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Speaker 3: Alex Delaul Sweeney live here in our Bloomberg Interactive Brokers
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Speaker 3: and that's where you'll find this. Eli Lilly stock's hitting
Speaker 3: it up four percent today, all time high stocks up
Speaker 3: like fifty eight percent year to date. Patients taking Eli
Speaker 3: Lilli's blockbuster weight loss shot We're ninety four percent less
Speaker 3: likely to develop diabetes in a three year study that
Speaker 3: illuminates the long term health benefits of treating obesity and Alex.
Speaker 3: As you mentioned, these are just like wonder drugs.
Speaker 5: I mean, it definitely feels like they're all magical.
Speaker 3: They're magical thing. Yeah, they cure everything. So I need
Speaker 3: to figure out what's going on here. Sam Fazzelli he
Speaker 3: joined to SEE as the director of Research for Global Industries.
Speaker 3: He's a senior pharmaceutical analyst. That that's his day job
Speaker 3: for Bloomberg Intelligence. And believe it or not, he's actually
Speaker 3: at his desk in the London.
Speaker 5: He was in Bordeaux on Friday, and I was gonna.
Speaker 3: Say I expected him to be in some dialing from
Speaker 3: some exotic locale in Europe somewhere, but he's actually this
Speaker 3: is exotic.
Speaker 4: Look yeah, exactly.
Speaker 5: The ceiling looks pretty cool, all right.
Speaker 3: So Sam, I mean, well, thank you for coming into
Speaker 3: work as opposed to your peers there Bi Sam talk
Speaker 3: to us about Eli Lilly, their drugs here and obese.
Speaker 4: These numbers just jump out at you, don't.
Speaker 6: They They do, they do.
Speaker 7: But let me take you back a little bit where
Speaker 7: we not always told we went to the doctor and
Speaker 7: we started glucose was going up. Not not you guys,
Speaker 7: obviously you're a fascinatingly amazingly healthy and fit, but those
Speaker 7: who weren't and told you need to lose some weight
Speaker 7: to my friend, because you have risk of developing diabetes.
Speaker 7: So where is the if you reduce weight and manage
Speaker 7: the obesity, you lose all these you know, I'll be
Speaker 7: suppeating this thing, sleep APNA, risk of developing diabetes, everything
Speaker 7: that we're talking about here. You eat less, you lose
Speaker 7: weight less risk of developing diabetes, So not exactly a shock. Nevertheless,
Speaker 7: it's great to see that it actually does what it
Speaker 7: says under tin that by reducing weight you do manage
Speaker 7: all these side effects. But before we get too excited,
Speaker 7: I want to highlight one little wrinkle here. It's no
Speaker 7: wrinkle with the data if you read the press release,
Speaker 7: and I've got it right up here on my terminal
Speaker 7: eli Leui coming announced today positive top line results from
Speaker 7: this amount one a three year study, one hundred and
Speaker 7: seventy six week treatment period. Find me somebody who stayed
Speaker 7: in the real world on this drug for one hundred
Speaker 7: and seventy six weeks, so we survey physicians. But if
Speaker 7: we find forty weeks, I'm sure it's going to go up.
Speaker 7: But that very different setting. So how much of a
Speaker 7: real world will this actually translate into in terms of
Speaker 7: preventing diabetes.
Speaker 6: Time will tell.
Speaker 8: So you're not saying that the study was bogus. You're
Speaker 8: saying the study was real. But in reality, people don't
Speaker 8: stay that long on the drug. Therefore the results won't
Speaker 8: be as magical for them.
Speaker 7: Right in clinical trials, you get the best possible data
Speaker 7: basically because it's highly controlled.
Speaker 6: People are followed, you make sure that they stay on.
Speaker 7: There would probably have been people who have dropped off here,
Speaker 7: so maybe the actual average treatment period wasn't exactly one
Speaker 7: hundred and seventy six weeks for everybody, because people do
Speaker 7: drop off. And I'm assuming in this trial the data
Speaker 7: they're reporting to us is what's called intent to treat,
Speaker 7: i e.
Speaker 6: You've intended to treat that patience.
Speaker 7: Whatever happens to them, you still count them, even if
Speaker 7: they've fallen off the drug. Nevertheless, we need to see
Speaker 7: the detail. But in a trial setting things always look
Speaker 7: better than in real world. So here we have to remember.
Speaker 7: Average stay time according to our is that Mike show
Speaker 7: My colleague runs every six months. It's about forty weeks,
Speaker 7: similar to what we get for we go VI and people,
Speaker 7: and even the press release they say as soon as
Speaker 7: they came off, weight went back up and the risks
Speaker 7: started going up again of developing diabetes. So this is
Speaker 7: not something that you've cleaned it all up. I can
Speaker 7: stop now at one hundred and seventy six and I'm done.
Speaker 7: It's the same story over again.
Speaker 4: Right, exactly.
Speaker 3: So I mean, so look at the stock for Eli
Speaker 3: literly Sam, I say, it's up sixty four percent year
Speaker 3: to date, all time high.
Speaker 4: How much of this stock performance is these glps?
Speaker 7: Oh gosh, if you know, if you look at the
Speaker 7: chart and look at the flow of information and news
Speaker 7: and the upgrades et cetera that are coming to quarterlies,
Speaker 7: every quarterly result et cetera, to sales, I would say
Speaker 7: a meaningful chunk of this. I can't quantify it exactly
Speaker 7: because this is a company that's got other stuff going
Speaker 7: on Alzheimer's disease, oncology, you know, the skin diseases, et cetera.
Speaker 7: So this is not a one trick pony, but a
Speaker 7: large amount of this story. And you can tell by
Speaker 7: when somebody reports a positive result in a competitor setting.
Speaker 6: These stocks sell off four or five percent.
Speaker 7: Right, You remember the days with rash only three or
Speaker 7: four weeks ago, I think, right, And let's not forget
Speaker 7: in a few weeks time, we have the European Association
Speaker 7: for the Study of Diabetes Russia's data is coming out.
Speaker 7: Somebody is going to be up three or four percent
Speaker 7: that day, and somebody's going to be down three or
Speaker 7: four percent who it is.
Speaker 6: We'll see what the data says.
Speaker 8: So the point that you made that if people come
Speaker 8: off it and they gain the weight back, so in
Speaker 8: that sense, it's not like everlastingly magical. Will there be
Speaker 8: iterations though where that won't be the case.
Speaker 6: There's two ways of doing dealing with this.
Speaker 7: So you go on the drug, you come off the drug,
Speaker 7: you go back on the drug, you come off the drug,
Speaker 7: and you just do your cycling every few years after
Speaker 7: you've got to a point where you think, I don't
Speaker 7: know why people come off the drug necessarily on an
Speaker 7: average is it side effect tends to get a lot
Speaker 7: better over time, and.
Speaker 6: Maybe it's cost.
Speaker 7: Maybe it's because they're fed up begin taking an injection
Speaker 7: every week. So if you put all those things together,
Speaker 7: as they get cheaper and injections become once a month,
Speaker 7: maybe or they become oral for the maintenance phase of
Speaker 7: the dose, and that oral doesn't make you feel ill,
Speaker 7: feel ill every time you take it in terms of
Speaker 7: gastric intestinal maybe that's the future. Maybe there are other modalities.
Speaker 7: Amlin is one that Nova Notice and Zealand Farm are
Speaker 7: developing as a target that seems to have less side
Speaker 7: effect issues. Maybe you can maintain your weight loss by
Speaker 7: those drugs which don't have the same side effect issue.
Speaker 7: So that has to be the way that you see it.
Speaker 7: But nobody ever complies with the drug forever.
Speaker 3: Right When do the pharmaceutical companies SAM have a timetable
Speaker 3: for when they will have a pill format as opposed
Speaker 3: to an injection.
Speaker 7: Yeah, so they're all trying to develop them. There are
Speaker 7: a couple of companies Russia and Astros and a Covich.
Speaker 7: I've got what we would call traditional potentially small molecules
Speaker 7: that comes in a pill, so it's not the same
Speaker 7: biologic that you're currently seeing. The folks who are developing
Speaker 7: these same glpe GPS, et cetera. Are also trying to
Speaker 7: formulate them so that they can be taken orally. The
Speaker 7: trick there is if it starts releasing in the stomach,
Speaker 7: you need to take them on an empty stomach so
Speaker 7: that you get absorption.
Speaker 6: If you take them on a full stomach, then they
Speaker 6: have a problem.
Speaker 7: So that becomes a bit of a headache for somebody
Speaker 7: who gets up in the morning decides to eat or
Speaker 7: not eat, and then they also get side effects. So
Speaker 7: I would say three or four years there is already
Speaker 7: a diabetes version, Robeltsi's on the market as an oral.
Speaker 6: But let's say three or four years.
Speaker 5: What about heart disease? Does it actually cure heart or
Speaker 5: reduced death? I should say, and heart disease?
Speaker 6: Yeah, yeah, we know that already. We do we do,
Speaker 6: we do, we do that.
Speaker 7: We know that already from the cardiovascular outcomes trials, the
Speaker 7: sea VOTs that they've done, at least for Novo, I'd
Speaker 7: be very shocked if, if, if Lily doesn't get the
Speaker 7: same result.
Speaker 3: So for those on YouTube, there is literally no one.
Speaker 5: I tak two people, two people.
Speaker 6: In Sam's guys. It's it's five, it's three thirty here,
Speaker 6: it's tea time. We're in England. It's they're all up
Speaker 6: there having their tea.
Speaker 5: Tree thirty in the afternoon. Man pauls on the beach
Speaker 5: at that. Yeah, you're on the beach at b there
Speaker 5: you go.
Speaker 6: All right, Hey, Sam, I turned my camera that way.
Speaker 6: You see a lot more people.
Speaker 4: Okay, give me, we got like thirty seconds left here.
Speaker 3: What what's the exciting thing that you and your team
Speaker 3: are working on in terms of, you know what some
Speaker 3: of these treatments are out there that people need to
Speaker 3: be paying attention to.
Speaker 6: Yeah in general, I mean or we see the diabetes general.
Speaker 7: Okay, So we've got three three conferences coming up that
Speaker 7: we're all excited to buy. And as I said, the
Speaker 7: European Diabetes Conference. There RASH will get the data and
Speaker 7: we'll get some cuts of other data that would be
Speaker 7: an interesting one to look at. For ASMO European Oncology Conference,
Speaker 7: new data coming out, some press releases today for potentially
Speaker 7: surprising data. And then the World Lung Conference where we
Speaker 7: have some new modalities being presented. All of them will
Speaker 7: have something funky going on. And for the cancer ones,
Speaker 7: we have a webinar coming up hopefully for our clients.
Speaker 4: Very good. Sam Fazzelli, thank you so much.
Speaker 3: As always, director of Research for Global Industries. I'm not
Speaker 3: sure what that means. You should just be head of
Speaker 3: European Research when I was part of this thing, but
Speaker 3: they've changed it all up here. Most importantly, he's one
Speaker 3: of the top pharmaceutical and biotech analysts a city of London,
Speaker 3: and we got him at Bloomberg Intelligence and Bordeaux, France
Speaker 3: and Bordeaux friends exactly. I mean, you know again, I'm
Speaker 3: waiting for the invite for us to go over there,
Speaker 3: and I.
Speaker 5: Got a picture.
Speaker 4: You got pictures?
Speaker 8: Yeah, I got a picture from Friday. Okay, it's an
Speaker 8: old pick, but still it was something.
Speaker 4: Yeah, he's got like a horse farm there or something.
Speaker 5: I don't know whatever. Sam's just really cool, Okay, and
Speaker 5: we just totally love him.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Just say Alexa playing Bloomberg eleven.
Speaker 4: Let's go to Tesla.
Speaker 3: The stock's pretty much unchanged today. It's down about ten
Speaker 3: percent year to date. It's flat over trailing twelve months.
Speaker 3: Looks like the EU is looking to slap some terraffs
Speaker 3: on some of these Tesla vehicles that are coming that
Speaker 3: are made in China.
Speaker 4: Is this a big deal? The market doesn't seem to
Speaker 4: think so. The stock's not doing a whole lot.
Speaker 6: Here.
Speaker 3: Craig Trudell joins US Global Autos editor for Bloomberg News,
Speaker 3: joining us from London via zoom.
Speaker 4: Craig, what's the latest coming out of the EU.
Speaker 6: Here?
Speaker 4: As it relates to Tesla.
Speaker 9: Yeah, this is a case of Tesla having a bit
Speaker 9: of a special situation where other manufacturers are subject to
Speaker 9: terraffs on the basis and part of whether or not
Speaker 9: they cooperated with the EU's investigation of just how much
Speaker 9: they were subsidized by the Chinese government. And what the
Speaker 9: EU did here was they sampled a few companies and
Speaker 9: sort of, you know, took a specific look at a
Speaker 9: few manufacturers and made decisions based on what they found
Speaker 9: and on whether or not those companies complied with those investigations.
Speaker 9: And you know, some separate rates were going to be
Speaker 9: applied to companies that were not sampled. What Tesla did
Speaker 9: was go to Brussels and say, look, we don't think
Speaker 9: that we were subsidized as much as some of the
Speaker 9: other guys, so subject us to a lower duty rate.
Speaker 9: And that's what happened here. So they're subject to a
Speaker 9: nine percent tariff byd on the other hand, an additional
Speaker 9: seventeen percent. All of these rates are on top of
Speaker 9: the existing ten percent that cars coming in from China
Speaker 9: face when they are shipped into the EU. And so
Speaker 9: I guess, you know, if I'm an investor, I sort
Speaker 9: of knew that this was coming, had a sense that Tesla,
Speaker 9: you know, there was a potential for you know, a
Speaker 9: slightly more lenient treatment. But in the end, am I
Speaker 9: happy about Model three is being subject to nineteen duties
Speaker 9: you know coming in from Shanghai?
Speaker 6: Probably not.
Speaker 8: Does this mean that Elon Musk will want to manufacture
Speaker 8: more Tesla's in Germany then? Or is he just going
Speaker 8: to cut bait?
Speaker 9: I think it's a really interesting question. I mean, the
Speaker 9: model why is far and away, you know, the model
Speaker 9: for Tesla globally, and I think increasingly so. Even as
Speaker 9: as the company has you know, given a little bit
Speaker 9: of a facelift to the Model three, the why is
Speaker 9: really you know, the volume play for them, and they
Speaker 9: make those in Germany. It wouldn't be a cinch to
Speaker 9: add Model three to the to the plant in Germany.
Speaker 9: But you know, does it does it make a lot
Speaker 9: more sense to build that vehicle there as opposed to
Speaker 9: shipping it in from China. It may, you know, be
Speaker 9: in their best interest to do so. The nineteen percent
Speaker 9: duty is substantial enough to where it certainly has to
Speaker 9: make the math much more interesting in terms of whether
Speaker 9: or not they decide to pull that trigger.
Speaker 3: So from the EU's perspective here, is this a Tesla
Speaker 3: issue or is this just a China issue because I
Speaker 3: know they've got tarifs on other Chinese manufacturers as well.
Speaker 6: Yeah.
Speaker 9: I think the reason that that you know, Tesla is
Speaker 9: sort of being led with today and how this is
Speaker 9: getting covered is is Tesla, you know, was was sort
Speaker 9: of separate from everybody else looking to be assessed on
Speaker 9: its own.
Speaker 6: Uh.
Speaker 9: Whereas all the other manufacturers, uh, you know, the duty
Speaker 9: rates were known, Tesla was was still a little bit
Speaker 9: of a mystery. So this is you know, sort of
Speaker 9: one one more sort of checked box in terms of,
Speaker 9: you know, what the particulars are going to be for
Speaker 9: these duties that go into effect later this year. And
Speaker 9: you know, I think this is very sort of par
Speaker 9: for the course for anything that gets you know, decided
Speaker 9: by the European Commission. Uh, it gets decided over and
Speaker 9: over and over again. And so this is very much
Speaker 9: a broader China story. Uh. And and not Tesla specific.
Speaker 8: Did Tesla evs that are manufactured in China even make
Speaker 8: it into the EU and that point into the US
Speaker 8: or no?
Speaker 9: Yeah, the model all the Model three's that that are
Speaker 9: sold in Europe are coming from Shanghai at the moment,
Speaker 9: and uh, you know, so whether or not the company
Speaker 9: maybe uh perhaps they would potentially look at, you know,
Speaker 9: exporting from the US. I don't think we have a
Speaker 9: good enough sense of, you know, the particulars of their
Speaker 9: cost base to really sort of you know, be able
Speaker 9: to say what makes the most sense for them, uh,
Speaker 9: you know, sort of immediately as a result of this
Speaker 9: change in tariffs that will go into place. But it
Speaker 9: has been interesting that we have seen the company, even
Speaker 9: before these tariffs actually take effect, bump up their prices
Speaker 9: in Europe a little bit, and you've maybe seen that
Speaker 9: result in in some some challenges for them sales wise,
Speaker 9: where they've not had a very good start to the year,
Speaker 9: and that's even carried in into the second half where
Speaker 9: you know, the initial sales results that we've seen for
Speaker 9: Tesla have not been particularly good. I think the fact
Speaker 9: that they've not and able to continue to bring prices
Speaker 9: down and have sort of you know, been unsure whether
Speaker 9: or not all of the model threes that they're they're
Speaker 9: shipping into into the EU from China maybe subject to
Speaker 9: these tariffs. It has been absolutely a headwind.
Speaker 4: For them all right, Greig, thanks so much for joining us.
Speaker 4: Really appreciate it.
Speaker 3: Craig Trudell, a Global autos editor for Bloomberg News, joining
Speaker 3: us from London Q headquarters.
Speaker 4: There in London, you're listening.
Speaker 2: To the Bloomberg Intelligence Podcast. Catch us live weekdays at
Speaker 2: ten am Eastern on Focarplay and then brout Auto with
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Speaker 2: your podcasts, or watch us live on YouTube.
Speaker 8: Well, Alex you alongside Paul Sweeney, is a Bloomberg Intelligence Radio.
Speaker 8: We are broadcasting to live from Interactive Broker Studio right
Speaker 8: here in New York City. You can also check us
Speaker 8: out on YouTube as well. So back to the markets. Yeah,
Speaker 8: I appreciate nothing's really happening in the broader equity market.
Speaker 8: You are seeing little bit buying coming into the bond market,
Speaker 8: particularly in the front end. We all look towards Jackson Hole.
Speaker 8: I'm really into that revision of the labor data that
Speaker 8: we're going to get tomorrow. Is the FED going to
Speaker 8: be particularly behind the curb, But we wanted to get
Speaker 8: a professional to weigh in on all of this, and
Speaker 8: Dryden Pence is Chief Investment Officer at Pence Wealth Management
Speaker 8: and he joined us now in the studio Dryden.
Speaker 5: What do you think, what do you think we're going
Speaker 5: to learn this week.
Speaker 10: I think we're going to learn this week that the
Speaker 10: much predicted, you know, September rate cut is on the table,
Speaker 10: that labor data is probably going to be revised a
Speaker 10: little bit. I think people forgot that a lot of
Speaker 10: the labor data was affected by weather, and so you
Speaker 10: had people that were temporary or layoffs or things like that,
Speaker 10: so you get these anomalies that are when we've all
Speaker 10: witnessed weather here lately in New York City, so those
Speaker 10: things have caused it to.
Speaker 4: Change a little bit.
Speaker 10: I think we'll find September's on the table. I think
Speaker 10: that we'll find that the economy is still robust and
Speaker 10: not as I mean, while it's slowing, it's not slowing
Speaker 10: to the level that others were talking about. So I
Speaker 10: think we're going to find a benign move to a
Speaker 10: quarter cut in September, and then we're data dependent to
Speaker 10: see what happens in December.
Speaker 3: We're just finishing up I guess this week kind of
Speaker 3: earnings here. We've got some retailers coming in as well
Speaker 3: as in Nvidia coming up to kind of put a
Speaker 3: punctuation mark on it next next week, What did you
Speaker 3: make of the earnings season we just had.
Speaker 4: I think it's been a robust earning season.
Speaker 10: I mean, the point of the matter is is is
Speaker 10: you know, you had this growth scare that freaked everybody
Speaker 10: out a couple weeks ago. But I mean the point
Speaker 10: of matter is is that we're seeing the broadening out
Speaker 10: of earnings. The earning situation is that we've you know,
Speaker 10: earning recessions, you know, rolling recessions turned into rolling recoveries,
Speaker 10: and so you're seeing the earnings of the rest of
Speaker 10: the four ninety three of the S and P five
Speaker 10: hundred begin to move forward and come out. You're seeing
Speaker 10: about seven eight percent to thirteen percent earnings growth there,
Speaker 10: and that bodes well for the whole broader part of
Speaker 10: the market. So we're moving from magnificent seven, where Nvidia
Speaker 10: accounts for all the earnings growth, to the rest of
Speaker 10: the market moving forward. So that does one of two things.
Speaker 10: It either puts a floor on it by making it
Speaker 10: stronger and stable, or it moves the market forward as
Speaker 10: we go through the rest of the.
Speaker 8: Year, but only for those that actually had that earnings growth,
Speaker 8: So where did you see it? For example, like Bank
Speaker 8: of America's had all their clients bought everything last week except.
Speaker 5: For energy and industrials, Like, where do you see that growth?
Speaker 5: Where do you not?
Speaker 6: Well?
Speaker 10: I think the issue is I begin to see as
Speaker 10: we look at this later part of the cycle, we're
Speaker 10: going to see industrials begin to do better. And we
Speaker 10: think we're going to see industrials and small caps, and
Speaker 10: you're beginning to see pieces of that. I mean, most
Speaker 10: companies are beating their earnings growth estimates. As that's all
Speaker 10: come out, we're almost all the way through earning the season.
Speaker 10: But I think as you get into late third quarter
Speaker 10: and fourth quarters, we're moving through this and you're going
Speaker 10: to see companies begin to publish and begin to show
Speaker 10: even better earnings going forward. So it's again it's the
Speaker 10: broadening out of the S and P five hundred and
Speaker 10: also small caps and industrials. We think that are going
Speaker 10: to continue to see a regular cad of improvement.
Speaker 3: One of the companies on your list was actually in
Speaker 3: the news this week. A m D is a company
Speaker 3: that's on your list. They made an acquisition of ZT Systems,
Speaker 3: which is technology company based in the bustling technology hub
Speaker 3: of Secaucus, New Jersey.
Speaker 4: I know, what's your AMD call.
Speaker 10: We have been We've liked a m D for a
Speaker 10: very long time, and we've owned it from the when
Speaker 10: it was in some of our portfolios since it was
Speaker 10: a you know, a small cap and just out there.
Speaker 10: Now it's all the way, it's you know, moved up tremendously.
Speaker 10: So we liked it for a very long time. We
Speaker 10: like a m D here too, in terms of what
Speaker 10: they're doing with their company. You know, there's sort of
Speaker 10: the number two in a lot of spaces, not only
Speaker 10: the advanced stuff but just kind of the everyday chips.
Speaker 10: We've always said by chips on dips uh. And so
Speaker 10: we think that with with AI, with everything going on,
Speaker 10: this is a this acquisition is a MD kind of
Speaker 10: you know, getting really serious about going after Nvidiah and
Speaker 10: so I like companies that are number two and hungry.
Speaker 5: Okay, So it's like an AMD not and video story
Speaker 5: for you, right, gotcha? You also like Chipotle?
Speaker 6: I do?
Speaker 5: And do you like it without the CEO Brian Nikol, Well.
Speaker 10: The point that makes a big difference in Starbucks needed
Speaker 10: to make a change. There's probably a good move there.
Speaker 4: But when you think.
Speaker 10: About the consumer, consumers are what we call it, have
Speaker 10: now become more conscious. You know, at one point, coming
Speaker 10: out of the pandemic, it was going to buy anything
Speaker 10: at any price because everybody who had to all this liquidity.
Speaker 10: Now we're seeing that the consumers being pickier.
Speaker 4: They want value.
Speaker 10: This is why if you contrast Chipotle and McDonald's, I mean,
Speaker 10: fast food is supposed to be fast and cheap, and
Speaker 10: one becomes neither, right, then people move away from it.
Speaker 4: And you saw that with McDonald's.
Speaker 10: With Chipotle, people are seeing value in what they're spending.
Speaker 10: So you're continuing to see, Okay, it's worth the extra
Speaker 10: money for what I'm getting, and I'm paying for that,
Speaker 10: and so that becomes a more stable, stable move. So
Speaker 10: we think that the whole story here is about a
Speaker 10: conscious consumer. They're still spending money, more people are making
Speaker 10: more money than ever before, and they're spending it, but
Speaker 10: they're being more discerning about it and they're being a
Speaker 10: little pickier.
Speaker 3: What do you think about the consumer here? Does that
Speaker 3: a lot of folks are saying there's really at least
Speaker 3: two consumers out there, the ones I own risk assets,
Speaker 3: whether stocks, bonds, real estate, and they're doing fine and
Speaker 3: maybe even more fine if the indust rates come down,
Speaker 3: and then there's everybody else who really feels the brunt
Speaker 3: of inflation in their pocketbook.
Speaker 4: Does that impact kind of the stocks you look at
Speaker 4: it does?
Speaker 10: I mean, we really do focus on We look for big,
Speaker 10: noble themes driving consumer activity. We look for choke points
Speaker 10: or companies that really you don't have a kind of
Speaker 10: either monopolistic power. They're a key into that consumer behavior.
Speaker 10: So what we're again, we're seeing this trend of consumers
Speaker 10: being pickier. You have people at the lower end of
Speaker 10: the economic spectrum are certainly becoming stretched. Inflation is changing
Speaker 10: their behavior a little bit. But it's very interesting. Inflation
Speaker 10: expectations have come down now people are beginning to make
Speaker 10: some changes in that and you and you and you.
Speaker 4: Did see some real wage growth.
Speaker 10: So I think the big thing that the agenda, and
Speaker 10: whether it's politicians or anybody else, it takes a little
Speaker 10: time for these things to work their way through the economy,
Speaker 10: and I think that we're seeing some stabilization of it.
Speaker 10: Consumer confidence is probably beginning to get a little bit better,
Speaker 10: not a little bit worse. So I think this is
Speaker 10: an adjustment period that we're moving from a torrid pace
Speaker 10: of economic growth to a sustainable one, right, like.
Speaker 5: Just slowing, not slumping basically.
Speaker 8: But you know, back to Chipotle for a second. So
Speaker 8: this is what I've heard from Paul. You said three tacos.
Speaker 3: Okay, there, we got caught out on social media for
Speaker 3: under you know, skipping on some of the ingredients. So
Speaker 3: they went overboard and now overstuff your orders to the
Speaker 3: point now that I only get two tacos instead of three.
Speaker 5: So how is that good for Chippotle?
Speaker 8: Because it's good for Paul, it's good for but like
Speaker 8: it is it good for them? Like their top line
Speaker 8: doesn't grow as much and they have to put out
Speaker 8: more in the food.
Speaker 5: I think they have done.
Speaker 10: This is where chip has a competitive advantage in that
Speaker 10: they really do pay attention to their consumers and their customers,
Speaker 10: and they really focus throughout their entire history as how
Speaker 10: do I put these families, these people that are coming
Speaker 10: into these stores. These people are that they have a
Speaker 10: reliable product at a reasonable price, and they consumers see
Speaker 10: value and if they see value, they show up. And
Speaker 10: I think that that's what that's a that's a competitive
Speaker 10: advantage that Chappotle has, uh maybe against some of the competitors.
Speaker 10: And that's what you're saying, right, they listen, they react,
Speaker 10: they really react, and everybody feels it. So that's that's
Speaker 10: a good consumer products company and we like those.
Speaker 4: Yep, it's good stuff.
Speaker 6: All.
Speaker 3: So much for journey us Dryden Pen's chief investment officer
Speaker 3: Pence Wealth Management, based in Newport Beach, California.
Speaker 4: We've covered that territory before. I'm not buying. I'm not
Speaker 4: buying the whole Pimpco thing out there.
Speaker 8: It's pretty out there, beautiful. That's something as long as
Speaker 8: it lasts, right, mudslines.
Speaker 4: Nice, someone's got it there. I'm glad I do exactly exactly.
Speaker 8: All right, Well, coming up, I'm going to talk to
Speaker 8: Paul about what he can expect at his next luxury
Speaker 8: hotel trip.
Speaker 4: Nice.
Speaker 5: Uh huh okay, bunk beds. Oh no, yeah, yeah, he's
Speaker 5: going to be into it.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Just say Alexa playing Bloomberg eleven thirty.
Speaker 8: Alex, you' here alongside Paul sw We need. This is
Speaker 8: Bloomberg Intelligence Radio. We cover all the top news and business,
Speaker 8: economic and finance. There are lens of our Bloomberg Intelligence folks.
Speaker 8: They cover two thousand companies and one hundred and thirty
Speaker 8: industries all around the world. For now that we're going
Speaker 8: to go to Miami, Florida, because you know, why not,
Speaker 8: We're going to speak to Henri Pierre Jacques. He's co
Speaker 8: founder and managing partner at Harlem Capital Partners. He joins
Speaker 8: us from Miami, Florida.
Speaker 5: Now.
Speaker 8: Harlem Capital Partners was founded back in twenty fifteen. Is
Speaker 8: a venture cap firm based in New York, and it
Speaker 8: prefers to make investments and things like AI, consumer technology,
Speaker 8: E commerce, enterprise, human resource technology, all the stuff that
Speaker 8: we talk about every single day. Henri Pierre walk me
Speaker 8: through kind of how you guys think of the AI
Speaker 8: landscape right now, the good investments and the risky investments.
Speaker 11: Yeah, I mean, obviously there's a lot of hype around AI.
Speaker 11: I mean, I think the way that we think about
Speaker 11: it generally, as we want to invest in AI companies
Speaker 11: that don't touch anything close to the large incumbents such
Speaker 11: as Apple, Apple, Microsoft, Chat, TBT, and so we're really
Speaker 11: focused on vertical AI applications, and so some of our
Speaker 11: investments have been in super niche fields like accounting AI services,
Speaker 11: insurance broker AI services, and so we're really trying to
Speaker 11: not touch the consumer AI marketplace. So we think distribution
Speaker 11: largely will win there for the large players.
Speaker 3: So, Henri, how do you We're such in the early
Speaker 3: innings of AI, A lot of people don't even know
Speaker 3: what it is, can't really articulate what it is, how
Speaker 3: it's used, what the applications are. Yeah, I'm thinking me,
Speaker 3: I'm speaking my own book here. How do you guys?
Speaker 3: How are you guys approaching AI right here? Because it
Speaker 3: feels to me like AI today is what we were
Speaker 3: calling big data five years ago and ten years ago
Speaker 3: we're just calling tech. So I'm not sure what it is.
Speaker 3: How are you guys approaching if from an investment perspective?
Speaker 11: Yeah, I mean, ultimately, AI has been around for decade plus.
Speaker 11: I think what this wave has seen as generitive AI,
Speaker 11: which is more of the image and tool and video creation,
Speaker 11: and people are kind of bucketing that for all of AI.
Speaker 11: I mean largely for a lot of the companies we
Speaker 11: invest in, like they're really just enterprise software companies that
Speaker 11: are using AI in the background. Ultimately, you know, right
Speaker 11: now there are more CFOs and CTOs who are getting
Speaker 11: AI budget spinds, and so if the company says AI,
Speaker 11: then their company will allow them to spend more. But
Speaker 11: the end of the day and the next three to
Speaker 11: five years, like the customer only cares about how you're
Speaker 11: solving their problem, right, We've gone through the similar way
Speaker 11: for what in blockchain. If you're solving my problem on
Speaker 11: web two versus blockchain versus AI, autesome I don't really care, right,
Speaker 11: But there are these cycles where you'll see spend get budgeted,
Speaker 11: and that's why you're seeing a big pullback for a
Speaker 11: lot of the SaaS public companies because the software spins
Speaker 11: getting drive to the AI spin. But in three to
Speaker 11: five years, you know, maybe even shorter, that word won't
Speaker 11: be where spin is going. It's ultimately, are you solving
Speaker 11: the problem that the customer has? And so we're less
Speaker 11: focused on the technology and more about what problem are
Speaker 11: you solving? If you're using I versus software doesn't really
Speaker 11: matter in the day, but you will get these short
Speaker 11: term cycles where people will have spin for certain you know,
Speaker 11: technologies because it's hot in the market.
Speaker 8: Can you give me some examples of some of your
Speaker 8: recent investments in AI, like the companies and sort of
Speaker 8: why them, but dumb it down for me for sure.
Speaker 11: Yeah. So one that I did, it's called test Party.
Speaker 11: So basically what they do is they help websites be
Speaker 11: eighty A compliant. And so a lot of people are
Speaker 11: either deaf or blind or have blurry vision. And there's
Speaker 11: actually like betteral laws that require companies to have what
Speaker 11: sites that are accessible to them, right, and traditionally speaking,
Speaker 11: people are going through this you know, either you're paying
Speaker 11: somebody in India or it's very manual. Right, And now
Speaker 11: we can use AI to actually go through and scrub
Speaker 11: these sites and tell you, hey, these parts of your
Speaker 11: sites are broken. Here's the code that can do to
Speaker 11: fix it until you're eighty eight complyiant and you know,
Speaker 11: billions of dollars a year. You'll see lawsuits where people
Speaker 11: are getting sued because their websites aren't compliant. And so
Speaker 11: this is a tool. This has been like, these companies
Speaker 11: have been around, but they largely were consulting services before,
Speaker 11: but now it's instead of having to pay people to
Speaker 11: do this, you can actually use technology to help, particularly
Speaker 11: e commerce websites, be more accessible to people who maybe
Speaker 11: not have you know, perfect vision or perfect hearing.
Speaker 3: Henri, what's a what's a typical deal side? I guess
Speaker 3: what's a typical investment look like for you guys? Maybe
Speaker 3: in terms of size? How early do you guys like
Speaker 3: to get into these companies? What's a what's something in
Speaker 3: use Spot?
Speaker 11: I mean we're super early, so I mean our bread
Speaker 11: and butter is kind of pre seed seed, So I
Speaker 11: would say typically these companies are between zero and a
Speaker 11: million of revenue. Our sweet Spot check is a one
Speaker 11: point five to three million dollar check usually for ten
Speaker 11: to fifteen percent ownership. So we're really early. I would
Speaker 11: say half our companies we're pre revenue. Half our companies
Speaker 11: we're post revenue. But ultimately, you know the stage that
Speaker 11: we're at. We're backing the founders, but like sometimes there
Speaker 11: are our businesses and customers, but sometimes there's no product
Speaker 11: or no customers yet, and we're really just making a
Speaker 11: bet on the founder to kind of you know, go
Speaker 11: and tackle their vision again.
Speaker 5: That gives me so much anxiety just hearing about that.
Speaker 4: What's a success ratio?
Speaker 11: My wife says the same for.
Speaker 3: Someone like you at Harlem Capital Partners, what's a typical
Speaker 3: success ratio? Like you've started this in twenty fifteen, we're
Speaker 3: nine ten years into it, So how's that run for
Speaker 3: you guys?
Speaker 11: Yeah, I mean so for context, we started as an
Speaker 11: angel syndikit, so for three to four years we were
Speaker 11: investing our own money into companies, and then we actually
Speaker 11: raise a fund for our capital five years ago. So
Speaker 11: we're on our second fund now, so really like five
Speaker 11: years into the journey of like having a stitutional capital,
Speaker 11: you know, typical like I can give you, like we're
Speaker 11: early in the cycle, but we have kind of like
Speaker 11: a forty percent Series A conversion. I would say that's
Speaker 11: like really the target for seed stage funn is how
Speaker 11: many of your companies get to the Series A because
Speaker 11: from there you typically see a sixty percent conversion to
Speaker 11: the Series B seriously et cetera, and beyond. So that's
Speaker 11: like the near term measurement that we're focused on, but
Speaker 11: like long term, yeah, it's really hard. Obviously early stage venture,
Speaker 11: you know, three percent or startups become unicorns, and it's
Speaker 11: a law of outliers, right, and so typically, you know,
Speaker 11: if you invest in thirty companies, one to two companies
Speaker 11: will drive your returns and like that's ultimately what you're
Speaker 11: fighting for, and the other twenty eight will be you know,
Speaker 11: call it zero to five exes. But the one winner
Speaker 11: is the one that kind of drives your returns. So
Speaker 11: it's not it's stressful.
Speaker 5: Yeah, I mean, hey, it's not hard. No, No, this
Speaker 5: is definitely not my risk profile. I needs steady job,
Speaker 5: I need the whole thing before I let you go.
Speaker 8: We have like a minute left here. Talk about some
Speaker 8: recent investments in say, vertical software.
Speaker 11: Yeah, so a company called Finterry. So it's a reconciliation
Speaker 11: platform for insurance brokers. So oftentimes insurance companies are kind
Speaker 11: of outsourcing who they're using for the sales process. You
Speaker 11: have like ten different brokers, they're getting paid differently, different timetables.
Speaker 11: And so now you can use AI to actually, like
Speaker 11: it's vertical software, but you can use vertical software or
Speaker 11: AI help those companies actually manage the process of paying
Speaker 11: all those brokers. Traditionally speaking, those have been done in
Speaker 11: excel files, word documents, and so we invest in this
Speaker 11: company pre revenue. They've grown ten x in the last
Speaker 11: nine months. They're going really quickly. And so what we're
Speaker 11: seeing vertical software is a lot of these companies are
Speaker 11: looking for very specific problems because everybody who has been
Speaker 11: buying software for the past ten to twelve years, so like,
Speaker 11: nobody really no longer needs this broad solution because Microsoft
Speaker 11: or Salesforce or whoever is kind of solving that. But
Speaker 11: if you have a very specific problem, I'm willing to
Speaker 11: pay for the software. But people aren't generally buying horizontal
Speaker 11: software anymore because that's kind of been done. There's already
Speaker 11: a lot of incumbent who are solving massive problems, like
Speaker 11: it's a very specific problem that a company has.
Speaker 5: Hey, Henri, this has been a real pleasure.
Speaker 8: I definitely want to hear more about how all of
Speaker 8: this continues to unfold for you. On RePr, Jack co
Speaker 8: founder and managing partner at Harlem Capital Partners, joining us
Speaker 8: from Miami, Florida.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 3: We are live here in our Bloomberg Interactive Brokers studio.
Speaker 3: We're streaming live on YouTube as well, so they head
Speaker 3: over to YouTube dot com and search Bloomberg Podcast and
Speaker 3: that's where you can find us. Talk about some volatility.
Speaker 3: You know, two weeks ago Monday, we had a VIX
Speaker 3: that surged above sixty. I think I got about sixty
Speaker 3: five intra day. The VIX right now for Tom Keen
Speaker 3: is at fifteen spot for what a move there?
Speaker 4: What's a money manager?
Speaker 3: What's an investor to do with that kind of volatility?
Speaker 3: Katarina Simi and then she joins us. She's a senior
Speaker 3: vice president private wealth advisor for Morgan Stanley Private Wealth Management. So,
Speaker 3: KATHERINEA talk to us. What kind of conversations have you
Speaker 3: had with your clients over the last couple of weeks
Speaker 3: as they dealt with that volatility From a couple of
Speaker 3: weeks ago to weoiver right back where we started.
Speaker 4: It seems like, well, and.
Speaker 1: Alex, thank you for having me on. You are one
Speaker 1: hundred percent right. This definitely is not a lazy summer
Speaker 1: investors are concerned.
Speaker 6: You know.
Speaker 1: The questions that we get ranged from how sustainable is
Speaker 1: this rally or how long the market decline is going
Speaker 1: to last? Because we see these fluctuations that are making
Speaker 1: investors very nervous. And one thing we know for sure
Speaker 1: is this volatility is here to stay. If we look
Speaker 1: back historically at these stretches eating two presidential elections, they
Speaker 1: usually are known for this heightened volatility. And what we
Speaker 1: tell our clients is really to expect it, to be
Speaker 1: prepared for it, to take take advantage of the dips
Speaker 1: in the market when it makes sense, to rebalance portfolio
Speaker 1: to stay on the quality side, and definitely avoid making
Speaker 1: any type portfolio changes based on what they think the
Speaker 1: outcome of the election might be, because you know, as
Speaker 1: we all know, there might be surprises, you know. So
Speaker 1: we have the roadmap for either outcome, but we are
Speaker 1: going to start implementing it after we have clarity on
Speaker 1: the outcome.
Speaker 8: Where would you buy market on dips right now and
Speaker 8: where would you be selling any rip alex.
Speaker 1: What we see right now is disproportionate over exposure to
Speaker 1: technology in many portfolios, and we love technology. It is
Speaker 1: definitely here to stay. But this is where you know,
Speaker 1: sometimes it's skewed and off balance, and what we recommend
Speaker 1: to do is go back and rebalance and buy on
Speaker 1: dips into the sectors like financials, industrials, consumer staples, healthcare, energy,
Speaker 1: and just to make sure that you know, we have
Speaker 1: this strategically positioned portfolio, especially if we add the stocks
Speaker 1: or emphasize the stocks that pay dividends. Now, in addition
Speaker 1: to growth, we also have that income component that is
Speaker 1: going to help investors get through this turbulent, highly volatile time.
Speaker 3: How about in the bond market, Katerina, how are you
Speaker 3: telling your clients to be positioned here? Should they just
Speaker 3: go take it to your treasury and get four percent
Speaker 3: or maybe take some credit risk.
Speaker 1: Well, Paul, you know, this is where we have to
Speaker 1: make some tough decisions. You know, we know that the
Speaker 1: interest rate cuts on the horizon, and whether we are
Speaker 1: going to get a quarter point cut or a half
Speaker 1: point cut. We know rates are coming down and towards
Speaker 1: the end of the year they're going to get most
Speaker 1: likely lower than where they are today. So investor sav
Speaker 1: a choice. They still have picks of the higher rates.
Speaker 1: When we look back, you know, at last twenty twenty
Speaker 1: five years. You know, I became financial advisor in ninety nine,
Speaker 1: and this is the first time in my entire career
Speaker 1: I'm seeing rates at these levels. So take your pick.
Speaker 1: There are opportunities in high yield. There are opportunities in
Speaker 1: high quality investment grade corporates. You know, there are still
Speaker 1: you know, some buys that we can find in municipals.
Speaker 1: We don't recommend going out on the far side of
Speaker 1: the yield curf, you know, we are you know, really
Speaker 1: trying to stay moderate in the middle. But we don't
Speaker 1: want to go too short either because we're going to
Speaker 1: run out of rates and then you know, most likely
Speaker 1: default in default into much lower yields.
Speaker 8: But in the corporate credit market, I was reading an
Speaker 8: article today that talked about how there is so much
Speaker 8: demand for precisely the scenario that you lay it out,
Speaker 8: that you have to just go down the credit quality
Speaker 8: to get yields even at five percent. So that kind
Speaker 8: of upside that you're used to getting from the corporate
Speaker 8: bond market really isn't there. So how much risk do
Speaker 8: you want to be taking on right now?
Speaker 1: Well, Alex, there are two sides to look at it.
Speaker 1: You might need to take on a little bit more risk,
Speaker 1: but still stay in the investment grade. The other side
Speaker 1: of it is to look at patting somewhat higher premium.
Speaker 1: And we're not talking, you know, like ten years ago
Speaker 1: when we're paying ten ten percent over par. You know, yes,
Speaker 1: prices or wants have moved, but there are still some
Speaker 1: buying opportunities and there's still dips, just like in the
Speaker 1: equity markets. You know, somebody is looking into building their
Speaker 1: fixed income portfolio, you know, there has to be diversification,
Speaker 1: exposure to various asset classes like high yield, investment grade,
Speaker 1: municipal preferreds, you know, and just putting together this well
Speaker 1: balanced portfolio and buying it gradually and strategically. But I
Speaker 1: probably would not wait too long because once the rangers
Speaker 1: are going to start coming down, you know that moved
Speaker 1: to higher prices and lower quality is going to continue.
Speaker 3: Katerina, how do you position alternative investments for your clients?
Speaker 3: You know, I'm I'm always surprised that retail investors have
Speaker 3: an appetite for alternative investments, whether it's hedge funds or
Speaker 3: private equity or private debt. How do you guys position
Speaker 3: that well?
Speaker 1: Alternative investments definitely give us an opportunity to access parts
Speaker 1: of the market with that we otherwise can not, and
Speaker 1: we by doing that, we give ourselves, you know, the
Speaker 1: access to potentially higher returns. But also alternatives can be
Speaker 1: used as very effective hedge against the market risks where
Speaker 1: we're looking to attain the market like returns with lower
Speaker 1: than the market risks.
Speaker 6: You know.
Speaker 1: The trade of here, of course, the lack of liquidity,
Speaker 1: and not all of them created equals. Some alternatives have
Speaker 1: there are a little bit more liquid private equity investments,
Speaker 1: for example, are not you know, so that's the trade
Speaker 1: of for investors when they're making a decision to go
Speaker 1: into this alternative space. We absolutely see opportunities distressed creddit,
Speaker 1: you know, real estate. There are some you know, pockets
Speaker 1: of the market that can be access there. But lack
Speaker 1: of liquidity is something that is a very big consideration
Speaker 1: for a lot of investors.
Speaker 8: Oh yeah, I mean just check out the last couple weeks.
Speaker 8: What about small caps? Can you give me the spiel
Speaker 8: on small caps? It feels like these guys are definitely
Speaker 8: hitting a binary world, like you either love them or
Speaker 8: you hate them.
Speaker 1: Well, absolutely, and Alex not that the history always repeats itself.
Speaker 1: But when we look back at the past cycles, once
Speaker 1: the rates are starting to come down, usually we first
Speaker 1: see the optic in large cabs, but then it's followed
Speaker 1: by the optics in small cabs and broader. On the
Speaker 1: economic level, you know, we have the higher interest rate
Speaker 1: environment which is affecting consumer confidence and also it is
Speaker 1: effective expecting profitability of the companies and you know, on
Speaker 1: one side, we're happy, then inflation is coming down. On
Speaker 1: the other side, this is where you know, the profit
Speaker 1: margins are being squeezed as well, more so for the
Speaker 1: small caps than for the large cabs. But at the
Speaker 1: same time, it might be a delayed reaction, but we
Speaker 1: absolutely are positioning small caps in the portfolio. The returns
Speaker 1: that we have seen recently is somewhat of a surprise
Speaker 1: because for us is more of a long play, you know,
Speaker 1: we're looking at the longer time horizon for that position.
Speaker 3: Hey, Keterinea, we're just finishing up on earning seasons. What's
Speaker 3: you been your takeaway for earning so far?
Speaker 1: Well, we've seen you know, pretty good earnings so far
Speaker 1: in the year, which was almost a pleasant surprise, you know,
Speaker 1: they were better than expected. Our outlook for the remainder
Speaker 1: of the year is not quite as optimistic, as we
Speaker 1: see earnings being affected by consumer confidence, by higher rate,
Speaker 1: by lack of liquidity, and also by just general economic slowdown.
Speaker 1: And our base scenario is still that soft lending scenario
Speaker 1: that is going to affect some parts of the market
Speaker 1: and some parts of the economy. But we see the
Speaker 1: earnings being not quite as good as we saw earlier
Speaker 1: in the year. And the most important piece of data
Speaker 1: for us are these forward looking estimates as companies are
Speaker 1: posting their earnings, you know, for us to really see
Speaker 1: how well they're positioned in the market. And that's why
Speaker 1: in this particular time, we favor individual stock investing versus
Speaker 1: index investing, where we can specifically focus on valuations, on
Speaker 1: market position, and on the forward cooking out cooking earnings.
Speaker 5: Before we let you go, Jackson Hall, what are you
Speaker 5: looking for?
Speaker 1: Who knows?
Speaker 5: You know, that's a great answer.
Speaker 7: Is it is really just.
Speaker 1: So so difficult to you know, pinpoint and exactly you know,
Speaker 1: exact data that should come out of it, you know,
Speaker 1: for us to you know, to build the roadmap. But
Speaker 1: we're looking for, you know, just just a little bit
Speaker 1: of positivity to you know, give give investors some good news,
Speaker 1: you know, during this time of market volatility prior to
Speaker 1: the election.
Speaker 8: Right, so like slowing economy, but not like a slump
Speaker 8: economy like that kind of idea.
Speaker 1: That's exactly right. Anything that leads us to soft lending,
Speaker 1: you know, is good is good enough for us.
Speaker 5: All Right, Well, I appreciate it, Thank you so much.
Speaker 8: Katerina Semonetti joining US Senior vice president, private wealth advisor
Speaker 8: of Morgan Stanley Private Wealth Management.
Speaker 5: I feel like the Jacksonville conversation.
Speaker 8: Would be really different like three weeks ago, like it
Speaker 8: was right after that job's number, And I wonder if
Speaker 8: Powell winds up changing or talk about the market action
Speaker 8: in relation to jobs, like I wonder how he talks.
Speaker 3: About that, because again, two weeks ago Monday, there was
Speaker 3: particularly in the morning session, a real so weekenic exactly
Speaker 3: in the marketplace, we stabilized kind of midday, kind of
Speaker 3: rallied a little bit towards end of that day, and
Speaker 3: then ever since then they're kind of moving up into
Speaker 3: the right.
Speaker 5: So you forgot that Friday because you're on the beach.
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