WEBVTT - Twitter, Oil, and Equities (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.160 at Bloomberg dot com slash podcast. All right, here's the 0:00:22.440 --> 0:00:26.400 here's the latest across the Bloomberg terminal. Musk says no 0:00:26.480 --> 0:00:29.800 one wants top job, but some people have piped up. 0:00:29.840 --> 0:00:32.200 I mean, it just gets crazier by the day. He's 0:00:32.240 --> 0:00:35.000 got a you know, a survey out there, Critty saying, 0:00:35.200 --> 0:00:36.680 you know, if you want me to step down, I'll 0:00:36.720 --> 0:00:39.480 step down, and of the respondent says, yeah, you should 0:00:39.479 --> 0:00:42.599 step down. So that's news. Then my question is who 0:00:42.640 --> 0:00:44.600 wants the job? So we come back to the story 0:00:44.680 --> 0:00:47.840 because this story just keeps giving Man deep Seeing, senior 0:00:47.880 --> 0:00:51.280 technology analyst for Bloomberg Intelligence, and Dan Ives, senior equity 0:00:51.280 --> 0:00:54.080 analyst at Wedbush Securities and join us here. Uh. Dan, 0:00:54.160 --> 0:00:57.000 I hate to kind of keep bringing this up because again, 0:00:57.080 --> 0:00:59.639 but you know, you've been one of the biggest supporters 0:00:59.680 --> 0:01:03.480 of this name of electric vehicles, really educating investors over 0:01:03.480 --> 0:01:05.560 the last you know, five six, seven years about the 0:01:05.600 --> 0:01:09.760 e V market, the potential, the upside here, but the 0:01:09.800 --> 0:01:13.560 fundamental calls being overwhelmed by the Elon Musk call any 0:01:14.000 --> 0:01:17.000 kind of how do you view the lasts worth of news? 0:01:17.120 --> 0:01:19.880 Just more the same? I guess yeah, look good. I 0:01:19.959 --> 0:01:23.200 think it's been a twilight soon because I'd say about 0:01:24.800 --> 0:01:27.720 of the sell off that we're seeing in Tessa is 0:01:27.760 --> 0:01:30.880 Twitter driven. I mean, and it would be a step 0:01:30.880 --> 0:01:33.440 in the right direction clearly from Musk to give up 0:01:33.480 --> 0:01:36.400 the reins is CEO of Twitter. But look, this is 0:01:36.600 --> 0:01:40.200 a forty four billion dollar nightmare that you know, just 0:01:40.240 --> 0:01:43.160 continues to increase. I think it's black eye from Musk, 0:01:43.160 --> 0:01:46.720 a black eye for Tesla. Mandy. Talk to us a 0:01:46.720 --> 0:01:49.800 little bit about this now private business here. Is there 0:01:49.840 --> 0:01:51.800 any sort of recovery? I think the last time we 0:01:51.800 --> 0:01:53.280 had you on, I want to say, last week, you 0:01:53.320 --> 0:01:56.520 said that if this was a publicly traded stock still 0:01:56.640 --> 0:01:58.800 Twitter would be worth less than ten dollars a share, 0:01:58.840 --> 0:02:03.240 which incredible, And again Ellen bought and I think he 0:02:03.280 --> 0:02:05.640 still looking for new investors, by the way, who are 0:02:05.640 --> 0:02:07.760 still looking at the same amount. But man, deep is 0:02:07.760 --> 0:02:12.200 there any sort of scenario here where Twitter's valuation is 0:02:12.560 --> 0:02:16.680 re upt well, So clearly now he's talking about a 0:02:16.760 --> 0:02:20.799 management change and bringing in someone else than him to 0:02:20.919 --> 0:02:24.359 run the company, and I think it will be positive 0:02:24.840 --> 0:02:27.480 depending on who he gets. Look if you get somebody 0:02:27.520 --> 0:02:31.040 like Cheryl Sandberg, that's a big you know, uh moment 0:02:31.160 --> 0:02:34.400 for the company, even if this thing takes a long 0:02:34.520 --> 0:02:38.840 time to turn around. But I think somebody with credentials 0:02:39.080 --> 0:02:41.680 is going to make a big deal in terms of, 0:02:41.800 --> 0:02:44.320 you know, what could happen to Twitter going forward. But 0:02:45.120 --> 0:02:49.480 we know right now the company is bleeding advertisers, the 0:02:49.560 --> 0:02:54.480 employee morale is low, it's struggling with regulators. So clearly 0:02:54.520 --> 0:02:56.880 a lot is going wrong with the company right now. 0:02:57.120 --> 0:02:59.680 So you need somebody who can study the ship, somebody 0:02:59.720 --> 0:03:01.880 who has good credentials, and I think that could make 0:03:01.919 --> 0:03:05.079 a difference here. So, Dan, you mentioned that in your opinion, 0:03:05.160 --> 0:03:08.079 you know, maybe the decline in Tesla stock is due 0:03:08.080 --> 0:03:10.200 to Twitter. So one of the questions I have, and 0:03:10.200 --> 0:03:13.000 you've covered this company's systems inception, can you give us 0:03:13.000 --> 0:03:16.679 a sense of isn't really Elon Musk? How critical is 0:03:16.720 --> 0:03:20.040 Elon Musk to the day to day management of Tesla 0:03:20.240 --> 0:03:24.839 to the strategic direction of Tesla. Is there a deep bench, there, 0:03:24.919 --> 0:03:28.280 is there a management team there? Book Musk is the 0:03:28.320 --> 0:03:30.799 hearts and rungs of the Tesla story. And I mean 0:03:30.800 --> 0:03:34.080 you'd have to go back maybe two jobs with Apple 0:03:34.200 --> 0:03:38.200 and Jack Wells g E for any sort of comparisons. 0:03:38.200 --> 0:03:40.320 I mean, look, I think that's the issue is that 0:03:40.480 --> 0:03:42.920 his attention has really been to focus more on Twitter 0:03:43.400 --> 0:03:47.600 and the perception perceptions, reality is that Tessa needs him 0:03:47.640 --> 0:03:50.520 more than they ever have and and and that's sort 0:03:50.520 --> 0:03:54.600 of the frustration here is that the Twitter spider Web 0:03:55.160 --> 0:03:59.480 has just been a disaster for Tesla holders. And it's 0:03:59.480 --> 0:04:02.720 also have taken attention from much from his golden child 0:04:02.840 --> 0:04:06.480 Tessa to what's really a quick fan situation when it 0:04:06.520 --> 0:04:10.200 comes to Twitter. And and Dan, just do you have 0:04:10.240 --> 0:04:14.160 any sense, again having followed this company since this inception 0:04:15.160 --> 0:04:18.280 the board, is there any chance that this board can 0:04:18.400 --> 0:04:22.880 have any influence on this overall situation specifically kind of 0:04:22.920 --> 0:04:27.320 dealing with elon Musk. Look, I think ultimately Musk, you know, 0:04:27.400 --> 0:04:30.360 when he speaks, others listen in terms of you know, 0:04:30.480 --> 0:04:34.080 the board situation means, I think there could be you know, 0:04:34.360 --> 0:04:38.080 definitely more pressure from the board or at the end 0:04:38.120 --> 0:04:40.240 of the day, I mean, must continues to go to 0:04:40.279 --> 0:04:42.520 the beat of a different drum and he's not really 0:04:42.520 --> 0:04:45.200 going to listen to anyone. I do think here the 0:04:45.320 --> 0:04:47.880 writings in the wall, I feel like he did start 0:04:47.920 --> 0:04:51.200 to understand that he's not gonna be able to turn 0:04:51.200 --> 0:04:54.159 around Twitter himself to some extent. Actually, it's made it worse, 0:04:54.560 --> 0:04:56.640 you know, since Wad October, and that's been part of 0:04:56.640 --> 0:05:00.479 the overhang on Tesla because with the big this issue 0:05:00.520 --> 0:05:04.520 pause that he's using Tesla as his own personal ATM 0:05:04.520 --> 0:05:08.040 machine to fund Twitter. Well, what kind of upside does 0:05:08.040 --> 0:05:10.839 that then mean for Tesla shares? Specifically, if you say 0:05:10.880 --> 0:05:15.320 that this split attention is then reverted right back to 0:05:15.320 --> 0:05:19.840 to Tesla, what kind of stock performance could we expect? Well, 0:05:19.880 --> 0:05:22.600 I think then the whole storage change is because they 0:05:22.680 --> 0:05:26.840 navigate the China headwinds even or a session, I still 0:05:26.880 --> 0:05:30.000 think they could because of two million vehicles sold in 0:05:30.080 --> 0:05:34.120 two thousand twenty three, and then the transformation story, which 0:05:34.200 --> 0:05:37.640 is taking a major hiccup during this period, continues on. 0:05:37.839 --> 0:05:39.920 Then I think you could be looking, you know, and 0:05:40.240 --> 0:05:42.479 what I believe is this doctor could be much higher 0:05:42.480 --> 0:05:44.839 from here. You know two in the fifty hour is 0:05:44.880 --> 0:05:47.960 our price target. But in the near term, I mean, 0:05:48.120 --> 0:05:52.120 this is the black cloud you know over the Tesla 0:05:52.240 --> 0:05:56.000 story that needs to clear and it's really self inflicted 0:05:56.040 --> 0:05:58.080 from must that's going to go down and still is 0:05:58.560 --> 0:06:02.599 we'd is probably most over the attack acquisition issuing men 0:06:02.640 --> 0:06:05.160 deep Um, you know I'm looking at again the news 0:06:05.160 --> 0:06:07.560 today is you know the poll that Ellen put out 0:06:07.640 --> 0:06:12.120 and his users voting that he should step down. In reality, 0:06:12.360 --> 0:06:14.600 I mean, you know the business, you know the players here. 0:06:15.120 --> 0:06:17.839 I can't imagine someone with the chops of like a 0:06:17.880 --> 0:06:22.480 Sheryl Sandberg coming into this role given the ownership structure. 0:06:23.440 --> 0:06:25.520 How do you think this might maybe plays after just 0:06:25.600 --> 0:06:30.960 a Twitter management Twitter business perspective. Yes, so look, I 0:06:31.320 --> 0:06:34.680 think Elon Musk is surrounded by a lot of people 0:06:34.880 --> 0:06:37.920 who know how to run this business, so I think 0:06:37.960 --> 0:06:42.240 he's gonna get external help. The key question remains how 0:06:42.279 --> 0:06:45.320 much independence this new person can get in terms of 0:06:45.400 --> 0:06:49.279 running the company. And look, online advertising, even though it's 0:06:49.320 --> 0:06:53.320 a secular growth market, the growth seems to be slowing, 0:06:53.360 --> 0:06:57.080 so we're not talking about you know, plus growth anymore 0:06:57.080 --> 0:06:59.680 in online ads. This is more of you know, low 0:06:59.720 --> 0:07:03.279 te means after we are you know, through this cyclical downturn. 0:07:03.720 --> 0:07:06.240 That's a kind of growth, and it's getting competitive. I 0:07:06.240 --> 0:07:09.160 mean you see likes of Netflix and you know Disney 0:07:09.160 --> 0:07:13.520 Plus getting into online at So Twitter as a company, 0:07:13.760 --> 0:07:16.640 to my mind is sort of mature stage, you know, 0:07:16.960 --> 0:07:20.400 use the growth is uh sort of slowing down ads 0:07:20.480 --> 0:07:24.240 that we know they're having issues and it's not easy 0:07:24.320 --> 0:07:27.600 to revive Twitter and make it, you know, a growth 0:07:27.640 --> 0:07:30.680 company again. And that's why I think the choices are narrow. 0:07:30.760 --> 0:07:34.440 But look, Elon Musk is surrounded by people who can 0:07:34.520 --> 0:07:37.840 run this company for sure. But what does that that 0:07:38.000 --> 0:07:40.840 mean in terms of things like the margin loans for example, 0:07:40.880 --> 0:07:43.800 what is the likelihood that some of that debt can 0:07:44.200 --> 0:07:48.080 actually be exchanged and then um, I don't want to 0:07:48.080 --> 0:07:52.640 say advertised, but actually gain interest for shareholders that aren't 0:07:52.640 --> 0:07:55.960 the biggest banks to actually grab them. What do you think? Yeah, 0:07:56.000 --> 0:07:58.200 So that that's where you know, it's a good thing 0:07:58.280 --> 0:08:01.320 that the company is private and right now they just 0:08:01.400 --> 0:08:04.520 have to manage the death situation, make sure they pay 0:08:04.520 --> 0:08:07.720 off the interests, and manage the margin loan situation. But 0:08:08.080 --> 0:08:10.800 they have that kind of balance sheet and even though 0:08:11.200 --> 0:08:13.560 must may have to sell more stock. He can manage 0:08:13.600 --> 0:08:17.280 the situation. The question is is there a viable business 0:08:17.360 --> 0:08:19.840 that he can Uh, you know, at some point I 0:08:19.960 --> 0:08:22.040 p O again and and get out of this thing. 0:08:22.160 --> 0:08:25.880 But the way it's being run right now clearly uh 0:08:26.000 --> 0:08:28.760 you know it's in decline and uh, we're not even 0:08:28.800 --> 0:08:32.400 thinking about when Twitter may go public again. Dan, just 0:08:32.400 --> 0:08:36.959 stepping back from the Elon factor, what's the what's your 0:08:37.000 --> 0:08:39.679 call for Tesla as it relates to just competition with 0:08:39.720 --> 0:08:43.760 all the big auto manufacturers globally in two seeming to 0:08:43.840 --> 0:08:46.840 go all in on evs. How do you think TESTA 0:08:46.920 --> 0:08:51.320 positions itself? Okay, I think Tesla is in a position 0:08:51.360 --> 0:08:54.080 of strength, but new doubt the three one three areas 0:08:54.080 --> 0:08:56.120 where there is going to be a major beneficiary. You 0:08:56.160 --> 0:08:59.760 look with Mary doing the GM and Farowly for their 0:09:00.000 --> 0:09:02.719 into benefiting the plan as well as others from the 0:09:02.960 --> 0:09:05.800 ABU machities and and everyone else. Because this is not 0:09:05.920 --> 0:09:09.240 a zero from game and you're really getting into a 0:09:09.320 --> 0:09:11.640 combing an inflection year for e d S and two 0:09:11.679 --> 0:09:14.400 thousand and twenty three. But right now, in terms of 0:09:14.400 --> 0:09:18.280 what's happening with Musk, there's been popping of the Champagne 0:09:18.280 --> 0:09:20.959 in Detroit as they watched this because it's the best ever. 0:09:21.040 --> 0:09:25.560 Hap alright, great stuff. We appreciate getting the the updates, 0:09:25.559 --> 0:09:28.520 seems like on this never ending story. Dan ives's the 0:09:28.559 --> 0:09:32.559 senior analysts UH covering all things technology for what Bush Securities, 0:09:32.800 --> 0:09:34.520 And again it just to put it in context, and 0:09:34.640 --> 0:09:38.360 it's been a super supporter of UH, you know, the 0:09:38.400 --> 0:09:41.800 electric vehicle business and Tesla from the beginnings, done such 0:09:41.840 --> 0:09:44.880 a great job educating Wall Street UH and his investing 0:09:44.880 --> 0:09:48.600 clients about, you know, this whole new business. But now 0:09:48.640 --> 0:09:52.199 obviously shareholders of of Tesla and supporters of the stock 0:09:52.240 --> 0:09:54.760 have to deal with kind of this issue with Elon 0:09:54.840 --> 0:09:57.640 Musk and the ownership of Twitter and the impact that's 0:09:57.679 --> 0:10:00.959 having on Tesla. So tough time for those sharehold Mandeep 0:10:00.960 --> 0:10:03.920 Sein covers all things technology for Bloomberg Intelligence. He joins 0:10:04.000 --> 0:10:05.439 us as well, so we'll have to get those two 0:10:05.440 --> 0:10:07.839 folks together created just give us a sense of the 0:10:08.200 --> 0:10:11.520 business of Twitter the business of Tesla as they both 0:10:11.559 --> 0:10:18.400 try to negotiate ownership by Elon Musk. I don't know 0:10:18.400 --> 0:10:22.199 about the rest of We've gone'm putting in the rear view. 0:10:22.200 --> 0:10:26.040 I'm looking forward to three. It's got to be better. Right. Uh, 0:10:26.200 --> 0:10:27.800 let's check in with some people who kind of do 0:10:27.840 --> 0:10:30.480 this stuff for living. Gina Martin Adams, chief equity analystm 0:10:30.480 --> 0:10:36.400 Bloomberg Intelligence, and Cameron christ macro strategists with Bloomberg News. So, Gina, 0:10:36.640 --> 0:10:39.040 let's start with you here. My sixty or forty portfolio 0:10:39.160 --> 0:10:44.120 got slammed around all year, equities down, bonds down. How 0:10:44.160 --> 0:10:48.560 should I which my expectations? Yeah, I think it's a 0:10:48.640 --> 0:10:51.040 It's a great question, certainly, and something everyone is thinking 0:10:51.040 --> 0:10:53.640 about at this point in time. You know, our expectations 0:10:53.679 --> 0:10:56.800 are the equity market side of the equation anyway, will 0:10:56.800 --> 0:10:59.760 be a touch better, but maybe not back to the 0:11:00.120 --> 0:11:02.800 double digit average annual gains that we became accustomed to 0:11:02.840 --> 0:11:05.360 in the in the last cycle. So our expectation is 0:11:05.920 --> 0:11:08.280 a little bit more moderate for the next cycle. We 0:11:08.440 --> 0:11:12.120 see the likelihood for higher for longer interest rates, higher 0:11:12.120 --> 0:11:16.760 for longer inflation, pressuring valuations, and earnings growth alike. So 0:11:16.880 --> 0:11:19.520 our average anual return expectation for the next three years 0:11:19.520 --> 0:11:23.040 is somewhere between five and seven as opposed to the 0:11:23.920 --> 0:11:25.839 average anual growth that you were that you got out 0:11:25.840 --> 0:11:30.960 of stocks following the Great Financial Crisis. Well, Cameron hop 0:11:31.000 --> 0:11:33.640 on in here. You wrote a column today and I 0:11:33.679 --> 0:11:36.040 love the title of your your Macroman column saying it's 0:11:36.080 --> 0:11:39.199 kind of funny how no one wants crash protection. Talk 0:11:39.240 --> 0:11:40.960 to us a little bit about the hedging picture. Are 0:11:40.960 --> 0:11:46.079 people just going into cold? I wouldn't say that. I 0:11:46.160 --> 0:11:51.160 mean there are a number of uh peculiarities of the 0:11:51.559 --> 0:11:54.800 option market. UM. One is that there's a very large 0:11:54.800 --> 0:11:59.839 stray that happened every quarter UH where the institution is 0:12:00.000 --> 0:12:02.640 all buys a slightly out of the money UH put 0:12:02.679 --> 0:12:05.439 on the SMP and sells a put that's quite a 0:12:05.480 --> 0:12:08.840 bit further out of the money, and that that probably 0:12:08.880 --> 0:12:13.800 with some other flow dynamics, may have reduced the relative 0:12:13.880 --> 0:12:18.000 ball premium that people put on very low delta options UM. 0:12:18.040 --> 0:12:22.440 And the other thing is that quite unusually, the average 0:12:22.440 --> 0:12:26.400 winning day in two has been a lot bigger than 0:12:26.440 --> 0:12:29.120 the average losing day. I mean, you normally think about 0:12:29.480 --> 0:12:31.960 the equity market sort of riding the escalator up and 0:12:31.960 --> 0:12:35.240 then following down the elevator shaft. But it's it's been 0:12:35.320 --> 0:12:38.920 quite quite contrary UM this year, where the average winning 0:12:39.000 --> 0:12:42.160 days about twenty bases points bigger than the average than 0:12:42.200 --> 0:12:46.560 the average losing day, which suggests that, uh, you know, 0:12:46.920 --> 0:12:50.800 we we are not experiencing the sort of discontinuous moves 0:12:50.800 --> 0:12:53.440 that would that would to the downside, that would normally 0:12:53.480 --> 0:12:56.560 lead lead people to sort of really scramble for crash protection. 0:12:57.480 --> 0:12:59.120 A you know, one of the risks out there, at 0:12:59.160 --> 0:13:02.559 least in my mind, is still maybe some earnings risk. 0:13:02.600 --> 0:13:04.240 And I look at the Bloomberg terminal for the SMP 0:13:05.559 --> 0:13:08.280 for next year, like two four bucks up about five. 0:13:09.120 --> 0:13:12.120 We had Doug cass On from C Breeze Partners early 0:13:12.360 --> 0:13:15.199 in earlier on today he said, no, way, think about 0:13:15.240 --> 0:13:19.720 two hundred for earnings. What how are you thinking about 0:13:19.760 --> 0:13:23.280 earnings in twenty three. Yeah, we also have an earnings 0:13:23.280 --> 0:13:25.400 decline baked into our model, our fair value model, so 0:13:25.440 --> 0:13:28.280 as you get a small single digit drop in earnings growth, 0:13:28.320 --> 0:13:31.000 I think the really interesting thing about this particular cycle 0:13:31.080 --> 0:13:33.160 is that most of the SMP five hundred has already 0:13:33.240 --> 0:13:37.440 entered in earnings recession. When you exclude energy from the equation. 0:13:37.520 --> 0:13:39.920 The index earning stream actually peaked all the way back 0:13:39.920 --> 0:13:43.720 at the end of and most sectors showed a decline 0:13:43.720 --> 0:13:46.480 in earnings throughout this year. So you've got a lot 0:13:46.480 --> 0:13:50.320 of moving parts to contend with going into three. Certainly 0:13:50.360 --> 0:13:53.160 the energy sector will weigh heavily on the earning stream 0:13:53.160 --> 0:13:56.160 for the SMP five hundred going into three, because we've 0:13:56.160 --> 0:13:59.520 seen some deterioration in oil prices over the second half 0:13:59.559 --> 0:14:02.560 of this er, and the really strong sort of operating 0:14:02.559 --> 0:14:06.200 margin expansion that these companies enjoyed in twenty two will 0:14:06.240 --> 0:14:10.000 fade into three. That will likely be the biggest drag. 0:14:10.520 --> 0:14:12.680 But on the other end of the spectrum, financials have 0:14:12.720 --> 0:14:15.480 already been in a pretty significant earnings recession this year 0:14:16.000 --> 0:14:18.840 that should ease in three as long as we move 0:14:19.000 --> 0:14:22.680 past this m most negative point of spread in the 0:14:22.760 --> 0:14:26.040 yield curve occurring currently. As long as the yield curve 0:14:26.080 --> 0:14:29.560 becomes slightly less negative in spread, we should see better 0:14:29.600 --> 0:14:33.720 earnings growth for the financial sector. Consumer sectors also have 0:14:33.880 --> 0:14:37.600 been heavily have experienced this heavy weight of compressing operating 0:14:37.640 --> 0:14:42.200 margins because of high input costs. That should ease into 0:14:42.800 --> 0:14:45.720 three as well. So I think the story for twenty 0:14:45.760 --> 0:14:47.960 three on the earnings and the earning stream is really 0:14:48.000 --> 0:14:52.160 just a lot of moving parts. Overall, certainly a decline, 0:14:52.560 --> 0:14:55.560 but our work would suggest this looks nothing like the 0:14:55.600 --> 0:14:58.480 two thousand and eight two thousand nine earnings recession or 0:14:58.520 --> 0:15:00.920 the two thousand one earning stres And it's a really 0:15:01.000 --> 0:15:05.400 unique experience, mostly because of the fact that we're only 0:15:05.440 --> 0:15:09.560 two years out of the pandemic recession and we're still 0:15:09.680 --> 0:15:12.880 contending with a lot of moving parts on the earning stream. 0:15:12.920 --> 0:15:15.840 It's interesting that you say that, Gina, Mike Wilsonever Morgan 0:15:15.880 --> 0:15:19.080 Stanley makes the exact opposite argument. He also says his advice, 0:15:19.120 --> 0:15:21.480 don't assume the market is pricing this kind of outcome 0:15:21.760 --> 0:15:24.440 until it actually happens, which cam brings me to you, 0:15:24.840 --> 0:15:29.640 what exactly is the carnage of the stock market pricing 0:15:29.640 --> 0:15:35.600 in Uh, Well, you could argue, uh, it's priced in 0:15:35.760 --> 0:15:38.320 higher interest rates, but it has you know, has yet 0:15:38.360 --> 0:15:42.800 to price in a significant deterioration in the in the 0:15:42.840 --> 0:15:48.080 economic environment. Um. You know, I think the earnings prospects 0:15:48.080 --> 0:15:52.000 for next year are going to be pretty heavily dependent 0:15:52.520 --> 0:15:54.640 not on what's happened in the past, but also what 0:15:54.720 --> 0:15:57.120 happened in the future. And the fact is is that, well, 0:15:57.160 --> 0:16:00.080 we did have two quarters of slightly negative grow with 0:16:00.080 --> 0:16:01.680 in the first half of this year. That was largely 0:16:01.680 --> 0:16:05.480 a function of exports and inventory adjustments rather than underlying 0:16:05.480 --> 0:16:11.560 domestic demand. If we see a deterioration and underlying domestic demand, 0:16:11.600 --> 0:16:16.480 which does seem relatively reasonable given that policy is going 0:16:16.520 --> 0:16:19.400 to get more restrictive over the course of the year. 0:16:19.440 --> 0:16:23.120 If we look at the real FED funds, right, Uh, 0:16:23.240 --> 0:16:27.000 then it does seem plausible to suggest that there could 0:16:27.000 --> 0:16:32.360 be some significant down moves in in earnings relative to expectations. Still, 0:16:32.400 --> 0:16:35.040 and and let's FACTI if we if we have SMP 0:16:35.120 --> 0:16:38.280 earnings of two bucks, uh, and you slap of fifteen 0:16:38.440 --> 0:16:41.760 or sixteen p on not you get uh, you know, 0:16:41.880 --> 0:16:44.160 you get the SMP at three thousand or thirty two hundred, 0:16:44.360 --> 0:16:46.640 which is a long way from where we are now. 0:16:47.480 --> 0:16:49.440 I don't want to We're not We're not. We're not 0:16:49.480 --> 0:16:51.960 in a job to be fun, to have fun. I mean, 0:16:52.000 --> 0:16:55.520 that's not fun on the job. You know. Two, I 0:16:55.520 --> 0:16:59.000 thought I took my my pain there, Gina, Are there 0:17:00.080 --> 0:17:02.800 I don't know? Are there some sectors? I mean, if 0:17:02.840 --> 0:17:04.080 I want to go out on the risk curve and 0:17:04.119 --> 0:17:06.159 the equity space, are there some sectors I should be 0:17:06.720 --> 0:17:09.399 focusing on here? Do you think? Yeah? You know, our 0:17:09.440 --> 0:17:12.400 work would suggest actually you start to wiggle your way 0:17:12.480 --> 0:17:15.040 into some of the early cycle sectors at this stage 0:17:15.040 --> 0:17:17.159 in the market. We run a fair value model for 0:17:17.160 --> 0:17:19.320 the S and P five hundred and as of our 0:17:19.400 --> 0:17:22.040 October laws and the index that would suggest we not 0:17:22.119 --> 0:17:24.320 only priced something close to four and a half percent 0:17:24.359 --> 0:17:26.800 FED funds, but we also priced at double digit decline 0:17:26.840 --> 0:17:29.399 and earnings growth coming in the next year. So and 0:17:29.520 --> 0:17:31.080 my work would say that we've done gone a long 0:17:31.119 --> 0:17:34.400 way to pricing that earnings recession, provided that the FED 0:17:34.440 --> 0:17:37.199 does eventually stop raising interest rates. But there is there 0:17:37.200 --> 0:17:39.879 are a lot of question marks in the outlook um. 0:17:39.920 --> 0:17:42.159 As I mentioned, I don't see two this as a 0:17:42.160 --> 0:17:45.239 two thousand ninth scenario, mostly because financials, which is one 0:17:45.280 --> 0:17:48.680 of those early cycle sectors that I mentioned the leverage scenario, 0:17:48.720 --> 0:17:50.560 and financial doesn't look at all like two thousand and 0:17:50.720 --> 0:17:52.960 two thousand nine. We've got half the overall leverage and 0:17:53.000 --> 0:17:56.040 the public financial sector that we had at that point 0:17:56.080 --> 0:17:57.840 in time, despite the fact that the economy is a 0:17:57.840 --> 0:18:01.000 whole lot bigger. So financial else to us, looks like 0:18:01.040 --> 0:18:04.040 an area of opportunity along with something like a consumer 0:18:04.440 --> 0:18:07.720 some of the consumer names that have been inordinately beaten 0:18:07.760 --> 0:18:11.680 down over the course of this year, anticipating again that 0:18:11.760 --> 0:18:16.000 decline and demand coming into three. So I would say 0:18:16.000 --> 0:18:19.400 you start to leg in to some of the cyclical space, 0:18:19.480 --> 0:18:23.600 cyclical space into There's no rush to do so, because 0:18:23.640 --> 0:18:26.760 we do space negative estimate revision pressure for the index 0:18:26.800 --> 0:18:29.160 at large. But if you look at where the valuation 0:18:29.200 --> 0:18:32.879 opportunities are, they are in those early cyclical sectors. The 0:18:32.960 --> 0:18:35.080 bloated part of the market is still a problem. The 0:18:35.119 --> 0:18:38.280 bloated part of the market is that large cap growth 0:18:38.320 --> 0:18:43.119 space that became inordinately excessively valued in the pandemic, and 0:18:43.160 --> 0:18:47.400 we're still, you know, recovering from that addiction we had 0:18:47.440 --> 0:18:49.760 to large cap growth and that will probably continue to 0:18:49.800 --> 0:18:52.199 be a drag. That's too big man. I made my 0:18:52.200 --> 0:18:54.040 bread and butter and that space, like a lot of 0:18:54.080 --> 0:18:57.320 other people kind of playing on the big tech names 0:18:57.359 --> 0:19:00.359 and the big consumer cyclical kind of stuff. So so 0:19:00.400 --> 0:19:01.800 we'll have to see how that plays out. Right. Gina 0:19:01.800 --> 0:19:04.879 Martin items great stuff has always chief equity analysts with 0:19:04.880 --> 0:19:10.000 Bloomberg Intelligence and Camera Christ macro strategist with the colmdown 0:19:10.040 --> 0:19:14.000 call of the morning. I mean two on SMP earnings, 0:19:14.000 --> 0:19:16.679 you put a fifteen sixteen multiple on that. That's some 0:19:16.800 --> 0:19:23.879 pretty decent downside for the SMP. C Suite Conversation today. 0:19:24.440 --> 0:19:27.399 Today we're joined by John Carter, All, CEO of en 0:19:27.520 --> 0:19:32.359 Dava that is a London, England based company. The A 0:19:32.520 --> 0:19:34.359 d R S trade here on the New York Socker Strange. 0:19:34.560 --> 0:19:38.640 U D A v A is your ticker. John, Thanks 0:19:38.680 --> 0:19:41.399 so much for joining us here, UH technology company, I 0:19:41.480 --> 0:19:44.080 T services company. Tell us about what you guys are 0:19:44.119 --> 0:19:49.479 doing at Endava. Sure, and thanks for having me on 0:19:49.520 --> 0:19:54.240 and I appreciate it. Um So in Dava drives technology 0:19:54.320 --> 0:19:58.320 change for our customers, so we focus on the technology 0:19:58.359 --> 0:20:02.080 waves that are rolling through chosen industries that we focus on. 0:20:02.880 --> 0:20:07.480 Um and developed the expertise to drive fundamental change for 0:20:07.560 --> 0:20:11.800 our customers, so things like autonomous vehicles and how that 0:20:12.040 --> 0:20:19.520 is affecting mobility. Even today, business practices are adjusting using 0:20:19.560 --> 0:20:23.520 technology to you know, all of the change that's going 0:20:23.520 --> 0:20:26.680 to come. Has autonomous vehicles hit the market and there 0:20:26.680 --> 0:20:30.720 are many different technologies across many industries where we're helping 0:20:30.760 --> 0:20:35.160 clients go through those adjustments. One of the big themes 0:20:35.320 --> 0:20:37.840 for obviously companies globally right now is that there is 0:20:37.880 --> 0:20:41.399 going to be a massive slowdown. We were just talking 0:20:41.440 --> 0:20:44.600 in our last segment about it really hitting the profits 0:20:44.600 --> 0:20:46.280 in the bottom line of a lot of these companies. 0:20:46.320 --> 0:20:51.280 Are you seeing the same for your business? So at 0:20:51.320 --> 0:20:56.959 the moment, our guidance looking forward is for good solid growth. 0:20:57.119 --> 0:21:01.560 So we've guided on a constant currency basis of tween 0:21:01.600 --> 0:21:06.240 twenty three and for our fiscal year which runs to 0:21:06.280 --> 0:21:09.640 the end of June. UM and at the moment we're 0:21:09.640 --> 0:21:16.600 seeing good strong demand supporting that. Um so um. You know, 0:21:16.760 --> 0:21:21.560 our rationale is that clients are still investing in the 0:21:21.600 --> 0:21:27.879 areas of deep fundamental change UM that a driving step 0:21:27.960 --> 0:21:31.160 change shifts in their industries and feeling that they can't 0:21:31.160 --> 0:21:36.080 step back from it. There's maybe a little bit of review, 0:21:36.880 --> 0:21:40.760 extra review around should we be spending the money, but 0:21:40.960 --> 0:21:44.040 largely we're seeing it come through. So John, give us 0:21:44.040 --> 0:21:47.040 a sense of maybe who are a typical customer of 0:21:47.080 --> 0:21:48.760 years or what are some of the verticals that you 0:21:48.800 --> 0:21:51.880 guys really focus on in kind of what are what's 0:21:51.960 --> 0:21:56.920 your software do for those clients? Sure, um, so we're 0:21:57.040 --> 0:22:00.920 we're writing the spoke software for clients you seem sort 0:22:00.920 --> 0:22:05.480 of the technologies that are out there already touched on mobility. 0:22:05.800 --> 0:22:09.760 Another area is payments, so as you see the shift 0:22:09.840 --> 0:22:13.679 to electronic payments, and frictionless payments and different ways in 0:22:13.720 --> 0:22:15.879 which that can be done real time and so on. 0:22:16.760 --> 0:22:22.600 We're helping clients make that adjustment retail as it's becoming 0:22:22.680 --> 0:22:26.080 more omni channel and adopting some of those friction as payments. 0:22:26.080 --> 0:22:29.440 I was talking about media. You see the shift to 0:22:29.640 --> 0:22:33.400 streaming and just coming over the horizon. You can see 0:22:33.520 --> 0:22:38.880 things like the metaverse coming through AI and wearables transforming 0:22:38.920 --> 0:22:44.119 access that personally relevant healthcare. And then in insurance you 0:22:44.119 --> 0:22:48.240 can see data transforming and personalizing the sorts of products 0:22:48.280 --> 0:22:51.080 that clients want to put out. In insurance, of course 0:22:51.080 --> 0:22:54.800 there's digital banking. The shift there continues to gather an momentum. 0:22:54.840 --> 0:22:57.399