,
36:10
Speaker 12: primarily because of the this Plunk deal, and the hope
36:14
Speaker 12: is is that they're going to have more recurring revenues
36:17
Speaker 12: UH to boost up the multiples going forward.
36:20
Speaker 6: Right, So subscription is basically rather than just here's your
36:24
Speaker 6: bit of hardware, see you guys later, where's the AI component?
36:28
Speaker 12: For Cisco, I will tell you they're making a lot
36:34
Speaker 12: of good progress and they had a billion dollars in
36:39
Speaker 12: bookings in black black orders with Cloud customers, and uh.
36:45
Speaker 12: The issue is is that that only represents two percent
36:48
Speaker 12: of total orders, right, so it's still relatively small. It
36:51
Speaker 12: is going to be growing, and they're probably going to
36:55
Speaker 12: bang the drum louder to the on on the AI
37:00
Speaker 12: on the AI theme over the next couple of quarters
37:03
Speaker 12: as these deals really start to balloon. The one thing
37:08
Speaker 12: is again, it's it's still a corporate IT name. If
37:12
Speaker 12: I were to pick, if I may, if I were
37:14
Speaker 12: to pick one AI name on the networking side, it's
37:18
Speaker 12: probably going to be more Arista than Cisco for now.
37:21
Speaker 3: So again, is there a way which is broadly defined
37:24
Speaker 3: on the hardware side, have investors embraced any of the
37:27
Speaker 3: hardware names as AI plays? Is it? Because it just
37:31
Speaker 3: doesn't feel like it. It feels like what I'm hearing
37:33
Speaker 3: from you know, a lot of your folks on the
37:35
Speaker 3: tech team of Bloomberg Intelligence. It's kind of software applications,
37:39
Speaker 3: that kind of thing.
37:40
Speaker 12: Yeah, so so so I can name four yep, right,
37:46
Speaker 12: Arista Networks, Right, if you look at that stock that's
37:49
Speaker 12: been up eighty eighty eight percent, super Micro that's been
37:54
Speaker 12: up eight hundred and forty six percent over the past year, right,
38:00
Speaker 12: and Dell that's been up ten percent. There's and they
38:02
Speaker 12: reported in a couple of weeks there's a growing AI
38:06
Speaker 12: story there and one name that's been underappreciated is probably HPE.
38:12
Speaker 12: They have a supercomputing business, high performance computing business. But
38:16
Speaker 12: the story is a little muddled because of a pending
38:18
Speaker 12: Juniper deal. And then there's you know, my my colleague
38:22
Speaker 12: Steve saying he covers the white box vendors, and there's
38:25
Speaker 12: some white box vendors that may potentially benefit from the
38:29
Speaker 12: from because they sell server equipment to the cloud guys.
38:33
Speaker 6: So you were saying that the AI stuff growing about
38:35
Speaker 6: two percent a year kind of thing. Is that considered
38:38
Speaker 6: good when you obviously compared to a different kind of
38:42
Speaker 6: company like and Video, it's not. But for Cisco in
38:44
Speaker 6: this area, would that be good?
38:46
Speaker 12: It's two percent of total sales, Okay, right, I suspect
38:50
Speaker 12: that's those that sales rate could potentially grow well into
38:56
Speaker 12: the double digits over the next couple of years.
38:58
Speaker 8: Uh.
38:58
Speaker 12: They are one of the arms players for AI. And
39:02
Speaker 12: you've had me on the show before. We've had this conversation,
39:06
Speaker 12: a technology conversation between Ethernet and infinite band. You're going
39:10
Speaker 12: to start seeing this burgeoning shift from Nvidia's infinite band
39:14
Speaker 12: technology to an open standard called Ethernet, and that's where
39:19
Speaker 12: Cisco is going to benefit over the next several years.
39:23
Speaker 6: Okay, So short term, what's next, like, what are us
39:25
Speaker 6: interested in? It's going to be this plunk like acquisition
39:28
Speaker 6: and getting that done, and how that's going to be
39:30
Speaker 6: merged exactly.
39:32
Speaker 12: I mean, look, it's probably well. First of all, I
39:36
Speaker 12: think that earnings cuts may have bottomed earnings a bottom
39:40
Speaker 12: from here. The next thing I need to do is
39:43
Speaker 12: fold in the bunk estimates when once they announce that
39:47
Speaker 12: deal and then and just keep track of where it
39:51
Speaker 12: spending is as a relative to Cisco, as well as
39:55
Speaker 12: keep track of where the AI story goes. Right, they
39:57
Speaker 12: had had a couple of nice announcements. We just need
40:00
Speaker 12: more and start to see it in the numbers in
40:02
Speaker 12: fiscal twenty five.
40:03
Speaker 6: All right, Booch, thanks a lot, really appreciate it. Ushinho
40:06
Speaker 6: joining us from Bloomberg Intelligence.
40:08
Speaker 2: This is the Bloomberg Intelligence podcast, available on Apples, Spotify,
40:13
Speaker 2: and anywhere else you'll get your podcasts. Listen live each
40:16
Speaker 2: weekday ten am to noon Eastern on Bloomberg dot Com,
40:19
Speaker 2: the iHeartRadio app, tune In, and the Bloomberg Business app.
40:23
Speaker 2: You can also watch us live every weekday on YouTube
40:26
Speaker 2: and always on the Bloomberg terminal