Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Again, jobs day came
Speaker 1: in well below expectations. Is this something we need to
Speaker 1: be concerned about? Is this something the FED really needs
Speaker 1: to be concerned about as they think about the beginning
Speaker 1: tapering perhaps next month. Let's check in with Lindsay Pegs
Speaker 1: as she's at chief econrass for Stifle Financial, joining us
Speaker 1: on the phone from Minneapolis. H Lindsay, thanks so much
Speaker 1: for joining us here again, another big miss here, second
Speaker 1: straight month. Here. Do we have a theme here? Do
Speaker 1: we have something to worry about? Well, we do know
Speaker 1: that the data and the labor market has been increasingly volatile,
Speaker 1: and it's not to say that this wasn't expected in
Speaker 1: the aftermath of a crisis. It will take time for
Speaker 1: balance to be restored to the marketplace. Obviously, this morning's
Speaker 1: number very disappointing. On the heels of last numbers last
Speaker 1: month there to the last month's number coming in under expectations.
Speaker 1: But remember this follows the July number, which was well
Speaker 1: over a million, surging past expectations. So when we smoothed
Speaker 1: this out, we're still talking about adding about half a
Speaker 1: million jobs each month, and we have been since March.
Speaker 1: So there's still is a very clear underlying positive trends
Speaker 1: in hiring, but there's now more volatility month to month. Yeah. Well, lindsay,
Speaker 1: we knew this recovery was going to happen in fits
Speaker 1: and starts, right, but September wasn't theory supposed to be
Speaker 1: a start month because kids were back at school, those
Speaker 1: extra unemployment benefits rolled off. If that didn't happen in September,
Speaker 1: how can we have any confidence that that effect is
Speaker 1: indeed going to happen. Well, there are a number of
Speaker 1: variables that should have helped pull workers into the labor market.
Speaker 1: As you mentioned, kids are going back to school, the
Speaker 1: unemployment benefits ended September six. We also have growing confidence
Speaker 1: in the vaccine initiative, which is well underway, but there's
Speaker 1: still variables pushing in the opposite direction. We still see
Speaker 1: working families struggling with daycare or elder care issues. We
Speaker 1: still see millions of Americans reporting that they're concerned about
Speaker 1: the virus spreading or contracting the virus. So it's not
Speaker 1: a flip to switch scenario. This will take time even
Speaker 1: in the case of benefits. Benefits this time around were
Speaker 1: arguably so overly generous, plus the moratorium on rents or evictions,
Speaker 1: plus the additional checks landing in people's mailboxes. So for
Speaker 1: many Americans, they've actually been able to accumulate a sizable
Speaker 1: amount of wealth which won't carry them indefinitely, but it
Speaker 1: could carry them for several months even now after the
Speaker 1: expiration of those enhanced unemployment benefits. So it's more likely
Speaker 1: that we see a slow trickle into the labor market
Speaker 1: as opposed to and open the floodgates and everyone jumps
Speaker 1: back in. So one of the things that jumped out
Speaker 1: of me is this the as we looked at the
Speaker 1: participation rate was um, women women leaving the job market. Um,
Speaker 1: how concerning is that to you? And is it is
Speaker 1: it primarily a function of we're in that kind of
Speaker 1: that weird period. Kids going back to school, but maybe
Speaker 1: they're not going back to school and that kind of thing. Now,
Speaker 1: this is a very big concern. We have seen women
Speaker 1: under an extreme amount of pressure from an employment standpoint.
Speaker 1: One in four women reporting that they've either have been
Speaker 1: forced to downshift their career or leave the labor force
Speaker 1: entirely as a result of the virus and the associated policies.
Speaker 1: So this essentially translates into millions of women leaving the
Speaker 1: labor force undoing years, if not decades in terms of
Speaker 1: enticing women and developing women in the labor market. So,
Speaker 1: if we're not able to re establish a trend of
Speaker 1: pulling workers, and in particular women, female workers back into
Speaker 1: the labor market, this has significant long run implications. Yeah. Well,
Speaker 1: and it's not just women leaving the labor force as well.
Speaker 1: We talk a lot about how the pandemic accelerated, you know,
Speaker 1: early retirement, and a lot of those people of a
Speaker 1: certain age may not be returning ever to the labor force.
Speaker 1: They may have just called it quits right then and there.
Speaker 1: So when you think about some of those dynamics, does
Speaker 1: the FED need to redefine what maximum employment is when
Speaker 1: it's thinking about achieving its dual mandate. It's a good
Speaker 1: question and It's something that the FED certainly has been
Speaker 1: considering when they talk about the dynamic metrics of the
Speaker 1: labor market, not only adjusting the threshold, but also looking
Speaker 1: at the different cohorts of the labor market that may
Speaker 1: have been disproportionately impacted, making sure that most groups or
Speaker 1: or the majority of groups have been including in the recovery,
Speaker 1: and if not, the FED has said that they're willing
Speaker 1: to err on the side of caution. Now that being said,
Speaker 1: we have been a dramatic improvement in the unemployment rate
Speaker 1: across the board, and this does seem to be enough
Speaker 1: for the FED to move forward at least with the
Speaker 1: first step of removing accommodative policy. So at least from
Speaker 1: the chairman's perspective, as he told us that the latest
Speaker 1: effle MC meeting that box in terms of inflation and
Speaker 1: the labor market, both of those have been checked. All Right,
Speaker 1: let's switch a litle it off the labor front and
Speaker 1: just take a look at supply chain issues. I'm wondering,
Speaker 1: you know, we're hearing from more and more companies and
Speaker 1: what that supply chain is an ongoing and significant issue
Speaker 1: on their operations. Is it enough to materially impact, say
Speaker 1: your GDP forecast for the remainder of this year, maybe
Speaker 1: going into next year. How are you trying to capture
Speaker 1: um that issue? Well, producers at this point are still
Speaker 1: putting forth a very great effort to try to ramp
Speaker 1: up output to meet a still heightened level of demand
Speaker 1: in the marketplace. But even if they are able to
Speaker 1: find workers, which as we just talked about, is still
Speaker 1: a big challenge with a sizeable labor supply gap, bottlenecks,
Speaker 1: disruptions in the international supply chain are continuing to restrict
Speaker 1: that flow of goods out to the marketplace. And I
Speaker 1: do think it's important to remember that we're very much
Speaker 1: a global, globally integrated production line. If we're a US
Speaker 1: producer trying to make goods for our domestic base, well,
Speaker 1: if there's a particular component or part that comes from
Speaker 1: Sri Lanka or Vietnam, but with much of the developing
Speaker 1: world one, two or three steps behind us in terms
Speaker 1: of controlling the virus and re establishing normalcy, this is
Speaker 1: going to have significant negative implications for US producers. And
Speaker 1: as a result, absolutely we have to look at the
Speaker 1: supply constraints and the capacity restraints when we're talking about
Speaker 1: our overall great forecast between that and still a very
Speaker 1: tepid labor market, are very moderate labor market. I do
Speaker 1: think growth is going to remain positive, but slow to
Speaker 1: a three to four percent range in the back half
Speaker 1: of the year. Well, let's talk about the consumer's role
Speaker 1: within that growth, because the Americans consumer is what powers
Speaker 1: this economy. And as we talk about these supply chain
Speaker 1: issues resulting in higher input costs for companies, companies by
Speaker 1: and large have been able to pass those on through
Speaker 1: just higher prices for their customers. With the kind of
Speaker 1: wage growth we are seeing exing out inflation, how long
Speaker 1: are consumers going to be able to be tolerant of
Speaker 1: those price increases. It's a good question, and I would
Speaker 1: imagine that we have at least enough cushion for the
Speaker 1: next several months, again against the backdrop of not only
Speaker 1: rising wages, additional bonuses, incentive packages that has been offered
Speaker 1: by employers, but also the one point seven trillion and
Speaker 1: accumulated wealth that consumers have as a backstop to these
Speaker 1: rising prices. But it's certainly not an indefinite fix, and
Speaker 1: if in fact, transitory price pressures do prove to be
Speaker 1: longer lasting. As we look out to the end of
Speaker 1: the year and into two, at some point consumers are
Speaker 1: going to be priced out of the market and they're
Speaker 1: going to have to pull back on demand for both
Speaker 1: goods and services. Lindsay. One of the issues right now
Speaker 1: as we think about how the you know, the business
Speaker 1: or economic response to this pandemic is one of the
Speaker 1: decisions for companies and for employee employees is do I
Speaker 1: come back to work? And how many days do I
Speaker 1: come back to work? Because the argument can certainly made
Speaker 1: that the US economy was pretty darn efficient and productive
Speaker 1: during the lockdown and during these past eighteen months. As
Speaker 1: an economist looking at the macro picture, do you have
Speaker 1: an opinion about what's best for the U s economy
Speaker 1: or what could contribute the most to the US economy
Speaker 1: kind of a hybrid model, back to work model like
Speaker 1: the old days, or or just strictly working from home. Well,
Speaker 1: I think all of the above. I don't think there's
Speaker 1: a one size fits all answer for individuals or sectors
Speaker 1: of the economy. For some sectors that it simply does
Speaker 1: not make sense for workers to be at home. They
Speaker 1: can't efficiently do their job, and so when the economy
Speaker 1: eventually returns to normalcy, we would expect those sectors to
Speaker 1: welcome back those employees full time. But for some it
Speaker 1: does make sense to have the flexibility of a hybrid model.
Speaker 1: Perhaps they're losing production or productivity time in commute times.
Speaker 1: Many individuals drive forty five minutes or an hour to
Speaker 1: the office at that valuable time that they could have
Speaker 1: otherwise been using to execute activities at their full time position.
Speaker 1: So it's really going to depend on the individual. It's
Speaker 1: going to depend on the business and what fits one
Speaker 1: business may not be best for the next. Lindsay, just
Speaker 1: quickly after this kind of disappointing headline number, at least
Speaker 1: on the payrolls report, you've seen some lawmakers, including Nancy Pelosi,
Speaker 1: putting out statements saying this just underscores the need for
Speaker 1: further fiscal stimulus and investment in the longer term in
Speaker 1: the economy here in the United States. How are you
Speaker 1: thinking about the fiscal equation and the ultimate size of
Speaker 1: those packages out in the in the works on Capitol Hill. Well,
Speaker 1: I think anytime there's on evenness in the data or
Speaker 1: uncertainty in the outlook, officials in Washington will use that
Speaker 1: as an opportunity to push fiscal and initiatives in the
Speaker 1: name of economic growth and job creation. But we do
Speaker 1: have to be careful as we're talking about further stimulus
Speaker 1: dollars being spent. Looking in hindsight at the Enhanced Unemployment
Speaker 1: Benefits program, we do know that in some cases this
Speaker 1: actually created an incentive for workers to remain outside of
Speaker 1: the labor market by essentially compensating them equal to or
Speaker 1: even above what they would otherwise earn in the private sector.
Speaker 1: So we do have to reach that delicate balance providing
Speaker 1: a safety net but certainly not encouraging individuals to remain
Speaker 1: outside of the productive capacity position. Lindsay, thank you so
Speaker 1: much for joining us. Yet again, we always appreciate getting
Speaker 1: your thoughts and insight. Lindsay PEGSA, chief economists for Stiple Financial.
Speaker 1: This is Bloomberg. All right, Let's talk with a big
Speaker 1: Penn State alum. Dan Ives is the Penn State nitt
Speaker 1: Allan's head to Iowa to play number three Iowa this weekend. Dan,
Speaker 1: thanks so much for joining us here. Dan ives as
Speaker 1: a managing director equity research for web Bush. Dan. Let's
Speaker 1: talk test of here, Ellen moving. I guess the headquarters
Speaker 1: to Austin, Texas, joining a long list of companies moving
Speaker 1: to Texas and Florida and thin things like that. Should
Speaker 1: I care about that or should I just focus on
Speaker 1: when that plant in Austin is gonna be built, When
Speaker 1: the plant in Berlin is gonna be ready to go
Speaker 1: to crank out some more cars. What's important thing here? Yeah,
Speaker 1: it's a great question. I think right now it's about
Speaker 1: capacity build out for Wind is going to be keen Europe.
Speaker 1: Austin is going to be the hub and part of
Speaker 1: why they're moving the headquarters there. It's important because this
Speaker 1: is going to give them about it anywhere from five
Speaker 1: seven improvements potentially just from a margin perspective, given the
Speaker 1: robotic nature and how scalable Austin is going to be.
Speaker 1: The headquarter move obviously passes as well just lower costs
Speaker 1: of living. This is a no brainer strategic move from
Speaker 1: Musk and PASSA right move at the right time. Well,
Speaker 1: it's great to have in theory the production capacity down.
Speaker 1: But also yesterday Elon Musk was talking about some of
Speaker 1: the supply side challenges Tesla is facing. It's not just
Speaker 1: even the chip shortage, but ships, you know, all the ips.
Speaker 1: How much downside risk is there on the production side
Speaker 1: due to some of those supply chain challenges. Yeah, that's
Speaker 1: a near term headwind, of course, Tessa and and the
Speaker 1: rest of the automotive and tech supply chains you know,
Speaker 1: with but they've been able to navigate it a lot
Speaker 1: better than other automakers. I think you saw that with
Speaker 1: the three Q numbers. It's still about a forty tho
Speaker 1: unit headwind. But as began to twenty two, which starts
Speaker 1: to moderate and this green tidal wave starts to take cold,
Speaker 1: I believe Passa, you know, lead this charge here, but
Speaker 1: you're gonna see GM four another's benefit. But no doubt
Speaker 1: so why chain a near term hit? But you look
Speaker 1: through that and I think capacity we're starting to see
Speaker 1: right lights as we go in two thousand and twenty two.
Speaker 1: So as this business continues to evolved in it and
Speaker 1: we get some of the major automakers on a global
Speaker 1: scale committing obviously significant resources to this, how do you
Speaker 1: think Tesla will position itself? Is it trying to be hey,
Speaker 1: we're the best, were the first, were the best, were
Speaker 1: the most unique? Or are they gonna say we're gonna
Speaker 1: be the biggest? How do you think they're gonna position themselves. Yeah,
Speaker 1: well I have it's brand. It's a unique brand they
Speaker 1: feel globally and that's part of the cashe that Tessa
Speaker 1: was built. But ultimately come down to battery technology and
Speaker 1: the innovation coming out of Tessa. We think battery technology
Speaker 1: costs could be reduced by fifty of next two to
Speaker 1: three years. That's enable him to go after the Matches
Speaker 1: forty fifty cars and that's really where you start to
Speaker 1: keep demand significantly ramp. And that's how Tess to go
Speaker 1: to nine hundred thousand units potentially this year to what
Speaker 1: I've used two million units when we look out the
Speaker 1: next two years. Wow. Okay, So how is Tesla gonna
Speaker 1: be able to withstand competition from the likes of GM
Speaker 1: and others who are legacy automakers who have had you know,
Speaker 1: much greater scale who are getting into the e V space. Yeah,
Speaker 1: and we don't be this is a zero or some game.
Speaker 1: I think GM. There's a massive renaissance of growth happened Detroy,
Speaker 1: which just came back from the analyst day, and that's
Speaker 1: the rerating stock is they benefit and go after this
Speaker 1: green tide away. But today it's two percent of autos
Speaker 1: or evs in the US weren't good about two thou
Speaker 1: me massive beneficiary GM for Tessa and others as part
Speaker 1: of this, you know, moved to evs, which we view
Speaker 1: is the biggest transformation to the auto industreets in nineteen fifties.
Speaker 1: So I continue to view it as it's not just Tessa,
Speaker 1: but Tessa is going to be a disproportionate beneficiary, I
Speaker 1: think even as we're seeing this quarter. So, Dan, I
Speaker 1: did see your Bloomberg television uh hit from I guess
Speaker 1: yesterday or something. It looks like you're broadcasting from the
Speaker 1: back of a car story there. Yeah, that was from
Speaker 1: the GM analyst day, you know. And and specifically you
Speaker 1: know that they released some of these Hummers E d
Speaker 1: s and super cruise technology, which you know, Paul, I mean,
Speaker 1: it's really what they're coming out with is something that's special.
Speaker 1: And I think we're gonna look back and look at
Speaker 1: this is really a pivotal turnaround for GM. We have
Speaker 1: an eighty five dollar stock price, so I think this
Speaker 1: could be one that moves a lot higher from here.
Speaker 1: All right, talk to us a little bit more. Let's
Speaker 1: just broaden it out a little bit, uh Dan, Just
Speaker 1: in terms of tech here, you know, I think we've
Speaker 1: seen rotations in and out of tech, in and out
Speaker 1: of cyclicals. Um, how do you think about your space?
Speaker 1: I mean you follow the tech space across the board.
Speaker 1: What's your call here? As you talk to maybe some
Speaker 1: of your clients and you're saying, you know, in a
Speaker 1: rising interest rate environment, I might not want to be
Speaker 1: as overweight technical about go buy some more energy your banks.
Speaker 1: How do you kind of respond to that? Yeah? I mean, look,
Speaker 1: a lot of handholding the last few weeks, but ultimately
Speaker 1: a ten twenty bit move in the tenure doesn't change
Speaker 1: our decades long pool thesis in tech, which we expected
Speaker 1: own well in two thousand twenty two. It's it's a
Speaker 1: basically fourth in Dushia revolution playing out in terms of
Speaker 1: the digital transformation to trillion of spending. We want to
Speaker 1: continue to play names like Apple on five G, Microsoft, Uncloud,
Speaker 1: cyber security, which we kind of view as a golden age,
Speaker 1: names like cyber r G, Scour and others. So to us,
Speaker 1: it's a green light to own tech despite some of
Speaker 1: the white knuckles. We have a sixteen thousand target for
Speaker 1: Nadzach year end and I think this is one week
Speaker 1: to a timber send move into year end, especially on
Speaker 1: three to earnings that we expect to be Well, let's
Speaker 1: talk about those earnings stand because it seems every single
Speaker 1: quarter when we come in, expectations are impossibly high for
Speaker 1: some of these big tech names, and often they are
Speaker 1: actually able to exceed them, but you don't necessarily see
Speaker 1: the share reward because valuations are so rich are already
Speaker 1: so why would earnings be a catalyst this time around? Yeah,
Speaker 1: it's a great point. I think ultimately the street has
Speaker 1: has sold really closed earnings. I think this is gonna
Speaker 1: be a little different because as we go not just
Speaker 1: some three que but into qute four and the streets
Speaker 1: massively underestimating the growth stories that we're seeing across pack
Speaker 1: and as much as we could talk about ratings potentially
Speaker 1: being compressed because of what's happened the tenure, I think
Speaker 1: streets underestimating growth across tax by anywhere from ten over
Speaker 1: the next year. And that's why I view this as
Speaker 1: a seminal earning season to really you know, turn the
Speaker 1: tide there from a sentiment perspective, can they do that?
Speaker 1: I mean, you know, in terms of we were just
Speaker 1: talking a little bit earlier, Kayley asked about that supply chain.
Speaker 1: I'm I'm just an observer who thinks that that's gonna
Speaker 1: be a bigger issue this earning season than I think.
Speaker 1: Maybe the market's discounting. In one of the areas where
Speaker 1: it may be more pronounced, is technology. Do you think
Speaker 1: the streets taking in for your tech names, you know,
Speaker 1: kind of what we're seeing across the bord in terms
Speaker 1: of supply chain issues. Yeah, I think the street as
Speaker 1: to something say, it's almost overly discounted for the supply chain.
Speaker 1: I mean, we're starting to see throughout our Asia check
Speaker 1: that's actually moderating going into early next year. So we're
Speaker 1: going to continue out of that head wind. This quarter,
Speaker 1: streets took and past that, and that's the important thing.
Speaker 1: You'll have those headwinds, but as you look into two
Speaker 1: thousand twenty two, it starts to moderate and it's gonna
Speaker 1: be a massive lift in terms of seeing in terms
Speaker 1: of overall growth for tech. That's why I view this
Speaker 1: is not time to throw in the white towel, but
Speaker 1: actually double down. Chech so Dan to these supply chain issues.
Speaker 1: I had a little bit of an episode about a
Speaker 1: month and a half ago, I was on the TV
Speaker 1: set and I was trying to put my Apple Watch
Speaker 1: back on, and I dropped it on its face and
Speaker 1: it just totally shattered to the point where you could
Speaker 1: see the chips inside. And everybody said, wait, wait, wait
Speaker 1: for the new one to come out if you're going
Speaker 1: to buy a new one, But I had no faith
Speaker 1: I would get one on my wrist in the near terment.
Speaker 1: I'm glad I just bought a replacement that day because Apple,
Speaker 1: you know, those watches, even though the event was last month,
Speaker 1: aren't coming out until a week from now. As Apple
Speaker 1: moves forward, how do they need to diversify their supply
Speaker 1: chain so they don't risk those kind of delays again? Yeah,
Speaker 1: I mean they're really married to the as of supply
Speaker 1: chain and that's not really going to change. To some extent.
Speaker 1: They'll diverse ty a bit in terms of more factories.
Speaker 1: But but right now, Apples handled the supply chain and
Speaker 1: a lot better than anyone that had anticipated. And you'll
Speaker 1: continue to have some delays in some products. When we
Speaker 1: look at this as on third team and what we're seeing,
Speaker 1: I mean, this continues to really be smoothed, you know,
Speaker 1: smooth sound. You have some shortages into year end and
Speaker 1: especially on Apple Watch and some other areas like Mac,
Speaker 1: but overallpartsmen a lot worse than the bite because Cook
Speaker 1: and Cupertino continue to to navigate this and almost have
Speaker 1: pap On like ability, unlike litther competitors. Dan Less question
Speaker 1: here on Apple um services, is that still a good
Speaker 1: growth driver for this name? Oh? I think it's massive,
Speaker 1: I mean services A big part of the reading that
Speaker 1: we've seen. If I go back, I mean to in
Speaker 1: the street was assigning today it's we think it's worth
Speaker 1: one point five trillions, and despite epic and some of
Speaker 1: the regulatory worries, I think that's something that continues to
Speaker 1: be mid teen growth. I think that's another upside supplies
Speaker 1: this quarter. It's a big part of the reading in
Speaker 1: the stock and how we get to a three trillion
Speaker 1: dollar valuation going into two thousand twenty two. Hey, Dan,
Speaker 1: thanks so much for joining us. We always love chatting
Speaker 1: with you because we can go many different directions. Lots
Speaker 1: of great names you cover, The stories are working, certainly,
Speaker 1: we always appreciate getting your perspective. Dan Ives, Managing Director
Speaker 1: Equity Research for web Bush Securities, work Bill SMEE, Chief
Speaker 1: Investment Officer, smeet to Capital Management, Phil, thanks so much
Speaker 1: for joining us here again. We got a jobs number
Speaker 1: today disappointing. Um, yet we still have and combined with
Speaker 1: that as a lot of inflation out there that some
Speaker 1: folks are concerned that it may not be the transitory type.
Speaker 1: And one of the areas is right out there and energy.
Speaker 1: So Bill gives the thoughts on the energy space. Where
Speaker 1: are you guys there where do you think they're opportunities
Speaker 1: or has it already been priced in? Well, thanks for
Speaker 1: having us, and it is not even vaguely close to
Speaker 1: being priced in. Uh, you've got uh teacup of market
Speaker 1: capitalization in the energy sector and oil specifically oil and gas.
Speaker 1: Uh three of the S and P. So you're gonna
Speaker 1: have a three percent position in the SMP be far
Speaker 1: and away the best performing sector. Because energy is just
Speaker 1: as important as it was five years ago and ten
Speaker 1: years ago. And like Warren Buffett likes to say, the
Speaker 1: people that think that will make a fast transition away
Speaker 1: from carbon fuels and the people that think will never
Speaker 1: transition are both crazy. So so the thing to understand
Speaker 1: is whether it's making a electricity out of natural gas
Speaker 1: and and combustion or whether it's moving cars around. You
Speaker 1: just have way more demand coming from a huge pop
Speaker 1: positive demographic population shift, right, all of a sudden, ninety
Speaker 1: million millennials want to own a home. They're buying in
Speaker 1: the suburbs, both have to have a car, you know.
Speaker 1: Just a whole bunch of things are going on at
Speaker 1: the same time. And and and the Arab Spring torpedoed
Speaker 1: oil and gas production in the United States of America,
Speaker 1: and the body politic is trying to shame the industry
Speaker 1: into avoid drilling and expanding that supply. Hence, Yeah, so, Bill,
Speaker 1: given all of those kind of idiosyncratic to energy kind
Speaker 1: of factors, do you have to treat energy differently than
Speaker 1: you would treat the basket of value, cyclical, reflationary stocks,
Speaker 1: whatever you want to call them. Well, yeah, they're they're
Speaker 1: kind of in their own world now. Because we'll just
Speaker 1: give you one example. Our largest position is Continental Resources.
Speaker 1: Continental Resources in two thousand and eighteen, when oil was
Speaker 1: seventy dollars a better peeked out at a price of
Speaker 1: sixty eight dollars a year. Price oil is eight right now,
Speaker 1: and we don't even know where it's going to go
Speaker 1: and the stocks trading at fifty two. So we believe
Speaker 1: that that spread or our margin of safety is the
Speaker 1: fact that so many people have flooded out of any
Speaker 1: participation in oil and gas, for example, on an E
Speaker 1: S G basis, that that there is a margin of
Speaker 1: safety there, that that it's the kind of thing that
Speaker 1: Peter Lynch loved. He liked to own a stock that
Speaker 1: went way up and nobody loved it after it went
Speaker 1: way up. Bill just probably speaking here, you know, starting
Speaker 1: you know, more than a year ago, we had this
Speaker 1: nice rotation into the cyclical names of this market, including energy,
Speaker 1: including banks, um and and that's worked so well for
Speaker 1: so long, and there's been fits and starts, and that
Speaker 1: is you know, um, there's been bouts of rotating back
Speaker 1: into growth. But in a rising interest rate environment, how
Speaker 1: do you feel about that trade? Well? It I always
Speaker 1: remind people that after a terrible bear market, and there
Speaker 1: was a terrible bear market in value investing for about
Speaker 1: seven years, when a when a a deep bear market ends,
Speaker 1: the first year, you get an explosion, you know. So
Speaker 1: the bottom of the stock market eighty two, the first
Speaker 1: year was a huge move up the bottom of the
Speaker 1: stock market No. Nine was a huge move up the
Speaker 1: first year, and then you settle into a light correction
Speaker 1: and bull moves for another seven or eight years. So
Speaker 1: so again we're in the very early stages of stop
Speaker 1: and think about there. There's so many investors out there
Speaker 1: that are momentum investors, and the place to find momentum
Speaker 1: at the moment is a place that it's almost impossible
Speaker 1: for them to get into because it's not that big, right,
Speaker 1: it's three per cent of the S and P and
Speaker 1: what they do own the big tech stuff, the things
Speaker 1: and all that is like all added together is like
Speaker 1: the S and P. So you could you could see
Speaker 1: a fire hose trying to put water in a teacup
Speaker 1: for a while. I want to ask you about the
Speaker 1: home builders as well. You were talking about all the
Speaker 1: millennials going out there looking to get some more space,
Speaker 1: moving out to the suburbs, buying a house, something I
Speaker 1: am unfortunately not in a position to do at the moment.
Speaker 1: But how do you play that from an equity perspective? Boy,
Speaker 1: they have discounted those stocks as if they're the same
Speaker 1: cyclical companies that got caught in the oh five oh
Speaker 1: six stupidity. They used to be land developers that put
Speaker 1: houses on the land to get them sold, right, that
Speaker 1: used to be their business. And secondly, it used to
Speaker 1: be a fragmented industry where where, for example, the largest
Speaker 1: home builder d R Hurt and they built one percent
Speaker 1: of the homes in the United States and this year
Speaker 1: they'll build nine and that's just one of the top
Speaker 1: ten public traded home builders. So it used to be fragmented.
Speaker 1: And what you're going to see happen here, we're talking
Speaker 1: about stocks trading at seven times earnings that have a
Speaker 1: ten to fifteen ten year growth possibility. That's pretty easy
Speaker 1: to do in that there's ninety million millennials and there
Speaker 1: was only sixty five million Gen xers. So they satisfy
Speaker 1: an economic need, which is one of our eight criteria.
Speaker 1: They will build the single family residences that are needed
Speaker 1: to meet what the population wants. And then, of course,
Speaker 1: my age group, the baby boomers, the older boomers are
Speaker 1: staying in their house and are going to stay in
Speaker 1: their house way longer than prior generations. A because they're
Speaker 1: healthier other than COVID than prior generations, and b because
Speaker 1: obviously it's not quite as exciting to move into a
Speaker 1: communal set up in a post COVID world. All right, Bill,
Speaker 1: thanks so much for joining us. We always love getting
Speaker 1: your perspective, the perspective of a veteran value investor, certainly
Speaker 1: having some good opportunities right here and good performance. More
Speaker 1: to the point of value folk are Bill Smeed, chief
Speaker 1: investment officer. Smeed a Capital Management. He's been a value
Speaker 1: investor for decades, calling out now some of the energy
Speaker 1: stocks as well as the bank stocks that are working
Speaker 1: for him. We'll have more coming up. This is Bloomberg,
Speaker 1: Good morning. I want to bring in Omar Aglar. He
Speaker 1: is the chief investment officer and head of investments for
Speaker 1: Charles Schwab Asset Management. They've got a new study as fascinating.
Speaker 1: They look at how UH you know, kind of behavioral
Speaker 1: science and how that views or how that skews or
Speaker 1: impacts UH investing. So let's bring in Omar. Interesting study here.
Speaker 1: Omar talk to us about your Bee Fi barometer. What
Speaker 1: is that survey and what are you looking for? What
Speaker 1: are you asking? Yes, thank you on good morning, um
Speaker 1: I we have this is the third year we conduct
Speaker 1: these UH research and he has been incredibly helpful for
Speaker 1: us in serving our clients as we partner with the
Speaker 1: wi ands as really to get this survey out to
Speaker 1: advisors to understand, you know, what are the behavioral tendencies
Speaker 1: that they see on their clients as they see information.
Speaker 1: And what's interesting obviously about this year is that now
Speaker 1: we have data of the pre pandemic behavioral biases that
Speaker 1: client observed during the pandemic of last year, and now
Speaker 1: in this process of obviously trying to get out of
Speaker 1: the pandemic um, the research shows that, you know, there
Speaker 1: are two areas where advisors and clients continue to observe
Speaker 1: natural behavioral biases, which is, you know, one is called
Speaker 1: recency bias, which is the tendency of people to just
Speaker 1: look at the most recent information for making decisions. And
Speaker 1: the other one is confirmation bias and confirmation biases that
Speaker 1: where you try to find information that confirms your own views.
Speaker 1: And that is obviously very typical, especially because the news
Speaker 1: flows continues to be incredibly fluid and it's and it's changing,
Speaker 1: it changed into what the information that the investors and
Speaker 1: clients wanted to see in and even you know, with
Speaker 1: today's you know, labor market report, you know, people are
Speaker 1: just trying to see how they can process that information.
Speaker 1: So these study is very helpful, you know, understanding how
Speaker 1: clients make decisions, and we clearly, um, you know, have
Speaker 1: you know, learn a lot from it. Yeah, you know,
Speaker 1: Paul I had the pleasure of speaking with Omar at
Speaker 1: the Bloomberg invest Global Conference earlier this week, and we
Speaker 1: focused a lot on the retail traders. So Omar, I'm wondering,
Speaker 1: you know, you and I had a conversation about retail traders.
Speaker 1: How the meme stock mania seems to be over, but
Speaker 1: it was still a thing where people were getting their
Speaker 1: investment ideas from breddit, in from social media. How are
Speaker 1: do those kind of fads and kind of that fomo
Speaker 1: aspect play in here? What do you see in the survey?
Speaker 1: It's uh, it is an interesting uh, you know results.
Speaker 1: We we for the first time this year, we added
Speaker 1: a few questions related to precisely social media and the
Speaker 1: impact of social media and investment decision process. And what
Speaker 1: we what we observe is you know, two things. One
Speaker 1: is you're You're totally right, as we discuss Kelly, there
Speaker 1: is a lot of new investors coming into the markets
Speaker 1: as a result of these you know, fomo setting and
Speaker 1: these you know, fear of missing out the access and
Speaker 1: the ability to get into the different programs and different providers.
Speaker 1: It is now easier than it was you know, even
Speaker 1: a couple of years ago. So that process, you know,
Speaker 1: it is actually helpful. Is we do welcome you know,
Speaker 1: more participants in the market. That's very good. And what
Speaker 1: the study of these B five parameters show does is
Speaker 1: that advisors are doing a great job in working with
Speaker 1: their clients to understand whether those um investments are actually
Speaker 1: good for them. Whether it's a meme stocks, whether it's
Speaker 1: it's back, whether it's an n f T, even digital currencies.
Speaker 1: You know, advisors are working with their clients to understand
Speaker 1: whether that's a suitable component. And getting that level of
Speaker 1: education and advice is probably what we learned the most
Speaker 1: about these B five barometer you know, it's it's good
Speaker 1: for people to be invested in the market. We continue
Speaker 1: to see interest in this and I don't think, Kyley,
Speaker 1: this is gonna you know disappear. You know, there will
Speaker 1: be you know, always, you know, another story that people
Speaker 1: will get interested in. So more, is there a general
Speaker 1: consensus from your data about how maybe you know, investor
Speaker 1: behavior has changed and pre impost pandemic. Not that we're
Speaker 1: necessary fully out of this pandemic, but we can see
Speaker 1: certainly let it in the tunnel. But in terms of
Speaker 1: risk taking, our people more or less risk tolerant, well,
Speaker 1: it's it has changed, you know, quite significantly, and it's
Speaker 1: it's almost like, you know, perfect textbook example of how
Speaker 1: this works. Because in the world of behavioral finance, you know,
Speaker 1: biases get divided into what it's called emotional reaction and
Speaker 1: what it's called cognitive. You know, biases cognitive being a
Speaker 1: little more rational when you're trying to convince yourself about
Speaker 1: the decisions you're about to make. An emotional would tends
Speaker 1: to be more you know, when you overreact or react
Speaker 1: without necessarily given it to two more thoughts. It's interesting
Speaker 1: to see because you know, during as you might expect,
Speaker 1: the majority of the biases ended up being you know,
Speaker 1: heavily emotional, with with loss of version being you know,
Speaker 1: one of the main drivers for a lot of decisions
Speaker 1: that we saw and again combined with recency biases and
Speaker 1: said because people use information on the most recent data
Speaker 1: to try to make decisions, but it was clearly dominated
Speaker 1: by by the loss of version and protection and uncertainty.
Speaker 1: As we became you know, we got the vaccines out,
Speaker 1: we started the rotation in the market. We started to
Speaker 1: just see this big economic recovery. Then the cognitive biases
Speaker 1: and started to turn on, and those were tend to
Speaker 1: be more of overconfidence. They tend to be more about
Speaker 1: trying to understand, you know, how can they get their
Speaker 1: understanding that the fedue will be there, the central banks
Speaker 1: will be there, the stimulus will be there, so they
Speaker 1: those we became more prevalent overall, and now we're in
Speaker 1: this you know, world of warrior as we say, where
Speaker 1: you know, we're starting to see these balance our early
Speaker 1: fascinating discussion there Omar Agular, chief investment Officer, head of
Speaker 1: investments for Charles swab Asset Management. Looking at the you
Speaker 1: sees um that investors have um you know, across the
Speaker 1: board and you know, folks presumably were impacted clearly by
Speaker 1: the pandemic. And we had a lot of those retail
Speaker 1: investors as you were mentioning, Kaylee came into the market.
Speaker 1: We saw that early on in the pandemic, people were
Speaker 1: looking for something to do, uh, and they were trading
Speaker 1: memestocks and we saw some crazy trading patterns. There's just phenomenal.
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller three. On False Sweeney, I'm on Twitter
Speaker 1: at pt Sweeney Before the podcast. You can always catch
Speaker 1: us worldwide at Bloomberg Radio