Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: at Bloomberg dot com slash podcast. All right, here's the
Speaker 1: here's the latest across the Bloomberg terminal. Musk says no
Speaker 1: one wants top job, but some people have piped up.
Speaker 1: I mean, it just gets crazier by the day. He's
Speaker 1: got a you know, a survey out there, Critty saying,
Speaker 1: you know, if you want me to step down, I'll
Speaker 1: step down, and of the respondent says, yeah, you should
Speaker 1: step down. So that's news. Then my question is who
Speaker 1: wants the job? So we come back to the story
Speaker 1: because this story just keeps giving Man deep Seeing, senior
Speaker 1: technology analyst for Bloomberg Intelligence, and Dan Ives, senior equity
Speaker 1: analyst at Wedbush Securities and join us here. Uh. Dan,
Speaker 1: I hate to kind of keep bringing this up because again,
Speaker 1: but you know, you've been one of the biggest supporters
Speaker 1: of this name of electric vehicles, really educating investors over
Speaker 1: the last you know, five six, seven years about the
Speaker 1: e V market, the potential, the upside here, but the
Speaker 1: fundamental calls being overwhelmed by the Elon Musk call any
Speaker 1: kind of how do you view the lasts worth of news?
Speaker 1: Just more the same? I guess yeah, look good. I
Speaker 1: think it's been a twilight soon because I'd say about
Speaker 1: of the sell off that we're seeing in Tessa is
Speaker 1: Twitter driven. I mean, and it would be a step
Speaker 1: in the right direction clearly from Musk to give up
Speaker 1: the reins is CEO of Twitter. But look, this is
Speaker 1: a forty four billion dollar nightmare that you know, just
Speaker 1: continues to increase. I think it's black eye from Musk,
Speaker 1: a black eye for Tesla. Mandy. Talk to us a
Speaker 1: little bit about this now private business here. Is there
Speaker 1: any sort of recovery? I think the last time we
Speaker 1: had you on, I want to say, last week, you
Speaker 1: said that if this was a publicly traded stock still
Speaker 1: Twitter would be worth less than ten dollars a share,
Speaker 1: which incredible, And again Ellen bought and I think he
Speaker 1: still looking for new investors, by the way, who are
Speaker 1: still looking at the same amount. But man, deep is
Speaker 1: there any sort of scenario here where Twitter's valuation is
Speaker 1: re upt well, So clearly now he's talking about a
Speaker 1: management change and bringing in someone else than him to
Speaker 1: run the company, and I think it will be positive
Speaker 1: depending on who he gets. Look if you get somebody
Speaker 1: like Cheryl Sandberg, that's a big you know, uh moment
Speaker 1: for the company, even if this thing takes a long
Speaker 1: time to turn around. But I think somebody with credentials
Speaker 1: is going to make a big deal in terms of,
Speaker 1: you know, what could happen to Twitter going forward. But
Speaker 1: we know right now the company is bleeding advertisers, the
Speaker 1: employee morale is low, it's struggling with regulators. So clearly
Speaker 1: a lot is going wrong with the company right now.
Speaker 1: So you need somebody who can study the ship, somebody
Speaker 1: who has good credentials, and I think that could make
Speaker 1: a difference here. So, Dan, you mentioned that in your opinion,
Speaker 1: you know, maybe the decline in Tesla stock is due
Speaker 1: to Twitter. So one of the questions I have, and
Speaker 1: you've covered this company's systems inception, can you give us
Speaker 1: a sense of isn't really Elon Musk? How critical is
Speaker 1: Elon Musk to the day to day management of Tesla
Speaker 1: to the strategic direction of Tesla. Is there a deep bench, there,
Speaker 1: is there a management team there? Book Musk is the
Speaker 1: hearts and rungs of the Tesla story. And I mean
Speaker 1: you'd have to go back maybe two jobs with Apple
Speaker 1: and Jack Wells g E for any sort of comparisons.
Speaker 1: I mean, look, I think that's the issue is that
Speaker 1: his attention has really been to focus more on Twitter
Speaker 1: and the perception perceptions, reality is that Tessa needs him
Speaker 1: more than they ever have and and and that's sort
Speaker 1: of the frustration here is that the Twitter spider Web
Speaker 1: has just been a disaster for Tesla holders. And it's
Speaker 1: also have taken attention from much from his golden child
Speaker 1: Tessa to what's really a quick fan situation when it
Speaker 1: comes to Twitter. And and Dan, just do you have
Speaker 1: any sense, again having followed this company since this inception
Speaker 1: the board, is there any chance that this board can
Speaker 1: have any influence on this overall situation specifically kind of
Speaker 1: dealing with elon Musk. Look, I think ultimately Musk, you know,
Speaker 1: when he speaks, others listen in terms of you know,
Speaker 1: the board situation means, I think there could be you know,
Speaker 1: definitely more pressure from the board or at the end
Speaker 1: of the day, I mean, must continues to go to
Speaker 1: the beat of a different drum and he's not really
Speaker 1: going to listen to anyone. I do think here the
Speaker 1: writings in the wall, I feel like he did start
Speaker 1: to understand that he's not gonna be able to turn
Speaker 1: around Twitter himself to some extent. Actually, it's made it worse,
Speaker 1: you know, since Wad October, and that's been part of
Speaker 1: the overhang on Tesla because with the big this issue
Speaker 1: pause that he's using Tesla as his own personal ATM
Speaker 1: machine to fund Twitter. Well, what kind of upside does
Speaker 1: that then mean for Tesla shares? Specifically, if you say
Speaker 1: that this split attention is then reverted right back to
Speaker 1: to Tesla, what kind of stock performance could we expect? Well,
Speaker 1: I think then the whole storage change is because they
Speaker 1: navigate the China headwinds even or a session, I still
Speaker 1: think they could because of two million vehicles sold in
Speaker 1: two thousand twenty three, and then the transformation story, which
Speaker 1: is taking a major hiccup during this period, continues on.
Speaker 1: Then I think you could be looking, you know, and
Speaker 1: what I believe is this doctor could be much higher
Speaker 1: from here. You know two in the fifty hour is
Speaker 1: our price target. But in the near term, I mean,
Speaker 1: this is the black cloud you know over the Tesla
Speaker 1: story that needs to clear and it's really self inflicted
Speaker 1: from must that's going to go down and still is
Speaker 1: we'd is probably most over the attack acquisition issuing men
Speaker 1: deep Um, you know I'm looking at again the news
Speaker 1: today is you know the poll that Ellen put out
Speaker 1: and his users voting that he should step down. In reality,
Speaker 1: I mean, you know the business, you know the players here.
Speaker 1: I can't imagine someone with the chops of like a
Speaker 1: Sheryl Sandberg coming into this role given the ownership structure.
Speaker 1: How do you think this might maybe plays after just
Speaker 1: a Twitter management Twitter business perspective. Yes, so look, I
Speaker 1: think Elon Musk is surrounded by a lot of people
Speaker 1: who know how to run this business, so I think
Speaker 1: he's gonna get external help. The key question remains how
Speaker 1: much independence this new person can get in terms of
Speaker 1: running the company. And look, online advertising, even though it's
Speaker 1: a secular growth market, the growth seems to be slowing,
Speaker 1: so we're not talking about you know, plus growth anymore
Speaker 1: in online ads. This is more of you know, low
Speaker 1: te means after we are you know, through this cyclical downturn.
Speaker 1: That's a kind of growth, and it's getting competitive. I
Speaker 1: mean you see likes of Netflix and you know Disney
Speaker 1: Plus getting into online at So Twitter as a company,
Speaker 1: to my mind is sort of mature stage, you know,
Speaker 1: use the growth is uh sort of slowing down ads
Speaker 1: that we know they're having issues and it's not easy
Speaker 1: to revive Twitter and make it, you know, a growth
Speaker 1: company again. And that's why I think the choices are narrow.
Speaker 1: But look, Elon Musk is surrounded by people who can
Speaker 1: run this company for sure. But what does that that
Speaker 1: mean in terms of things like the margin loans for example,
Speaker 1: what is the likelihood that some of that debt can
Speaker 1: actually be exchanged and then um, I don't want to
Speaker 1: say advertised, but actually gain interest for shareholders that aren't
Speaker 1: the biggest banks to actually grab them. What do you think? Yeah,
Speaker 1: So that that's where you know, it's a good thing
Speaker 1: that the company is private and right now they just
Speaker 1: have to manage the death situation, make sure they pay
Speaker 1: off the interests, and manage the margin loan situation. But
Speaker 1: they have that kind of balance sheet and even though
Speaker 1: must may have to sell more stock. He can manage
Speaker 1: the situation. The question is is there a viable business
Speaker 1: that he can Uh, you know, at some point I
Speaker 1: p O again and and get out of this thing.
Speaker 1: But the way it's being run right now clearly uh
Speaker 1: you know it's in decline and uh, we're not even
Speaker 1: thinking about when Twitter may go public again. Dan, just
Speaker 1: stepping back from the Elon factor, what's the what's your
Speaker 1: call for Tesla as it relates to just competition with
Speaker 1: all the big auto manufacturers globally in two seeming to
Speaker 1: go all in on evs. How do you think TESTA
Speaker 1: positions itself? Okay, I think Tesla is in a position
Speaker 1: of strength, but new doubt the three one three areas
Speaker 1: where there is going to be a major beneficiary. You
Speaker 1: look with Mary doing the GM and Farowly for their
Speaker 1: into benefiting the plan as well as others from the
Speaker 1: ABU machities and and everyone else. Because this is not
Speaker 1: a zero from game and you're really getting into a
Speaker 1: combing an inflection year for e d S and two
Speaker 1: thousand and twenty three. But right now, in terms of
Speaker 1: what's happening with Musk, there's been popping of the Champagne
Speaker 1: in Detroit as they watched this because it's the best ever.
Speaker 1: Hap alright, great stuff. We appreciate getting the the updates,
Speaker 1: seems like on this never ending story. Dan ives's the
Speaker 1: senior analysts UH covering all things technology for what Bush Securities,
Speaker 1: And again it just to put it in context, and
Speaker 1: it's been a super supporter of UH, you know, the
Speaker 1: electric vehicle business and Tesla from the beginnings, done such
Speaker 1: a great job educating Wall Street UH and his investing
Speaker 1: clients about, you know, this whole new business. But now
Speaker 1: obviously shareholders of of Tesla and supporters of the stock
Speaker 1: have to deal with kind of this issue with Elon
Speaker 1: Musk and the ownership of Twitter and the impact that's
Speaker 1: having on Tesla. So tough time for those sharehold Mandeep
Speaker 1: Sein covers all things technology for Bloomberg Intelligence. He joins
Speaker 1: us as well, so we'll have to get those two
Speaker 1: folks together created just give us a sense of the
Speaker 1: business of Twitter the business of Tesla as they both
Speaker 1: try to negotiate ownership by Elon Musk. I don't know
Speaker 1: about the rest of We've gone'm putting in the rear view.
Speaker 1: I'm looking forward to three. It's got to be better. Right. Uh,
Speaker 1: let's check in with some people who kind of do
Speaker 1: this stuff for living. Gina Martin Adams, chief equity analystm
Speaker 1: Bloomberg Intelligence, and Cameron christ macro strategists with Bloomberg News. So, Gina,
Speaker 1: let's start with you here. My sixty or forty portfolio
Speaker 1: got slammed around all year, equities down, bonds down. How
Speaker 1: should I which my expectations? Yeah, I think it's a
Speaker 1: It's a great question, certainly, and something everyone is thinking
Speaker 1: about at this point in time. You know, our expectations
Speaker 1: are the equity market side of the equation anyway, will
Speaker 1: be a touch better, but maybe not back to the
Speaker 1: double digit average annual gains that we became accustomed to
Speaker 1: in the in the last cycle. So our expectation is
Speaker 1: a little bit more moderate for the next cycle. We
Speaker 1: see the likelihood for higher for longer interest rates, higher
Speaker 1: for longer inflation, pressuring valuations, and earnings growth alike. So
Speaker 1: our average anual return expectation for the next three years
Speaker 1: is somewhere between five and seven as opposed to the
Speaker 1: average anual growth that you were that you got out
Speaker 1: of stocks following the Great Financial Crisis. Well, Cameron hop
Speaker 1: on in here. You wrote a column today and I
Speaker 1: love the title of your your Macroman column saying it's
Speaker 1: kind of funny how no one wants crash protection. Talk
Speaker 1: to us a little bit about the hedging picture. Are
Speaker 1: people just going into cold? I wouldn't say that. I
Speaker 1: mean there are a number of uh peculiarities of the
Speaker 1: option market. UM. One is that there's a very large
Speaker 1: stray that happened every quarter UH where the institution is
Speaker 1: all buys a slightly out of the money UH put
Speaker 1: on the SMP and sells a put that's quite a
Speaker 1: bit further out of the money, and that that probably
Speaker 1: with some other flow dynamics, may have reduced the relative
Speaker 1: ball premium that people put on very low delta options UM.
Speaker 1: And the other thing is that quite unusually, the average
Speaker 1: winning day in two has been a lot bigger than
Speaker 1: the average losing day. I mean, you normally think about
Speaker 1: the equity market sort of riding the escalator up and
Speaker 1: then following down the elevator shaft. But it's it's been
Speaker 1: quite quite contrary UM this year, where the average winning
Speaker 1: days about twenty bases points bigger than the average than
Speaker 1: the average losing day, which suggests that, uh, you know,
Speaker 1: we we are not experiencing the sort of discontinuous moves
Speaker 1: that would that would to the downside, that would normally
Speaker 1: lead lead people to sort of really scramble for crash protection.
Speaker 1: A you know, one of the risks out there, at
Speaker 1: least in my mind, is still maybe some earnings risk.
Speaker 1: And I look at the Bloomberg terminal for the SMP
Speaker 1: for next year, like two four bucks up about five.
Speaker 1: We had Doug cass On from C Breeze Partners early
Speaker 1: in earlier on today he said, no, way, think about
Speaker 1: two hundred for earnings. What how are you thinking about
Speaker 1: earnings in twenty three. Yeah, we also have an earnings
Speaker 1: decline baked into our model, our fair value model, so
Speaker 1: as you get a small single digit drop in earnings growth,
Speaker 1: I think the really interesting thing about this particular cycle
Speaker 1: is that most of the SMP five hundred has already
Speaker 1: entered in earnings recession. When you exclude energy from the equation.
Speaker 1: The index earning stream actually peaked all the way back
Speaker 1: at the end of and most sectors showed a decline
Speaker 1: in earnings throughout this year. So you've got a lot
Speaker 1: of moving parts to contend with going into three. Certainly
Speaker 1: the energy sector will weigh heavily on the earning stream
Speaker 1: for the SMP five hundred going into three, because we've
Speaker 1: seen some deterioration in oil prices over the second half
Speaker 1: of this er, and the really strong sort of operating
Speaker 1: margin expansion that these companies enjoyed in twenty two will
Speaker 1: fade into three. That will likely be the biggest drag.
Speaker 1: But on the other end of the spectrum, financials have
Speaker 1: already been in a pretty significant earnings recession this year
Speaker 1: that should ease in three as long as we move
Speaker 1: past this m most negative point of spread in the
Speaker 1: yield curve occurring currently. As long as the yield curve
Speaker 1: becomes slightly less negative in spread, we should see better
Speaker 1: earnings growth for the financial sector. Consumer sectors also have
Speaker 1: been heavily have experienced this heavy weight of compressing operating
Speaker 1: margins because of high input costs. That should ease into
Speaker 1: three as well. So I think the story for twenty
Speaker 1: three on the earnings and the earning stream is really
Speaker 1: just a lot of moving parts. Overall, certainly a decline,
Speaker 1: but our work would suggest this looks nothing like the
Speaker 1: two thousand and eight two thousand nine earnings recession or
Speaker 1: the two thousand one earning stres And it's a really
Speaker 1: unique experience, mostly because of the fact that we're only
Speaker 1: two years out of the pandemic recession and we're still
Speaker 1: contending with a lot of moving parts on the earning stream.
Speaker 1: It's interesting that you say that, Gina, Mike Wilsonever Morgan
Speaker 1: Stanley makes the exact opposite argument. He also says his advice,
Speaker 1: don't assume the market is pricing this kind of outcome
Speaker 1: until it actually happens, which cam brings me to you,
Speaker 1: what exactly is the carnage of the stock market pricing
Speaker 1: in Uh, Well, you could argue, uh, it's priced in
Speaker 1: higher interest rates, but it has you know, has yet
Speaker 1: to price in a significant deterioration in the in the
Speaker 1: economic environment. Um. You know, I think the earnings prospects
Speaker 1: for next year are going to be pretty heavily dependent
Speaker 1: not on what's happened in the past, but also what
Speaker 1: happened in the future. And the fact is is that, well,
Speaker 1: we did have two quarters of slightly negative grow with
Speaker 1: in the first half of this year. That was largely
Speaker 1: a function of exports and inventory adjustments rather than underlying
Speaker 1: domestic demand. If we see a deterioration and underlying domestic demand,
Speaker 1: which does seem relatively reasonable given that policy is going
Speaker 1: to get more restrictive over the course of the year.
Speaker 1: If we look at the real FED funds, right, Uh,
Speaker 1: then it does seem plausible to suggest that there could
Speaker 1: be some significant down moves in in earnings relative to expectations. Still,
Speaker 1: and and let's FACTI if we if we have SMP
Speaker 1: earnings of two bucks, uh, and you slap of fifteen
Speaker 1: or sixteen p on not you get uh, you know,
Speaker 1: you get the SMP at three thousand or thirty two hundred,
Speaker 1: which is a long way from where we are now.
Speaker 1: I don't want to We're not We're not. We're not
Speaker 1: in a job to be fun, to have fun. I mean,
Speaker 1: that's not fun on the job. You know. Two, I
Speaker 1: thought I took my my pain there, Gina, Are there
Speaker 1: I don't know? Are there some sectors? I mean, if
Speaker 1: I want to go out on the risk curve and
Speaker 1: the equity space, are there some sectors I should be
Speaker 1: focusing on here? Do you think? Yeah? You know, our
Speaker 1: work would suggest actually you start to wiggle your way
Speaker 1: into some of the early cycle sectors at this stage
Speaker 1: in the market. We run a fair value model for
Speaker 1: the S and P five hundred and as of our
Speaker 1: October laws and the index that would suggest we not
Speaker 1: only priced something close to four and a half percent
Speaker 1: FED funds, but we also priced at double digit decline
Speaker 1: and earnings growth coming in the next year. So and
Speaker 1: my work would say that we've done gone a long
Speaker 1: way to pricing that earnings recession, provided that the FED
Speaker 1: does eventually stop raising interest rates. But there is there
Speaker 1: are a lot of question marks in the outlook um.
Speaker 1: As I mentioned, I don't see two this as a
Speaker 1: two thousand ninth scenario, mostly because financials, which is one
Speaker 1: of those early cycle sectors that I mentioned the leverage scenario,
Speaker 1: and financial doesn't look at all like two thousand and
Speaker 1: two thousand nine. We've got half the overall leverage and
Speaker 1: the public financial sector that we had at that point
Speaker 1: in time, despite the fact that the economy is a
Speaker 1: whole lot bigger. So financial else to us, looks like
Speaker 1: an area of opportunity along with something like a consumer
Speaker 1: some of the consumer names that have been inordinately beaten
Speaker 1: down over the course of this year, anticipating again that
Speaker 1: decline and demand coming into three. So I would say
Speaker 1: you start to leg in to some of the cyclical space,
Speaker 1: cyclical space into There's no rush to do so, because
Speaker 1: we do space negative estimate revision pressure for the index
Speaker 1: at large. But if you look at where the valuation
Speaker 1: opportunities are, they are in those early cyclical sectors. The
Speaker 1: bloated part of the market is still a problem. The
Speaker 1: bloated part of the market is that large cap growth
Speaker 1: space that became inordinately excessively valued in the pandemic, and
Speaker 1: we're still, you know, recovering from that addiction we had
Speaker 1: to large cap growth and that will probably continue to
Speaker 1: be a drag. That's too big man. I made my
Speaker 1: bread and butter and that space, like a lot of
Speaker 1: other people kind of playing on the big tech names
Speaker 1: and the big consumer cyclical kind of stuff. So so
Speaker 1: we'll have to see how that plays out. Right. Gina
Speaker 1: Martin items great stuff has always chief equity analysts with
Speaker 1: Bloomberg Intelligence and Camera Christ macro strategist with the colmdown
Speaker 1: call of the morning. I mean two on SMP earnings,
Speaker 1: you put a fifteen sixteen multiple on that. That's some
Speaker 1: pretty decent downside for the SMP. C Suite Conversation today.
Speaker 1: Today we're joined by John Carter, All, CEO of en
Speaker 1: Dava that is a London, England based company. The A
Speaker 1: d R S trade here on the New York Socker Strange.
Speaker 1: U D A v A is your ticker. John, Thanks
Speaker 1: so much for joining us here, UH technology company, I
Speaker 1: T services company. Tell us about what you guys are
Speaker 1: doing at Endava. Sure, and thanks for having me on
Speaker 1: and I appreciate it. Um So in Dava drives technology
Speaker 1: change for our customers, so we focus on the technology
Speaker 1: waves that are rolling through chosen industries that we focus on.
Speaker 1: Um and developed the expertise to drive fundamental change for
Speaker 1: our customers, so things like autonomous vehicles and how that
Speaker 1: is affecting mobility. Even today, business practices are adjusting using
Speaker 1: technology to you know, all of the change that's going
Speaker 1: to come. Has autonomous vehicles hit the market and there
Speaker 1: are many different technologies across many industries where we're helping
Speaker 1: clients go through those adjustments. One of the big themes
Speaker 1: for obviously companies globally right now is that there is
Speaker 1: going to be a massive slowdown. We were just talking
Speaker 1: in our last segment about it really hitting the profits
Speaker 1: in the bottom line of a lot of these companies.
Speaker 1: Are you seeing the same for your business? So at
Speaker 1: the moment, our guidance looking forward is for good solid growth.
Speaker 1: So we've guided on a constant currency basis of tween
Speaker 1: twenty three and for our fiscal year which runs to
Speaker 1: the end of June. UM and at the moment we're
Speaker 1: seeing good strong demand supporting that. Um so um. You know,
Speaker 1: our rationale is that clients are still investing in the
Speaker 1: areas of deep fundamental change UM that a driving step
Speaker 1: change shifts in their industries and feeling that they can't
Speaker 1: step back from it. There's maybe a little bit of review,
Speaker 1: extra review around should we be spending the money, but
Speaker 1: largely we're seeing it come through. So John, give us
Speaker 1: a sense of maybe who are a typical customer of
Speaker 1: years or what are some of the verticals that you
Speaker 1: guys really focus on in kind of what are what's
Speaker 1: your software do for those clients? Sure, um, so we're
Speaker 1: we're writing the spoke software for clients you seem sort
Speaker 1: of the technologies that are out there already touched on mobility.
Speaker 1: Another area is payments, so as you see the shift
Speaker 1: to electronic payments, and frictionless payments and different ways in
Speaker 1: which that can be done real time and so on.
Speaker 1: We're helping clients make that adjustment retail as it's becoming
Speaker 1: more omni channel and adopting some of those friction as payments.
Speaker 1: I was talking about media. You see the shift to
Speaker 1: streaming and just coming over the horizon. You can see
Speaker 1: things like the metaverse coming through AI and wearables transforming
Speaker 1: access that personally relevant healthcare. And then in insurance you
Speaker 1: can see data transforming and personalizing the sorts of products
Speaker 1: that clients want to put out. In insurance, of course
Speaker 1: there's digital banking. The shift there continues to gather an momentum.
Speaker 1: It's got a long way to run and so on.
Speaker 1: It looks like you have a recently announced acquisition of
Speaker 1: a Lexicon in Australia. Talked to us a little bit
Speaker 1: about that business, sure, So you know, one of our
Speaker 1: strategies as a business is to diversify our footprint UM.
Speaker 1: So we do usfy across industries. We started in the
Speaker 1: financial services space UM and then we diversify geographically. So
Speaker 1: Lexicon is target that we settled on in Australia to
Speaker 1: really push what we're doing in the Asia Pacific arena,
Speaker 1: and they work with clients in a similar way to
Speaker 1: the way that we do, accelerating their digital transformation programs. UM.
Speaker 1: They've got employees in Australia and Vietnam, so very much
Speaker 1: fits our model. John, How did your business evolve? How
Speaker 1: has it impacted over the last several years of this pandemic.
Speaker 1: We know that software generally held up as as a
Speaker 1: sector pretty darn well, but it be interested to kind
Speaker 1: of get your view. Yeah, So, I mean, we started
Speaker 1: the business in February two thousand in London, were inentially
Speaker 1: focused on city of London. UM, and you know we've
Speaker 1: we've built up we I Pod in July, just over
Speaker 1: four years ago. Since then we've traveled in size um
Speaker 1: and improved our margins. So that took us through the pandemic.
Speaker 1: The pandemic was a very short, very slight pull back
Speaker 1: maybe two percent right at the beginning of the pandemic,
Speaker 1: where clients like a step back and went, my goodness,
Speaker 1: what's happening here? But then very quickly settled into very
Speaker 1: strong acceleration and when we hit peaks of sixty year
Speaker 1: on year growth as clients were adopting technologies to enable
Speaker 1: them to stay in touch with their clients in stay
Speaker 1: at home environments, et cetera. Delivery being one of the
Speaker 1: big areas of growth. Part volnability space well delivery, and
Speaker 1: I would argue the buying now, pay later types of
Speaker 1: models as well. It's interesting that you kind of talk
Speaker 1: about this evolution of technology. You mentioned the e V space,
Speaker 1: which is really interesting something fort we pay attention to
Speaker 1: quite a bit at Bloomberg, but talked to us a
Speaker 1: little bit about the payment system. It almost feels like
Speaker 1: that's an involving business as well. Yeah, so payments, it's
Speaker 1: been one of our core areas of focus for over
Speaker 1: twenty years, so initially working with the banks and then
Speaker 1: some of the payment providers that got separated out from
Speaker 1: the banks. Increasingly we see payments as being something that
Speaker 1: we're taking to other industries as they're getting to grips
Speaker 1: with how to provide a more seamless, richingless type of
Speaker 1: service to quite as retailers, for instance, they want to
Speaker 1: move to on omni channel in which they're integrating payment solution.
Speaker 1: They want to take a little bit more ownership of
Speaker 1: the buy mow pay later type solutions, and they want
Speaker 1: them to keep their hands on the customer data and
Speaker 1: not see it go down the chain into their payments providers. UM. So, actually,
Speaker 1: you know, the experience we have in other industries is
Speaker 1: becoming part of the value add that our clients seeing
Speaker 1: us bringing that payments experience, or in other spaces, for instance,
Speaker 1: insurance type services might move from being insure a car
Speaker 1: to actually insure a journey. And you know that that
Speaker 1: requires a radical rethink of how you build your products
Speaker 1: and how you relate to the insurance industry. And the
Speaker 1: data helps clients to bridge that gap. All right, John,
Speaker 1: great stuff, appreciate getting a few minutes of your time there.
Speaker 1: John cut Roll, he CEO of and DAVA. That is
Speaker 1: a New York Stock Change listed stock. Let's switch over
Speaker 1: and talk global energy. We've got w t I crude
Speaker 1: oil here pretty much unchanged on the day, seventy four
Speaker 1: dollars thirty one cents a barrel Brent crude just under
Speaker 1: eighty dollars per barrel. You know, you've got to think
Speaker 1: about or when you think about global energy, you gotta
Speaker 1: think about supplying demand and demand big variables always China,
Speaker 1: and I think China is opening up. I don't know
Speaker 1: I guess we'll believe it when we see a Fernando.
Speaker 1: I think it is Fernando Valley used the senior ANALYSTM
Speaker 1: Bloomberg Intelligence cover the global energy space for Bloomberg Intelligence. So, Fernando,
Speaker 1: it appears like you might have some movement in your
Speaker 1: demand models coming from China. How do you guys think
Speaker 1: about it? Oh, well, you're you're right, but I think
Speaker 1: it's actually down first and then up just because similar
Speaker 1: to us, when you reopen at this space, especially with
Speaker 1: more contagious variant variant, you have faster transmission and then
Speaker 1: more sickness and people avoid contact altogether. And you're starting
Speaker 1: to see that in large cities and China. UM. But
Speaker 1: then as you said, uh, as people build naturally immunity
Speaker 1: and they start to readjust to the to the new normal,
Speaker 1: is it were? Uh, then we expect an increase in consumption.
Speaker 1: UM if we go back to levels that could mean
Speaker 1: as much as six seven hundred thousand barrels a day
Speaker 1: of additional imports to China. The big question then becomes
Speaker 1: how does their economy rebound? Remember, this is a country
Speaker 1: that has very high leverage levels, particularly in their real
Speaker 1: estate segment. That accounts for as much as thirty of
Speaker 1: GDP Fernando. When we're looking at the actual market itself,
Speaker 1: it looks like open interest in crude contracts has just
Speaker 1: completely collapsed. How much of the drop in crude really
Speaker 1: had seventy four seventy four handle on imax? How much
Speaker 1: of that is due to perhaps a lack of faith
Speaker 1: in economic growth as opposed to simply people pulling out
Speaker 1: of these positions. I think you hit the nail on
Speaker 1: the head. I think the lack of trust in economic
Speaker 1: activity lead to traders not wanting to be exposed to
Speaker 1: this market, and they decided to retreat in their positions. UM.
Speaker 1: The volatility has clearly been an issue as well. We've
Speaker 1: had a lot of vlatility over the past three months,
Speaker 1: with the news of will we have a recession, will
Speaker 1: defend pivot, will trying to reopen, will COVID zero become
Speaker 1: the facto rule in China? And as we've approached the
Speaker 1: your end as well, traders are trying to lock in
Speaker 1: gains from the everything that we've seen over the much
Speaker 1: higher prices earlier this year, and I think all of
Speaker 1: that led to a drop in liquidity. UM I had
Speaker 1: as well of governments trying to re fill their their reserves.
Speaker 1: So the US government is, as I see the reporting,
Speaker 1: starting to refill its reserves. How does that play out?
Speaker 1: I don't really remember how this works. Well, technically, they
Speaker 1: will buy crude in either open market or forward contracts UH.
Speaker 1: Currently we've only seen them being out in the market
Speaker 1: for about three million barrels, which is a drop in
Speaker 1: the bucket. We've released well over a d eighty million
Speaker 1: barrels UH since the middle of this year, so it'll
Speaker 1: take some time for that to um lead to a
Speaker 1: recovery in the strategic petroleum reserve. Levels were well below
Speaker 1: the tenure averages for for the the spr UM and
Speaker 1: it will take some time and in all likelihood they
Speaker 1: will space that out so that there isn't a huge
Speaker 1: surge in oil prices. You know, they try to do
Speaker 1: it all at once. It would certainly leads to an
Speaker 1: impact on w t I prices. Well. Fernando talked to
Speaker 1: us about the broader energy picture. Of course, we have
Speaker 1: some headlines coming out the EU this morning. They're agreeing
Speaker 1: to cap gas prices at a hundred and eighty euros
Speaker 1: temporarily just to ease the sky high prices, there is
Speaker 1: there a knock on effect into the other parts of
Speaker 1: the energy market. UM. I think with the YOUU CAPT specifically,
Speaker 1: there are a lot of caveats that to actually being
Speaker 1: an enacted the prices have to be above those levels
Speaker 1: for two weeks, and then they have to be above
Speaker 1: an LERG benchmark for ten days actually on top of
Speaker 1: that in order for that price CAPT to really play out.
Speaker 1: So it remains to be seeing whether that that cap
Speaker 1: will actually come into effect. Um. And if you think
Speaker 1: about how the energy system is set up in Europe
Speaker 1: with renewables, UH, hopefully every two weeks that we would
Speaker 1: have a change and get some new generations. We saw
Speaker 1: with the UK now producing more wind over the past
Speaker 1: two past week than they had in the previous two.
Speaker 1: So I don't think there will be a huge knock
Speaker 1: on effect. If it actually did come into fruition, it
Speaker 1: might actually spark more less competition in Asia and cheaper
Speaker 1: prices for lergy because they U is essentially pricing itself
Speaker 1: out and we're seeing places like Pakistan and India struggling
Speaker 1: to get some of the supplies that they were hoping
Speaker 1: for because the U has drained so much of the
Speaker 1: lergy market. So how about on the supply side here,
Speaker 1: give us just an update a where US production is here?
Speaker 1: Where are we visa V capacity? Do you expect us
Speaker 1: that the U S producers to ramp up at af
Speaker 1: they can? How's the supply look from the US? UH?
Speaker 1: It looks sluggish to say the least. It we're still
Speaker 1: hovering around the low twelve million barrel day levels. Um.
Speaker 1: Remember we picked at thirteen point three UH. And there's
Speaker 1: a combination of issues there. One, as we said before, Paul,
Speaker 1: the inventory the wells, they're not just not the same
Speaker 1: quality as they used to be, so the productivity for
Speaker 1: a well is not as good as it was in priority.
Speaker 1: And the second part is just the shortages that we're
Speaker 1: seeing across the supply chain aren't really resolved. The costs
Speaker 1: have risen significantly from steel to Santa labor, and it's
Speaker 1: difficult for them to make a make a return, especially
Speaker 1: at seventy four dollar w c I Fernando talked to
Speaker 1: us a little bit about the SPR release and the
Speaker 1: Biden administrations. Bid I believe there's a headline a couple
Speaker 1: of days ago that in February they were going to
Speaker 1: start looking for bids to buy oil and replenish the
Speaker 1: spr It's I think crime every wrong. I think it
Speaker 1: was like either sixty two or sixty eight or something
Speaker 1: that the which is the price that the Biden administration
Speaker 1: would look to buy into. Talk to us a little
Speaker 1: bit about the effect of that on the market. That
Speaker 1: can have a significant impact, especially when you look at
Speaker 1: the spread between Brenton w t I, which has been
Speaker 1: a support for for US refiners. They especially the ones
Speaker 1: that are landlocked, they tend to make that spread between
Speaker 1: Brenton w t I. That helps their margins. So that
Speaker 1: would be net for those for that group. Um, but
Speaker 1: sixty two to sixty eight, I mean they're probably looking
Speaker 1: at the forward curve and uh, it's just not going
Speaker 1: to be realistic when you actually come into a spot
Speaker 1: market and you're trying to make it the strange actions work,
Speaker 1: especially at that volume. You know, for talking about a
Speaker 1: hundred fifty million barrels of UH to refill back to
Speaker 1: the levels for more UH, they would they would shift
Speaker 1: that curve very quickly if they don't space it out
Speaker 1: over the course of several several months of not a
Speaker 1: couple of a couple of years. Fernando thirty seconds here.
Speaker 1: Just for clarification, did you say that the refining spread
Speaker 1: would then be negative and buy an administration hopped into
Speaker 1: the market. No, this spread between Brent and w C
Speaker 1: I so w is five dollars cheaper than Brent, and
Speaker 1: gasoline and diesel are priced off of Brent. Alright, good stuff.
Speaker 1: Fernando Valley, he covers the global energy space for Bloomberg Intelligence.
Speaker 1: Here looking at the i nd GO function created on
Speaker 1: the Bloomberg terminal gives you all the yeah, the returns
Speaker 1: Bloomberg Index browser. I'm looking at the Bloomberg u S
Speaker 1: Aggricultural Value UH index for the credit for the fixed
Speaker 1: income stuff. Down about eleven point one. That's bad, but
Speaker 1: it was actually a lot worse a few months ago.
Speaker 1: The bonds have been rallying a little bit here, and
Speaker 1: I want to get a sense of kind of what's
Speaker 1: going on out there. So we turned to Liz McCormick,
Speaker 1: chief corresponding Global macro Markets for Bloomberg News. I think
Speaker 1: she's down in our DC studio, which is pretty cool. Liz,
Speaker 1: thanks so much for joining us here. You know, it
Speaker 1: seems like, you know, it's it's not as bad as
Speaker 1: it was earlier in the year for the fixed income space.
Speaker 1: What are you seeing? Yeah, it's amazing And I am
Speaker 1: in our lovely DC office here, um, but yeah, and
Speaker 1: you know, our folks in the corporate finance tea and
Speaker 1: wrote a nice story. And I tell you you see
Speaker 1: it everywhere from either the credit or the sovereign folks.
Speaker 1: It's like they said that the outlooks are all about, oh,
Speaker 1: the year of the bond, the comeback of the bond,
Speaker 1: and it's like you just lay down, how brutal the
Speaker 1: year has been with returns. But the flips out of
Speaker 1: that is it's brought yields higher, right, And people are saying, oh, well,
Speaker 1: maybe we're at peak inflation, you know, maybe stressing. Maybe,
Speaker 1: you know, even though the Fed said is going to
Speaker 1: stay at high rates for a long time, you know,
Speaker 1: maybe at least the uptick is going to stop soon
Speaker 1: and maybe it's a time to lean back into the
Speaker 1: fixed income side. So, like you said, there's folks like
Speaker 1: Vanguard and others saying, you know, investment grade credit looks
Speaker 1: good and you know, maybe it's the time to dip
Speaker 1: back in. And even some on the sovereign sides, like
Speaker 1: you know, treasuries and you know global sovereigns. Liz. There
Speaker 1: is a fun fact that Ira Jersey said to me
Speaker 1: last week, and I've been saying, I think it's like
Speaker 1: the fourth time on the show that I've said it today,
Speaker 1: But he essentially argues that the idea of FED cuts
Speaker 1: being priced in the market is capping yields, especially on
Speaker 1: the front end of the curve for the two year yield.
Speaker 1: Is there a possibility here that rate cuts, or at
Speaker 1: least the possibility of them next year, get pushed out
Speaker 1: of the curve And how quickly could you see some
Speaker 1: sort of shock to the front end of the curve
Speaker 1: if that happens. Well, I have to say and not
Speaker 1: have to say, but I do agree with Ira that, um,
Speaker 1: you know, those cuts being priced in are helping, right,
Speaker 1: especially help and flatten the curve. But I mean, we
Speaker 1: we saw Bill Dudley right on our opinion page today
Speaker 1: that kind of the market may need to listen to
Speaker 1: the FED, and a Jerome pal couldn't have been more
Speaker 1: clear that, like, hey, we're not even thinking about cutting yet.
Speaker 1: So I think there is a lot of risk despite
Speaker 1: everyone saying the year of the bond, which sometimes when
Speaker 1: everyone's saying the same same thing. It almost makes you nervous, right,
Speaker 1: there's a you know, risking things go the other way.
Speaker 1: But I think you're right there there's about fifty basis
Speaker 1: points of cuts priced in by the end of three.
Speaker 1: And if you know, we go meeting by meeting by meeting,
Speaker 1: and the Fed keeps leaving it there and signaling, you know,
Speaker 1: no cuts to the next year, the market will eventually
Speaker 1: come in line. And I think you're right. You know
Speaker 1: that that means maybe then the two year you'll has
Speaker 1: more room to go upside. So there are some firms
Speaker 1: like you've probably seeing black Rock is warning like sovereign dead.
Speaker 1: You know, there's a lot of risks. Inflation could be
Speaker 1: sticky in the FED stays high long and and in
Speaker 1: that world, like you said, creedy two year yields could
Speaker 1: go higher. And Liz, I mean a lot of folks
Speaker 1: obviously talking about a recession in three. Are we seeing
Speaker 1: any signs of that concern? And maybe the high yield
Speaker 1: market at all, maybe some of the lower end. Well
Speaker 1: I do hear from folks and you're seeing their reports
Speaker 1: and and this, you know, nice story today is talking
Speaker 1: about you know, when when things get bad and you
Speaker 1: have a recession, it's you know, defaults you're worried about
Speaker 1: and some high yield risks. So I think, you know
Speaker 1: a lot of them leaning into the market are saying,
Speaker 1: be selective into the debt markets. Let's go with the safer,
Speaker 1: you know, like the investment grade, which investment grade like
Speaker 1: treasury has got really walloped the most because a lot
Speaker 1: of the bond yield as we've known for the last year,
Speaker 1: the pain in the bond market has been just pure
Speaker 1: call it duration risks fed just jamming up rates by
Speaker 1: over four on your basis points, push yields and you know,
Speaker 1: not to get too wonky, but you're getting more of
Speaker 1: a plur pure rake play and investment grade credit, and
Speaker 1: of course in sovereigns because it's not you know, there's
Speaker 1: not as much risk of defaults, but high yields and
Speaker 1: things like that. Um, you know, I was listening on
Speaker 1: the radio for with you guys this morning. I forget
Speaker 1: it was chatting with him, but Dennis Gartman was on
Speaker 1: and he was pretty negative on things, saying, you know,
Speaker 1: recession coming fed to stay high, and that's when you
Speaker 1: you worry, is they're going to start to be more
Speaker 1: default and you know, these lesser grade companies not doing
Speaker 1: well or having trouble rolling over debt now that yields
Speaker 1: are higher. It's interesting that you mentioned defaults because it
Speaker 1: almost feels like at the moment, the consensus here is
Speaker 1: that if there is a shallow recession, the risk of
Speaker 1: fallen angels, for example, is very, very low. But let's
Speaker 1: let's talk a little bit about bond volatility here, because
Speaker 1: if you look at the move index, you are starting
Speaker 1: to see it kind of stagnate a little bit. When
Speaker 1: it comes to volatility, it's extremely high and it's kind
Speaker 1: of staying at those high levels. Why if the Federal
Speaker 1: Reserve has been nothing but clear about their strategy moving forward, Well,
Speaker 1: that I will admit a bit of a head scratcher,
Speaker 1: because you you know, there's been a few FED meetings
Speaker 1: that you know, we kind of said, oh, Jerome Power
Speaker 1: maybe had a little trouble with communication this time. He
Speaker 1: seemed to have his notes in line. And you're right,
Speaker 1: volatility has come off, but it's still historically high. And
Speaker 1: I think kind of getting to what Paul was asking
Speaker 1: is that, you know, even though people are saying, hey,
Speaker 1: maybe the debt marks will do better next year, maybe
Speaker 1: inflation is peaked. There's a lot of maybes, right, So
Speaker 1: I think there's enough risk out there, um that people
Speaker 1: aren't you know, there is some volatility selling you you
Speaker 1: know here here you know that going on, but not
Speaker 1: in screaming because that I don't know. It's just especially
Speaker 1: if you've had such bad losses, you've got to be careful,
Speaker 1: I think. And so people you do still hear people
Speaker 1: saying I'm holding powder dry keeping cash. Um. And I
Speaker 1: just don't think people are going to think bond volatile
Speaker 1: it is over until we kind of see the whites
Speaker 1: of the eyes, you know, whatever that number is, CPI
Speaker 1: gets down to four percent, that people really trust that
Speaker 1: inflation is in this falling trend. And we're still just
Speaker 1: looking at the twos and tens liz um still about
Speaker 1: sixty five basis points of inversion there. Um, How are
Speaker 1: people thinking about an inverted yield curve. I'm just an
Speaker 1: equity guy, but I've been told if you get an
Speaker 1: inverted yield curve, that means a recession. But we've been
Speaker 1: inverted for a long time. It seems like, yeah, we've
Speaker 1: been inverted for a long time. Um. But you know, like, um, Campbell.
Speaker 1: Harvey would say, who's now a duke? Who's the one?
Speaker 1: Who's who? Really? Who found that? You know, that relationship
Speaker 1: between the shape of the curve and recessions. And he
Speaker 1: always reminds me Lizzen has never failed me, you know,
Speaker 1: and you know, I'm like, I know, I know. So
Speaker 1: we've had like he likes to look at the three
Speaker 1: month tenure and that's inverted for a while now too,
Speaker 1: So I would have to lean with him and say,
Speaker 1: I'm hard pressed to think it's going to be like
Speaker 1: this time is differ. We don't get a recession, of course,
Speaker 1: I don't know if it's mild or strong. His thesis
Speaker 1: doesn't get to that, but um, I do think you know,
Speaker 1: the Eel curve has been inverted for a long time,
Speaker 1: and you know, you hear people saying you've probably talked
Speaker 1: about it. You know, we could see two stents go
Speaker 1: to minus a hundred basis points, you know, we all
Speaker 1: you know, we were at minus eighty five on the
Speaker 1: inversion a bit ago. So maybe it runs further and
Speaker 1: it takes longer, but it has a pretty good track
Speaker 1: record of foreshadowing economic downturn. Alright, great stuff as always
Speaker 1: Liz really appreciate getting some of your time. Liz McCormick.
Speaker 1: She's the chief corresponding covering global macro markets for Bloomberg News,
Speaker 1: reporting from our Washington, d C. Studios, which are pretty
Speaker 1: awesome down there in the nation's capital. Thanks for listening
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
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Speaker 1: I'm Matt Miller, I'm on Twitter at Matt Miller three,
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