WEBVTT - Bloomberg Intelligence: Deere Cuts Profit Outlook, U.S Retail Sales Drop 0:00:02.960 --> 0:00:08.160 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.920 --> 0:00:17.000 weekdays at ten am Eastern on Apple Car playing Android 0:00:17.040 --> 0:00:20.120 Otto with the Bloomberg Business App. Listen on demand wherever 0:00:20.200 --> 0:00:24.520 you get your podcasts, or watch us live on YouTube. 0:00:25.320 --> 0:00:27.400 Let's get a beat on how the US farmer's doing here, 0:00:27.800 --> 0:00:30.600 and we can do that through Deer. Deer is a 0:00:30.640 --> 0:00:33.879 company obviously we all know and love, and their customers 0:00:33.880 --> 0:00:37.320 buy and large are farmers, and Deer reports some numbers 0:00:37.320 --> 0:00:40.040 a little bit disappointing here. Chris Chiolino joins us. He 0:00:40.040 --> 0:00:44.400 covers all the big ag and machinery companies for Bloomberg Intelligences, 0:00:44.400 --> 0:00:47.760 based down in Princeton, New Jersey. Chris, how did Deer 0:00:47.880 --> 0:00:51.360 do this quarter and what's their outlook? 0:00:51.880 --> 0:00:55.360 The quarter was great, really much better than we anticipated 0:00:55.880 --> 0:00:58.800 across the board, beats both top line and margins for 0:00:58.880 --> 0:01:02.560 most of the businesses. But the outlook was the disappointment 0:01:02.600 --> 0:01:05.280 of the quarter. They cut net income guidance by about 0:01:05.319 --> 0:01:09.959 five percent, and that's largely reflective of incremental weakness in 0:01:10.000 --> 0:01:14.400 the ag business, specifically the large jag business. And there's 0:01:14.400 --> 0:01:18.440 really two components to that one europe Deer now plans 0:01:18.480 --> 0:01:22.880 to underproduce production, underproduce retail demand due to some weakness 0:01:22.959 --> 0:01:26.200 in Central and Eastern Europe given the conflict there, So 0:01:26.240 --> 0:01:27.960 they're going to try to bring down inventories. 0:01:28.000 --> 0:01:30.119 They're already under producing in Brazil as well. 0:01:30.360 --> 0:01:33.240 And then the second component of the cut was really 0:01:33.280 --> 0:01:37.680 some additional softness beginning to transpire here in North America. 0:01:38.319 --> 0:01:40.920 We saw some of the order velocity start to moderate, 0:01:41.040 --> 0:01:43.720 So demand seems to kind of be trending towards the 0:01:43.760 --> 0:01:47.319 low end of their down ten to fifteen percent industry outlook. 0:01:47.520 --> 0:01:49.160 When it comes to lar jag equipment. 0:01:49.200 --> 0:01:51.320 Yeah, let's get through some of these here. Production precision 0:01:51.320 --> 0:01:54.840 ag net sales for their yearly forecast, they're looking down 0:01:54.960 --> 0:01:58.280 twenty percent worse, and estimated construction and forestry net sales 0:01:58.280 --> 0:02:01.280 down five to ten percent, bag and turfnut sales down 0:02:01.280 --> 0:02:05.480 ten to fifteen percent. Yiki, is this a early cycle, 0:02:05.560 --> 0:02:07.800 mid cycle or late cycle read on the economy. 0:02:09.200 --> 0:02:12.400 I mean we're we're early in an ag downturn. Last 0:02:12.480 --> 0:02:17.640 year was a peak production levels. You know, historically you 0:02:17.720 --> 0:02:20.320 don't have one year downturn, so I would suspect this 0:02:20.400 --> 0:02:22.959 is kind of the beginning of a multi year downturn, 0:02:23.360 --> 0:02:25.320 and some of the numbers that you're seeing that your 0:02:25.360 --> 0:02:29.040 reference on their guidance are well below you know, market 0:02:29.160 --> 0:02:33.240 retail demand expectations, suggesting that you know, they have some 0:02:33.280 --> 0:02:36.560 more work to do on bringing down inventory levels to 0:02:37.160 --> 0:02:39.960 more manageable levels, with really the goal of setting up 0:02:40.000 --> 0:02:43.080 production for twenty five in line with retail demand. 0:02:43.639 --> 0:02:45.640 All right, So if John Tucker goes on too a 0:02:45.720 --> 0:02:48.640 lot to get you know, maybe a backo for his 0:02:48.840 --> 0:02:51.799 estate in the Jersey Shore, he can get one, right, 0:02:51.840 --> 0:02:53.480 There's plenty of there on the lot. Can can he 0:02:53.560 --> 0:02:54.800 get some? Can he get a deal? 0:02:56.480 --> 0:03:00.600 There's no shortage of tractors and equipment on the lot. 0:03:00.960 --> 0:03:02.760 You could get new, you could get used, kind of 0:03:02.800 --> 0:03:06.280 take your pick. Values continue to kind of come down 0:03:06.320 --> 0:03:08.880 here over the last twelve months, and I suspect you'll 0:03:08.880 --> 0:03:13.880 see further pressure on the US side new equipment pricing, 0:03:13.960 --> 0:03:16.519 you know, deers kind of guiding to one and a 0:03:16.560 --> 0:03:19.920 half percent, which is kind of below historical averages. And 0:03:20.000 --> 0:03:22.200 remember we're coming off of you know, three years of 0:03:22.320 --> 0:03:27.440 really strong phenomenal pricing. So returning to I would say 0:03:27.520 --> 0:03:30.320 below normal historical trend, which will also be a drag 0:03:30.400 --> 0:03:31.000 on margins. 0:03:31.760 --> 0:03:34.040 Caterpillar had a different kind of read, and I appreciate 0:03:34.040 --> 0:03:35.800 they also do metals and mining and stuff. So is 0:03:35.800 --> 0:03:38.200 it going to be the diversified players that are going 0:03:38.280 --> 0:03:38.960 to really win on this? 0:03:40.760 --> 0:03:44.800 Yeah, So, I you know, constructions holding up certainly better 0:03:44.840 --> 0:03:48.280 than the farmer and then the ag economy a couple 0:03:48.240 --> 0:03:50.400 of different moving pieces there. I mean, you still have 0:03:50.440 --> 0:03:54.240 a tremendous amount of infrastructure related funds and government stimulus 0:03:54.280 --> 0:03:57.240 coming through the system that will not only be kind 0:03:57.240 --> 0:03:59.480 of a tail wind here in twenty four, but even 0:03:59.520 --> 0:04:02.240 twenty five. I've been twenty six, so I think that 0:04:02.360 --> 0:04:06.400 certainly helps offset some of the cyclical headwinds facing both. 0:04:06.240 --> 0:04:08.520 The resie or non residential markets. 0:04:09.200 --> 0:04:11.600 But if you look at the farm economy almost kind 0:04:11.600 --> 0:04:14.560 of a completely different story. You look at crop prices, 0:04:14.560 --> 0:04:17.240 which are ultimately the biggest driver of farm income and 0:04:18.200 --> 0:04:22.000 equipment purchases. Corn soy weeat down you know, twenty five 0:04:22.080 --> 0:04:25.120 thirty five percent plus, So that's beginning to trickle through 0:04:25.120 --> 0:04:27.280 to farm incomes. Farmer incomes are going to be down 0:04:27.320 --> 0:04:30.240 twenty six percent this year, and I suspect we'll be 0:04:30.320 --> 0:04:33.360 under further pressure as we exit the year too, all. 0:04:33.320 --> 0:04:35.400 Right, Chris Gielino, thank you so much. We appreciate that. 0:04:35.480 --> 0:04:38.760 Chris Chilino. He covers all the big ag and construction, 0:04:38.920 --> 0:04:42.840 all those really cool companies that are industrial America. Again, 0:04:42.880 --> 0:04:44.560 our good friends of Deer had a good quarter. As 0:04:44.640 --> 0:04:47.760 Chris said, bro their guidance weaker than expected, and I 0:04:47.760 --> 0:04:50.040 guess with farmer incomes down so much. That makes a 0:04:50.040 --> 0:04:52.159 lot of sense because they don't have money in the pocket, 0:04:52.200 --> 0:04:54.400 they can't go out and buy new tractors and stuff 0:04:54.400 --> 0:04:54.640 like that. 0:04:56.200 --> 0:04:59.720 You're listening to the Bloomberg Intelligence Podcast. We'll catch us 0:04:59.720 --> 0:05:01.679 a love I have week days at ten am Eastern 0:05:01.800 --> 0:05:05.400 on applecar Play and androyd Otto with the Bloomberg Business Act. 0:05:05.560 --> 0:05:08.400 You can also listen live on Amazon Alexa from our 0:05:08.440 --> 0:05:12.839 flagship New York station Just Say Alexa playing Bloomberg eleven thirty. 0:05:14.279 --> 0:05:17.680 Let's go to a plet a discussion about retail sales. 0:05:17.720 --> 0:05:20.240 What we might We saw the government numbers come out 0:05:20.440 --> 0:05:22.520 for the month of January weeker than expected. I don't 0:05:22.560 --> 0:05:25.440 know how much of that is seasonal versus, you know, 0:05:25.560 --> 0:05:28.039 kind of something more substantial. But our next guest does, 0:05:29.000 --> 0:05:32.880 Mary Shore is a senior equity analysts at Colombia thread 0:05:32.920 --> 0:05:38.120 Needle Investments joining us via zoom from Boston, mass So, Marie, 0:05:38.120 --> 0:05:39.919 what what do you make of the you know, retail 0:05:39.960 --> 0:05:42.680 sales numbers we had today? How concerned should we be? 0:05:44.400 --> 0:05:45.640 Yeah, it's a great question. 0:05:45.760 --> 0:05:48.520 When I look at the pretty significant slowdown that we 0:05:48.560 --> 0:05:51.880 saw in January, I think it really reflects two things. 0:05:52.240 --> 0:05:56.800 Number one, unfavorable lab which is transitory, but also the 0:05:56.839 --> 0:06:00.599 shift back to the pre holiday trend. So when I 0:06:00.720 --> 0:06:03.760 really dig through the data, I see a continuation of 0:06:03.880 --> 0:06:07.960 three themes that we really discussed throughout last year, which 0:06:08.000 --> 0:06:12.400 is the consumer stretched and continues to spend more on 0:06:12.600 --> 0:06:17.040 services over goods and within goods on needs over once. 0:06:17.480 --> 0:06:20.680 We also continue to see weak demand in categories that 0:06:20.720 --> 0:06:24.680 were strong during the pandemic, like home and sporting goods 0:06:24.720 --> 0:06:28.600 and electronics. And then the third theme is e commerce 0:06:28.680 --> 0:06:32.200 taking backshare from the stores. So I kind of look 0:06:32.240 --> 0:06:34.640 at this report and say, it's really more of the 0:06:34.760 --> 0:06:38.400 same as to what we saw throughout twenty twenty three. 0:06:38.920 --> 0:06:41.320 So if we go to the needs over once and 0:06:41.360 --> 0:06:44.200 spending on services, when we start to get the retailers reporting, 0:06:45.320 --> 0:06:48.240 how do we read that dynamic into those retailers. 0:06:49.680 --> 0:06:51.800 Yeah, it's a great question. It's really going to vary 0:06:51.839 --> 0:06:54.440 by categories. So I think we're going to see continued 0:06:54.520 --> 0:07:00.800 growth in categories like food and health and wellness and wellness. 0:07:00.800 --> 0:07:04.120 I would also include in there some of the active 0:07:04.360 --> 0:07:08.440 wear brands like a Lulu Lemon for instance, in some 0:07:08.520 --> 0:07:13.280 of the athletic footwear brands, and then again continued weakness 0:07:13.320 --> 0:07:18.920 in categories like home electronics, sporting goods, and I would 0:07:19.000 --> 0:07:22.960 say kind of flatish results in apparel. The problem is 0:07:23.000 --> 0:07:25.520 that a lot of those latter categories tend to be 0:07:25.600 --> 0:07:30.040 the higher margin category, so they are weighing on the 0:07:30.080 --> 0:07:31.960 top line but also weighing on margin. 0:07:32.080 --> 0:07:34.200 All right, I'm asking on behalf of Alex here talk 0:07:34.200 --> 0:07:36.400 to us about the luxury end of the market. That's 0:07:36.400 --> 0:07:38.280 where she plays. What are we seeing there? 0:07:39.400 --> 0:07:43.120 Yeah, we're still seeing pretty weak results from the luxury 0:07:43.480 --> 0:07:48.880 players really globally speaking, of course, there's things happening in China, 0:07:48.920 --> 0:07:51.960 but also in North American Europe. They're talking more about 0:07:52.080 --> 0:07:55.440 macro pressures, and I think what's happening is that luxury 0:07:55.440 --> 0:08:00.320 consumer spending more on services like travel, and some of 0:08:00.360 --> 0:08:03.640 the luxury players that have more exposure to what I 0:08:03.640 --> 0:08:08.520 would call the aspirational luxury category. So maybe the kind 0:08:08.520 --> 0:08:11.520 of mid tier consumers that were stretching to buy some 0:08:11.560 --> 0:08:15.080 of those higher price goods. You know, that consumer has 0:08:15.200 --> 0:08:20.560 really slowed, and so any luxury player with greater exposure 0:08:20.720 --> 0:08:24.080 to that kind of aspirational luxury part of the category, 0:08:24.360 --> 0:08:27.760 I think is feeling the pressure more than some of 0:08:27.880 --> 0:08:30.800 like the true luxury players, like I would say in 0:08:30.880 --> 0:08:33.760 our Mes or Chanelle, those are the brands that seem 0:08:33.840 --> 0:08:34.720 to be holding. 0:08:34.480 --> 0:08:35.000 Up the best. 0:08:35.200 --> 0:08:37.839 Yeah, their mez story is just amazing. Okay, just to 0:08:38.679 --> 0:08:42.400 be clear on myself, I don't do luxury. I only 0:08:42.440 --> 0:08:45.560 do sales. Okay, I like luxury on sale, but I 0:08:45.679 --> 0:08:48.840 like that the like out in it, that kind of stuff. 0:08:49.320 --> 0:08:51.640 This means nothing to the guys in the studio right now. 0:08:51.520 --> 0:08:53.560 How many pairs of shoes do you have? 0:08:53.720 --> 0:08:54.880 Let's star A nice question. 0:08:54.920 --> 0:08:56.679 Oh, I know, I actually can do this from my 0:08:56.760 --> 0:08:59.520 old team. I don't think it's as many as you 0:08:59.640 --> 0:09:02.160 think it is. I think it's like maybe thirty. 0:09:03.360 --> 0:09:05.160 What, wow, I have two. 0:09:06.440 --> 0:09:08.400 Okay, Mari back me up. 0:09:08.440 --> 0:09:12.320 Thirty is like a very reasonable amount. But I asked 0:09:12.320 --> 0:09:14.920 this because we only see a lot of sales when 0:09:14.920 --> 0:09:16.560 you got to get the inventory out the door. Am 0:09:16.600 --> 0:09:18.360 I going to be a happy consumer? Or am I 0:09:18.360 --> 0:09:19.520 going to be a sad consumer? 0:09:19.520 --> 0:09:21.440 This year? Yeah? 0:09:21.480 --> 0:09:24.280 Again, it really varies by category and brand, but I 0:09:24.280 --> 0:09:28.400 would say overall, the inventory this year was in a 0:09:28.480 --> 0:09:31.720 much better place than what we saw last year when 0:09:31.960 --> 0:09:35.640 demand really first started to slow and all of the 0:09:35.679 --> 0:09:39.960 companies found themselves sitting on access goods. I would say 0:09:39.960 --> 0:09:42.680 as we moved into twenty twenty three, the inventory was 0:09:42.760 --> 0:09:45.240 better controlled. So when you looked at a lot of 0:09:45.240 --> 0:09:50.319 the company's results, the gross margin rate was actually stronger 0:09:50.320 --> 0:09:54.040 than a lot of investors were expecting. Part of that was, 0:09:54.440 --> 0:09:57.840 you know, lower promotions, lower markdowns. 0:09:57.280 --> 0:09:58.800 Than what we saw the prior year. 0:09:59.120 --> 0:10:01.720 So as we moved the the holiday, I would say 0:10:02.000 --> 0:10:05.240 most of the promotions we saw I would classify as 0:10:05.240 --> 0:10:08.360 in line with plan. I don't think we saw super 0:10:08.400 --> 0:10:12.559 aggressive promotions, and that really reflects the fact that most 0:10:12.559 --> 0:10:16.079 of the brands and retailers are sitting on pretty lean 0:10:16.200 --> 0:10:20.679 inventories right now and continue to manage their inventory very conservatively, 0:10:21.200 --> 0:10:23.040 just given the week demand backdrop. 0:10:23.240 --> 0:10:26.600 This is said for me exactly, So Mari, how about 0:10:27.120 --> 0:10:29.680 like it's some of the dollar stores for example. I'm 0:10:29.679 --> 0:10:32.720 not sure how that really works out. Do they benefit 0:10:32.760 --> 0:10:35.760 when times get a little tough because maybe people trade 0:10:35.840 --> 0:10:39.439 down to the dollar stores order their typical customers, they 0:10:39.480 --> 0:10:43.000 feel it more acutely, How do they play these days? 0:10:43.720 --> 0:10:44.800 Yeah, it's a great question. 0:10:45.040 --> 0:10:48.680 Typically you see both happening simultaneously, right, so you would 0:10:48.679 --> 0:10:52.880 see their core customer come under pressure, but that be 0:10:53.000 --> 0:10:55.680 off set by the more kind of mill income consumer 0:10:55.840 --> 0:10:59.320 trading down into those discount formats, whether it be dollar 0:10:59.400 --> 0:11:03.079 stores or even some of the off pricers like Burlington 0:11:03.160 --> 0:11:06.679 and Ross that cater to a lower income consumer. I 0:11:06.720 --> 0:11:10.800 think this cycle we saw kind of a delayed trade 0:11:10.840 --> 0:11:13.800 down from the middle income consumer, but as we kind 0:11:13.800 --> 0:11:16.000 of moved through Q four and into this year, I 0:11:16.040 --> 0:11:19.640 think that should be more pronounced and really help some 0:11:19.679 --> 0:11:23.240 of those discount formats. I also think what's happening with 0:11:23.280 --> 0:11:26.240 the dollar stores you've seen Walmart, I think take a 0:11:26.240 --> 0:11:28.719 lot of share, right. You can see it in their 0:11:28.760 --> 0:11:33.079 results when you compare Walmart to know the family Dollar business, 0:11:33.080 --> 0:11:36.120 which is owned by Dollar Tree and Dollar General. So 0:11:36.400 --> 0:11:38.400 I think you have a lot of things happening at 0:11:38.400 --> 0:11:42.520 the same time, but overall, a weaker macro backdrop should 0:11:42.559 --> 0:11:44.840 be a positive for those discount formats. 0:11:44.880 --> 0:11:46.800 Also, it's weird. It's like dollar stores are no longer 0:11:46.880 --> 0:11:50.160 really dollar stores, Like they're like five dollars stores and 0:11:50.200 --> 0:11:53.920 their inventory is like horrific, I mean in some of them. 0:11:54.920 --> 0:11:58.760 Yeah yeah, I saw. Sorry, go ahead, Oh no, go ahead. 0:11:59.120 --> 0:12:01.080 I was gonna say, like, going in one, you're like, 0:12:01.160 --> 0:12:04.280 this is like scrape and bottom of the barrel of inventory, 0:12:04.440 --> 0:12:07.120 like it is. It is not a pretty shelf site. 0:12:07.480 --> 0:12:08.160 Yeah. 0:12:08.400 --> 0:12:08.600 Yeah. 0:12:08.679 --> 0:12:10.719 I think a lot of the dollar stores have kind 0:12:10.720 --> 0:12:14.120 of struggled with the store standards and the service levels 0:12:14.240 --> 0:12:18.040 to that point, and both Dollar Tree and Dollar General 0:12:18.120 --> 0:12:22.920 have talked about investing in vetter, inventory management systems, more 0:12:23.120 --> 0:12:28.400 labor in the stores to help improve the store shopping experience. 0:12:28.920 --> 0:12:30.880 All right, Marie, thanks so much for joining us. Marie Shore, 0:12:30.920 --> 0:12:34.360 senior equity analysts at Columbia thread Needle Investments, joining us 0:12:34.400 --> 0:12:39.760 via zoom from Boston, Massachusetts. Thread Needle, originally a London based, 0:12:39.920 --> 0:12:43.000 UK based investment firm, announced Columbia Thread Needle because they 0:12:43.040 --> 0:12:44.079 were required by COMBIA. 0:12:44.559 --> 0:12:46.679 They have great, great analysts. 0:12:46.280 --> 0:12:47.920 They do. They're very good at best. 0:12:47.840 --> 0:12:49.319 Yep, you know Bloomberg Intelligence. 0:12:49.520 --> 0:12:50.400 Yea, all good. 0:12:50.440 --> 0:12:51.080 Let's put it there. 0:12:51.080 --> 0:12:53.040 All good, all good, Yeah, but good read on the 0:12:53.040 --> 0:12:55.959 retailers here. So I was like paying attention to the retailers, 0:12:56.040 --> 0:12:58.480 you know, whether it's the walmarts or you know, the 0:12:59.040 --> 0:13:00.600 luxury you just get a great view of kind of 0:13:00.600 --> 0:13:03.000 how the consumer's really hanging in there and generally has 0:13:03.000 --> 0:13:05.600 been hanging in there for the luxury. I'm waiting for 0:13:05.640 --> 0:13:10.199 them to say China's back, baby, they're buying mainland, they're traveling, 0:13:10.240 --> 0:13:11.160 and we haven't heard that. 0:13:11.200 --> 0:13:13.360 I don't know if it's gonna happen, to be honest, 0:13:13.360 --> 0:13:15.040 if it hasn't happened at this time, it's really hard 0:13:15.040 --> 0:13:17.520 to make that case. Plus even if China, even if 0:13:17.559 --> 0:13:20.440 they say that, will investors be that willing to buy 0:13:20.480 --> 0:13:23.640 that narrative? When they got burned in the first quarter 0:13:23.679 --> 0:13:25.240 of last year from that, yeah. 0:13:25.080 --> 0:13:28.240 Part of that was the Chinese traveler. They couldn't fly anywhere. 0:13:28.280 --> 0:13:30.160 But now that's getting a little bit better, so maybe 0:13:30.160 --> 0:13:31.160 that'll that'll help. 0:13:32.640 --> 0:13:36.520 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:13:36.600 --> 0:13:39.280 weekdays at ten am Eastern on Apple car Playing and 0:13:39.400 --> 0:13:42.320 broud Otto with the Bloomberg Business app. Listen on demand 0:13:42.360 --> 0:13:46.679 wherever you get your podcasts or watch us live on YouTube. 0:13:46.120 --> 0:13:48.720 But it's got a sense of where we're going with 0:13:48.720 --> 0:13:51.120 this market. I don't know whether it's time to jump 0:13:51.160 --> 0:13:54.800 off the big calf tech train that's worked so well 0:13:54.840 --> 0:13:56.400 for so long and maybe take a look at some 0:13:56.400 --> 0:13:59.720 of the smaller midcaps, maybe some value. You don't know 0:13:59.720 --> 0:14:01.480 where to go. Oh here, David Coodle's got some thoughts 0:14:01.520 --> 0:14:03.400 here because he does this stuff for a living. He's 0:14:03.440 --> 0:14:06.720 a founder, chief executive officer and chief investment officer Mainstay 0:14:07.120 --> 0:14:11.079 Capital Management, joining us of via zoom from Troy, Michigan. 0:14:11.120 --> 0:14:14.680 It's a lovely town. I've been there once, David. What 0:14:14.880 --> 0:14:18.000 say you here? I mean for a lot of investors 0:14:18.000 --> 0:14:22.160 that Magnificent seven has worked so well for so many people. 0:14:22.680 --> 0:14:25.120 Do you just stay with the you know, with that horse, 0:14:25.200 --> 0:14:26.920 or do you try to maybe look for some value 0:14:26.920 --> 0:14:29.200 in small cap mid cap maybe some of the sectors 0:14:29.200 --> 0:14:29.800 that I have lagged. 0:14:31.680 --> 0:14:35.560 Yeah, you know the in good morning, good morning, Paul I. 0:14:35.600 --> 0:14:38.440 When we look across the market and we know that 0:14:38.480 --> 0:14:40.880 the Magnificent seven had a great year last year of 0:14:40.920 --> 0:14:44.400 about one hundred and ten percent, and we now have 0:14:45.160 --> 0:14:50.560 a Fab five that excludes Tesla and Apple that's doing 0:14:50.680 --> 0:14:55.240 very well this year. And you know the concern is is, 0:14:55.320 --> 0:14:56.640 you know, can we see a sell off in a 0:14:56.720 --> 0:14:59.240 video with this meteoric rise? Can we see a sell 0:14:59.280 --> 0:15:00.000 off in these stocks? 0:15:00.160 --> 0:15:00.920 Of course we can. 0:15:02.520 --> 0:15:04.520 It wouldn't be surprised at five or ten percent or 0:15:04.520 --> 0:15:07.400 even more at any given time, given the rally that 0:15:07.440 --> 0:15:09.840 we've had and the Magnificent seven this year and the 0:15:10.000 --> 0:15:15.360 Fab five last year. But our overall thesis we like 0:15:15.480 --> 0:15:20.600 growth over value and mega cap tech and profitable tech 0:15:21.200 --> 0:15:24.200 is our most favorite sector last year and coming into 0:15:24.240 --> 0:15:27.200 this year. And we look forward, we look over the 0:15:27.240 --> 0:15:30.320 next three years. At the annual growth rate of the 0:15:30.360 --> 0:15:34.200 Magnificent seven, it's four times that of the rest of 0:15:34.240 --> 0:15:36.640 the S and P five hundred. If we look at 0:15:36.640 --> 0:15:41.600 profit margins, they're going to expand at a lot higher 0:15:41.680 --> 0:15:45.080 rate than the other four hundred and ninety three stocks. 0:15:45.120 --> 0:15:48.560 You take out Apple and Tesla, those numbers get even bigger. 0:15:49.040 --> 0:15:53.920 So we're still on growth over value, all right, I'm sorry, 0:15:53.920 --> 0:15:57.160 growth over value, large over small. We had a rally 0:15:57.200 --> 0:15:59.480 in small at the end of last year. In small 0:15:59.520 --> 0:16:03.240 caps a little bit here recently, but small caps, you 0:16:03.280 --> 0:16:05.200 know the problem with small caps have if you become 0:16:05.200 --> 0:16:08.360 a good small cap stock. Soon you become a good 0:16:08.360 --> 0:16:10.440 mid cap so you could become a good mid cap stock. 0:16:10.520 --> 0:16:13.320 So the Russell two thousand by definition has that kind 0:16:13.360 --> 0:16:16.440 of problem. And in the environment we're in with higher rates, 0:16:16.440 --> 0:16:18.640 it's tough for small caps. And then finally we like 0:16:18.960 --> 0:16:21.080 the US over foreign. 0:16:21.840 --> 0:16:25.280 So David, to that point, what do you do then, 0:16:25.800 --> 0:16:28.440 Like all those trades are working, all those trades have 0:16:28.520 --> 0:16:30.400 been working, do you just kind of put the positions 0:16:30.440 --> 0:16:32.160 on and then sit tight and then wait for all 0:16:32.200 --> 0:16:33.040 that to play out. 0:16:34.520 --> 0:16:37.120 Yeah, Well, the approach we're taking is yes, we are, 0:16:38.120 --> 0:16:41.280 you know, very dominant in Nasdaq one hundred. You know, 0:16:41.360 --> 0:16:47.720 those megacap gross stocks were dominant there. We're diversified in 0:16:47.800 --> 0:16:52.040 some other areas and need to be in the income 0:16:52.080 --> 0:16:54.440 portion of our portfolio. The thing that's worked so well 0:16:54.520 --> 0:16:58.880 last year and into this year is holding the ultra 0:16:58.960 --> 0:17:03.040 short term bonds with high yields. The bond indecks, the 0:17:03.120 --> 0:17:06.879 us I agreated bond indecks was you know, was slightly 0:17:07.320 --> 0:17:12.120 or only slightly up last year when the we look 0:17:12.160 --> 0:17:15.840 at these ultra short term bonds with high yield of 0:17:15.960 --> 0:17:18.280 six or seven percent. So if that's the income portion 0:17:19.200 --> 0:17:23.800 with this growth dominant portion for equities. That's a formula 0:17:23.920 --> 0:17:26.600 that's still working for a diversified portfolio. 0:17:27.600 --> 0:17:32.160 So, David, I know you prefer us over international markets, 0:17:32.200 --> 0:17:35.200 but I see you mentioned China here in your notes, 0:17:35.200 --> 0:17:38.359 and I'm sorry Japan, and I've heard more about Japan 0:17:38.400 --> 0:17:39.639 in the last six months that I have in the 0:17:39.680 --> 0:17:42.719 last twenty years. What's going on in Japan from an 0:17:42.720 --> 0:17:43.280 investment peru. 0:17:43.400 --> 0:17:45.440 Yeah, we've heard more about Japan in the last six 0:17:45.520 --> 0:17:49.560 months than we have in the last thirty five years. 0:17:49.600 --> 0:17:55.040 Because we're right, we're bumping up. We're bumping up against 0:17:55.280 --> 0:17:58.199 that high that was set in December of you know, 0:17:58.320 --> 0:18:01.400 nineteen eighty nine when I was walking around the Stanford 0:18:01.480 --> 0:18:05.760 campus learning about investing, right, I mean, it's that long ago. 0:18:06.280 --> 0:18:09.240 That giant trough that that we're coming into in Japan 0:18:09.359 --> 0:18:11.200 has some things going for it. You know, it's still 0:18:11.240 --> 0:18:15.200 the easy monetary policy. Uh, they have the capital flows 0:18:15.240 --> 0:18:18.840 coming from China. You know, China is nearly uninvestable at 0:18:18.840 --> 0:18:23.560 this point. And then President Trump comes out and says, 0:18:23.600 --> 0:18:25.679 if he gets elected, I'm going to put his sixty 0:18:25.720 --> 0:18:28.760 percent tariff on all Chinese goods, I mean, with everything 0:18:28.760 --> 0:18:31.520 else that's wrong in China with evergrand the real estate 0:18:31.560 --> 0:18:35.480 sector all that, you know, more bad news coming. And 0:18:36.040 --> 0:18:38.240 you know, so they've they've been doing a lot from 0:18:39.080 --> 0:18:43.960 a stimulus standpoint, but that stock market continues to be, 0:18:44.600 --> 0:18:49.600 you know, mired in a down draft. The if we 0:18:49.640 --> 0:18:53.399 look at Europe, Europe is is near recession, kind of 0:18:53.400 --> 0:18:56.440 in and out of recession. The UK is in recession 0:18:56.560 --> 0:18:59.920 and actually just found out that Japan unexpectedly got it 0:19:00.119 --> 0:19:02.520 second quarter of negative growth. But we've just got a 0:19:02.640 --> 0:19:07.560 easy monetary policy. Capital flows there, Valuations are starting to 0:19:07.560 --> 0:19:10.439 get a little bit lofty, but it's it's still investible. 0:19:11.520 --> 0:19:14.520 What do you make of the BOJ and then getting 0:19:14.520 --> 0:19:17.440 off of you'll curve control? Like does that factor in 0:19:17.480 --> 0:19:19.760 to like you're thinking, like, clearly there's a carry trade 0:19:19.760 --> 0:19:21.760 that's going to unwind really fast. Clearly that's going to 0:19:22.080 --> 0:19:24.280 affect the treasury market. Does that affect you, David? 0:19:25.800 --> 0:19:28.040 It affects us in that we're watching what the yen 0:19:28.200 --> 0:19:31.919 is doing because the end it just continues to weaken 0:19:32.000 --> 0:19:35.880 and and they've come in, they've intervened. The BOJ has 0:19:35.920 --> 0:19:38.960 intervened several times. But you know when they do, those 0:19:39.000 --> 0:19:42.399 tend to be temporary fixes. Those tend to be just 0:19:43.080 --> 0:19:47.440 temporary in nature, and you know, our concern there, really 0:19:47.480 --> 0:19:51.120 our concern now is with the economy in a more 0:19:51.160 --> 0:19:53.800 fragile state. You know, what will they do in April? 0:19:53.840 --> 0:19:56.440 Will they finally raise rates? I mean what they've continued 0:19:56.480 --> 0:20:00.199 to do while the US went through their mass of 0:20:00.400 --> 0:20:03.440 you know, five hundred and twenty five basis point increase 0:20:03.520 --> 0:20:08.119 in rates from zero, Europe raising rates. We have Japan 0:20:08.200 --> 0:20:12.120 there that's just maintained this easy monetary policy. They've made 0:20:12.240 --> 0:20:15.920 some adjustments, but they've got a weak currency that continues 0:20:15.920 --> 0:20:20.680 the weaken easy monetary policy. And you know, we'll see 0:20:20.680 --> 0:20:23.600 but that the moves that they've made have been have 0:20:23.720 --> 0:20:29.720 been just just minor, almost you know, non events in 0:20:29.840 --> 0:20:33.159 terms of if they really started the type monetary policy, 0:20:33.200 --> 0:20:33.840 which they haven't. 0:20:34.600 --> 0:20:36.600 So, David, we're about seventy five percent of the way 0:20:36.600 --> 0:20:39.080 through the S and P five hundred earnings. Any themes 0:20:39.080 --> 0:20:41.800 for you, any takeaways for you, any any changes to 0:20:41.840 --> 0:20:43.280 your portfolio based on what you're seeing. 0:20:44.560 --> 0:20:48.320 No, I mean, we know we're beating expectations again, earnings 0:20:48.320 --> 0:20:54.639 coming out better than expected. We're beyond that earnings recession 0:20:54.680 --> 0:20:59.040 we had last year. And now seeing earnings doing quite well. 0:20:59.160 --> 0:21:01.879 So I mean we're encouraged by that because that's what 0:21:01.920 --> 0:21:05.200 we want to see with the FED. Well, we're so 0:21:05.320 --> 0:21:09.040 concerned about the FED, obviously, but no, we're it's really 0:21:09.080 --> 0:21:13.040 supporting where we're at in terms of growth versus value. 0:21:13.040 --> 0:21:16.639 I think, you know, as we get into the second 0:21:16.680 --> 0:21:18.560 half of the year, we think we have some volatility 0:21:18.600 --> 0:21:20.560 here for a few more months. We get into second 0:21:20.600 --> 0:21:22.320 half of the year and we start to see the 0:21:22.400 --> 0:21:25.800 rate cuts come. If that's June, let's say that they start, 0:21:25.880 --> 0:21:28.000 and just and remember that just weeks ago we were 0:21:28.040 --> 0:21:32.800 looking at March for rate cuts to start. If rate 0:21:32.840 --> 0:21:35.639