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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller. Every business day, we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. Again, jobs day came

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Speaker 1: in well below expectations. Is this something we need to

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Speaker 1: be concerned about? Is this something the FED really needs

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Speaker 1: to be concerned about as they think about the beginning

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Speaker 1: tapering perhaps next month. Let's check in with Lindsay Pegs

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Speaker 1: as she's at chief econrass for Stifle Financial, joining us

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Speaker 1: on the phone from Minneapolis. H Lindsay, thanks so much

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Speaker 1: for joining us here again, another big miss here, second

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Speaker 1: straight month. Here. Do we have a theme here? Do

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Speaker 1: we have something to worry about? Well, we do know

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Speaker 1: that the data and the labor market has been increasingly volatile,

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Speaker 1: and it's not to say that this wasn't expected in

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Speaker 1: the aftermath of a crisis. It will take time for

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Speaker 1: balance to be restored to the marketplace. Obviously, this morning's

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Speaker 1: number very disappointing. On the heels of last numbers last

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Speaker 1: month there to the last month's number coming in under expectations.

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Speaker 1: But remember this follows the July number, which was well

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Speaker 1: over a million, surging past expectations. So when we smoothed

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Speaker 1: this out, we're still talking about adding about half a

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Speaker 1: million jobs each month, and we have been since March.

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Speaker 1: So there's still is a very clear underlying positive trends

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Speaker 1: in hiring, but there's now more volatility month to month. Yeah. Well, lindsay,

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Speaker 1: we knew this recovery was going to happen in fits

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Speaker 1: and starts, right, but September wasn't theory supposed to be

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Speaker 1: a start month because kids were back at school, those

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Speaker 1: extra unemployment benefits rolled off. If that didn't happen in September,

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Speaker 1: how can we have any confidence that that effect is

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Speaker 1: indeed going to happen. Well, there are a number of

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Speaker 1: variables that should have helped pull workers into the labor market.

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Speaker 1: As you mentioned, kids are going back to school, the

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Speaker 1: unemployment benefits ended September six. We also have growing confidence

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Speaker 1: in the vaccine initiative, which is well underway, but there's

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Speaker 1: still variables pushing in the opposite direction. We still see

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Speaker 1: working families struggling with daycare or elder care issues. We

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Speaker 1: still see millions of Americans reporting that they're concerned about

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Speaker 1: the virus spreading or contracting the virus. So it's not

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Speaker 1: a flip to switch scenario. This will take time even

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Speaker 1: in the case of benefits. Benefits this time around were

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Speaker 1: arguably so overly generous, plus the moratorium on rents or evictions,

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Speaker 1: plus the additional checks landing in people's mailboxes. So for

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Speaker 1: many Americans, they've actually been able to accumulate a sizable

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Speaker 1: amount of wealth which won't carry them indefinitely, but it

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Speaker 1: could carry them for several months even now after the

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Speaker 1: expiration of those enhanced unemployment benefits. So it's more likely

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Speaker 1: that we see a slow trickle into the labor market

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Speaker 1: as opposed to and open the floodgates and everyone jumps

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Speaker 1: back in. So one of the things that jumped out

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Speaker 1: of me is this the as we looked at the

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Speaker 1: participation rate was um, women women leaving the job market. Um,

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Speaker 1: how concerning is that to you? And is it is

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Speaker 1: it primarily a function of we're in that kind of

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Speaker 1: that weird period. Kids going back to school, but maybe

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Speaker 1: they're not going back to school and that kind of thing. Now,

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Speaker 1: this is a very big concern. We have seen women

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Speaker 1: under an extreme amount of pressure from an employment standpoint.

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Speaker 1: One in four women reporting that they've either have been

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Speaker 1: forced to downshift their career or leave the labor force

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Speaker 1: entirely as a result of the virus and the associated policies.

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Speaker 1: So this essentially translates into millions of women leaving the

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Speaker 1: labor force undoing years, if not decades in terms of

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Speaker 1: enticing women and developing women in the labor market. So,

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Speaker 1: if we're not able to re establish a trend of

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Speaker 1: pulling workers, and in particular women, female workers back into

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Speaker 1: the labor market, this has significant long run implications. Yeah. Well,

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Speaker 1: and it's not just women leaving the labor force as well.

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Speaker 1: We talk a lot about how the pandemic accelerated, you know,

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Speaker 1: early retirement, and a lot of those people of a

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Speaker 1: certain age may not be returning ever to the labor force.

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Speaker 1: They may have just called it quits right then and there.

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Speaker 1: So when you think about some of those dynamics, does

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Speaker 1: the FED need to redefine what maximum employment is when

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Speaker 1: it's thinking about achieving its dual mandate. It's a good

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Speaker 1: question and It's something that the FED certainly has been

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Speaker 1: considering when they talk about the dynamic metrics of the

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Speaker 1: labor market, not only adjusting the threshold, but also looking

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Speaker 1: at the different cohorts of the labor market that may

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Speaker 1: have been disproportionately impacted, making sure that most groups or

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Speaker 1: or the majority of groups have been including in the recovery,

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Speaker 1: and if not, the FED has said that they're willing

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Speaker 1: to err on the side of caution. Now that being said,

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Speaker 1: we have been a dramatic improvement in the unemployment rate

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Speaker 1: across the board, and this does seem to be enough

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Speaker 1: for the FED to move forward at least with the

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Speaker 1: first step of removing accommodative policy. So at least from

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Speaker 1: the chairman's perspective, as he told us that the latest

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Speaker 1: effle MC meeting that box in terms of inflation and

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Speaker 1: the labor market, both of those have been checked. All Right,

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Speaker 1: let's switch a litle it off the labor front and

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Speaker 1: just take a look at supply chain issues. I'm wondering,

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Speaker 1: you know, we're hearing from more and more companies and

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Speaker 1: what that supply chain is an ongoing and significant issue

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Speaker 1: on their operations. Is it enough to materially impact, say

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Speaker 1: your GDP forecast for the remainder of this year, maybe

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Speaker 1: going into next year. How are you trying to capture

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Speaker 1: um that issue? Well, producers at this point are still

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Speaker 1: putting forth a very great effort to try to ramp

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Speaker 1: up output to meet a still heightened level of demand

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Speaker 1: in the marketplace. But even if they are able to

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Speaker 1: find workers, which as we just talked about, is still

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Speaker 1: a big challenge with a sizeable labor supply gap, bottlenecks,

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Speaker 1: disruptions in the international supply chain are continuing to restrict

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Speaker 1: that flow of goods out to the marketplace. And I

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Speaker 1: do think it's important to remember that we're very much

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Speaker 1: a global, globally integrated production line. If we're a US

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Speaker 1: producer trying to make goods for our domestic base, well,

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Speaker 1: if there's a particular component or part that comes from

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Speaker 1: Sri Lanka or Vietnam, but with much of the developing

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Speaker 1: world one, two or three steps behind us in terms

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Speaker 1: of controlling the virus and re establishing normalcy, this is

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Speaker 1: going to have significant negative implications for US producers. And

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Speaker 1: as a result, absolutely we have to look at the

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Speaker 1: supply constraints and the capacity restraints when we're talking about

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Speaker 1: our overall great forecast between that and still a very

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Speaker 1: tepid labor market, are very moderate labor market. I do

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Speaker 1: think growth is going to remain positive, but slow to

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Speaker 1: a three to four percent range in the back half

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Speaker 1: of the year. Well, let's talk about the consumer's role

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Speaker 1: within that growth, because the Americans consumer is what powers

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Speaker 1: this economy. And as we talk about these supply chain

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Speaker 1: issues resulting in higher input costs for companies, companies by

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Speaker 1: and large have been able to pass those on through

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Speaker 1: just higher prices for their customers. With the kind of

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Speaker 1: wage growth we are seeing exing out inflation, how long

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Speaker 1: are consumers going to be able to be tolerant of

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Speaker 1: those price increases. It's a good question, and I would

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Speaker 1: imagine that we have at least enough cushion for the

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Speaker 1: next several months, again against the backdrop of not only

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Speaker 1: rising wages, additional bonuses, incentive packages that has been offered

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Speaker 1: by employers, but also the one point seven trillion and

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Speaker 1: accumulated wealth that consumers have as a backstop to these

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Speaker 1: rising prices. But it's certainly not an indefinite fix, and

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Speaker 1: if in fact, transitory price pressures do prove to be

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Speaker 1: longer lasting. As we look out to the end of

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Speaker 1: the year and into two, at some point consumers are

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Speaker 1: going to be priced out of the market and they're

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Speaker 1: going to have to pull back on demand for both

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Speaker 1: goods and services. Lindsay. One of the issues right now

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Speaker 1: as we think about how the you know, the business

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Speaker 1: or economic response to this pandemic is one of the

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Speaker 1: decisions for companies and for employee employees is do I

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Speaker 1: come back to work? And how many days do I

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Speaker 1: come back to work? Because the argument can certainly made

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Speaker 1: that the US economy was pretty darn efficient and productive

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Speaker 1: during the lockdown and during these past eighteen months. As

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Speaker 1: an economist looking at the macro picture, do you have

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Speaker 1: an opinion about what's best for the U s economy

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Speaker 1: or what could contribute the most to the US economy

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Speaker 1: kind of a hybrid model, back to work model like

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Speaker 1: the old days, or or just strictly working from home. Well,

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Speaker 1: I think all of the above. I don't think there's

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Speaker 1: a one size fits all answer for individuals or sectors

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Speaker 1: of the economy. For some sectors that it simply does

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Speaker 1: not make sense for workers to be at home. They

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Speaker 1: can't efficiently do their job, and so when the economy

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Speaker 1: eventually returns to normalcy, we would expect those sectors to

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Speaker 1: welcome back those employees full time. But for some it

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Speaker 1: does make sense to have the flexibility of a hybrid model.

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Speaker 1: Perhaps they're losing production or productivity time in commute times.

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Speaker 1: Many individuals drive forty five minutes or an hour to

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Speaker 1: the office at that valuable time that they could have

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Speaker 1: otherwise been using to execute activities at their full time position.

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Speaker 1: So it's really going to depend on the individual. It's

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Speaker 1: going to depend on the business and what fits one

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Speaker 1: business may not be best for the next. Lindsay, just

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Speaker 1: quickly after this kind of disappointing headline number, at least

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Speaker 1: on the payrolls report, you've seen some lawmakers, including Nancy Pelosi,

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Speaker 1: putting out statements saying this just underscores the need for

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Speaker 1: further fiscal stimulus and investment in the longer term in

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Speaker 1: the economy here in the United States. How are you

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Speaker 1: thinking about the fiscal equation and the ultimate size of

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Speaker 1: those packages out in the in the works on Capitol Hill. Well,

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Speaker 1: I think anytime there's on evenness in the data or

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Speaker 1: uncertainty in the outlook, officials in Washington will use that

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Speaker 1: as an opportunity to push fiscal and initiatives in the

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Speaker 1: name of economic growth and job creation. But we do

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Speaker 1: have to be careful as we're talking about further stimulus

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Speaker 1: dollars being spent. Looking in hindsight at the Enhanced Unemployment

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Speaker 1: Benefits program, we do know that in some cases this

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Speaker 1: actually created an incentive for workers to remain outside of

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Speaker 1: the labor market by essentially compensating them equal to or

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Speaker 1: even above what they would otherwise earn in the private sector.

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Speaker 1: So we do have to reach that delicate balance providing

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Speaker 1: a safety net but certainly not encouraging individuals to remain

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Speaker 1: outside of the productive capacity position. Lindsay, thank you so

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Speaker 1: much for joining us. Yet again, we always appreciate getting

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Speaker 1: your thoughts and insight. Lindsay PEGSA, chief economists for Stiple Financial.

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Speaker 1: This is Bloomberg. All right, Let's talk with a big

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Speaker 1: Penn State alum. Dan Ives is the Penn State nitt

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Speaker 1: Allan's head to Iowa to play number three Iowa this weekend. Dan,

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Speaker 1: thanks so much for joining us here. Dan ives as

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Speaker 1: a managing director equity research for web Bush. Dan. Let's

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Speaker 1: talk test of here, Ellen moving. I guess the headquarters

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Speaker 1: to Austin, Texas, joining a long list of companies moving

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Speaker 1: to Texas and Florida and thin things like that. Should

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Speaker 1: I care about that or should I just focus on

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Speaker 1: when that plant in Austin is gonna be built, When

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Speaker 1: the plant in Berlin is gonna be ready to go

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Speaker 1: to crank out some more cars. What's important thing here? Yeah,

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Speaker 1: it's a great question. I think right now it's about

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Speaker 1: capacity build out for Wind is going to be keen Europe.

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Speaker 1: Austin is going to be the hub and part of

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Speaker 1: why they're moving the headquarters there. It's important because this

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Speaker 1: is going to give them about it anywhere from five

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Speaker 1: seven improvements potentially just from a margin perspective, given the

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Speaker 1: robotic nature and how scalable Austin is going to be.

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Speaker 1: The headquarter move obviously passes as well just lower costs

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Speaker 1: of living. This is a no brainer strategic move from

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Speaker 1: Musk and PASSA right move at the right time. Well,

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Speaker 1: it's great to have in theory the production capacity down.

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Speaker 1: But also yesterday Elon Musk was talking about some of

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Speaker 1: the supply side challenges Tesla is facing. It's not just

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Speaker 1: even the chip shortage, but ships, you know, all the ips.

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Speaker 1: How much downside risk is there on the production side

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Speaker 1: due to some of those supply chain challenges. Yeah, that's

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Speaker 1: a near term headwind, of course, Tessa and and the

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Speaker 1: rest of the automotive and tech supply chains you know,

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Speaker 1: with but they've been able to navigate it a lot

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Speaker 1: better than other automakers. I think you saw that with

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Speaker 1: the three Q numbers. It's still about a forty tho

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Speaker 1: unit headwind. But as began to twenty two, which starts

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Speaker 1: to moderate and this green tidal wave starts to take cold,

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Speaker 1: I believe Passa, you know, lead this charge here, but

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Speaker 1: you're gonna see GM four another's benefit. But no doubt

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Speaker 1: so why chain a near term hit? But you look

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Speaker 1: through that and I think capacity we're starting to see

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Speaker 1: right lights as we go in two thousand and twenty two.

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Speaker 1: So as this business continues to evolved in it and

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Speaker 1: we get some of the major automakers on a global

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Speaker 1: scale committing obviously significant resources to this, how do you

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Speaker 1: think Tesla will position itself? Is it trying to be hey,

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Speaker 1: we're the best, were the first, were the best, were

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Speaker 1: the most unique? Or are they gonna say we're gonna

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Speaker 1: be the biggest? How do you think they're gonna position themselves. Yeah,

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Speaker 1: well I have it's brand. It's a unique brand they

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Speaker 1: feel globally and that's part of the cashe that Tessa

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Speaker 1: was built. But ultimately come down to battery technology and

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Speaker 1: the innovation coming out of Tessa. We think battery technology

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Speaker 1: costs could be reduced by fifty of next two to

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Speaker 1: three years. That's enable him to go after the Matches

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Speaker 1: forty fifty cars and that's really where you start to

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Speaker 1: keep demand significantly ramp. And that's how Tess to go

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Speaker 1: to nine hundred thousand units potentially this year to what

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Speaker 1: I've used two million units when we look out the

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Speaker 1: next two years. Wow. Okay, So how is Tesla gonna

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Speaker 1: be able to withstand competition from the likes of GM

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Speaker 1: and others who are legacy automakers who have had you know,

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Speaker 1: much greater scale who are getting into the e V space. Yeah,

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Speaker 1: and we don't be this is a zero or some game.

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Speaker 1: I think GM. There's a massive renaissance of growth happened Detroy,

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Speaker 1: which just came back from the analyst day, and that's

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Speaker 1: the rerating stock is they benefit and go after this

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Speaker 1: green tide away. But today it's two percent of autos

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Speaker 1: or evs in the US weren't good about two thou

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Speaker 1: me massive beneficiary GM for Tessa and others as part

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Speaker 1: of this, you know, moved to evs, which we view

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Speaker 1: is the biggest transformation to the auto industreets in nineteen fifties.

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Speaker 1: So I continue to view it as it's not just Tessa,

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Speaker 1: but Tessa is going to be a disproportionate beneficiary, I

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Speaker 1: think even as we're seeing this quarter. So, Dan, I

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Speaker 1: did see your Bloomberg television uh hit from I guess

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Speaker 1: yesterday or something. It looks like you're broadcasting from the

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Speaker 1: back of a car story there. Yeah, that was from

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Speaker 1: the GM analyst day, you know. And and specifically you

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Speaker 1: know that they released some of these Hummers E d

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Speaker 1: s and super cruise technology, which you know, Paul, I mean,

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Speaker 1: it's really what they're coming out with is something that's special.

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Speaker 1: And I think we're gonna look back and look at

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Speaker 1: this is really a pivotal turnaround for GM. We have

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Speaker 1: an eighty five dollar stock price, so I think this

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Speaker 1: could be one that moves a lot higher from here.

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Speaker 1: All right, talk to us a little bit more. Let's

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Speaker 1: just broaden it out a little bit, uh Dan, Just

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Speaker 1: in terms of tech here, you know, I think we've

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Speaker 1: seen rotations in and out of tech, in and out

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Speaker 1: of cyclicals. Um, how do you think about your space?

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Speaker 1: I mean you follow the tech space across the board.

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Speaker 1: What's your call here? As you talk to maybe some

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Speaker 1: of your clients and you're saying, you know, in a

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Speaker 1: rising interest rate environment, I might not want to be

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Speaker 1: as overweight technical about go buy some more energy your banks.

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Speaker 1: How do you kind of respond to that? Yeah? I mean, look,

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Speaker 1: a lot of handholding the last few weeks, but ultimately

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Speaker 1: a ten twenty bit move in the tenure doesn't change

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Speaker 1: our decades long pool thesis in tech, which we expected

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Speaker 1: own well in two thousand twenty two. It's it's a

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Speaker 1: basically fourth in Dushia revolution playing out in terms of

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Speaker 1: the digital transformation to trillion of spending. We want to

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Speaker 1: continue to play names like Apple on five G, Microsoft, Uncloud,

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Speaker 1: cyber security, which we kind of view as a golden age,

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Speaker 1: names like cyber r G, Scour and others. So to us,

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Speaker 1: it's a green light to own tech despite some of

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Speaker 1: the white knuckles. We have a sixteen thousand target for

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Speaker 1: Nadzach year end and I think this is one week

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Speaker 1: to a timber send move into year end, especially on

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Speaker 1: three to earnings that we expect to be Well, let's

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Speaker 1: talk about those earnings stand because it seems every single

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Speaker 1: quarter when we come in, expectations are impossibly high for

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Speaker 1: some of these big tech names, and often they are

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Speaker 1: actually able to exceed them, but you don't necessarily see

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Speaker 1: the share reward because valuations are so rich are already

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Speaker 1: so why would earnings be a catalyst this time around? Yeah,

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Speaker 1: it's a great point. I think ultimately the street has

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Speaker 1: has sold really closed earnings. I think this is gonna

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Speaker 1: be a little different because as we go not just

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Speaker 1: some three que but into qute four and the streets

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Speaker 1: massively underestimating the growth stories that we're seeing across pack

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Speaker 1: and as much as we could talk about ratings potentially

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Speaker 1: being compressed because of what's happened the tenure, I think

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Speaker 1: streets underestimating growth across tax by anywhere from ten over

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Speaker 1: the next year. And that's why I view this as

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Speaker 1: a seminal earning season to really you know, turn the

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Speaker 1: tide there from a sentiment perspective, can they do that?

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Speaker 1: I mean, you know, in terms of we were just

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Speaker 1: talking a little bit earlier, Kayley asked about that supply chain.

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Speaker 1: I'm I'm just an observer who thinks that that's gonna

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Speaker 1: be a bigger issue this earning season than I think.

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Speaker 1: Maybe the market's discounting. In one of the areas where

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Speaker 1: it may be more pronounced, is technology. Do you think

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Speaker 1: the streets taking in for your tech names, you know,

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Speaker 1: kind of what we're seeing across the bord in terms

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Speaker 1: of supply chain issues. Yeah, I think the street as

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Speaker 1: to something say, it's almost overly discounted for the supply chain.

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Speaker 1: I mean, we're starting to see throughout our Asia check

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Speaker 1: that's actually moderating going into early next year. So we're

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Speaker 1: going to continue out of that head wind. This quarter,

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Speaker 1: streets took and past that, and that's the important thing.

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Speaker 1: You'll have those headwinds, but as you look into two

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Speaker 1: thousand twenty two, it starts to moderate and it's gonna

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Speaker 1: be a massive lift in terms of seeing in terms

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Speaker 1: of overall growth for tech. That's why I view this

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Speaker 1: is not time to throw in the white towel, but

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Speaker 1: actually double down. Chech so Dan to these supply chain issues.

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Speaker 1: I had a little bit of an episode about a

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Speaker 1: month and a half ago, I was on the TV

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Speaker 1: set and I was trying to put my Apple Watch

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Speaker 1: back on, and I dropped it on its face and

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Speaker 1: it just totally shattered to the point where you could

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Speaker 1: see the chips inside. And everybody said, wait, wait, wait

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Speaker 1: for the new one to come out if you're going

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Speaker 1: to buy a new one, But I had no faith

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Speaker 1: I would get one on my wrist in the near terment.

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Speaker 1: I'm glad I just bought a replacement that day because Apple,

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Speaker 1: you know, those watches, even though the event was last month,

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Speaker 1: aren't coming out until a week from now. As Apple

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Speaker 1: moves forward, how do they need to diversify their supply

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Speaker 1: chain so they don't risk those kind of delays again? Yeah,

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Speaker 1: I mean they're really married to the as of supply

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Speaker 1: chain and that's not really going to change. To some extent.

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Speaker 1: They'll diverse ty a bit in terms of more factories.

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Speaker 1: But but right now, Apples handled the supply chain and

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Speaker 1: a lot better than anyone that had anticipated. And you'll

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Speaker 1: continue to have some delays in some products. When we

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Speaker 1: look at this as on third team and what we're seeing,

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Speaker 1: I mean, this continues to really be smoothed, you know,

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Speaker 1: smooth sound. You have some shortages into year end and

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Speaker 1: especially on Apple Watch and some other areas like Mac,

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Speaker 1: but overallpartsmen a lot worse than the bite because Cook

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Speaker 1: and Cupertino continue to to navigate this and almost have

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Speaker 1: pap On like ability, unlike litther competitors. Dan Less question

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Speaker 1: here on Apple um services, is that still a good

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Speaker 1: growth driver for this name? Oh? I think it's massive,

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Speaker 1: I mean services A big part of the reading that

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Speaker 1: we've seen. If I go back, I mean to in

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Speaker 1: the street was assigning today it's we think it's worth

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Speaker 1: one point five trillions, and despite epic and some of

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Speaker 1: the regulatory worries, I think that's something that continues to

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Speaker 1: be mid teen growth. I think that's another upside supplies

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Speaker 1: this quarter. It's a big part of the reading in

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Speaker 1: the stock and how we get to a three trillion

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Speaker 1: dollar valuation going into two thousand twenty two. Hey, Dan,

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Speaker 1: thanks so much for joining us. We always love chatting

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Speaker 1: with you because we can go many different directions. Lots

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Speaker 1: of great names you cover, The stories are working, certainly,

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Speaker 1: we always appreciate getting your perspective. Dan Ives, Managing Director

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Speaker 1: Equity Research for web Bush Securities, work Bill SMEE, Chief

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Speaker 1: Investment Officer, smeet to Capital Management, Phil, thanks so much

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Speaker 1: for joining us here again. We got a jobs number

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Speaker 1: today disappointing. Um, yet we still have and combined with

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Speaker 1: that as a lot of inflation out there that some

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Speaker 1: folks are concerned that it may not be the transitory type.

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Speaker 1: And one of the areas is right out there and energy.

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Speaker 1: So Bill gives the thoughts on the energy space. Where

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Speaker 1: are you guys there where do you think they're opportunities

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Speaker 1: or has it already been priced in? Well, thanks for

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Speaker 1: having us, and it is not even vaguely close to

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Speaker 1: being priced in. Uh, you've got uh teacup of market

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Speaker 1: capitalization in the energy sector and oil specifically oil and gas.

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Speaker 1: Uh three of the S and P. So you're gonna

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Speaker 1: have a three percent position in the SMP be far

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Speaker 1: and away the best performing sector. Because energy is just

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Speaker 1: as important as it was five years ago and ten

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Speaker 1: years ago. And like Warren Buffett likes to say, the

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Speaker 1: people that think that will make a fast transition away

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Speaker 1: from carbon fuels and the people that think will never

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Speaker 1: transition are both crazy. So so the thing to understand

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Speaker 1: is whether it's making a electricity out of natural gas

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Speaker 1: and and combustion or whether it's moving cars around. You

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Speaker 1: just have way more demand coming from a huge pop

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Speaker 1: positive demographic population shift, right, all of a sudden, ninety

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Speaker 1: million millennials want to own a home. They're buying in

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Speaker 1: the suburbs, both have to have a car, you know.

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Speaker 1: Just a whole bunch of things are going on at

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Speaker 1: the same time. And and and the Arab Spring torpedoed

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Speaker 1: oil and gas production in the United States of America,

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Speaker 1: and the body politic is trying to shame the industry

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Speaker 1: into avoid drilling and expanding that supply. Hence, Yeah, so, Bill,

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Speaker 1: given all of those kind of idiosyncratic to energy kind

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Speaker 1: of factors, do you have to treat energy differently than

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Speaker 1: you would treat the basket of value, cyclical, reflationary stocks,

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Speaker 1: whatever you want to call them. Well, yeah, they're they're

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Speaker 1: kind of in their own world now. Because we'll just

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Speaker 1: give you one example. Our largest position is Continental Resources.

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Speaker 1: Continental Resources in two thousand and eighteen, when oil was

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Speaker 1: seventy dollars a better peeked out at a price of

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Speaker 1: sixty eight dollars a year. Price oil is eight right now,

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Speaker 1: and we don't even know where it's going to go

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Speaker 1: and the stocks trading at fifty two. So we believe

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Speaker 1: that that spread or our margin of safety is the

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Speaker 1: fact that so many people have flooded out of any

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Speaker 1: participation in oil and gas, for example, on an E

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Speaker 1: S G basis, that that there is a margin of

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Speaker 1: safety there, that that it's the kind of thing that

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Speaker 1: Peter Lynch loved. He liked to own a stock that

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Speaker 1: went way up and nobody loved it after it went

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Speaker 1: way up. Bill just probably speaking here, you know, starting

431
00:23:44,400 --> 00:23:46,480
Speaker 1: you know, more than a year ago, we had this

432
00:23:46,600 --> 00:23:51,120
Speaker 1: nice rotation into the cyclical names of this market, including energy,

433
00:23:51,160 --> 00:23:54,639
Speaker 1: including banks, um and and that's worked so well for

434
00:23:54,760 --> 00:23:56,399
Speaker 1: so long, and there's been fits and starts, and that

435
00:23:56,640 --> 00:23:59,800
Speaker 1: is you know, um, there's been bouts of rotating back

436
00:23:59,840 --> 00:24:03,040
Speaker 1: into growth. But in a rising interest rate environment, how

437
00:24:03,080 --> 00:24:07,919
Speaker 1: do you feel about that trade? Well? It I always

438
00:24:07,960 --> 00:24:11,439
Speaker 1: remind people that after a terrible bear market, and there

439
00:24:11,520 --> 00:24:14,480
Speaker 1: was a terrible bear market in value investing for about

440
00:24:14,560 --> 00:24:19,040
Speaker 1: seven years, when a when a a deep bear market ends,

441
00:24:19,760 --> 00:24:22,280
Speaker 1: the first year, you get an explosion, you know. So

442
00:24:22,920 --> 00:24:24,960
Speaker 1: the bottom of the stock market eighty two, the first

443
00:24:25,080 --> 00:24:27,200
Speaker 1: year was a huge move up the bottom of the

444
00:24:27,240 --> 00:24:30,200
Speaker 1: stock market No. Nine was a huge move up the

445
00:24:30,280 --> 00:24:35,119
Speaker 1: first year, and then you settle into a light correction

446
00:24:35,400 --> 00:24:38,680
Speaker 1: and bull moves for another seven or eight years. So

447
00:24:39,040 --> 00:24:43,760
Speaker 1: so again we're in the very early stages of stop

448
00:24:43,880 --> 00:24:46,399
Speaker 1: and think about there. There's so many investors out there

449
00:24:46,440 --> 00:24:50,480
Speaker 1: that are momentum investors, and the place to find momentum

450
00:24:50,600 --> 00:24:53,800
Speaker 1: at the moment is a place that it's almost impossible

451
00:24:54,119 --> 00:24:57,720
Speaker 1: for them to get into because it's not that big, right,

452
00:24:57,840 --> 00:25:00,480
Speaker 1: it's three per cent of the S and P and

453
00:25:00,600 --> 00:25:04,000
Speaker 1: what they do own the big tech stuff, the things

454
00:25:04,080 --> 00:25:07,119
Speaker 1: and all that is like all added together is like

455
00:25:08,040 --> 00:25:10,120
Speaker 1: the S and P. So you could you could see

456
00:25:10,119 --> 00:25:12,320
Speaker 1: a fire hose trying to put water in a teacup

457
00:25:12,359 --> 00:25:15,080
Speaker 1: for a while. I want to ask you about the

458
00:25:15,119 --> 00:25:16,960
Speaker 1: home builders as well. You were talking about all the

459
00:25:17,000 --> 00:25:19,280
Speaker 1: millennials going out there looking to get some more space,

460
00:25:19,359 --> 00:25:21,440
Speaker 1: moving out to the suburbs, buying a house, something I

461
00:25:21,520 --> 00:25:23,840
Speaker 1: am unfortunately not in a position to do at the moment.

462
00:25:24,119 --> 00:25:27,120
Speaker 1: But how do you play that from an equity perspective? Boy,

463
00:25:27,560 --> 00:25:31,680
Speaker 1: they have discounted those stocks as if they're the same

464
00:25:31,800 --> 00:25:34,600
Speaker 1: cyclical companies that got caught in the oh five oh

465
00:25:34,760 --> 00:25:40,600
Speaker 1: six stupidity. They used to be land developers that put

466
00:25:40,720 --> 00:25:43,520
Speaker 1: houses on the land to get them sold, right, that

467
00:25:43,640 --> 00:25:46,159
Speaker 1: used to be their business. And secondly, it used to

468
00:25:46,200 --> 00:25:50,960
Speaker 1: be a fragmented industry where where, for example, the largest

469
00:25:51,000 --> 00:25:53,399
Speaker 1: home builder d R Hurt and they built one percent

470
00:25:53,480 --> 00:25:56,000
Speaker 1: of the homes in the United States and this year

471
00:25:56,280 --> 00:25:59,000
Speaker 1: they'll build nine and that's just one of the top

472
00:25:59,080 --> 00:26:03,000
Speaker 1: ten public traded home builders. So it used to be fragmented.

473
00:26:03,359 --> 00:26:07,320
Speaker 1: And what you're going to see happen here, we're talking

474
00:26:07,320 --> 00:26:10,040
Speaker 1: about stocks trading at seven times earnings that have a

475
00:26:10,200 --> 00:26:16,040
Speaker 1: ten to fifteen ten year growth possibility. That's pretty easy

476
00:26:16,119 --> 00:26:18,560
Speaker 1: to do in that there's ninety million millennials and there

477
00:26:18,640 --> 00:26:21,840
Speaker 1: was only sixty five million Gen xers. So they satisfy

478
00:26:21,960 --> 00:26:24,280
Speaker 1: an economic need, which is one of our eight criteria.

479
00:26:24,600 --> 00:26:27,520
Speaker 1: They will build the single family residences that are needed

480
00:26:27,800 --> 00:26:30,600
Speaker 1: to meet what the population wants. And then, of course,

481
00:26:30,840 --> 00:26:32,959
Speaker 1: my age group, the baby boomers, the older boomers are

482
00:26:32,960 --> 00:26:34,680
Speaker 1: staying in their house and are going to stay in

483
00:26:34,680 --> 00:26:37,640
Speaker 1: their house way longer than prior generations. A because they're

484
00:26:37,680 --> 00:26:41,399
Speaker 1: healthier other than COVID than prior generations, and b because

485
00:26:41,600 --> 00:26:43,960
Speaker 1: obviously it's not quite as exciting to move into a

486
00:26:44,000 --> 00:26:48,640
Speaker 1: communal set up in a post COVID world. All right, Bill,

487
00:26:48,720 --> 00:26:50,600
Speaker 1: thanks so much for joining us. We always love getting

488
00:26:50,600 --> 00:26:55,399
Speaker 1: your perspective, the perspective of a veteran value investor, certainly

489
00:26:55,440 --> 00:26:58,879
Speaker 1: having some good opportunities right here and good performance. More

490
00:26:58,960 --> 00:27:01,480
Speaker 1: to the point of value folk are Bill Smeed, chief

491
00:27:01,560 --> 00:27:04,960
Speaker 1: investment officer. Smeed a Capital Management. He's been a value

492
00:27:04,960 --> 00:27:09,160
Speaker 1: investor for decades, calling out now some of the energy

493
00:27:09,240 --> 00:27:11,359
Speaker 1: stocks as well as the bank stocks that are working

494
00:27:11,440 --> 00:27:14,440
Speaker 1: for him. We'll have more coming up. This is Bloomberg,

495
00:27:14,520 --> 00:27:20,440
Speaker 1: Good morning. I want to bring in Omar Aglar. He

496
00:27:20,640 --> 00:27:23,000
Speaker 1: is the chief investment officer and head of investments for

497
00:27:23,080 --> 00:27:26,280
Speaker 1: Charles Schwab Asset Management. They've got a new study as fascinating.

498
00:27:26,320 --> 00:27:28,840
Speaker 1: They look at how UH you know, kind of behavioral

499
00:27:28,960 --> 00:27:31,800
Speaker 1: science and how that views or how that skews or

500
00:27:31,880 --> 00:27:37,280
Speaker 1: impacts UH investing. So let's bring in Omar. Interesting study here.

501
00:27:37,359 --> 00:27:41,879
Speaker 1: Omar talk to us about your Bee Fi barometer. What

502
00:27:42,240 --> 00:27:44,680
Speaker 1: is that survey and what are you looking for? What

503
00:27:44,760 --> 00:27:48,600
Speaker 1: are you asking? Yes, thank you on good morning, um

504
00:27:48,880 --> 00:27:51,760
Speaker 1: I we have this is the third year we conduct

505
00:27:51,880 --> 00:27:56,520
Speaker 1: these UH research and he has been incredibly helpful for

506
00:27:56,760 --> 00:27:59,480
Speaker 1: us in serving our clients as we partner with the

507
00:28:00,080 --> 00:28:03,320
Speaker 1: wi ands as really to get this survey out to

508
00:28:03,359 --> 00:28:06,720
Speaker 1: advisors to understand, you know, what are the behavioral tendencies

509
00:28:06,800 --> 00:28:09,520
Speaker 1: that they see on their clients as they see information.

510
00:28:09,600 --> 00:28:12,720
Speaker 1: And what's interesting obviously about this year is that now

511
00:28:12,800 --> 00:28:16,520
Speaker 1: we have data of the pre pandemic behavioral biases that

512
00:28:16,680 --> 00:28:20,440
Speaker 1: client observed during the pandemic of last year, and now

513
00:28:20,640 --> 00:28:23,560
Speaker 1: in this process of obviously trying to get out of

514
00:28:23,640 --> 00:28:27,080
Speaker 1: the pandemic um, the research shows that, you know, there

515
00:28:27,119 --> 00:28:31,679
Speaker 1: are two areas where advisors and clients continue to observe

516
00:28:32,040 --> 00:28:35,680
Speaker 1: natural behavioral biases, which is, you know, one is called

517
00:28:35,760 --> 00:28:38,880
Speaker 1: recency bias, which is the tendency of people to just

518
00:28:39,000 --> 00:28:41,960
Speaker 1: look at the most recent information for making decisions. And

519
00:28:42,080 --> 00:28:45,200
Speaker 1: the other one is confirmation bias and confirmation biases that

520
00:28:45,360 --> 00:28:49,800
Speaker 1: where you try to find information that confirms your own views.

521
00:28:50,560 --> 00:28:53,400
Speaker 1: And that is obviously very typical, especially because the news

522
00:28:53,440 --> 00:28:57,800
Speaker 1: flows continues to be incredibly fluid and it's and it's changing,

523
00:28:57,960 --> 00:29:01,480
Speaker 1: it changed into what the information that the investors and

524
00:29:01,600 --> 00:29:04,600
Speaker 1: clients wanted to see in and even you know, with

525
00:29:04,760 --> 00:29:07,600
Speaker 1: today's you know, labor market report, you know, people are

526
00:29:07,680 --> 00:29:10,200
Speaker 1: just trying to see how they can process that information.

527
00:29:10,360 --> 00:29:13,760
Speaker 1: So these study is very helpful, you know, understanding how

528
00:29:13,920 --> 00:29:17,200
Speaker 1: clients make decisions, and we clearly, um, you know, have

529
00:29:17,520 --> 00:29:19,320
Speaker 1: you know, learn a lot from it. Yeah, you know,

530
00:29:19,400 --> 00:29:21,360
Speaker 1: Paul I had the pleasure of speaking with Omar at

531
00:29:21,400 --> 00:29:24,200
Speaker 1: the Bloomberg invest Global Conference earlier this week, and we

532
00:29:24,280 --> 00:29:27,360
Speaker 1: focused a lot on the retail traders. So Omar, I'm wondering,

533
00:29:27,480 --> 00:29:30,080
Speaker 1: you know, you and I had a conversation about retail traders.

534
00:29:30,120 --> 00:29:32,520
Speaker 1: How the meme stock mania seems to be over, but

535
00:29:32,600 --> 00:29:34,640
Speaker 1: it was still a thing where people were getting their

536
00:29:34,720 --> 00:29:38,120
Speaker 1: investment ideas from breddit, in from social media. How are

537
00:29:38,320 --> 00:29:40,720
Speaker 1: do those kind of fads and kind of that fomo

538
00:29:40,920 --> 00:29:43,520
Speaker 1: aspect play in here? What do you see in the survey?

539
00:29:44,440 --> 00:29:47,600
Speaker 1: It's uh, it is an interesting uh, you know results.

540
00:29:47,680 --> 00:29:50,600
Speaker 1: We we for the first time this year, we added

541
00:29:50,760 --> 00:29:54,680
Speaker 1: a few questions related to precisely social media and the

542
00:29:54,800 --> 00:29:57,840
Speaker 1: impact of social media and investment decision process. And what

543
00:29:58,040 --> 00:30:00,680
Speaker 1: we what we observe is you know, two things. One

544
00:30:00,800 --> 00:30:03,320
Speaker 1: is you're You're totally right, as we discuss Kelly, there

545
00:30:03,440 --> 00:30:06,520
Speaker 1: is a lot of new investors coming into the markets

546
00:30:06,640 --> 00:30:09,760
Speaker 1: as a result of these you know, fomo setting and

547
00:30:09,880 --> 00:30:12,760
Speaker 1: these you know, fear of missing out the access and

548
00:30:12,800 --> 00:30:16,640
Speaker 1: the ability to get into the different programs and different providers.

549
00:30:17,040 --> 00:30:19,000
Speaker 1: It is now easier than it was you know, even

550
00:30:19,040 --> 00:30:21,560
Speaker 1: a couple of years ago. So that process, you know,

551
00:30:21,640 --> 00:30:24,640
Speaker 1: it is actually helpful. Is we do welcome you know,

552
00:30:24,720 --> 00:30:27,440
Speaker 1: more participants in the market. That's very good. And what

553
00:30:27,600 --> 00:30:30,320
Speaker 1: the study of these B five parameters show does is

554
00:30:30,440 --> 00:30:33,400
Speaker 1: that advisors are doing a great job in working with

555
00:30:33,520 --> 00:30:39,200
Speaker 1: their clients to understand whether those um investments are actually

556
00:30:39,280 --> 00:30:41,560
Speaker 1: good for them. Whether it's a meme stocks, whether it's

557
00:30:41,640 --> 00:30:45,520
Speaker 1: it's back, whether it's an n f T, even digital currencies.

558
00:30:45,600 --> 00:30:48,280
Speaker 1: You know, advisors are working with their clients to understand

559
00:30:48,320 --> 00:30:51,400
Speaker 1: whether that's a suitable component. And getting that level of

560
00:30:51,600 --> 00:30:54,400
Speaker 1: education and advice is probably what we learned the most

561
00:30:54,440 --> 00:30:57,320
Speaker 1: about these B five barometer you know, it's it's good

562
00:30:57,400 --> 00:30:59,520
Speaker 1: for people to be invested in the market. We continue

563
00:30:59,560 --> 00:31:02,280
Speaker 1: to see interest in this and I don't think, Kyley,

564
00:31:02,360 --> 00:31:04,600
Speaker 1: this is gonna you know disappear. You know, there will

565
00:31:04,680 --> 00:31:07,240
Speaker 1: be you know, always, you know, another story that people

566
00:31:07,280 --> 00:31:10,280
Speaker 1: will get interested in. So more, is there a general

567
00:31:10,360 --> 00:31:13,800
Speaker 1: consensus from your data about how maybe you know, investor

568
00:31:13,920 --> 00:31:17,479
Speaker 1: behavior has changed and pre impost pandemic. Not that we're

569
00:31:17,480 --> 00:31:19,880
Speaker 1: necessary fully out of this pandemic, but we can see

570
00:31:19,920 --> 00:31:22,200
Speaker 1: certainly let it in the tunnel. But in terms of

571
00:31:22,320 --> 00:31:26,880
Speaker 1: risk taking, our people more or less risk tolerant, well,

572
00:31:27,120 --> 00:31:30,040
Speaker 1: it's it has changed, you know, quite significantly, and it's

573
00:31:30,120 --> 00:31:33,400
Speaker 1: it's almost like, you know, perfect textbook example of how

574
00:31:33,520 --> 00:31:37,040
Speaker 1: this works. Because in the world of behavioral finance, you know,

575
00:31:37,160 --> 00:31:40,960
Speaker 1: biases get divided into what it's called emotional reaction and

576
00:31:41,040 --> 00:31:44,320
Speaker 1: what it's called cognitive. You know, biases cognitive being a

577
00:31:44,360 --> 00:31:47,280
Speaker 1: little more rational when you're trying to convince yourself about

578
00:31:47,280 --> 00:31:49,920
Speaker 1: the decisions you're about to make. An emotional would tends

579
00:31:49,960 --> 00:31:52,360
Speaker 1: to be more you know, when you overreact or react

580
00:31:52,400 --> 00:31:55,840
Speaker 1: without necessarily given it to two more thoughts. It's interesting

581
00:31:55,920 --> 00:31:59,400
Speaker 1: to see because you know, during as you might expect,

582
00:31:59,440 --> 00:32:02,080
Speaker 1: the majority of the biases ended up being you know,

583
00:32:02,280 --> 00:32:05,320
Speaker 1: heavily emotional, with with loss of version being you know,

584
00:32:05,400 --> 00:32:07,520
Speaker 1: one of the main drivers for a lot of decisions

585
00:32:07,600 --> 00:32:10,040
Speaker 1: that we saw and again combined with recency biases and

586
00:32:10,080 --> 00:32:13,800
Speaker 1: said because people use information on the most recent data

587
00:32:14,000 --> 00:32:16,880
Speaker 1: to try to make decisions, but it was clearly dominated

588
00:32:17,000 --> 00:32:20,480
Speaker 1: by by the loss of version and protection and uncertainty.

589
00:32:20,800 --> 00:32:23,560
Speaker 1: As we became you know, we got the vaccines out,

590
00:32:23,600 --> 00:32:25,760
Speaker 1: we started the rotation in the market. We started to

591
00:32:25,840 --> 00:32:29,680
Speaker 1: just see this big economic recovery. Then the cognitive biases

592
00:32:29,720 --> 00:32:32,600
Speaker 1: and started to turn on, and those were tend to

593
00:32:32,640 --> 00:32:35,400
Speaker 1: be more of overconfidence. They tend to be more about

594
00:32:35,720 --> 00:32:38,160
Speaker 1: trying to understand, you know, how can they get their

595
00:32:38,360 --> 00:32:40,680
Speaker 1: understanding that the fedue will be there, the central banks

596
00:32:40,720 --> 00:32:43,080
Speaker 1: will be there, the stimulus will be there, so they

597
00:32:43,680 --> 00:32:47,040
Speaker 1: those we became more prevalent overall, and now we're in

598
00:32:47,160 --> 00:32:49,160
Speaker 1: this you know, world of warrior as we say, where

599
00:32:49,320 --> 00:32:52,120
Speaker 1: you know, we're starting to see these balance our early

600
00:32:52,200 --> 00:32:56,720
Speaker 1: fascinating discussion there Omar Agular, chief investment Officer, head of

601
00:32:56,800 --> 00:33:00,160
Speaker 1: investments for Charles swab Asset Management. Looking at the you

602
00:33:00,240 --> 00:33:03,760
Speaker 1: sees um that investors have um you know, across the

603
00:33:03,800 --> 00:33:08,000
Speaker 1: board and you know, folks presumably were impacted clearly by

604
00:33:08,120 --> 00:33:09,800
Speaker 1: the pandemic. And we had a lot of those retail

605
00:33:09,800 --> 00:33:12,120
Speaker 1: investors as you were mentioning, Kaylee came into the market.

606
00:33:12,200 --> 00:33:14,800
Speaker 1: We saw that early on in the pandemic, people were

607
00:33:14,800 --> 00:33:17,160
Speaker 1: looking for something to do, uh, and they were trading

608
00:33:17,200 --> 00:33:21,840
Speaker 1: memestocks and we saw some crazy trading patterns. There's just phenomenal.

609
00:33:22,080 --> 00:33:25,160
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can

610
00:33:25,200 --> 00:33:28,960
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever

611
00:33:29,080 --> 00:33:32,720
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

612
00:33:33,000 --> 00:33:36,800
Speaker 1: at Matt Miller three. On False Sweeney, I'm on Twitter

613
00:33:36,880 --> 00:33:39,680
Speaker 1: at pt Sweeney Before the podcast. You can always catch

614
00:33:39,800 --> 00:33:41,320
Speaker 1: us worldwide at Bloomberg Radio