WEBVTT - TSMC Earnings and Blackstone's Dealmaking Slump

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<v Speaker 1>Good morning. I'm Brian Curtiz. Here are the stories we're

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<v Speaker 1>following today. The FTC is poised to pause its Microsoft

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<v Speaker 1>Activision Blizzard merger trial and that will open the door

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<v Speaker 1>to settlement talks. More from Bloomberg's Denise Pellegreeney.

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<v Speaker 2>This is seen as a huge win for Microsoft in

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<v Speaker 2>Activision as they seek to close the largest ever gaming

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<v Speaker 2>deal in the US, and sources also tell us the

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<v Speaker 2>FTC really had to back down and withdraw its internal

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<v Speaker 2>case because under its own rules, it's expected to do

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<v Speaker 2>so after losing a last ditch fight in federal court

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<v Speaker 2>to keep the sixty nine billion dollar merger from taking place.

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<v Speaker 2>At what's next for the two companies, Watch for Microsoft

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<v Speaker 2>and Activision to try to persuade FTC's commissioners to accept

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<v Speaker 2>a settlement or drop their antitrust opposition to the deal altogether.

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<v Speaker 2>Denise Pellegriney, Blueberg Day Breakay Show.

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<v Speaker 1>In terms of the stocks, Activision Blizzard was flat today.

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<v Speaker 1>Microsoft was caught up in the selling in big tech.

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<v Speaker 1>It traded down two point three percent. Well Blackstone has

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<v Speaker 1>become the first private equity firm to manage one trillion dollars. However,

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<v Speaker 1>the accomplishment is tempered somewhat by a deal making slump

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<v Speaker 1>that weighed on second quarter results. Distributable earnings tumbled thirty

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<v Speaker 1>nine percent to one point two billion dollars, the lowest

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<v Speaker 1>in two years. Blackstone slowed the pace of new deals

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<v Speaker 1>as more buyers and sellers struggled to agree on valuations

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<v Speaker 1>for private assets. Here's Blackstone COO Jonathan Gray.

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<v Speaker 3>This year, you had a lot of concern about where

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<v Speaker 3>inflation was going, a lot of concern about how far

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<v Speaker 3>the Fed would go. You had the banking crisis in March,

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<v Speaker 3>and naturally you see a slow down in deal activity.

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<v Speaker 3>I think the good news is the.

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<v Speaker 4>Tone has improved as we've worked through this quarter. The

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<v Speaker 4>deal market feels like it's unfreezing a bit, so I

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<v Speaker 4>think as people feel better about the overall picture a

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<v Speaker 4>little more certainty, I think we'll see deal volume pickup

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<v Speaker 4>as we move forward.

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<v Speaker 1>Blackstone's Jonathan Gray. Private equity firms that grew rapidly during

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<v Speaker 1>the deal feelmaking boom now face more scrutiny from investors

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<v Speaker 1>on how they will weather higher interest rates. Still, Gray

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<v Speaker 1>says that markets are beginning to recognize that inflation is

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<v Speaker 1>under control. As the fed works to cool the economy

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<v Speaker 1>and bring down inflation. Some leading artificial intelligence companies are

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<v Speaker 1>now expecting to commit to implementing safeguards for the technology.

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<v Speaker 1>We get that story from Bloomberg's Tom Busby.

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<v Speaker 5>Open Ai, the maker of Chat, GPT, Microsoft, and Alphabet's

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<v Speaker 5>Google Unit all expected to voluntarily commit to White House

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<v Speaker 5>demands on Friday, pledging to responsibly develop and deploy artificial

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<v Speaker 5>intelligence capabilities after the Biden administration warn those companies that

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<v Speaker 5>they have to ensure the technology does not lead to

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<v Speaker 5>any harm. But the company's commitments will expire when Congress

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<v Speaker 5>has expected passes legislation addressing those safety issues over AI.

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<v Speaker 5>According to a draft of the White House document tom

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<v Speaker 5>Busby Bloomberg Daybreak Asia, the.

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<v Speaker 1>US Senate has adopted in an end mean that blocks

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<v Speaker 1>China from purchasing oil from American emergency stockpiles. The measure

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<v Speaker 1>was added to the must pass National Defense Authorization Act.

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<v Speaker 1>It's sponsored by Senators Joe Manchin and Ted Cruz. The

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<v Speaker 1>legislation is similar to a bill that passed in the

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<v Speaker 1>House back in January. It would prohibit the sale of

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<v Speaker 1>US oil from the SPR to any company under the

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<v Speaker 1>control of the Chinese Communist Party Senator Manchin said this

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<v Speaker 1>Senate version also borrows the sale of oil to Russia,

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<v Speaker 1>to North Korea and Iran. The US Senate is hoping

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<v Speaker 1>to finish the bill before the August recess. Taiwan's Semiconductor

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<v Speaker 1>has cut its annual revenue outlook and has delayed the

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<v Speaker 1>start of its Arizona plant until twenty twenty five. That

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<v Speaker 1>story from Bloomberg's Joan Wong, the.

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<v Speaker 6>Surprise cut and revenue for this year sends a warning

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<v Speaker 6>to investors suggests that despite the boom and ai the

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<v Speaker 6>global electronic slum may persist for some time. Add to

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<v Speaker 6>that the delay of the plant Arizona project that will

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<v Speaker 6>be worrisome for Washington as it tries to establish a

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<v Speaker 6>more robust chip industry at home. TSMC chairman Mark leeus

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<v Speaker 6>that the company faces several challenges at the US facility

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<v Speaker 6>that includes a shortage of skilled workers and higher expenses

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<v Speaker 6>than in Taiwan. This still comes on the heels of

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<v Speaker 6>TSMC's financial results. The chipmaker now projects a ten percent

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<v Speaker 6>fall in sales this year, versus previous guidance for a

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<v Speaker 6>single digit decline In Hong Kong, join Wong Loomberg, DA Bragasia, a.

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<v Speaker 1>Few other stories to keep in mind. Will get the

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<v Speaker 1>Japan CPI numbers out this morning. That will be of

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<v Speaker 1>interest for sure. The headline at three point two percent,

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<v Speaker 1>that's the estimate for core. If you strip out energy

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<v Speaker 1>and also food, that's expected to be as hot as

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<v Speaker 1>four point two percent. And we'll be taking a closer

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<v Speaker 1>look at Taiwan Semi as well. Now it's time for

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<v Speaker 1>global news. Russia has intensified its attacks on Ukrainian ports

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<v Speaker 1>and has threatened ships headed there with attack at Baxter

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<v Speaker 1>has Global News from the nine to sixty newsroom in

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<v Speaker 1>San Francisco.

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<v Speaker 7>Ed, Yeah, this a slowly building escalation for sure. Brian

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<v Speaker 7>third straight day Moscow exit of the grain deal you

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<v Speaker 7>know three days ago, began reimposing a blockade. UN Secretary

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<v Speaker 7>General Antonio Gutera says the attacks have implications that go

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<v Speaker 7>far beyond Ukraine.

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<v Speaker 8>Hundreds of millions of people face hunger and consumers are

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<v Speaker 8>confronting a global cost of living crises, and they will

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<v Speaker 8>pay the price.

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<v Speaker 7>As well as food supplied diplomatic relations. Russian bombing has

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<v Speaker 7>also damaged the Chinese consulate in Odessa. Russia's also warned

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<v Speaker 7>ships headed to Ukrainian ports that they would be considered

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<v Speaker 7>to be carrying munitions and in danger, and in response,

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<v Speaker 7>Ukraine has said that it would consider ships headed to

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<v Speaker 7>Russian ports to be carrying munitions and be in danger. Meanwhile,

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<v Speaker 7>the US says Ukraine has has begun deploying US supplied

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<v Speaker 7>cluster bombs. White House Deputy spokes from When Sabrina Singh

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<v Speaker 7>says that Ukraine is.

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<v Speaker 6>Committed to use it responsibly, to keep track and record

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<v Speaker 6>where they are using it so when this war is over,

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<v Speaker 6>they can begin those demining efforts definite escalation.

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<v Speaker 7>Though within the past few days, US President Joe Biden

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<v Speaker 7>has ordered a working group on how to avoid the

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<v Speaker 7>last minute game of chicken over the national debt. Bloombergs

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<v Speaker 7>Jonathan Tamara says pressure from the left.

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<v Speaker 8>This is something that a lot of more progressive Democrats

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<v Speaker 8>had really urged him to do, in something that he

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<v Speaker 8>rejected ahead of the most recent that limits standoff, where

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<v Speaker 8>they said, listen, we should just get rid of this thing.

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<v Speaker 8>Republicans keep holding democratic president's hostage over it, and it's

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<v Speaker 8>threatening the credit of the United States. Whenever we get

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<v Speaker 8>run into these logjams.

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<v Speaker 7>Whether or not it could withstand legal challenges is another question.

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<v Speaker 7>China has ordered its largest cities to step up preparations

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<v Speaker 7>for future medical emergencies by building leisure and recreational facilities

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<v Speaker 7>that can be used for quarantine during a pandemic. It

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<v Speaker 7>wants to handle things a bit differently than during COVID.

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<v Speaker 7>After praising former US Secretary of State Henry Kissinger the

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<v Speaker 7>day before, Chinese President Chi Chimping has held a meet

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<v Speaker 7>with him, now the first known in the Chinese capital

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<v Speaker 7>in more than three years. Kristin Hahn Democratic strategists on

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<v Speaker 7>Balance of Power.

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<v Speaker 9>That there are different ways that we communicate with foreign governments,

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<v Speaker 9>particularly one that's as difficult, as complicated as our relationship

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<v Speaker 9>is with China, and you know that could be something

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<v Speaker 9>that's happening right now.

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<v Speaker 7>She told Kissinger that China is ready to discuss the

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<v Speaker 7>correct way for nations to talk. And let's play jeopardy.

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<v Speaker 7>The answer is one point zero eight billion dollars. The

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<v Speaker 7>question what is the lottery ticket sold in southern California?

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<v Speaker 7>You're going to pay out that.

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<v Speaker 3>Lucky player unknown to us to date, one point zero

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<v Speaker 3>eight billion dollars.

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<v Speaker 7>Carolyn Becker the lottery says the cash value is over

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<v Speaker 7>five hundred and sixteen million before taxes. She says the

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<v Speaker 7>lucky winner will have a lot of new friends. He

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<v Speaker 7>she they have not come forward. Global News powered by

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<v Speaker 7>more than twenty seven hundred journalists and analysts over one

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<v Speaker 7>hundred and twenty countries in San Francisco. I'm Ed Baxter in.

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<v Speaker 1>This is Bloomberg him, Brian Curtis. Let's get to our guest,

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<v Speaker 1>Matt Lloyd, chief investment strategist at Advisors Asset Management. Matt,

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<v Speaker 1>the dial up nine days in a row and the

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<v Speaker 1>laggards kind of having their day. I know you're a

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<v Speaker 1>value guys, so this must be music to your ears.

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<v Speaker 1>Does it continue?

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<v Speaker 10>Yeah? I thanks Brian, It's great to be with you.

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<v Speaker 10>We think so. I think that the shift has been

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<v Speaker 10>in place. But when anytime you have a regime change,

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<v Speaker 10>a shift from growth to value, or any international move,

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<v Speaker 10>it doesn't go easy into that good night either. It

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<v Speaker 10>doesn't go softly. It fights and it battles back and

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<v Speaker 10>it usually these patterns take times and years to really materialize.

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<v Speaker 10>So we still think it's great. I mean, with a

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<v Speaker 10>lot of the risk that's out there, the pricing of

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<v Speaker 10>the equities in the growth sector really almost perfection to

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<v Speaker 10>next year's earnings. We see a little bit better risk

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<v Speaker 10>reward in value, and value doesn't just necessarily mean here

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<v Speaker 10>in the US matching up with certain you know, basic

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<v Speaker 10>historical price book, price sales, cash blok, but also international,

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<v Speaker 10>because international is a very big value play.

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<v Speaker 1>It's funny that you say that, because I had in

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<v Speaker 1>my notes of something to put to guests this notion

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<v Speaker 1>that the US has all these big companies, important companies

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<v Speaker 1>in AI, cybersecurity, cloud software, you know, mega tech, more

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<v Speaker 1>so than other countries. And if these companies now have

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<v Speaker 1>to take a pause because they've run pretty hard, pretty fast,

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<v Speaker 1>that there might be good opportunities in Europe and in

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<v Speaker 1>other areas like Japan to sort of play ketchup as

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<v Speaker 1>those laggers rally laggers rally. So you mentioned that you're

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<v Speaker 1>looking at some of these other markets. What would be

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<v Speaker 1>chief among them?

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<v Speaker 10>Well, I think if you look at even with the

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<v Speaker 10>big run up in Japan, you look at Japan as

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<v Speaker 10>you know, really about sixteen percent from its all time

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<v Speaker 10>highs cording the MSCI Japan Index. You know again that

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<v Speaker 10>was set in nineteen eighty nine. For those of US

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<v Speaker 10>that can remember trials and tribulations of Japan to now.

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<v Speaker 10>This is a long time coming, which is why you

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<v Speaker 10>can see the Bank of Japan is really trying to

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<v Speaker 10>keep that yield curve control because they like a little

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<v Speaker 10>bit of the inflation. Maybe not to the degree they're

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<v Speaker 10>talking with the three to four percent on the core rate,

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<v Speaker 10>three percent on the regular, but they still feel very

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<v Speaker 10>vibrant right now. But you look at every metric in

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<v Speaker 10>their index, it's really a price. It's a value, price

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<v Speaker 10>to book, price to sales, cashblow generation, steadiness and earnings.

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<v Speaker 10>And even in Europe you're seeing the same thing, some

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<v Speaker 10>earnings revisions, but it's broad based because the MSCI World

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<v Speaker 10>Index is really done fairly well here recently. So we

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<v Speaker 10>continue to see when we see pressures on the dollar

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<v Speaker 10>up and down and so forth, some of the steadiness

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<v Speaker 10>in earnings projections look a little bit better international and

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<v Speaker 10>we continue to see a break in the dollar, which

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<v Speaker 10>should bode well for many emerging markets. China is probably

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<v Speaker 10>the only one right now with the GDP to play

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<v Speaker 10>a coming out that's pretty problematic for them because the

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<v Speaker 10>consumption level hasn't really taken off for them in general.

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<v Speaker 10>When we look at a very balanced portfolio. The values

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<v Speaker 10>really in the international play in select sectors in national,

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<v Speaker 10>and then the growth sectors really are dominated here in

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<v Speaker 10>the US outside of certain individual companies. So just by

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<v Speaker 10>that mere fact of having diversification between growth and value,

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<v Speaker 10>you're going to probably be steering more international. Yeah.

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<v Speaker 1>Well, the diversification is key because we don't know actually

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<v Speaker 1>if growth is going to correct here. I mean, you

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<v Speaker 1>can have a couple of bad days for sure, but

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<v Speaker 1>you still have the S and P five hundred well

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<v Speaker 1>above the fifty day moving average. I think five to

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<v Speaker 1>six percent above it's fifty day moving average, which is

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<v Speaker 1>a little hot, but there's some room to slide back,

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<v Speaker 1>which would be completely normal and could mean that you know,

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<v Speaker 1>you continue to see the same type of behavior that

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<v Speaker 1>we saw in the first half. Are you thinking about that.

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<v Speaker 10>Yeah, we are. We look a little bit more a

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<v Speaker 10>longer term and strategic We look at the risk reward

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<v Speaker 10>and since we cover a lot of different asset classes

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<v Speaker 10>and debt classes, we are always looking at that risk

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<v Speaker 10>reward scenario. And the only problem is the AI is

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<v Speaker 10>reminds me of the Internet back in the late nineties.

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<v Speaker 10>You know, it's a great promise, great hope, but it's

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<v Speaker 10>going to take some time to materialize and incorporate, to

0:12:09.000 --> 0:12:11.600
<v Speaker 10>regulate and so forth. So I think it's a lot

0:12:11.640 --> 0:12:14.040
<v Speaker 10>of fever on that, but it also probably has to

0:12:14.040 --> 0:12:15.880
<v Speaker 10>do with the run up in the technology. And two

0:12:15.920 --> 0:12:19.960
<v Speaker 10>things everyone's anticipated the pause by the Federal Reserve, which

0:12:20.000 --> 0:12:22.280
<v Speaker 10>we think is a little bit premature because inflation is

0:12:22.280 --> 0:12:23.880
<v Speaker 10>probably going to be a little bit higher in the

0:12:23.960 --> 0:12:26.480
<v Speaker 10>second half than the low print that we just got.

0:12:26.880 --> 0:12:29.320
<v Speaker 10>And then secondly, there's been so much cash on the

0:12:29.400 --> 0:12:32.920
<v Speaker 10>sidelines that the FOMO investors have kind of come back

0:12:32.920 --> 0:12:34.920
<v Speaker 10>into it, you know, and we get that sense where

0:12:34.920 --> 0:12:36.520
<v Speaker 10>people are like, I'm not going to miss the boat.

0:12:36.920 --> 0:12:39.080
<v Speaker 10>But if you go back in time in history, every

0:12:39.080 --> 0:12:42.199
<v Speaker 10>time the Fed is paused, you've seen a market rally

0:12:42.640 --> 0:12:45.080
<v Speaker 10>until they actually cut, and if they cut, it's usually

0:12:45.120 --> 0:12:48.240
<v Speaker 10>for one reason, and that's usually a recession or demand destruction.

0:12:48.880 --> 0:12:50.839
<v Speaker 10>And that is why you start to look at these

0:12:50.880 --> 0:12:54.360
<v Speaker 10>little blurbs. And this is a much more exaggerated if

0:12:54.360 --> 0:12:57.080
<v Speaker 10>we'd say, bear market rally. But you know, Serge, however,

0:12:57.160 --> 0:12:59.760
<v Speaker 10>you're just pricing too much perfection. So again when we

0:12:59.760 --> 0:13:02.400
<v Speaker 10>look at it, we're not against growth, and so forth,

0:13:02.400 --> 0:13:03.839
<v Speaker 10>we just have dialed it down a little bit and

0:13:03.920 --> 0:13:06.680
<v Speaker 10>been more selective, and I think the values it gives

0:13:06.679 --> 0:13:07.960
<v Speaker 10>you a little bit more predictability.

0:13:08.800 --> 0:13:11.800
<v Speaker 1>I know you want to buy quality companies, so I

0:13:11.880 --> 0:13:13.920
<v Speaker 1>need to. I mean, I think all investors want to

0:13:13.920 --> 0:13:16.600
<v Speaker 1>buy quality companies, but I want to hear from you

0:13:17.160 --> 0:13:18.880
<v Speaker 1>how you actually define quality.

0:13:20.400 --> 0:13:24.000
<v Speaker 10>Number one is cash flow when you're looking at times

0:13:24.000 --> 0:13:26.400
<v Speaker 10>like it is now, when you look at higher interest rates,

0:13:26.600 --> 0:13:29.880
<v Speaker 10>and the best thing the corporations did was like prolong

0:13:30.000 --> 0:13:33.360
<v Speaker 10>some of their maturity profiles in anticipation of higher rates.

0:13:33.400 --> 0:13:35.720
<v Speaker 10>I know they didn't expect these kind of rates, but

0:13:35.840 --> 0:13:38.440
<v Speaker 10>in twenty six, late twenty five, twenty six, you're going

0:13:38.480 --> 0:13:41.040
<v Speaker 10>to start getting some refinancing costs a bit higher, and

0:13:41.080 --> 0:13:43.880
<v Speaker 10>that's going to really hurt a lot of the money

0:13:43.920 --> 0:13:46.960
<v Speaker 10>that we go investment into capex and so forth. So

0:13:47.040 --> 0:13:49.679
<v Speaker 10>when we look at that thing that that measure and

0:13:49.720 --> 0:13:52.480
<v Speaker 10>so forth, cash flow right now is what we're looking at,

0:13:52.520 --> 0:13:55.520
<v Speaker 10>whether that's high yield on the short run looking two

0:13:55.600 --> 0:13:58.719
<v Speaker 10>years and in or in general with companies because they

0:13:58.720 --> 0:14:01.120
<v Speaker 10>have a little bit of pricing power, we're looking at

0:14:01.160 --> 0:14:05.280
<v Speaker 10>steady margins and earning. But positive cash flow is crucial

0:14:05.360 --> 0:14:08.439
<v Speaker 10>right now for both debt and we think equity investors.

0:14:09.920 --> 0:14:12.320
<v Speaker 1>Yeah, I think costs. You know, if you look at

0:14:12.360 --> 0:14:15.920
<v Speaker 1>the strikes that we're seeing and some of the requests

0:14:16.000 --> 0:14:19.440
<v Speaker 1>from from workers, you know, the labor cost is continuing

0:14:19.480 --> 0:14:22.360
<v Speaker 1>to go up. Is not going to hit you know,

0:14:22.440 --> 0:14:26.080
<v Speaker 1>earnings in the stock prices, and is it already happening.

0:14:27.280 --> 0:14:29.760
<v Speaker 10>It already is happening. If you look at retail sales,

0:14:30.680 --> 0:14:33.480
<v Speaker 10>real retail sales are pretty much flat if you take

0:14:33.520 --> 0:14:36.360
<v Speaker 10>the inflation, the real cost of it, and really interest

0:14:36.360 --> 0:14:39.080
<v Speaker 10>seeing it on some of the consumer sentiment numbers, the

0:14:39.160 --> 0:14:42.200
<v Speaker 10>access to credit to you know, basically pay up for

0:14:42.280 --> 0:14:46.560
<v Speaker 10>certain things. Now it's very biprocated. You see forty fifty

0:14:46.560 --> 0:14:49.760
<v Speaker 10>percent really struggling, and then you're seeing discretionary income still

0:14:49.800 --> 0:14:52.240
<v Speaker 10>high for people that have you know, had good jobs.

0:14:52.400 --> 0:14:54.840
<v Speaker 10>But even going to your point, the job market, even

0:14:54.840 --> 0:14:57.240
<v Speaker 10>the last month, you had a large chunk of the

0:14:57.240 --> 0:15:00.280
<v Speaker 10>new jobs where people getting second jobs. And so when

0:15:00.280 --> 0:15:02.120
<v Speaker 10>we look at those kinds of second jobs that's not

0:15:02.760 --> 0:15:06.040
<v Speaker 10>in the narrow equity markets, those aren't really great harbingers

0:15:06.080 --> 0:15:06.840
<v Speaker 10>for what's coming.

0:15:07.920 --> 0:15:10.800
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