1 00:00:02,960 --> 00:00:08,160 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:09,960 --> 00:00:13,840 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 3 00:00:13,920 --> 00:00:17,000 Speaker 2: weekdays at ten am Eastern on Apple Car playing Android 4 00:00:17,040 --> 00:00:20,120 Speaker 2: Otto with the Bloomberg Business App. Listen on demand wherever 5 00:00:20,200 --> 00:00:24,520 Speaker 2: you get your podcasts, or watch us live on YouTube. 6 00:00:25,320 --> 00:00:27,400 Speaker 3: Let's get a beat on how the US farmer's doing here, 7 00:00:27,800 --> 00:00:30,600 Speaker 3: and we can do that through Deer. Deer is a 8 00:00:30,640 --> 00:00:33,879 Speaker 3: company obviously we all know and love, and their customers 9 00:00:33,880 --> 00:00:37,320 Speaker 3: buy and large are farmers, and Deer reports some numbers 10 00:00:37,320 --> 00:00:40,040 Speaker 3: a little bit disappointing here. Chris Chiolino joins us. He 11 00:00:40,040 --> 00:00:44,400 Speaker 3: covers all the big ag and machinery companies for Bloomberg Intelligences, 12 00:00:44,400 --> 00:00:47,760 Speaker 3: based down in Princeton, New Jersey. Chris, how did Deer 13 00:00:47,880 --> 00:00:51,360 Speaker 3: do this quarter and what's their outlook? 14 00:00:51,880 --> 00:00:55,360 Speaker 4: The quarter was great, really much better than we anticipated 15 00:00:55,880 --> 00:00:58,800 Speaker 4: across the board, beats both top line and margins for 16 00:00:58,880 --> 00:01:02,560 Speaker 4: most of the businesses. But the outlook was the disappointment 17 00:01:02,600 --> 00:01:05,280 Speaker 4: of the quarter. They cut net income guidance by about 18 00:01:05,319 --> 00:01:09,959 Speaker 4: five percent, and that's largely reflective of incremental weakness in 19 00:01:10,000 --> 00:01:14,400 Speaker 4: the ag business, specifically the large jag business. And there's 20 00:01:14,400 --> 00:01:18,440 Speaker 4: really two components to that one europe Deer now plans 21 00:01:18,480 --> 00:01:22,880 Speaker 4: to underproduce production, underproduce retail demand due to some weakness 22 00:01:22,959 --> 00:01:26,200 Speaker 4: in Central and Eastern Europe given the conflict there, So 23 00:01:26,240 --> 00:01:27,960 Speaker 4: they're going to try to bring down inventories. 24 00:01:28,000 --> 00:01:30,119 Speaker 5: They're already under producing in Brazil as well. 25 00:01:30,360 --> 00:01:33,240 Speaker 4: And then the second component of the cut was really 26 00:01:33,280 --> 00:01:37,680 Speaker 4: some additional softness beginning to transpire here in North America. 27 00:01:38,319 --> 00:01:40,920 Speaker 4: We saw some of the order velocity start to moderate, 28 00:01:41,040 --> 00:01:43,720 Speaker 4: So demand seems to kind of be trending towards the 29 00:01:43,760 --> 00:01:47,319 Speaker 4: low end of their down ten to fifteen percent industry outlook. 30 00:01:47,520 --> 00:01:49,160 Speaker 5: When it comes to lar jag equipment. 31 00:01:49,200 --> 00:01:51,320 Speaker 6: Yeah, let's get through some of these here. Production precision 32 00:01:51,320 --> 00:01:54,840 Speaker 6: ag net sales for their yearly forecast, they're looking down 33 00:01:54,960 --> 00:01:58,280 Speaker 6: twenty percent worse, and estimated construction and forestry net sales 34 00:01:58,280 --> 00:02:01,280 Speaker 6: down five to ten percent, bag and turfnut sales down 35 00:02:01,280 --> 00:02:05,480 Speaker 6: ten to fifteen percent. Yiki, is this a early cycle, 36 00:02:05,560 --> 00:02:07,800 Speaker 6: mid cycle or late cycle read on the economy. 37 00:02:09,200 --> 00:02:12,400 Speaker 4: I mean we're we're early in an ag downturn. Last 38 00:02:12,480 --> 00:02:17,640 Speaker 4: year was a peak production levels. You know, historically you 39 00:02:17,720 --> 00:02:20,320 Speaker 4: don't have one year downturn, so I would suspect this 40 00:02:20,400 --> 00:02:22,959 Speaker 4: is kind of the beginning of a multi year downturn, 41 00:02:23,360 --> 00:02:25,320 Speaker 4: and some of the numbers that you're seeing that your 42 00:02:25,360 --> 00:02:29,040 Speaker 4: reference on their guidance are well below you know, market 43 00:02:29,160 --> 00:02:33,240 Speaker 4: retail demand expectations, suggesting that you know, they have some 44 00:02:33,280 --> 00:02:36,560 Speaker 4: more work to do on bringing down inventory levels to 45 00:02:37,160 --> 00:02:39,960 Speaker 4: more manageable levels, with really the goal of setting up 46 00:02:40,000 --> 00:02:43,080 Speaker 4: production for twenty five in line with retail demand. 47 00:02:43,639 --> 00:02:45,640 Speaker 3: All right, So if John Tucker goes on too a 48 00:02:45,720 --> 00:02:48,640 Speaker 3: lot to get you know, maybe a backo for his 49 00:02:48,840 --> 00:02:51,799 Speaker 3: estate in the Jersey Shore, he can get one, right, 50 00:02:51,840 --> 00:02:53,480 Speaker 3: There's plenty of there on the lot. Can can he 51 00:02:53,560 --> 00:02:54,800 Speaker 3: get some? Can he get a deal? 52 00:02:56,480 --> 00:03:00,600 Speaker 4: There's no shortage of tractors and equipment on the lot. 53 00:03:00,960 --> 00:03:02,760 Speaker 4: You could get new, you could get used, kind of 54 00:03:02,800 --> 00:03:06,280 Speaker 4: take your pick. Values continue to kind of come down 55 00:03:06,320 --> 00:03:08,880 Speaker 4: here over the last twelve months, and I suspect you'll 56 00:03:08,880 --> 00:03:13,880 Speaker 4: see further pressure on the US side new equipment pricing, 57 00:03:13,960 --> 00:03:16,519 Speaker 4: you know, deers kind of guiding to one and a 58 00:03:16,560 --> 00:03:19,920 Speaker 4: half percent, which is kind of below historical averages. And 59 00:03:20,000 --> 00:03:22,200 Speaker 4: remember we're coming off of you know, three years of 60 00:03:22,320 --> 00:03:27,440 Speaker 4: really strong phenomenal pricing. So returning to I would say 61 00:03:27,520 --> 00:03:30,320 Speaker 4: below normal historical trend, which will also be a drag 62 00:03:30,400 --> 00:03:31,000 Speaker 4: on margins. 63 00:03:31,760 --> 00:03:34,040 Speaker 6: Caterpillar had a different kind of read, and I appreciate 64 00:03:34,040 --> 00:03:35,800 Speaker 6: they also do metals and mining and stuff. So is 65 00:03:35,800 --> 00:03:38,200 Speaker 6: it going to be the diversified players that are going 66 00:03:38,280 --> 00:03:38,960 Speaker 6: to really win on this? 67 00:03:40,760 --> 00:03:44,800 Speaker 4: Yeah, So, I you know, constructions holding up certainly better 68 00:03:44,840 --> 00:03:48,280 Speaker 4: than the farmer and then the ag economy a couple 69 00:03:48,240 --> 00:03:50,400 Speaker 4: of different moving pieces there. I mean, you still have 70 00:03:50,440 --> 00:03:54,240 Speaker 4: a tremendous amount of infrastructure related funds and government stimulus 71 00:03:54,280 --> 00:03:57,240 Speaker 4: coming through the system that will not only be kind 72 00:03:57,240 --> 00:03:59,480 Speaker 4: of a tail wind here in twenty four, but even 73 00:03:59,520 --> 00:04:02,240 Speaker 4: twenty five. I've been twenty six, so I think that 74 00:04:02,360 --> 00:04:06,400 Speaker 4: certainly helps offset some of the cyclical headwinds facing both. 75 00:04:06,240 --> 00:04:08,520 Speaker 5: The resie or non residential markets. 76 00:04:09,200 --> 00:04:11,600 Speaker 4: But if you look at the farm economy almost kind 77 00:04:11,600 --> 00:04:14,560 Speaker 4: of a completely different story. You look at crop prices, 78 00:04:14,560 --> 00:04:17,240 Speaker 4: which are ultimately the biggest driver of farm income and 79 00:04:18,200 --> 00:04:22,000 Speaker 4: equipment purchases. Corn soy weeat down you know, twenty five 80 00:04:22,080 --> 00:04:25,120 Speaker 4: thirty five percent plus, So that's beginning to trickle through 81 00:04:25,120 --> 00:04:27,280 Speaker 4: to farm incomes. Farmer incomes are going to be down 82 00:04:27,320 --> 00:04:30,240 Speaker 4: twenty six percent this year, and I suspect we'll be 83 00:04:30,320 --> 00:04:33,360 Speaker 4: under further pressure as we exit the year too, all. 84 00:04:33,320 --> 00:04:35,400 Speaker 3: Right, Chris Gielino, thank you so much. We appreciate that. 85 00:04:35,480 --> 00:04:38,760 Speaker 3: Chris Chilino. He covers all the big ag and construction, 86 00:04:38,920 --> 00:04:42,840 Speaker 3: all those really cool companies that are industrial America. Again, 87 00:04:42,880 --> 00:04:44,560 Speaker 3: our good friends of Deer had a good quarter. As 88 00:04:44,640 --> 00:04:47,760 Speaker 3: Chris said, bro their guidance weaker than expected, and I 89 00:04:47,760 --> 00:04:50,040 Speaker 3: guess with farmer incomes down so much. That makes a 90 00:04:50,040 --> 00:04:52,159 Speaker 3: lot of sense because they don't have money in the pocket, 91 00:04:52,200 --> 00:04:54,400 Speaker 3: they can't go out and buy new tractors and stuff 92 00:04:54,400 --> 00:04:54,640 Speaker 3: like that. 93 00:04:56,200 --> 00:04:59,720 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. We'll catch us 94 00:04:59,720 --> 00:05:01,679 Speaker 2: a love I have week days at ten am Eastern 95 00:05:01,800 --> 00:05:05,400 Speaker 2: on applecar Play and androyd Otto with the Bloomberg Business Act. 96 00:05:05,560 --> 00:05:08,400 Speaker 2: You can also listen live on Amazon Alexa from our 97 00:05:08,440 --> 00:05:12,839 Speaker 2: flagship New York station Just Say Alexa playing Bloomberg eleven thirty. 98 00:05:14,279 --> 00:05:17,680 Speaker 3: Let's go to a plet a discussion about retail sales. 99 00:05:17,720 --> 00:05:20,240 Speaker 3: What we might We saw the government numbers come out 100 00:05:20,440 --> 00:05:22,520 Speaker 3: for the month of January weeker than expected. I don't 101 00:05:22,560 --> 00:05:25,440 Speaker 3: know how much of that is seasonal versus, you know, 102 00:05:25,560 --> 00:05:28,039 Speaker 3: kind of something more substantial. But our next guest does, 103 00:05:29,000 --> 00:05:32,880 Speaker 3: Mary Shore is a senior equity analysts at Colombia thread 104 00:05:32,920 --> 00:05:38,120 Speaker 3: Needle Investments joining us via zoom from Boston, mass So, Marie, 105 00:05:38,120 --> 00:05:39,919 Speaker 3: what what do you make of the you know, retail 106 00:05:39,960 --> 00:05:42,680 Speaker 3: sales numbers we had today? How concerned should we be? 107 00:05:44,400 --> 00:05:45,640 Speaker 7: Yeah, it's a great question. 108 00:05:45,760 --> 00:05:48,520 Speaker 1: When I look at the pretty significant slowdown that we 109 00:05:48,560 --> 00:05:51,880 Speaker 1: saw in January, I think it really reflects two things. 110 00:05:52,240 --> 00:05:56,800 Speaker 1: Number one, unfavorable lab which is transitory, but also the 111 00:05:56,839 --> 00:06:00,599 Speaker 1: shift back to the pre holiday trend. So when I 112 00:06:00,720 --> 00:06:03,760 Speaker 1: really dig through the data, I see a continuation of 113 00:06:03,880 --> 00:06:07,960 Speaker 1: three themes that we really discussed throughout last year, which 114 00:06:08,000 --> 00:06:12,400 Speaker 1: is the consumer stretched and continues to spend more on 115 00:06:12,600 --> 00:06:17,040 Speaker 1: services over goods and within goods on needs over once. 116 00:06:17,480 --> 00:06:20,680 Speaker 1: We also continue to see weak demand in categories that 117 00:06:20,720 --> 00:06:24,680 Speaker 1: were strong during the pandemic, like home and sporting goods 118 00:06:24,720 --> 00:06:28,600 Speaker 1: and electronics. And then the third theme is e commerce 119 00:06:28,680 --> 00:06:32,200 Speaker 1: taking backshare from the stores. So I kind of look 120 00:06:32,240 --> 00:06:34,640 Speaker 1: at this report and say, it's really more of the 121 00:06:34,760 --> 00:06:38,400 Speaker 1: same as to what we saw throughout twenty twenty three. 122 00:06:38,920 --> 00:06:41,320 Speaker 6: So if we go to the needs over once and 123 00:06:41,360 --> 00:06:44,200 Speaker 6: spending on services, when we start to get the retailers reporting, 124 00:06:45,320 --> 00:06:48,240 Speaker 6: how do we read that dynamic into those retailers. 125 00:06:49,680 --> 00:06:51,800 Speaker 1: Yeah, it's a great question. It's really going to vary 126 00:06:51,839 --> 00:06:54,440 Speaker 1: by categories. So I think we're going to see continued 127 00:06:54,520 --> 00:07:00,800 Speaker 1: growth in categories like food and health and wellness and wellness. 128 00:07:00,800 --> 00:07:04,120 Speaker 1: I would also include in there some of the active 129 00:07:04,360 --> 00:07:08,440 Speaker 1: wear brands like a Lulu Lemon for instance, in some 130 00:07:08,520 --> 00:07:13,280 Speaker 1: of the athletic footwear brands, and then again continued weakness 131 00:07:13,320 --> 00:07:18,920 Speaker 1: in categories like home electronics, sporting goods, and I would 132 00:07:19,000 --> 00:07:22,960 Speaker 1: say kind of flatish results in apparel. The problem is 133 00:07:23,000 --> 00:07:25,520 Speaker 1: that a lot of those latter categories tend to be 134 00:07:25,600 --> 00:07:30,040 Speaker 1: the higher margin category, so they are weighing on the 135 00:07:30,080 --> 00:07:31,960 Speaker 1: top line but also weighing on margin. 136 00:07:32,080 --> 00:07:34,200 Speaker 3: All right, I'm asking on behalf of Alex here talk 137 00:07:34,200 --> 00:07:36,400 Speaker 3: to us about the luxury end of the market. That's 138 00:07:36,400 --> 00:07:38,280 Speaker 3: where she plays. What are we seeing there? 139 00:07:39,400 --> 00:07:43,120 Speaker 1: Yeah, we're still seeing pretty weak results from the luxury 140 00:07:43,480 --> 00:07:48,880 Speaker 1: players really globally speaking, of course, there's things happening in China, 141 00:07:48,920 --> 00:07:51,960 Speaker 1: but also in North American Europe. They're talking more about 142 00:07:52,080 --> 00:07:55,440 Speaker 1: macro pressures, and I think what's happening is that luxury 143 00:07:55,440 --> 00:08:00,320 Speaker 1: consumer spending more on services like travel, and some of 144 00:08:00,360 --> 00:08:03,640 Speaker 1: the luxury players that have more exposure to what I 145 00:08:03,640 --> 00:08:08,520 Speaker 1: would call the aspirational luxury category. So maybe the kind 146 00:08:08,520 --> 00:08:11,520 Speaker 1: of mid tier consumers that were stretching to buy some 147 00:08:11,560 --> 00:08:15,080 Speaker 1: of those higher price goods. You know, that consumer has 148 00:08:15,200 --> 00:08:20,560 Speaker 1: really slowed, and so any luxury player with greater exposure 149 00:08:20,720 --> 00:08:24,080 Speaker 1: to that kind of aspirational luxury part of the category, 150 00:08:24,360 --> 00:08:27,760 Speaker 1: I think is feeling the pressure more than some of 151 00:08:27,880 --> 00:08:30,800 Speaker 1: like the true luxury players, like I would say in 152 00:08:30,880 --> 00:08:33,760 Speaker 1: our Mes or Chanelle, those are the brands that seem 153 00:08:33,840 --> 00:08:34,720 Speaker 1: to be holding. 154 00:08:34,480 --> 00:08:35,000 Speaker 8: Up the best. 155 00:08:35,200 --> 00:08:37,839 Speaker 6: Yeah, their mez story is just amazing. Okay, just to 156 00:08:38,679 --> 00:08:42,400 Speaker 6: be clear on myself, I don't do luxury. I only 157 00:08:42,440 --> 00:08:45,560 Speaker 6: do sales. Okay, I like luxury on sale, but I 158 00:08:45,679 --> 00:08:48,840 Speaker 6: like that the like out in it, that kind of stuff. 159 00:08:49,320 --> 00:08:51,640 Speaker 6: This means nothing to the guys in the studio right now. 160 00:08:51,520 --> 00:08:53,560 Speaker 9: How many pairs of shoes do you have? 161 00:08:53,720 --> 00:08:54,880 Speaker 3: Let's star A nice question. 162 00:08:54,920 --> 00:08:56,679 Speaker 6: Oh, I know, I actually can do this from my 163 00:08:56,760 --> 00:08:59,520 Speaker 6: old team. I don't think it's as many as you 164 00:08:59,640 --> 00:09:02,160 Speaker 6: think it is. I think it's like maybe thirty. 165 00:09:03,360 --> 00:09:05,160 Speaker 9: What, wow, I have two. 166 00:09:06,440 --> 00:09:08,400 Speaker 7: Okay, Mari back me up. 167 00:09:08,440 --> 00:09:12,320 Speaker 6: Thirty is like a very reasonable amount. But I asked 168 00:09:12,320 --> 00:09:14,920 Speaker 6: this because we only see a lot of sales when 169 00:09:14,920 --> 00:09:16,560 Speaker 6: you got to get the inventory out the door. Am 170 00:09:16,600 --> 00:09:18,360 Speaker 6: I going to be a happy consumer? Or am I 171 00:09:18,360 --> 00:09:19,520 Speaker 6: going to be a sad consumer? 172 00:09:19,520 --> 00:09:21,440 Speaker 7: This year? Yeah? 173 00:09:21,480 --> 00:09:24,280 Speaker 1: Again, it really varies by category and brand, but I 174 00:09:24,280 --> 00:09:28,400 Speaker 1: would say overall, the inventory this year was in a 175 00:09:28,480 --> 00:09:31,720 Speaker 1: much better place than what we saw last year when 176 00:09:31,960 --> 00:09:35,640 Speaker 1: demand really first started to slow and all of the 177 00:09:35,679 --> 00:09:39,960 Speaker 1: companies found themselves sitting on access goods. I would say 178 00:09:39,960 --> 00:09:42,680 Speaker 1: as we moved into twenty twenty three, the inventory was 179 00:09:42,760 --> 00:09:45,240 Speaker 1: better controlled. So when you looked at a lot of 180 00:09:45,240 --> 00:09:50,319 Speaker 1: the company's results, the gross margin rate was actually stronger 181 00:09:50,320 --> 00:09:54,040 Speaker 1: than a lot of investors were expecting. Part of that was, 182 00:09:54,440 --> 00:09:57,840 Speaker 1: you know, lower promotions, lower markdowns. 183 00:09:57,280 --> 00:09:58,800 Speaker 7: Than what we saw the prior year. 184 00:09:59,120 --> 00:10:01,720 Speaker 1: So as we moved the the holiday, I would say 185 00:10:02,000 --> 00:10:05,240 Speaker 1: most of the promotions we saw I would classify as 186 00:10:05,240 --> 00:10:08,360 Speaker 1: in line with plan. I don't think we saw super 187 00:10:08,400 --> 00:10:12,559 Speaker 1: aggressive promotions, and that really reflects the fact that most 188 00:10:12,559 --> 00:10:16,079 Speaker 1: of the brands and retailers are sitting on pretty lean 189 00:10:16,200 --> 00:10:20,679 Speaker 1: inventories right now and continue to manage their inventory very conservatively, 190 00:10:21,200 --> 00:10:23,040 Speaker 1: just given the week demand backdrop. 191 00:10:23,240 --> 00:10:26,600 Speaker 3: This is said for me exactly, So Mari, how about 192 00:10:27,120 --> 00:10:29,680 Speaker 3: like it's some of the dollar stores for example. I'm 193 00:10:29,679 --> 00:10:32,720 Speaker 3: not sure how that really works out. Do they benefit 194 00:10:32,760 --> 00:10:35,760 Speaker 3: when times get a little tough because maybe people trade 195 00:10:35,840 --> 00:10:39,439 Speaker 3: down to the dollar stores order their typical customers, they 196 00:10:39,480 --> 00:10:43,000 Speaker 3: feel it more acutely, How do they play these days? 197 00:10:43,720 --> 00:10:44,800 Speaker 7: Yeah, it's a great question. 198 00:10:45,040 --> 00:10:48,680 Speaker 1: Typically you see both happening simultaneously, right, so you would 199 00:10:48,679 --> 00:10:52,880 Speaker 1: see their core customer come under pressure, but that be 200 00:10:53,000 --> 00:10:55,680 Speaker 1: off set by the more kind of mill income consumer 201 00:10:55,840 --> 00:10:59,320 Speaker 1: trading down into those discount formats, whether it be dollar 202 00:10:59,400 --> 00:11:03,079 Speaker 1: stores or even some of the off pricers like Burlington 203 00:11:03,160 --> 00:11:06,679 Speaker 1: and Ross that cater to a lower income consumer. I 204 00:11:06,720 --> 00:11:10,800 Speaker 1: think this cycle we saw kind of a delayed trade 205 00:11:10,840 --> 00:11:13,800 Speaker 1: down from the middle income consumer, but as we kind 206 00:11:13,800 --> 00:11:16,000 Speaker 1: of moved through Q four and into this year, I 207 00:11:16,040 --> 00:11:19,640 Speaker 1: think that should be more pronounced and really help some 208 00:11:19,679 --> 00:11:23,240 Speaker 1: of those discount formats. I also think what's happening with 209 00:11:23,280 --> 00:11:26,240 Speaker 1: the dollar stores you've seen Walmart, I think take a 210 00:11:26,240 --> 00:11:28,719 Speaker 1: lot of share, right. You can see it in their 211 00:11:28,760 --> 00:11:33,079 Speaker 1: results when you compare Walmart to know the family Dollar business, 212 00:11:33,080 --> 00:11:36,120 Speaker 1: which is owned by Dollar Tree and Dollar General. So 213 00:11:36,400 --> 00:11:38,400 Speaker 1: I think you have a lot of things happening at 214 00:11:38,400 --> 00:11:42,520 Speaker 1: the same time, but overall, a weaker macro backdrop should 215 00:11:42,559 --> 00:11:44,840 Speaker 1: be a positive for those discount formats. 216 00:11:44,880 --> 00:11:46,800 Speaker 6: Also, it's weird. It's like dollar stores are no longer 217 00:11:46,880 --> 00:11:50,160 Speaker 6: really dollar stores, Like they're like five dollars stores and 218 00:11:50,200 --> 00:11:53,920 Speaker 6: their inventory is like horrific, I mean in some of them. 219 00:11:54,920 --> 00:11:58,760 Speaker 7: Yeah yeah, I saw. Sorry, go ahead, Oh no, go ahead. 220 00:11:59,120 --> 00:12:01,080 Speaker 6: I was gonna say, like, going in one, you're like, 221 00:12:01,160 --> 00:12:04,280 Speaker 6: this is like scrape and bottom of the barrel of inventory, 222 00:12:04,440 --> 00:12:07,120 Speaker 6: like it is. It is not a pretty shelf site. 223 00:12:07,480 --> 00:12:08,160 Speaker 7: Yeah. 224 00:12:08,400 --> 00:12:08,600 Speaker 2: Yeah. 225 00:12:08,679 --> 00:12:10,719 Speaker 1: I think a lot of the dollar stores have kind 226 00:12:10,720 --> 00:12:14,120 Speaker 1: of struggled with the store standards and the service levels 227 00:12:14,240 --> 00:12:18,040 Speaker 1: to that point, and both Dollar Tree and Dollar General 228 00:12:18,120 --> 00:12:22,920 Speaker 1: have talked about investing in vetter, inventory management systems, more 229 00:12:23,120 --> 00:12:28,400 Speaker 1: labor in the stores to help improve the store shopping experience. 230 00:12:28,920 --> 00:12:30,880 Speaker 3: All right, Marie, thanks so much for joining us. Marie Shore, 231 00:12:30,920 --> 00:12:34,360 Speaker 3: senior equity analysts at Columbia thread Needle Investments, joining us 232 00:12:34,400 --> 00:12:39,760 Speaker 3: via zoom from Boston, Massachusetts. Thread Needle, originally a London based, 233 00:12:39,920 --> 00:12:43,000 Speaker 3: UK based investment firm, announced Columbia Thread Needle because they 234 00:12:43,040 --> 00:12:44,079 Speaker 3: were required by COMBIA. 235 00:12:44,559 --> 00:12:46,679 Speaker 6: They have great, great analysts. 236 00:12:46,280 --> 00:12:47,920 Speaker 3: They do. They're very good at best. 237 00:12:47,840 --> 00:12:49,319 Speaker 6: Yep, you know Bloomberg Intelligence. 238 00:12:49,520 --> 00:12:50,400 Speaker 3: Yea, all good. 239 00:12:50,440 --> 00:12:51,080 Speaker 6: Let's put it there. 240 00:12:51,080 --> 00:12:53,040 Speaker 3: All good, all good, Yeah, but good read on the 241 00:12:53,040 --> 00:12:55,959 Speaker 3: retailers here. So I was like paying attention to the retailers, 242 00:12:56,040 --> 00:12:58,480 Speaker 3: you know, whether it's the walmarts or you know, the 243 00:12:59,040 --> 00:13:00,600 Speaker 3: luxury you just get a great view of kind of 244 00:13:00,600 --> 00:13:03,000 Speaker 3: how the consumer's really hanging in there and generally has 245 00:13:03,000 --> 00:13:05,600 Speaker 3: been hanging in there for the luxury. I'm waiting for 246 00:13:05,640 --> 00:13:10,199 Speaker 3: them to say China's back, baby, they're buying mainland, they're traveling, 247 00:13:10,240 --> 00:13:11,160 Speaker 3: and we haven't heard that. 248 00:13:11,200 --> 00:13:13,360 Speaker 6: I don't know if it's gonna happen, to be honest, 249 00:13:13,360 --> 00:13:15,040 Speaker 6: if it hasn't happened at this time, it's really hard 250 00:13:15,040 --> 00:13:17,520 Speaker 6: to make that case. Plus even if China, even if 251 00:13:17,559 --> 00:13:20,440 Speaker 6: they say that, will investors be that willing to buy 252 00:13:20,480 --> 00:13:23,640 Speaker 6: that narrative? When they got burned in the first quarter 253 00:13:23,679 --> 00:13:25,240 Speaker 6: of last year from that, yeah. 254 00:13:25,080 --> 00:13:28,240 Speaker 3: Part of that was the Chinese traveler. They couldn't fly anywhere. 255 00:13:28,280 --> 00:13:30,160 Speaker 3: But now that's getting a little bit better, so maybe 256 00:13:30,160 --> 00:13:31,160 Speaker 3: that'll that'll help. 257 00:13:32,640 --> 00:13:36,520 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 258 00:13:36,600 --> 00:13:39,280 Speaker 2: weekdays at ten am Eastern on Apple car Playing and 259 00:13:39,400 --> 00:13:42,320 Speaker 2: broud Otto with the Bloomberg Business app. Listen on demand 260 00:13:42,360 --> 00:13:46,679 Speaker 2: wherever you get your podcasts or watch us live on YouTube. 261 00:13:46,120 --> 00:13:48,720 Speaker 3: But it's got a sense of where we're going with 262 00:13:48,720 --> 00:13:51,120 Speaker 3: this market. I don't know whether it's time to jump 263 00:13:51,160 --> 00:13:54,800 Speaker 3: off the big calf tech train that's worked so well 264 00:13:54,840 --> 00:13:56,400 Speaker 3: for so long and maybe take a look at some 265 00:13:56,400 --> 00:13:59,720 Speaker 3: of the smaller midcaps, maybe some value. You don't know 266 00:13:59,720 --> 00:14:01,480 Speaker 3: where to go. Oh here, David Coodle's got some thoughts 267 00:14:01,520 --> 00:14:03,400 Speaker 3: here because he does this stuff for a living. He's 268 00:14:03,440 --> 00:14:06,720 Speaker 3: a founder, chief executive officer and chief investment officer Mainstay 269 00:14:07,120 --> 00:14:11,079 Speaker 3: Capital Management, joining us of via zoom from Troy, Michigan. 270 00:14:11,120 --> 00:14:14,680 Speaker 3: It's a lovely town. I've been there once, David. What 271 00:14:14,880 --> 00:14:18,000 Speaker 3: say you here? I mean for a lot of investors 272 00:14:18,000 --> 00:14:22,160 Speaker 3: that Magnificent seven has worked so well for so many people. 273 00:14:22,680 --> 00:14:25,120 Speaker 3: Do you just stay with the you know, with that horse, 274 00:14:25,200 --> 00:14:26,920 Speaker 3: or do you try to maybe look for some value 275 00:14:26,920 --> 00:14:29,200 Speaker 3: in small cap mid cap maybe some of the sectors 276 00:14:29,200 --> 00:14:29,800 Speaker 3: that I have lagged. 277 00:14:31,680 --> 00:14:35,560 Speaker 8: Yeah, you know the in good morning, good morning, Paul I. 278 00:14:35,600 --> 00:14:38,440 Speaker 8: When we look across the market and we know that 279 00:14:38,480 --> 00:14:40,880 Speaker 8: the Magnificent seven had a great year last year of 280 00:14:40,920 --> 00:14:44,400 Speaker 8: about one hundred and ten percent, and we now have 281 00:14:45,160 --> 00:14:50,560 Speaker 8: a Fab five that excludes Tesla and Apple that's doing 282 00:14:50,680 --> 00:14:55,240 Speaker 8: very well this year. And you know the concern is is, 283 00:14:55,320 --> 00:14:56,640 Speaker 8: you know, can we see a sell off in a 284 00:14:56,720 --> 00:14:59,240 Speaker 8: video with this meteoric rise? Can we see a sell 285 00:14:59,280 --> 00:15:00,000 Speaker 8: off in these stocks? 286 00:15:00,160 --> 00:15:00,920 Speaker 3: Of course we can. 287 00:15:02,520 --> 00:15:04,520 Speaker 8: It wouldn't be surprised at five or ten percent or 288 00:15:04,520 --> 00:15:07,400 Speaker 8: even more at any given time, given the rally that 289 00:15:07,440 --> 00:15:09,840 Speaker 8: we've had and the Magnificent seven this year and the 290 00:15:10,000 --> 00:15:15,360 Speaker 8: Fab five last year. But our overall thesis we like 291 00:15:15,480 --> 00:15:20,600 Speaker 8: growth over value and mega cap tech and profitable tech 292 00:15:21,200 --> 00:15:24,200 Speaker 8: is our most favorite sector last year and coming into 293 00:15:24,240 --> 00:15:27,200 Speaker 8: this year. And we look forward, we look over the 294 00:15:27,240 --> 00:15:30,320 Speaker 8: next three years. At the annual growth rate of the 295 00:15:30,360 --> 00:15:34,200 Speaker 8: Magnificent seven, it's four times that of the rest of 296 00:15:34,240 --> 00:15:36,640 Speaker 8: the S and P five hundred. If we look at 297 00:15:36,640 --> 00:15:41,600 Speaker 8: profit margins, they're going to expand at a lot higher 298 00:15:41,680 --> 00:15:45,080 Speaker 8: rate than the other four hundred and ninety three stocks. 299 00:15:45,120 --> 00:15:48,560 Speaker 8: You take out Apple and Tesla, those numbers get even bigger. 300 00:15:49,040 --> 00:15:53,920 Speaker 8: So we're still on growth over value, all right, I'm sorry, 301 00:15:53,920 --> 00:15:57,160 Speaker 8: growth over value, large over small. We had a rally 302 00:15:57,200 --> 00:15:59,480 Speaker 8: in small at the end of last year. In small 303 00:15:59,520 --> 00:16:03,240 Speaker 8: caps a little bit here recently, but small caps, you 304 00:16:03,280 --> 00:16:05,200 Speaker 8: know the problem with small caps have if you become 305 00:16:05,200 --> 00:16:08,360 Speaker 8: a good small cap stock. Soon you become a good 306 00:16:08,360 --> 00:16:10,440 Speaker 8: mid cap so you could become a good mid cap stock. 307 00:16:10,520 --> 00:16:13,320 Speaker 8: So the Russell two thousand by definition has that kind 308 00:16:13,360 --> 00:16:16,440 Speaker 8: of problem. And in the environment we're in with higher rates, 309 00:16:16,440 --> 00:16:18,640 Speaker 8: it's tough for small caps. And then finally we like 310 00:16:18,960 --> 00:16:21,080 Speaker 8: the US over foreign. 311 00:16:21,840 --> 00:16:25,280 Speaker 6: So David, to that point, what do you do then, 312 00:16:25,800 --> 00:16:28,440 Speaker 6: Like all those trades are working, all those trades have 313 00:16:28,520 --> 00:16:30,400 Speaker 6: been working, do you just kind of put the positions 314 00:16:30,440 --> 00:16:32,160 Speaker 6: on and then sit tight and then wait for all 315 00:16:32,200 --> 00:16:33,040 Speaker 6: that to play out. 316 00:16:34,520 --> 00:16:37,120 Speaker 8: Yeah, Well, the approach we're taking is yes, we are, 317 00:16:38,120 --> 00:16:41,280 Speaker 8: you know, very dominant in Nasdaq one hundred. You know, 318 00:16:41,360 --> 00:16:47,720 Speaker 8: those megacap gross stocks were dominant there. We're diversified in 319 00:16:47,800 --> 00:16:52,040 Speaker 8: some other areas and need to be in the income 320 00:16:52,080 --> 00:16:54,440 Speaker 8: portion of our portfolio. The thing that's worked so well 321 00:16:54,520 --> 00:16:58,880 Speaker 8: last year and into this year is holding the ultra 322 00:16:58,960 --> 00:17:03,040 Speaker 8: short term bonds with high yields. The bond indecks, the 323 00:17:03,120 --> 00:17:06,879 Speaker 8: us I agreated bond indecks was you know, was slightly 324 00:17:07,320 --> 00:17:12,120 Speaker 8: or only slightly up last year when the we look 325 00:17:12,160 --> 00:17:15,840 Speaker 8: at these ultra short term bonds with high yield of 326 00:17:15,960 --> 00:17:18,280 Speaker 8: six or seven percent. So if that's the income portion 327 00:17:19,200 --> 00:17:23,800 Speaker 8: with this growth dominant portion for equities. That's a formula 328 00:17:23,920 --> 00:17:26,600 Speaker 8: that's still working for a diversified portfolio. 329 00:17:27,600 --> 00:17:32,160 Speaker 3: So, David, I know you prefer us over international markets, 330 00:17:32,200 --> 00:17:35,200 Speaker 3: but I see you mentioned China here in your notes, 331 00:17:35,200 --> 00:17:38,359 Speaker 3: and I'm sorry Japan, and I've heard more about Japan 332 00:17:38,400 --> 00:17:39,639 Speaker 3: in the last six months that I have in the 333 00:17:39,680 --> 00:17:42,719 Speaker 3: last twenty years. What's going on in Japan from an 334 00:17:42,720 --> 00:17:43,280 Speaker 3: investment peru. 335 00:17:43,400 --> 00:17:45,440 Speaker 8: Yeah, we've heard more about Japan in the last six 336 00:17:45,520 --> 00:17:49,560 Speaker 8: months than we have in the last thirty five years. 337 00:17:49,600 --> 00:17:55,040 Speaker 8: Because we're right, we're bumping up. We're bumping up against 338 00:17:55,280 --> 00:17:58,199 Speaker 8: that high that was set in December of you know, 339 00:17:58,320 --> 00:18:01,400 Speaker 8: nineteen eighty nine when I was walking around the Stanford 340 00:18:01,480 --> 00:18:05,760 Speaker 8: campus learning about investing, right, I mean, it's that long ago. 341 00:18:06,280 --> 00:18:09,240 Speaker 8: That giant trough that that we're coming into in Japan 342 00:18:09,359 --> 00:18:11,200 Speaker 8: has some things going for it. You know, it's still 343 00:18:11,240 --> 00:18:15,200 Speaker 8: the easy monetary policy. Uh, they have the capital flows 344 00:18:15,240 --> 00:18:18,840 Speaker 8: coming from China. You know, China is nearly uninvestable at 345 00:18:18,840 --> 00:18:23,560 Speaker 8: this point. And then President Trump comes out and says, 346 00:18:23,600 --> 00:18:25,679 Speaker 8: if he gets elected, I'm going to put his sixty 347 00:18:25,720 --> 00:18:28,760 Speaker 8: percent tariff on all Chinese goods, I mean, with everything 348 00:18:28,760 --> 00:18:31,520 Speaker 8: else that's wrong in China with evergrand the real estate 349 00:18:31,560 --> 00:18:35,480 Speaker 8: sector all that, you know, more bad news coming. And 350 00:18:36,040 --> 00:18:38,240 Speaker 8: you know, so they've they've been doing a lot from 351 00:18:39,080 --> 00:18:43,960 Speaker 8: a stimulus standpoint, but that stock market continues to be, 352 00:18:44,600 --> 00:18:49,600 Speaker 8: you know, mired in a down draft. The if we 353 00:18:49,640 --> 00:18:53,399 Speaker 8: look at Europe, Europe is is near recession, kind of 354 00:18:53,400 --> 00:18:56,440 Speaker 8: in and out of recession. The UK is in recession 355 00:18:56,560 --> 00:18:59,920 Speaker 8: and actually just found out that Japan unexpectedly got it 356 00:19:00,119 --> 00:19:02,520 Speaker 8: second quarter of negative growth. But we've just got a 357 00:19:02,640 --> 00:19:07,560 Speaker 8: easy monetary policy. Capital flows there, Valuations are starting to 358 00:19:07,560 --> 00:19:10,439 Speaker 8: get a little bit lofty, but it's it's still investible. 359 00:19:11,520 --> 00:19:14,520 Speaker 6: What do you make of the BOJ and then getting 360 00:19:14,520 --> 00:19:17,440 Speaker 6: off of you'll curve control? Like does that factor in 361 00:19:17,480 --> 00:19:19,760 Speaker 6: to like you're thinking, like, clearly there's a carry trade 362 00:19:19,760 --> 00:19:21,760 Speaker 6: that's going to unwind really fast. Clearly that's going to 363 00:19:22,080 --> 00:19:24,280 Speaker 6: affect the treasury market. Does that affect you, David? 364 00:19:25,800 --> 00:19:28,040 Speaker 8: It affects us in that we're watching what the yen 365 00:19:28,200 --> 00:19:31,919 Speaker 8: is doing because the end it just continues to weaken 366 00:19:32,000 --> 00:19:35,880 Speaker 8: and and they've come in, they've intervened. The BOJ has 367 00:19:35,920 --> 00:19:38,960 Speaker 8: intervened several times. But you know when they do, those 368 00:19:39,000 --> 00:19:42,399 Speaker 8: tend to be temporary fixes. Those tend to be just 369 00:19:43,080 --> 00:19:47,440 Speaker 8: temporary in nature, and you know, our concern there, really 370 00:19:47,480 --> 00:19:51,120 Speaker 8: our concern now is with the economy in a more 371 00:19:51,160 --> 00:19:53,800 Speaker 8: fragile state. You know, what will they do in April? 372 00:19:53,840 --> 00:19:56,440 Speaker 8: Will they finally raise rates? I mean what they've continued 373 00:19:56,480 --> 00:20:00,199 Speaker 8: to do while the US went through their mass of 374 00:20:00,400 --> 00:20:03,440 Speaker 8: you know, five hundred and twenty five basis point increase 375 00:20:03,520 --> 00:20:08,119 Speaker 8: in rates from zero, Europe raising rates. We have Japan 376 00:20:08,200 --> 00:20:12,120 Speaker 8: there that's just maintained this easy monetary policy. They've made 377 00:20:12,240 --> 00:20:15,920 Speaker 8: some adjustments, but they've got a weak currency that continues 378 00:20:15,920 --> 00:20:20,680 Speaker 8: the weaken easy monetary policy. And you know, we'll see 379 00:20:20,680 --> 00:20:23,600 Speaker 8: but that the moves that they've made have been have 380 00:20:23,720 --> 00:20:29,720 Speaker 8: been just just minor, almost you know, non events in 381 00:20:29,840 --> 00:20:33,159 Speaker 8: terms of if they really started the type monetary policy, 382 00:20:33,200 --> 00:20:33,840 Speaker 8: which they haven't. 383 00:20:34,600 --> 00:20:36,600 Speaker 3: So, David, we're about seventy five percent of the way 384 00:20:36,600 --> 00:20:39,080 Speaker 3: through the S and P five hundred earnings. Any themes 385 00:20:39,080 --> 00:20:41,800 Speaker 3: for you, any takeaways for you, any any changes to 386 00:20:41,840 --> 00:20:43,280 Speaker 3: your portfolio based on what you're seeing. 387 00:20:44,560 --> 00:20:48,320 Speaker 8: No, I mean, we know we're beating expectations again, earnings 388 00:20:48,320 --> 00:20:54,639 Speaker 8: coming out better than expected. We're beyond that earnings recession 389 00:20:54,680 --> 00:20:59,040 Speaker 8: we had last year. And now seeing earnings doing quite well. 390 00:20:59,160 --> 00:21:01,879 Speaker 8: So I mean we're encouraged by that because that's what 391 00:21:01,920 --> 00:21:05,200 Speaker 8: we want to see with the FED. Well, we're so 392 00:21:05,320 --> 00:21:09,040 Speaker 8: concerned about the FED, obviously, but no, we're it's really 393 00:21:09,080 --> 00:21:13,040 Speaker 8: supporting where we're at in terms of growth versus value. 394 00:21:13,040 --> 00:21:16,639 Speaker 8: I think, you know, as we get into the second 395 00:21:16,680 --> 00:21:18,560 Speaker 8: half of the year, we think we have some volatility 396 00:21:18,600 --> 00:21:20,560 Speaker 8: here for a few more months. We get into second 397 00:21:20,600 --> 00:21:22,320 Speaker 8: half of the year and we start to see the 398 00:21:22,400 --> 00:21:25,800 Speaker 8: rate cuts come. If that's June, let's say that they start, 399 00:21:25,880 --> 00:21:28,000 Speaker 8: and just and remember that just weeks ago we were 400 00:21:28,040 --> 00:21:32,800 Speaker 8: looking at March for rate cuts to start. If rate 401 00:21:32,840 --> 00:21:35,639 Speaker 8: cuts do start that soon, and I think it could 402 00:21:35,840 --> 00:21:39,000 Speaker 8: maybe even be longer, then then we can come in. 403 00:21:39,080 --> 00:21:41,760 Speaker 8: Then we can feel more comfortable about dipping into small cap, 404 00:21:41,920 --> 00:21:46,480 Speaker 8: dipping into cyclicals. But right now, I mean, we're encouraged 405 00:21:46,480 --> 00:21:49,640 Speaker 8: by earnings and it's supporting the areas that we like. 406 00:21:49,920 --> 00:21:52,960 Speaker 3: Right all right, David, If I find myself in Troy, 407 00:21:52,960 --> 00:21:55,160 Speaker 3: Michigan this summer, would you recommend to pay a visit 408 00:21:55,200 --> 00:21:57,160 Speaker 3: to the Waterford Oaks wave Pool. 409 00:21:57,560 --> 00:22:00,480 Speaker 6: Well, I love wave pools, even though they're creepy and weird. 410 00:22:02,280 --> 00:22:03,879 Speaker 8: I think you should, and if you do, give me 411 00:22:03,920 --> 00:22:06,640 Speaker 8: a call and we'll go down there and have some fun. 412 00:22:06,680 --> 00:22:07,720 Speaker 8: That sounds like a lot of fun. 413 00:22:07,800 --> 00:22:10,159 Speaker 3: I've been to Troy. I did one of my internal 414 00:22:10,200 --> 00:22:12,480 Speaker 3: audit visits when I was a pain Webber to the Troy, 415 00:22:12,600 --> 00:22:15,080 Speaker 3: Michigan Pain Webber branch. Had had a good time there 416 00:22:15,119 --> 00:22:17,840 Speaker 3: for a week. Good good folks at there. David Kodla, 417 00:22:17,880 --> 00:22:20,680 Speaker 3: thanks so much for joining U. David Coudla, Founder chief 418 00:22:20,680 --> 00:22:24,840 Speaker 3: executive officer and chief investment strategist at Mainstay Capital. Manage It. 419 00:22:26,359 --> 00:22:30,280 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 420 00:22:30,359 --> 00:22:33,840 Speaker 2: weekdays at ten am Eastern on applecar Play and androyd 421 00:22:33,880 --> 00:22:36,680 Speaker 2: Otto with the Bloomberg Business Act. You can also listen 422 00:22:36,800 --> 00:22:39,879 Speaker 2: live on Amazon Alexa from our flagship New York station 423 00:22:40,240 --> 00:22:43,960 Speaker 2: Just Say Alexa playing Bloomberg eleven thirty. 424 00:22:44,800 --> 00:22:47,359 Speaker 3: Big TAKEE story yesterday was about commercial real estate in 425 00:22:47,359 --> 00:22:50,280 Speaker 3: this country, particularly office space, and how we're seeing that 426 00:22:50,359 --> 00:22:53,679 Speaker 3: marked down pretty substantially. There's some trades actually happening, and 427 00:22:53,680 --> 00:22:55,480 Speaker 3: then Alex and I were just talking to earlier this 428 00:22:55,520 --> 00:22:57,720 Speaker 3: morning saying, boy, when are some of these smart real 429 00:22:57,800 --> 00:23:00,000 Speaker 3: estate equity dudes going to comment or do debts coming out, 430 00:23:00,119 --> 00:23:03,000 Speaker 3: come into the market and start making some long term investment. 431 00:23:03,040 --> 00:23:04,879 Speaker 3: Scott Kelly is one of them. He is a founder 432 00:23:04,920 --> 00:23:07,840 Speaker 3: and CEO of Ato's Capital real Estate. He joins us 433 00:23:07,840 --> 00:23:10,040 Speaker 3: here in a Bloomberg Interarctive Broker Studio. Were also joined 434 00:23:10,040 --> 00:23:12,600 Speaker 3: by Abigail Doolittle, markets reporter for Bloomberg News. She's going 435 00:23:12,640 --> 00:23:14,720 Speaker 3: to help us here kind of get through this story. Here, 436 00:23:14,960 --> 00:23:17,160 Speaker 3: Scott talk to us about how you guys at your 437 00:23:17,200 --> 00:23:20,359 Speaker 3: firm are kind of viewing the commercial real estate market 438 00:23:20,359 --> 00:23:22,920 Speaker 3: in this country. Is it time to maybe start bottle fishing? 439 00:23:24,160 --> 00:23:26,040 Speaker 10: I think it is. I think it's the beginning of 440 00:23:26,080 --> 00:23:28,520 Speaker 10: what's going to be a long process of working things out. 441 00:23:29,800 --> 00:23:32,760 Speaker 10: We have a company called waiver Tree Property Partners, which 442 00:23:32,800 --> 00:23:37,760 Speaker 10: is in the business of buying distressed real estate loans 443 00:23:37,800 --> 00:23:44,360 Speaker 10: and properties here in the US, and interestingly, the loans 444 00:23:44,560 --> 00:23:47,560 Speaker 10: are not as concentrated as they have been in the past. 445 00:23:47,640 --> 00:23:51,000 Speaker 10: When you look at the big real estate investment opportunities, 446 00:23:51,040 --> 00:23:56,000 Speaker 10: whether it was the RTC, whether it was Lehman's bankruptcy, 447 00:23:56,080 --> 00:23:59,880 Speaker 10: Bear Starns Lehman, the loans tended to be pretty con 448 00:24:00,119 --> 00:24:04,640 Speaker 10: and traded. Today, I think you find a wide variety 449 00:24:04,640 --> 00:24:09,000 Speaker 10: of lenders, including a lot of regional banks which are 450 00:24:09,440 --> 00:24:11,240 Speaker 10: which which hold a lot a lot of these real 451 00:24:11,359 --> 00:24:13,359 Speaker 10: estate loans. So we think it's going to be a 452 00:24:13,359 --> 00:24:16,199 Speaker 10: big opportunity. It's not just going to be an office. 453 00:24:17,000 --> 00:24:19,320 Speaker 10: Apartments are going to be a big opportunity as well. 454 00:24:20,560 --> 00:24:23,080 Speaker 10: We think that it's important to buy good real estate. 455 00:24:23,160 --> 00:24:26,200 Speaker 10: At the end of the day. You know, cheap doesn't 456 00:24:26,200 --> 00:24:28,240 Speaker 10: get cheap enough if you don't buy the right thing. 457 00:24:28,400 --> 00:24:32,000 Speaker 10: So you know, the better properties are going to continue 458 00:24:32,000 --> 00:24:34,600 Speaker 10: to perform, okay, But I think there's a real opportunity 459 00:24:34,600 --> 00:24:37,600 Speaker 10: for bottom fishing now and over the next several years. 460 00:24:37,840 --> 00:24:40,399 Speaker 11: So speaking of cheap Scott, the last time you've joined us, 461 00:24:40,440 --> 00:24:41,800 Speaker 11: and you've been kind enough to give us your time 462 00:24:41,840 --> 00:24:44,400 Speaker 11: over the last six months or so preparing for what 463 00:24:44,440 --> 00:24:47,439 Speaker 11: you've called an epic opportunity last year, both from the 464 00:24:47,480 --> 00:24:50,360 Speaker 11: gain side and the pain side. I think that we've 465 00:24:50,359 --> 00:24:52,239 Speaker 11: talked about office buildings here in New York going as 466 00:24:52,280 --> 00:24:54,320 Speaker 11: cheap as twenty five cents on the dollar. I know 467 00:24:54,359 --> 00:24:58,080 Speaker 11: it's very regional. What are our buildings, are properties loans 468 00:24:58,080 --> 00:25:00,760 Speaker 11: starting to trade, and what our valuation is looking coming 469 00:25:00,800 --> 00:25:03,720 Speaker 11: in as so far in the first wave of this well. 470 00:25:04,680 --> 00:25:08,560 Speaker 10: Again, it goes market by market. But you know, particularly 471 00:25:08,600 --> 00:25:13,800 Speaker 10: for absolute office buildings or going to be minus office buildings, 472 00:25:14,000 --> 00:25:16,840 Speaker 10: the big talk in the industry is to convert. If 473 00:25:16,880 --> 00:25:19,959 Speaker 10: you look at Manhattan as example, too much office space, 474 00:25:20,600 --> 00:25:23,800 Speaker 10: too little residential. You know, it's too expensive to live 475 00:25:23,840 --> 00:25:26,840 Speaker 10: here and there's too much office space. And the notion 476 00:25:27,119 --> 00:25:29,680 Speaker 10: is that some of these buildings are going to be 477 00:25:29,720 --> 00:25:34,359 Speaker 10: converted from office to residential. That is a very tall 478 00:25:34,560 --> 00:25:35,400 Speaker 10: order you're. 479 00:25:35,320 --> 00:25:37,040 Speaker 6: Going to do right, like you just don't like flip 480 00:25:37,040 --> 00:25:38,120 Speaker 6: a switch and say bye. 481 00:25:38,440 --> 00:25:38,640 Speaker 5: Right. 482 00:25:38,880 --> 00:25:43,560 Speaker 10: And because light and elevators are the too big light 483 00:25:43,640 --> 00:25:47,159 Speaker 10: access and elevators are the big issues. The floor plates 484 00:25:47,200 --> 00:25:49,320 Speaker 10: on office buildings tend to be too big to be 485 00:25:49,400 --> 00:25:53,399 Speaker 10: laid out really well for apartment Interestingly, the older office buildings, 486 00:25:53,560 --> 00:25:57,840 Speaker 10: which have smaller floor plates are easier to adapt. But 487 00:25:58,560 --> 00:26:02,560 Speaker 10: we did one through PTM in Washington, d C. It's 488 00:26:02,640 --> 00:26:06,600 Speaker 10: not easy to do, and I think it's really kind 489 00:26:06,600 --> 00:26:09,640 Speaker 10: of overblown in terms of how big an opportunity that is. 490 00:26:09,920 --> 00:26:12,280 Speaker 10: The Other thing I would say, just in terms of converting, 491 00:26:12,440 --> 00:26:16,160 Speaker 10: is it's going to take a lot of public private 492 00:26:16,240 --> 00:26:20,960 Speaker 10: cooperation to make that happen. The economics in terms of 493 00:26:22,960 --> 00:26:29,000 Speaker 10: tax breaks, help and financing. You know, governments are going 494 00:26:29,040 --> 00:26:31,360 Speaker 10: to have to find a way to get these buildings viable, 495 00:26:32,040 --> 00:26:34,280 Speaker 10: and it's going to mean working with the private sector 496 00:26:34,359 --> 00:26:36,480 Speaker 10: in a way that might appear to some to be 497 00:26:36,520 --> 00:26:38,119 Speaker 10: too generous to the private sector. 498 00:26:38,440 --> 00:26:41,200 Speaker 11: But so in terms of those values though, and understanding 499 00:26:41,240 --> 00:26:43,280 Speaker 11: that it is market by market, region by region. If 500 00:26:43,280 --> 00:26:45,560 Speaker 11: you had to put just a spectrum on it, twenty 501 00:26:45,560 --> 00:26:47,240 Speaker 11: five cents if that's New York City, but if you 502 00:26:47,520 --> 00:26:50,480 Speaker 11: are you able to say some sort of average, just 503 00:26:50,520 --> 00:26:53,080 Speaker 11: to give our listeners an idea of how painful it 504 00:26:53,240 --> 00:26:53,920 Speaker 11: is and could be. 505 00:26:54,320 --> 00:26:57,000 Speaker 10: Well, I think previous less than half. And you know 506 00:26:57,680 --> 00:27:00,720 Speaker 10: you're going to see things that go for buildings that 507 00:27:01,000 --> 00:27:04,560 Speaker 10: in their current use can barely pay their property taxes. 508 00:27:04,640 --> 00:27:08,880 Speaker 10: So you know you're going to see it values at 509 00:27:08,920 --> 00:27:12,600 Speaker 10: a at a low But but again, is it good 510 00:27:12,680 --> 00:27:14,640 Speaker 10: value even if it appears cheap. 511 00:27:15,960 --> 00:27:16,240 Speaker 4: Sale? 512 00:27:16,400 --> 00:27:19,920 Speaker 11: We're not closed, but doledge, there's a few properties buildings 513 00:27:19,920 --> 00:27:20,879 Speaker 11: out there pretty. 514 00:27:20,680 --> 00:27:23,200 Speaker 6: When my mortgage rate is three year percent or lower. 515 00:27:23,280 --> 00:27:25,159 Speaker 7: So I'm not your target audience. 516 00:27:25,800 --> 00:27:27,760 Speaker 3: So do you prefer to buy the actual real estate 517 00:27:27,800 --> 00:27:32,440 Speaker 3: itself or the mortgage behind it? 518 00:27:31,880 --> 00:27:34,679 Speaker 10: It is really deal by I think you have to 519 00:27:34,680 --> 00:27:38,080 Speaker 10: be flexible because you've got to deal usually with the 520 00:27:38,119 --> 00:27:45,040 Speaker 10: senior lender with a refinancing UH package and with squeezing 521 00:27:45,080 --> 00:27:47,879 Speaker 10: out the equity, partnering with the equity, cramming down the 522 00:27:47,920 --> 00:27:52,480 Speaker 10: equity that the structure needs to be I think typically 523 00:27:52,640 --> 00:27:55,800 Speaker 10: up in the capital structure, so either buying the real 524 00:27:55,920 --> 00:27:59,399 Speaker 10: estate if the senior lender you know, wants to go 525 00:27:59,440 --> 00:28:02,119 Speaker 10: through the FOK and just sell the real estate, or 526 00:28:02,240 --> 00:28:06,560 Speaker 10: coming into a structured alternative. But I think importantly our 527 00:28:07,600 --> 00:28:09,840 Speaker 10: perspective is that we have to be able to get 528 00:28:09,880 --> 00:28:13,639 Speaker 10: control of the operations of the real estate because again, 529 00:28:13,760 --> 00:28:18,359 Speaker 10: particularly through this syndicator model, a lot of people that 530 00:28:18,560 --> 00:28:20,719 Speaker 10: really didn't know what they were doing, that would never 531 00:28:20,760 --> 00:28:25,320 Speaker 10: would have passed the muster for institutional real estate capital, 532 00:28:25,640 --> 00:28:28,240 Speaker 10: got into the business and they're the ones that are 533 00:28:28,280 --> 00:28:29,199 Speaker 10: in the deepest trouble. 534 00:28:29,680 --> 00:28:32,560 Speaker 6: So because of people like you, though, that can do 535 00:28:32,600 --> 00:28:35,280 Speaker 6: that homework and then step in, will there not be 536 00:28:35,560 --> 00:28:39,120 Speaker 6: a gigantic commercial real estate crisis. It's just going to 537 00:28:39,160 --> 00:28:42,200 Speaker 6: be like years of sussing out this stuff and finding 538 00:28:42,200 --> 00:28:42,920 Speaker 6: the right price. 539 00:28:43,560 --> 00:28:46,200 Speaker 10: Yes, I think there will be years of. 540 00:28:46,400 --> 00:28:47,560 Speaker 6: But nothing disastrous. 541 00:28:48,040 --> 00:28:50,320 Speaker 10: Well, it will be disastrous for the people to get 542 00:28:50,320 --> 00:28:52,959 Speaker 10: wiped out, you know what I mean, whether that happens 543 00:28:52,960 --> 00:28:55,280 Speaker 10: overnight or over a period of a couple of years, 544 00:28:56,200 --> 00:28:58,040 Speaker 10: a lot of these people are going to get wiped out. 545 00:28:58,240 --> 00:29:02,800 Speaker 10: And you know, I think, I think it a disaster 546 00:29:02,920 --> 00:29:04,960 Speaker 10: for some is an opportunity for others. 547 00:29:05,080 --> 00:29:07,400 Speaker 11: And speaking of disaster, Scott, when you joined us in August, 548 00:29:07,480 --> 00:29:09,960 Speaker 11: you alluded to the idea that the regional banking that 549 00:29:09,960 --> 00:29:12,240 Speaker 11: there could be some kind of a banking crisis worse 550 00:29:12,280 --> 00:29:14,280 Speaker 11: than what people were anticipating in lo and behold the 551 00:29:14,440 --> 00:29:17,960 Speaker 11: second most popular article on the Blueberg terminal Today, dozens 552 00:29:18,000 --> 00:29:20,920 Speaker 11: of banks rapidly piled up commercial property loans. Speak to 553 00:29:20,960 --> 00:29:23,080 Speaker 11: us about the regulation and what you see ahead here. 554 00:29:23,720 --> 00:29:28,040 Speaker 10: Well, I think, interestingly, the big banks aren't that exposed 555 00:29:28,040 --> 00:29:32,440 Speaker 10: to commercial real estate. If you look at JP Morgan, Goldman, Sachs, Morgan, Stanley. 556 00:29:32,440 --> 00:29:35,720 Speaker 10: We've done the analysis on those banks and there I 557 00:29:35,760 --> 00:29:38,720 Speaker 10: think they've learned their lessons and they're not that exposed 558 00:29:38,760 --> 00:29:42,800 Speaker 10: to commercial real estate. The middle sized banks a little 559 00:29:42,840 --> 00:29:46,200 Speaker 10: bit more so. It's the smaller banks that have an 560 00:29:46,320 --> 00:29:50,440 Speaker 10: inordinate concentration of commercial real estate loans. And I think 561 00:29:50,440 --> 00:29:52,760 Speaker 10: part of the reason was that there was very little 562 00:29:53,240 --> 00:29:57,200 Speaker 10: commercial loan demand during COVID. People weren't starting new businesses. 563 00:29:57,320 --> 00:30:00,120 Speaker 10: They weren't you opening new restaurants and stores, and the 564 00:30:00,160 --> 00:30:02,480 Speaker 10: sort of bread and butter business of a smaller bank 565 00:30:02,880 --> 00:30:05,520 Speaker 10: didn't really exist. So they poured a lot of money 566 00:30:06,200 --> 00:30:09,160 Speaker 10: into real estate, and they did so with floating rate debt. 567 00:30:09,320 --> 00:30:13,120 Speaker 10: Although everybody's against their cap. The floating rate debt pretty 568 00:30:13,160 --> 00:30:17,640 Speaker 10: much with very short maturities, So that's the big refinancing 569 00:30:17,680 --> 00:30:21,160 Speaker 10: wave that's hitting these smaller in regional banks. 570 00:30:21,520 --> 00:30:23,880 Speaker 6: All right, thanks so much, really appreciate you guys. Scott Kelly, 571 00:30:23,880 --> 00:30:26,440 Speaker 6: founder and CEO of ATOS Capital real Estate, and Abigail 572 00:30:26,480 --> 00:30:31,440 Speaker 6: thank you so much, Bloomer correspondent for bringing us this interview. 573 00:30:32,120 --> 00:30:36,000 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 574 00:30:36,080 --> 00:30:39,600 Speaker 2: weekdays at ten am Eastern on applecar Play and Android 575 00:30:39,640 --> 00:30:42,800 Speaker 2: Auto with the Bloomberg Business. You can also listen live 576 00:30:42,880 --> 00:30:46,040 Speaker 2: on Amazon Alexa from our flagship New York station Just 577 00:30:46,120 --> 00:30:48,720 Speaker 2: Say Alexa playing Bloomberg eleven thirty. 578 00:30:50,000 --> 00:30:53,720 Speaker 6: We're gonna talk about Cisco. Do you have a tidbit thing? 579 00:30:53,960 --> 00:30:57,400 Speaker 9: Did you just remember this is Cisco with a C, 580 00:30:57,920 --> 00:31:02,160 Speaker 9: not Cisco with an ass the food services and distribution 581 00:31:02,320 --> 00:31:04,720 Speaker 9: company whose trucks are always ahead of me in the 582 00:31:04,760 --> 00:31:06,720 Speaker 9: Lincoln Tunnel, slowing my commute. 583 00:31:07,200 --> 00:31:10,800 Speaker 6: That Cisco is also quite interesting. They have a huge, 584 00:31:11,040 --> 00:31:13,520 Speaker 6: huge business model. It's enormous. It's like a company. I 585 00:31:13,560 --> 00:31:14,880 Speaker 6: want to get in there and figure out what's going. 586 00:31:15,000 --> 00:31:17,360 Speaker 9: So if you like a particular restaurant and see a 587 00:31:17,480 --> 00:31:20,160 Speaker 9: Cisco with an S truck parked out front, they have 588 00:31:20,200 --> 00:31:23,800 Speaker 9: the food services company? Does that mean the fund is tablecloths, 589 00:31:23,840 --> 00:31:26,880 Speaker 9: all the things, but also like prepared foods, don't they? 590 00:31:26,960 --> 00:31:29,160 Speaker 6: But like I think they're real businesses like tables and 591 00:31:29,200 --> 00:31:33,440 Speaker 6: silverware and the stuff. The guts. Okay, see we got 592 00:31:33,440 --> 00:31:35,560 Speaker 6: something there. Let's go to Cisco though, the one with 593 00:31:35,600 --> 00:31:39,480 Speaker 6: the sea that's stock down about two percent, it's it's 594 00:31:39,520 --> 00:31:42,400 Speaker 6: off its lows though. Let's bring in a woojin Ho. 595 00:31:42,560 --> 00:31:46,080 Speaker 6: He's Boomberg Intelligence senior technology analysts to break it all down. 596 00:31:46,400 --> 00:31:50,400 Speaker 6: Wujin Is did anything really surprise you with Cisco? Like, 597 00:31:50,440 --> 00:31:52,640 Speaker 6: in some ways we knew the environment was going to 598 00:31:52,680 --> 00:31:54,320 Speaker 6: be soft, We knew they were going to have to 599 00:31:55,040 --> 00:31:57,640 Speaker 6: integrate a takeover and that was going to have some churn. 600 00:31:58,000 --> 00:31:59,600 Speaker 6: What was a big standout? 601 00:32:00,280 --> 00:32:03,760 Speaker 12: Well, I think you're you're right there, Alex. I think 602 00:32:03,920 --> 00:32:07,920 Speaker 12: the after the job loss leak or job cuts leak 603 00:32:07,960 --> 00:32:10,680 Speaker 12: from last quarter, I think there were expectations that there 604 00:32:10,680 --> 00:32:13,320 Speaker 12: were going to be cut the estimates, uh, you know, 605 00:32:13,400 --> 00:32:15,640 Speaker 12: and you know quite quite frankly, the big standout for 606 00:32:15,680 --> 00:32:18,520 Speaker 12: me was that the cuts were big enough, you know, 607 00:32:18,560 --> 00:32:21,200 Speaker 12: five percent op x cuts. That's part of the course 608 00:32:21,280 --> 00:32:24,200 Speaker 12: for what Cisco typically does. But at the end of 609 00:32:24,240 --> 00:32:27,040 Speaker 12: the day, I mean, given the stock reaction based on reports, 610 00:32:27,160 --> 00:32:28,880 Speaker 12: it looks like there were a lot of a lot 611 00:32:28,920 --> 00:32:30,840 Speaker 12: of this was expected, you. 612 00:32:30,800 --> 00:32:34,719 Speaker 3: Know, which I followed the Cisco name for decades. I mean, 613 00:32:34,760 --> 00:32:38,080 Speaker 3: it's one of the founding Silicon Valley tech names based 614 00:32:38,120 --> 00:32:40,960 Speaker 3: in San joseric smack in the middle, you know, Silicon Valley. 615 00:32:41,520 --> 00:32:44,040 Speaker 3: What are they not getting right here? The stock hasn't 616 00:32:44,040 --> 00:32:46,400 Speaker 3: worked for a long time, and it just what from 617 00:32:46,440 --> 00:32:48,200 Speaker 3: your perspective, what are they just missing here? 618 00:32:49,320 --> 00:32:53,000 Speaker 12: Well, let's let's talk about large cap stocks in general, right, 619 00:32:53,040 --> 00:32:57,000 Speaker 12: If we if we think about the big bangs, right, 620 00:32:57,400 --> 00:33:03,680 Speaker 12: or let's say Microsoft, the the old tech guard, Microsoft, Google, right, 621 00:33:03,800 --> 00:33:09,200 Speaker 12: they all really lead on a cloud software transition. If 622 00:33:09,240 --> 00:33:12,960 Speaker 12: we think about it from the hardware old guard, Cisco, Dell, 623 00:33:13,280 --> 00:33:18,280 Speaker 12: HPE or the old HP. There's still relatively a hardware business, 624 00:33:18,640 --> 00:33:21,520 Speaker 12: so you're not going to get the fast, sexy growth 625 00:33:22,280 --> 00:33:24,440 Speaker 12: from the hard hardware business. I mean, if you look 626 00:33:24,480 --> 00:33:28,080 Speaker 12: at Cisco, you know, after the estimate cuts fifty two 627 00:33:28,120 --> 00:33:31,040 Speaker 12: billion for fiscal twenty four, that brings them back to 628 00:33:31,120 --> 00:33:34,239 Speaker 12: twenty twenty four levels, right, So you're not getting the 629 00:33:34,280 --> 00:33:37,200 Speaker 12: growth that people want, and also you're not getting the 630 00:33:37,240 --> 00:33:41,000 Speaker 12: margin profiles that you want as well. So that's why 631 00:33:41,080 --> 00:33:43,520 Speaker 12: the multiples are lower and the growth is shallower. 632 00:33:43,760 --> 00:33:46,120 Speaker 6: So has the stock then rerated for that? I mean 633 00:33:46,600 --> 00:33:48,560 Speaker 6: from what we say, we kind of knew that was coming. 634 00:33:48,600 --> 00:33:51,160 Speaker 6: So are we at a right level right valuation for it? 635 00:33:51,800 --> 00:33:52,040 Speaker 4: Yeah? 636 00:33:52,120 --> 00:33:56,080 Speaker 12: So if I look at the historical evaluation for for Cisco, 637 00:33:56,760 --> 00:34:01,000 Speaker 12: it's trading around thirteen times right now. GO typically trades 638 00:34:01,080 --> 00:34:04,680 Speaker 12: roughly around fifteen to seventeen times, so it was it 639 00:34:04,720 --> 00:34:08,080 Speaker 12: was priced to be cut right now. Now, the question 640 00:34:08,320 --> 00:34:11,960 Speaker 12: is what does the pending Splunk deal do and does 641 00:34:12,000 --> 00:34:14,480 Speaker 12: that help reinvigorate growth. Now, what I will say is 642 00:34:14,520 --> 00:34:19,040 Speaker 12: that estimates, consensus estimates probably won't bake in this Splunk deal, 643 00:34:19,080 --> 00:34:23,800 Speaker 12: which adds about another eight percent on sales, neutral to 644 00:34:23,840 --> 00:34:26,759 Speaker 12: earnings their term, but it could spark earnings growth if 645 00:34:26,800 --> 00:34:31,840 Speaker 12: they start bringing op x or operating margins for Splunk 646 00:34:32,520 --> 00:34:34,480 Speaker 12: more in line to where Cisco is today. 647 00:34:35,000 --> 00:34:37,880 Speaker 3: So you know it's alex I mean over the last 648 00:34:38,080 --> 00:34:40,600 Speaker 3: five years, I'm using the comp function comp which is 649 00:34:40,880 --> 00:34:43,879 Speaker 3: one of Matt Miller's favorite functions. So over the last 650 00:34:43,880 --> 00:34:47,040 Speaker 3: five years, this stock has compounded three percent per year, 651 00:34:47,239 --> 00:34:49,640 Speaker 3: Cisco s and P five and fourteen and a half percent, 652 00:34:49,880 --> 00:34:53,200 Speaker 3: the S and P information technology sector twenty six percent. 653 00:34:53,239 --> 00:34:56,879 Speaker 3: So it's really really underperformed going forward, which I guess 654 00:34:56,920 --> 00:34:59,680 Speaker 3: over the next several quarters. What what Cisco's saying about 655 00:35:00,400 --> 00:35:04,879 Speaker 3: their customers and inventory and you know what are they 656 00:35:05,120 --> 00:35:08,120 Speaker 3: I mean cutting this forecast suggests that they don't have 657 00:35:08,120 --> 00:35:09,439 Speaker 3: a lot of great visibility here. 658 00:35:10,320 --> 00:35:16,400 Speaker 12: Yeah, so if you remember the server and storage cycle 659 00:35:17,480 --> 00:35:20,400 Speaker 12: from a year ago, Cisco is going through that right now. 660 00:35:21,239 --> 00:35:24,240 Speaker 12: Part of it is because of the supply chain glut 661 00:35:24,640 --> 00:35:28,960 Speaker 12: all of a sudden, Their customers got their equipment two 662 00:35:29,040 --> 00:35:32,759 Speaker 12: quarters ago and they're taking their time implementing it. So 663 00:35:33,480 --> 00:35:38,919 Speaker 12: you know, typical cycles are roughly five to six quarters. 664 00:35:39,680 --> 00:35:42,520 Speaker 12: I was running through the numbers and we're talking about 665 00:35:43,120 --> 00:35:46,239 Speaker 12: anywhere between twenty seven to thirty percent declines for the 666 00:35:46,280 --> 00:35:49,160 Speaker 12: next two to three quarters for Cisco, and they're probably 667 00:35:49,160 --> 00:35:50,600 Speaker 12: not going to get out of it and return to 668 00:35:50,640 --> 00:35:55,320 Speaker 12: growth until I'm sorry for the networking business, not sales 669 00:35:55,680 --> 00:35:59,839 Speaker 12: for the networking business, but I don't think they won't 670 00:35:59,840 --> 00:36:01,799 Speaker 12: get out of this decline until the second half of 671 00:36:01,840 --> 00:36:03,520 Speaker 12: fiscal year, which is about a year from now. 672 00:36:03,920 --> 00:36:04,080 Speaker 5: Right. 673 00:36:04,200 --> 00:36:09,680 Speaker 12: So yeah, again, the model is going to be reworked, 674 00:36:10,000 --> 00:36:14,759 Speaker 12: primarily because of the this Plunk deal, and the hope 675 00:36:14,920 --> 00:36:17,080 Speaker 12: is is that they're going to have more recurring revenues 676 00:36:17,520 --> 00:36:20,280 Speaker 12: UH to boost up the multiples going forward. 677 00:36:20,480 --> 00:36:24,359 Speaker 6: Right, So subscription is basically rather than just here's your 678 00:36:24,480 --> 00:36:28,800 Speaker 6: bit of hardware, see you guys later, where's the AI component? 679 00:36:28,920 --> 00:36:34,359 Speaker 12: For Cisco, I will tell you they're making a lot 680 00:36:34,360 --> 00:36:39,360 Speaker 12: of good progress and they had a billion dollars in 681 00:36:39,440 --> 00:36:45,240 Speaker 12: bookings in black black orders with Cloud customers, and uh. 682 00:36:45,400 --> 00:36:48,000 Speaker 12: The issue is is that that only represents two percent 683 00:36:48,000 --> 00:36:51,839 Speaker 12: of total orders, right, so it's still relatively small. It 684 00:36:51,920 --> 00:36:54,040 Speaker 12: is going to be growing, and they're probably going to 685 00:36:55,200 --> 00:36:59,759 Speaker 12: bang the drum louder to the on on the AI 686 00:37:00,920 --> 00:37:03,560 Speaker 12: on the AI theme over the next couple of quarters 687 00:37:03,680 --> 00:37:08,160 Speaker 12: as these deals really start to balloon. The one thing 688 00:37:08,320 --> 00:37:12,879 Speaker 12: is again, it's it's still a corporate IT name. If 689 00:37:12,880 --> 00:37:14,839 Speaker 12: I were to pick, if I may, if I were 690 00:37:14,880 --> 00:37:18,279 Speaker 12: to pick one AI name on the networking side, it's 691 00:37:18,320 --> 00:37:20,640 Speaker 12: probably going to be more Arista than Cisco for now. 692 00:37:21,400 --> 00:37:24,480 Speaker 3: So again, is there a way which is broadly defined 693 00:37:24,600 --> 00:37:27,600 Speaker 3: on the hardware side, have investors embraced any of the 694 00:37:27,640 --> 00:37:31,200 Speaker 3: hardware names as AI plays? Is it? Because it just 695 00:37:31,200 --> 00:37:33,080 Speaker 3: doesn't feel like it. It feels like what I'm hearing 696 00:37:33,080 --> 00:37:35,920 Speaker 3: from you know, a lot of your folks on the 697 00:37:35,920 --> 00:37:38,960 Speaker 3: tech team of Bloomberg Intelligence. It's kind of software applications, 698 00:37:39,000 --> 00:37:39,520 Speaker 3: that kind of thing. 699 00:37:40,320 --> 00:37:45,239 Speaker 12: Yeah, so so so I can name four yep, right, 700 00:37:46,080 --> 00:37:49,680 Speaker 12: Arista Networks, Right, if you look at that stock that's 701 00:37:49,719 --> 00:37:54,399 Speaker 12: been up eighty eighty eight percent, super Micro that's been 702 00:37:54,520 --> 00:37:59,040 Speaker 12: up eight hundred and forty six percent over the past year, right, 703 00:38:00,280 --> 00:38:02,879 Speaker 12: and Dell that's been up ten percent. There's and they 704 00:38:02,960 --> 00:38:06,120 Speaker 12: reported in a couple of weeks there's a growing AI 705 00:38:06,200 --> 00:38:11,800 Speaker 12: story there and one name that's been underappreciated is probably HPE. 706 00:38:12,080 --> 00:38:16,399 Speaker 12: They have a supercomputing business, high performance computing business. But 707 00:38:16,680 --> 00:38:18,600 Speaker 12: the story is a little muddled because of a pending 708 00:38:18,680 --> 00:38:22,120 Speaker 12: Juniper deal. And then there's you know, my my colleague 709 00:38:22,160 --> 00:38:25,680 Speaker 12: Steve saying he covers the white box vendors, and there's 710 00:38:25,719 --> 00:38:28,880 Speaker 12: some white box vendors that may potentially benefit from the 711 00:38:29,000 --> 00:38:33,040 Speaker 12: from because they sell server equipment to the cloud guys. 712 00:38:33,280 --> 00:38:35,120 Speaker 6: So you were saying that the AI stuff growing about 713 00:38:35,120 --> 00:38:38,880 Speaker 6: two percent a year kind of thing. Is that considered 714 00:38:38,920 --> 00:38:42,480 Speaker 6: good when you obviously compared to a different kind of 715 00:38:42,520 --> 00:38:44,640 Speaker 6: company like and Video, it's not. But for Cisco in 716 00:38:44,680 --> 00:38:45,839 Speaker 6: this area, would that be good? 717 00:38:46,560 --> 00:38:50,200 Speaker 12: It's two percent of total sales, Okay, right, I suspect 718 00:38:50,280 --> 00:38:56,000 Speaker 12: that's those that sales rate could potentially grow well into 719 00:38:56,040 --> 00:38:58,080 Speaker 12: the double digits over the next couple of years. 720 00:38:58,640 --> 00:38:58,839 Speaker 8: Uh. 721 00:38:58,880 --> 00:39:02,600 Speaker 12: They are one of the arms players for AI. And 722 00:39:02,640 --> 00:39:06,560 Speaker 12: you've had me on the show before. We've had this conversation, 723 00:39:06,719 --> 00:39:10,799 Speaker 12: a technology conversation between Ethernet and infinite band. You're going 724 00:39:10,840 --> 00:39:14,440 Speaker 12: to start seeing this burgeoning shift from Nvidia's infinite band 725 00:39:14,480 --> 00:39:19,600 Speaker 12: technology to an open standard called Ethernet, and that's where 726 00:39:19,640 --> 00:39:22,440 Speaker 12: Cisco is going to benefit over the next several years. 727 00:39:23,000 --> 00:39:25,680 Speaker 6: Okay, So short term, what's next, like, what are us 728 00:39:25,680 --> 00:39:28,360 Speaker 6: interested in? It's going to be this plunk like acquisition 729 00:39:28,400 --> 00:39:30,279 Speaker 6: and getting that done, and how that's going to be 730 00:39:30,320 --> 00:39:32,320 Speaker 6: merged exactly. 731 00:39:32,400 --> 00:39:36,279 Speaker 12: I mean, look, it's probably well. First of all, I 732 00:39:36,520 --> 00:39:40,080 Speaker 12: think that earnings cuts may have bottomed earnings a bottom 733 00:39:40,120 --> 00:39:43,279 Speaker 12: from here. The next thing I need to do is 734 00:39:43,360 --> 00:39:47,160 Speaker 12: fold in the bunk estimates when once they announce that 735 00:39:47,200 --> 00:39:51,360 Speaker 12: deal and then and just keep track of where it 736 00:39:51,600 --> 00:39:55,239 Speaker 12: spending is as a relative to Cisco, as well as 737 00:39:55,360 --> 00:39:57,839 Speaker 12: keep track of where the AI story goes. Right, they 738 00:39:57,840 --> 00:39:59,960 Speaker 12: had had a couple of nice announcements. We just need 739 00:40:00,080 --> 00:40:02,279 Speaker 12: more and start to see it in the numbers in 740 00:40:02,320 --> 00:40:03,200 Speaker 12: fiscal twenty five. 741 00:40:03,760 --> 00:40:06,240 Speaker 6: All right, Booch, thanks a lot, really appreciate it. Ushinho 742 00:40:06,440 --> 00:40:07,920 Speaker 6: joining us from Bloomberg Intelligence. 743 00:40:08,320 --> 00:40:12,799 Speaker 2: This is the Bloomberg Intelligence podcast, available on Apples, Spotify, 744 00:40:13,000 --> 00:40:16,200 Speaker 2: and anywhere else you'll get your podcasts. Listen live each 745 00:40:16,239 --> 00:40:19,640 Speaker 2: weekday ten am to noon Eastern on Bloomberg dot Com, 746 00:40:19,719 --> 00:40:23,120 Speaker 2: the iHeartRadio app, tune In, and the Bloomberg Business app. 747 00:40:23,239 --> 00:40:26,240 Speaker 2: You can also watch us live every weekday on YouTube 748 00:40:26,480 --> 00:40:28,360 Speaker 2: and always on the Bloomberg terminal