1 00:00:02,960 --> 00:00:10,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,880 --> 00:00:15,040 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:15,080 --> 00:00:18,040 Speaker 1: Eastern on Apple Car playing Android Auto with the Bloomberg 4 00:00:18,120 --> 00:00:21,440 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:24,520 Speaker 1: or watch us live on YouTube. 6 00:00:25,280 --> 00:00:27,560 Speaker 2: Even with today's thirty seven percent increase and lift, the 7 00:00:27,600 --> 00:00:30,000 Speaker 2: stock still has a market cap, you know, six seven 8 00:00:30,000 --> 00:00:30,880 Speaker 2: billion dollars worth. 9 00:00:31,360 --> 00:00:32,519 Speaker 3: Uber's got you know. 10 00:00:32,600 --> 00:00:36,440 Speaker 2: Multiples of that's skyrocket and such a huge divergence. So 11 00:00:37,120 --> 00:00:39,199 Speaker 2: let's break down both of those numbers. We can do 12 00:00:39,240 --> 00:00:42,519 Speaker 2: that with men Deep Singh. He follows some of the 13 00:00:42,560 --> 00:00:45,760 Speaker 2: technical sectors of this market, follows pretty much everything in 14 00:00:45,800 --> 00:00:48,639 Speaker 2: ten Yeah, so he's a technist for Bloomberg Intelligence. 15 00:00:48,680 --> 00:00:50,040 Speaker 3: So let's start with Lyft. 16 00:00:51,320 --> 00:00:52,200 Speaker 4: I took getting fired. 17 00:00:52,280 --> 00:00:55,400 Speaker 3: I took a Lyft home last night because why because 18 00:00:55,440 --> 00:00:56,800 Speaker 3: it was cheaper than. 19 00:00:56,800 --> 00:00:58,080 Speaker 4: Uber by how much? 20 00:00:58,200 --> 00:01:02,320 Speaker 2: By like twenty Yeah, and that's typical one one or 21 00:01:02,360 --> 00:01:05,040 Speaker 2: the other not. I just arbitraged the too. Matt Miller 22 00:01:05,080 --> 00:01:07,680 Speaker 2: does not do that. I arbitraged the too. I thought 23 00:01:07,720 --> 00:01:10,520 Speaker 2: everybody did that. So anyway, what happened to Lyft with 24 00:01:10,560 --> 00:01:11,400 Speaker 2: their earnings last night? 25 00:01:11,640 --> 00:01:16,200 Speaker 5: Well, last night was bizarre because you know, you don't 26 00:01:16,280 --> 00:01:18,200 Speaker 5: often see that in press releases. 27 00:01:18,360 --> 00:01:22,800 Speaker 6: You there, but you know, at the end of the. 28 00:01:22,800 --> 00:01:27,240 Speaker 5: Day, it was I think just a mistake that happened. 29 00:01:27,240 --> 00:01:30,240 Speaker 5: It wasn't intentional in any way. And the stock move 30 00:01:30,440 --> 00:01:34,520 Speaker 5: was pronounced because of you know, the short interest and uh, 31 00:01:34,800 --> 00:01:39,600 Speaker 5: the fact that obviously people were not very optimistic going 32 00:01:39,640 --> 00:01:43,560 Speaker 5: into the print. And look, I think in the case 33 00:01:43,560 --> 00:01:47,119 Speaker 5: of Lyft, not much has changed in terms of execution. 34 00:01:47,319 --> 00:01:50,720 Speaker 5: There's still kind of a distant number two. And you 35 00:01:50,800 --> 00:01:53,600 Speaker 5: talked about taking a lift, but there are certain zip 36 00:01:53,640 --> 00:01:57,160 Speaker 5: codes where they are able to meet the ETAs that 37 00:01:57,600 --> 00:02:01,000 Speaker 5: Uber has, but in other zip codes they have no supply. 38 00:02:01,480 --> 00:02:03,480 Speaker 5: So even if you want to take a lift, there 39 00:02:03,520 --> 00:02:04,400 Speaker 5: is no availability. 40 00:02:04,640 --> 00:02:07,120 Speaker 2: But my dude last night, like most markets I go to, 41 00:02:07,440 --> 00:02:09,400 Speaker 2: he's got a n Uber sticker and he's got a 42 00:02:09,800 --> 00:02:13,960 Speaker 2: Lift sticker, and he's got both apps open and they'll 43 00:02:14,040 --> 00:02:14,680 Speaker 2: drive each other. 44 00:02:14,840 --> 00:02:17,160 Speaker 6: Yeah, there is a huge amount. 45 00:02:16,840 --> 00:02:19,480 Speaker 4: Of owner that and so literally it's apparently. 46 00:02:19,160 --> 00:02:22,079 Speaker 3: It's just here's my reading and you're the effort. It's 47 00:02:22,120 --> 00:02:27,760 Speaker 3: just Uber algorithm, Lift algorithm. They're different. They're going to 48 00:02:27,800 --> 00:02:31,880 Speaker 3: give you different prices and things like that. But but from. 49 00:02:31,760 --> 00:02:35,160 Speaker 5: A driver perspective, what Lift is doing is they are 50 00:02:35,360 --> 00:02:39,000 Speaker 5: paying out more to lower drivers. So if it was 51 00:02:39,040 --> 00:02:42,880 Speaker 5: a ten dollars ride, the driver is getting seven dollars 52 00:02:42,960 --> 00:02:46,040 Speaker 5: or eight dollars from Lift, whereas from Uber they're getting 53 00:02:46,040 --> 00:02:46,720 Speaker 5: six dollars. 54 00:02:46,840 --> 00:02:47,720 Speaker 6: It's just an example. 55 00:02:47,800 --> 00:02:50,480 Speaker 5: Yes, So that's where you know, the take rate matters 56 00:02:50,560 --> 00:02:52,800 Speaker 5: what these companies keep versus. 57 00:02:52,360 --> 00:02:55,800 Speaker 6: What the driver is getting. And that's the I think tactic. 58 00:02:55,840 --> 00:02:58,600 Speaker 5: Lift is using to really pay more to the driver 59 00:02:58,760 --> 00:02:59,880 Speaker 5: to bring on more supplies. 60 00:03:00,080 --> 00:03:02,280 Speaker 7: So then how does that then play out? So at 61 00:03:02,320 --> 00:03:05,360 Speaker 7: some point they get enough supply and then they can 62 00:03:05,560 --> 00:03:08,680 Speaker 7: sort of make more money per ride and increase the shares. 63 00:03:08,840 --> 00:03:10,720 Speaker 4: When does that moment happen? 64 00:03:10,880 --> 00:03:13,680 Speaker 5: I mean scale is the only mote you can have 65 00:03:13,800 --> 00:03:16,639 Speaker 5: in this business, scale and operating efficiency. And so what 66 00:03:16,760 --> 00:03:19,360 Speaker 5: Uber has done is obviously they have the scale. They 67 00:03:19,400 --> 00:03:23,280 Speaker 5: are six times bigger than Lift in just the mobility segment, 68 00:03:23,840 --> 00:03:27,519 Speaker 5: and like think of the gross margin. The reason why 69 00:03:27,560 --> 00:03:30,320 Speaker 5: this is a sixty percent gross margin business is because 70 00:03:30,400 --> 00:03:32,079 Speaker 5: insurance costs is. 71 00:03:32,040 --> 00:03:35,360 Speaker 6: Pretty high for right sharing, So how do you bring down. 72 00:03:35,200 --> 00:03:38,960 Speaker 5: Insurance costs through scale? And that's what Uber has because 73 00:03:39,000 --> 00:03:42,520 Speaker 5: it does, you know, six times more rides, then lift, 74 00:03:42,560 --> 00:03:44,880 Speaker 5: and in the case of Lift, if they don't maintain 75 00:03:44,920 --> 00:03:47,800 Speaker 5: the supply, then they're just going to keep losing share, 76 00:03:47,840 --> 00:03:48,840 Speaker 5: which is what was happening. 77 00:03:48,880 --> 00:03:50,600 Speaker 6: So they have to compete on price. 78 00:03:51,000 --> 00:03:54,320 Speaker 5: The only way they can maintain their share is they 79 00:03:54,360 --> 00:03:56,360 Speaker 5: if they offer a lower price, as they did with 80 00:03:56,440 --> 00:03:57,200 Speaker 5: Paul last night. 81 00:03:57,240 --> 00:04:00,560 Speaker 6: So that's that's the tactic. And I don't think. 82 00:04:00,480 --> 00:04:02,200 Speaker 3: It's going to be term modeled. 83 00:04:02,320 --> 00:04:06,120 Speaker 5: Yeah, so think of what happened with food delivery. There 84 00:04:06,160 --> 00:04:09,760 Speaker 5: were so many players. Now you're down to two or three, 85 00:04:10,200 --> 00:04:12,040 Speaker 5: you know, remaining it's Uber Door. 86 00:04:12,320 --> 00:04:15,080 Speaker 3: I still will not pay for for my youngest in college. 87 00:04:15,400 --> 00:04:16,600 Speaker 4: I have a hard time paying, but I'm. 88 00:04:16,480 --> 00:04:16,720 Speaker 5: Not going to. 89 00:04:17,640 --> 00:04:19,000 Speaker 3: We've established that firmly. 90 00:04:19,160 --> 00:04:20,080 Speaker 4: I support this. 91 00:04:20,240 --> 00:04:22,280 Speaker 6: Yeah, so there will be consolidation. 92 00:04:22,400 --> 00:04:25,159 Speaker 5: But if uber is announcing a seven billion dollar buy back, 93 00:04:25,240 --> 00:04:28,120 Speaker 5: you know they're not buying Instacart now, So that's and 94 00:04:28,160 --> 00:04:29,400 Speaker 5: are they are buying left? Okay? 95 00:04:29,480 --> 00:04:31,159 Speaker 4: Talk about that that buy back? 96 00:04:31,560 --> 00:04:33,800 Speaker 7: What does that tell us like when you buy backstock, 97 00:04:33,839 --> 00:04:35,600 Speaker 7: isn't that because you're no longer a growth company? 98 00:04:35,640 --> 00:04:36,320 Speaker 4: Like? Is that the thing? 99 00:04:37,240 --> 00:04:39,239 Speaker 6: Yes? I think there is that element. 100 00:04:39,360 --> 00:04:43,360 Speaker 5: And also they're going to be prudent in terms of returning. 101 00:04:42,920 --> 00:04:44,160 Speaker 6: Cash to the shareholders. 102 00:04:44,240 --> 00:04:48,359 Speaker 5: So remember they acquired the freight business, that is a 103 00:04:48,360 --> 00:04:52,320 Speaker 5: big drag on profitability. Uber didn't build freight business organically. 104 00:04:52,680 --> 00:04:55,360 Speaker 5: They bought a company that didn't work out well. They 105 00:04:55,400 --> 00:04:58,320 Speaker 5: bought Postmates for food delivery that didn't work out well. 106 00:04:58,360 --> 00:05:02,240 Speaker 5: So their track record with Aquas isn't great. And so 107 00:05:02,360 --> 00:05:05,240 Speaker 5: now they're saying is we are going to generate about 108 00:05:05,320 --> 00:05:07,920 Speaker 5: seven to eight billion dollars in free cash flow. Well, 109 00:05:07,920 --> 00:05:10,720 Speaker 5: guess what we are using seven billion out of that 110 00:05:10,920 --> 00:05:13,880 Speaker 5: for buying back er stock. I mean, obviously it's going 111 00:05:13,960 --> 00:05:16,480 Speaker 5: to be over a period of time, not in the 112 00:05:16,480 --> 00:05:21,640 Speaker 5: next twelve months. But I think that's good sound capital allocation, stuality, 113 00:05:21,720 --> 00:05:23,839 Speaker 5: And look, this company is generating. 114 00:05:23,920 --> 00:05:26,039 Speaker 6: The mobility side is very healthy. 115 00:05:26,600 --> 00:05:29,960 Speaker 5: They've got you know, mid twenty percent ebit dumb margins 116 00:05:30,000 --> 00:05:33,240 Speaker 5: compared that to lift, which what got people excited is 117 00:05:33,279 --> 00:05:35,280 Speaker 5: they could get to twenty percent ebit dumb margins. 118 00:05:35,279 --> 00:05:37,560 Speaker 6: Well, not so fast. I guess that was the typo. 119 00:05:37,800 --> 00:05:42,040 Speaker 2: So I say, all right, how about the Uber each business. Again, 120 00:05:42,080 --> 00:05:43,840 Speaker 2: I don't support this. I mean, I know it's a 121 00:05:43,880 --> 00:05:46,040 Speaker 2: great people love it, but not on my credit card. 122 00:05:46,720 --> 00:05:48,440 Speaker 2: So talks about the each business. 123 00:05:48,520 --> 00:05:51,840 Speaker 5: This is just to drive frequency, ok, just so that 124 00:05:52,120 --> 00:05:54,920 Speaker 5: Paul has more transactions. 125 00:05:54,200 --> 00:05:55,360 Speaker 4: Which is advertising. 126 00:05:55,360 --> 00:05:58,760 Speaker 5: Then basically exactly and the only profit they're going to 127 00:05:58,839 --> 00:06:02,000 Speaker 5: generate right now is through advertising. So the good thing 128 00:06:02,200 --> 00:06:05,080 Speaker 5: working out for Uber is they have a membership's business, 129 00:06:05,080 --> 00:06:07,960 Speaker 5: So that's your recurring subscription. You're going to buy an 130 00:06:08,000 --> 00:06:12,000 Speaker 5: Uber membership that works for both mobility and delivery, and 131 00:06:12,120 --> 00:06:15,240 Speaker 5: also they're going to show ads. So ads is a 132 00:06:15,279 --> 00:06:18,680 Speaker 5: billion dollar rundread business now primarily driven by delivery and 133 00:06:18,720 --> 00:06:22,160 Speaker 5: it's almost ninety percent gross market, so that's what's going 134 00:06:22,240 --> 00:06:26,320 Speaker 5: to drive the delivery profitability. But on a transaction basis, 135 00:06:26,360 --> 00:06:27,080 Speaker 5: this is zero. 136 00:06:27,279 --> 00:06:30,520 Speaker 7: So this is sort of like Amazon Prime VIDDEO. Like 137 00:06:30,560 --> 00:06:34,720 Speaker 7: it's just basically sell more subscriptions Amazon Prime up the 138 00:06:34,760 --> 00:06:37,159 Speaker 7: price a little bit and then you get more viewers 139 00:06:37,200 --> 00:06:38,919 Speaker 7: who were just into it and they buy more stuff 140 00:06:38,920 --> 00:06:40,280 Speaker 7: on Amazon's Coming. 141 00:06:40,920 --> 00:06:41,440 Speaker 6: Is the way. 142 00:06:41,520 --> 00:06:45,240 Speaker 5: So they like Uber talked about this concept of being 143 00:06:45,279 --> 00:06:49,000 Speaker 5: a super app almost three four years ago and they 144 00:06:49,080 --> 00:06:52,080 Speaker 5: have been working towards it. Now they have integrated taxi. 145 00:06:52,200 --> 00:06:55,520 Speaker 5: Remember when Uber came to the scene, they were supposed 146 00:06:55,600 --> 00:06:59,479 Speaker 5: to or they actually disrupted taxis. Now they have onboarded 147 00:06:59,520 --> 00:07:02,680 Speaker 5: Taxis on the platform to boost supply, and Taxis is 148 00:07:02,720 --> 00:07:05,880 Speaker 5: about five percent of their business, So clearly, you know. 149 00:07:05,880 --> 00:07:07,279 Speaker 6: You come a full circle there. 150 00:07:07,320 --> 00:07:10,640 Speaker 5: You have integrated Taxis and their thing is will bring 151 00:07:11,000 --> 00:07:14,800 Speaker 5: everything related to transportation on one app and you can 152 00:07:14,880 --> 00:07:16,200 Speaker 5: find any and everything. 153 00:07:16,480 --> 00:07:21,200 Speaker 2: Neahi, I mean, he's done an amazing job turning that 154 00:07:21,360 --> 00:07:22,360 Speaker 2: company around. 155 00:07:22,400 --> 00:07:24,960 Speaker 6: Minus the acquisitions. 156 00:07:23,880 --> 00:07:28,360 Speaker 5: If it was buying stuff, and that's. 157 00:07:28,200 --> 00:07:31,520 Speaker 6: What he did at Expedia. Expedia was built around acquisitions. 158 00:07:31,600 --> 00:07:31,840 Speaker 8: There. 159 00:07:32,040 --> 00:07:36,280 Speaker 5: I think acquisitions worked out probably better than they did 160 00:07:36,280 --> 00:07:39,960 Speaker 5: in Uber, but clearly acquisitions wasn't and. 161 00:07:39,920 --> 00:07:42,960 Speaker 2: So one of the potential acquisitions I was out there 162 00:07:43,000 --> 00:07:45,960 Speaker 2: was Instacart to ramp up the Uber eats. But you're 163 00:07:45,960 --> 00:07:48,280 Speaker 2: now saying the stock buybacked signals that un likely to do. 164 00:07:48,360 --> 00:07:49,920 Speaker 6: That's completely out of question. 165 00:07:50,040 --> 00:07:52,560 Speaker 5: I mean, the question is can door Dash buy something 166 00:07:52,640 --> 00:07:55,920 Speaker 5: given Like the reason why Lift's stock moved this much 167 00:07:55,960 --> 00:07:58,840 Speaker 5: is because the valuation is like one time CB to sales. 168 00:07:59,120 --> 00:07:59,840 Speaker 6: Compare that to. 169 00:08:00,440 --> 00:08:03,360 Speaker 5: Five times ZV do sales or Airbnb ten times ZV 170 00:08:03,480 --> 00:08:04,000 Speaker 5: do sales. 171 00:08:04,240 --> 00:08:05,840 Speaker 6: So clearly a. 172 00:08:05,760 --> 00:08:09,080 Speaker 5: Lot of the growth prospects are reflected in the lifts valuation. 173 00:08:09,400 --> 00:08:12,679 Speaker 2: Yeah, Airbnb will do that next time. I'm just I'm 174 00:08:12,720 --> 00:08:15,520 Speaker 2: just not comfortable that concept. But I know a ton 175 00:08:15,560 --> 00:08:17,160 Speaker 2: of people are around the world and they love it. 176 00:08:17,200 --> 00:08:18,400 Speaker 2: So we'll get to that next time. 177 00:08:18,440 --> 00:08:20,240 Speaker 7: Staying or renting out your renting out your house or 178 00:08:20,280 --> 00:08:21,360 Speaker 7: staying at someone else's. 179 00:08:21,040 --> 00:08:24,360 Speaker 3: House, both both, you know, I don't know, but I 180 00:08:25,040 --> 00:08:28,240 Speaker 3: might not that weird. Yeah, coming into somebody else's It's more. 181 00:08:28,160 --> 00:08:29,600 Speaker 4: Like an investment property lot at the time. 182 00:08:29,640 --> 00:08:32,280 Speaker 2: All right, man, Deep Seeing Senior Tech anais Bloomberg Intelligence. 183 00:08:32,400 --> 00:08:33,959 Speaker 2: We appreciate you stopping buy. 184 00:08:35,400 --> 00:08:39,280 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 185 00:08:39,360 --> 00:08:42,400 Speaker 1: weekdays at ten am Eastern on Apple card Play and 186 00:08:42,400 --> 00:08:45,320 Speaker 1: Android Auto with the Bloomberg Business app. You can also 187 00:08:45,400 --> 00:08:48,880 Speaker 1: listen live on Amazon Alexa from our flagship New York station, 188 00:08:49,280 --> 00:08:52,040 Speaker 1: Just say Alexa Play Bloomberg eleven thirty. 189 00:08:53,080 --> 00:08:54,800 Speaker 7: I want to take a little deeper into the small 190 00:08:54,880 --> 00:08:56,800 Speaker 7: cap world because the rust of two thousands up one 191 00:08:56,840 --> 00:08:59,640 Speaker 7: point six percent of the narrative, if you just rewind 192 00:08:59,679 --> 00:09:02,079 Speaker 7: the money, was that we were broadening out this rally 193 00:09:02,080 --> 00:09:03,880 Speaker 7: in the S and P, that it wasn't just big tech. 194 00:09:03,920 --> 00:09:06,360 Speaker 7: We were finally seeing small caps get a little bit 195 00:09:06,400 --> 00:09:08,880 Speaker 7: of a bit. Well, let's talk to Brian Smoluck. He's 196 00:09:08,920 --> 00:09:11,960 Speaker 7: principal and portfolio manager of the Hood River Small Cap 197 00:09:12,120 --> 00:09:15,920 Speaker 7: Growth Fund. He joins us from Palm Beach, Florida, much 198 00:09:16,520 --> 00:09:19,000 Speaker 7: to Paul Kane as he looks at the palm trees 199 00:09:19,000 --> 00:09:19,760 Speaker 7: in the background. 200 00:09:19,840 --> 00:09:22,600 Speaker 4: Hey, Brian, kill me. Do you buy small caps here? 201 00:09:22,679 --> 00:09:22,760 Speaker 6: Like? 202 00:09:23,400 --> 00:09:26,760 Speaker 7: Are they actually going to finally make a good comeback? 203 00:09:28,240 --> 00:09:28,800 Speaker 6: I think so. 204 00:09:29,160 --> 00:09:33,800 Speaker 9: The CPI print yesterday clearly didn't help things near term, 205 00:09:33,960 --> 00:09:35,839 Speaker 9: given the FED was a little bit too aggressive in 206 00:09:35,880 --> 00:09:39,840 Speaker 9: December when they talked about aggressive cuts this year. But 207 00:09:39,880 --> 00:09:42,760 Speaker 9: I think once the CPI does settle down to a 208 00:09:42,840 --> 00:09:44,719 Speaker 9: level of people are comfortable with where the Fed's going 209 00:09:44,760 --> 00:09:47,360 Speaker 9: to cut, it's a matter of when, not if, then 210 00:09:47,440 --> 00:09:51,160 Speaker 9: small caps will outperform. You see that when people want 211 00:09:51,200 --> 00:09:54,120 Speaker 9: to put on risk, small cap, particularly small cap growth, 212 00:09:54,120 --> 00:09:55,800 Speaker 9: tends to put on a really big move, and then 213 00:09:55,800 --> 00:09:59,200 Speaker 9: in Q four last year when that happened, the space 214 00:09:59,280 --> 00:10:03,000 Speaker 9: really ripped. And it's been a fairly protracted period of 215 00:10:03,120 --> 00:10:06,640 Speaker 9: big underperformance for the last several years. So the setup 216 00:10:07,080 --> 00:10:12,640 Speaker 9: is good given valuations, earnings revisions are trending. Positive spreads, 217 00:10:12,640 --> 00:10:16,160 Speaker 9: which are a great leading indicator for small cap stocks, 218 00:10:16,559 --> 00:10:18,760 Speaker 9: have tightened significantly to just a little over one hundred 219 00:10:18,760 --> 00:10:24,200 Speaker 9: basis points, So the odds are highly in the space's 220 00:10:24,240 --> 00:10:26,360 Speaker 9: favor for it to app perform over the next twelve months. 221 00:10:26,480 --> 00:10:28,880 Speaker 2: Hey Brian, Am I going to get an evaluation break 222 00:10:29,000 --> 00:10:32,360 Speaker 2: if I go down into smaller mid MidCap territory relative 223 00:10:32,400 --> 00:10:33,440 Speaker 2: to the S and P five hundred? 224 00:10:34,600 --> 00:10:37,480 Speaker 9: Yeah. So if you look at small cap growth versus 225 00:10:37,559 --> 00:10:40,480 Speaker 9: the SMP, it usually trades at a premium. Right now, 226 00:10:40,520 --> 00:10:44,480 Speaker 9: it's trading around eighteen times twenty twenty five earnings versus 227 00:10:44,520 --> 00:10:46,960 Speaker 9: the SMP at twenty times, so you do get a 228 00:10:47,000 --> 00:10:48,720 Speaker 9: discount there, And that's part of what I was saying 229 00:10:48,720 --> 00:10:51,520 Speaker 9: why the setup is good because you get a relative 230 00:10:51,600 --> 00:10:55,320 Speaker 9: valuation break. Usually the growth is faster and small cap names. 231 00:10:55,320 --> 00:10:58,280 Speaker 9: I wouldn't expect this upcoming cycle to be any different. 232 00:10:58,760 --> 00:11:01,240 Speaker 9: So that's why you'll get probably some multiple expansion and 233 00:11:01,320 --> 00:11:03,440 Speaker 9: positive ring servision which would lead to our performance over 234 00:11:03,480 --> 00:11:04,240 Speaker 9: the next twelve months. 235 00:11:04,360 --> 00:11:06,440 Speaker 7: Hey Brian, would you have made a different argument six 236 00:11:06,480 --> 00:11:08,559 Speaker 7: months ago because small caps did have a moment last 237 00:11:08,640 --> 00:11:11,040 Speaker 7: year in that moment was short lived? Is the argument 238 00:11:11,080 --> 00:11:11,600 Speaker 7: different now? 239 00:11:13,080 --> 00:11:16,800 Speaker 9: I would say it's honestly pretty similar. You know, we're 240 00:11:16,880 --> 00:11:19,600 Speaker 9: bombs up stock pickers trying to find companies with a 241 00:11:19,600 --> 00:11:23,959 Speaker 9: dislocation of fundamentals valuation. It's been a constructive setup, and 242 00:11:25,080 --> 00:11:27,200 Speaker 9: six months ago it actually was good when you look 243 00:11:27,200 --> 00:11:30,040 Speaker 9: into Q four and small capt putting up playing a 244 00:11:30,040 --> 00:11:32,120 Speaker 9: move on to being up around nineteen percent for the 245 00:11:32,160 --> 00:11:36,559 Speaker 9: year last year, so it was solid. But it has 246 00:11:36,640 --> 00:11:39,000 Speaker 9: been a waiting game for small cap and you need 247 00:11:39,080 --> 00:11:44,280 Speaker 9: race to cooperate with spreads for the sector to work. 248 00:11:45,520 --> 00:11:49,000 Speaker 2: Fortress Aviation FTAI is the ticker. 249 00:11:49,360 --> 00:11:50,400 Speaker 3: What's the call there, Brian. 250 00:11:52,120 --> 00:11:55,280 Speaker 9: We like the stock, it's one of our bigger positions. 251 00:11:56,440 --> 00:11:59,520 Speaker 9: It's been really huge over the last eighteen months. We 252 00:11:59,520 --> 00:12:03,360 Speaker 9: think there's some significant legs left in the story for 253 00:12:03,400 --> 00:12:07,199 Speaker 9: it to really work. It trades it around twenty times earnings. 254 00:12:07,559 --> 00:12:12,120 Speaker 9: They have a new module repair business for engines that's 255 00:12:12,160 --> 00:12:14,960 Speaker 9: growing around one hundred percent, and we think there's upside 256 00:12:15,000 --> 00:12:17,360 Speaker 9: in that area, particularly when you look at all the 257 00:12:17,400 --> 00:12:20,040 Speaker 9: news in the supply chain and airlines across the world 258 00:12:20,120 --> 00:12:23,280 Speaker 9: really need to optimize how well their current engines were 259 00:12:23,360 --> 00:12:26,280 Speaker 9: given that they can't get new engines or new planes 260 00:12:26,400 --> 00:12:30,280 Speaker 9: when Boeing's having all these problems. Meanwhile, the asset value 261 00:12:30,320 --> 00:12:34,719 Speaker 9: on their current their current engines has been moving up 262 00:12:35,160 --> 00:12:37,800 Speaker 9: because of the supply to demand and balance created by 263 00:12:37,840 --> 00:12:40,280 Speaker 9: the fact that new planes really can't make it out 264 00:12:40,320 --> 00:12:42,600 Speaker 9: the door, and you have rising demand around the world 265 00:12:42,679 --> 00:12:45,960 Speaker 9: continuing for passenger travel. 266 00:12:46,720 --> 00:12:49,800 Speaker 7: You also have Celsius, which is it's like a Red 267 00:12:49,800 --> 00:12:52,000 Speaker 7: Bull energy drink, right, I know it's different, but it's 268 00:12:52,040 --> 00:12:54,160 Speaker 7: the same kind of idea. 269 00:12:54,520 --> 00:12:55,800 Speaker 4: You like this company, how come? 270 00:12:57,360 --> 00:12:58,560 Speaker 3: Yeah, we've owned it for a while. 271 00:12:59,040 --> 00:13:01,040 Speaker 9: It's a secular market share gainer. We think in the 272 00:13:01,080 --> 00:13:05,280 Speaker 9: category it's gone from around two percent share to ten 273 00:13:05,320 --> 00:13:07,760 Speaker 9: percent share. We think they can reasonably get to twenty 274 00:13:07,800 --> 00:13:13,319 Speaker 9: percent share. They have a partnership with Pepsi that's ramped 275 00:13:13,360 --> 00:13:16,640 Speaker 9: up over the last twelve months. Pepsi's the largest distributor 276 00:13:17,880 --> 00:13:21,880 Speaker 9: in the world. And fortuitously they left Budweiser, which obviously 277 00:13:21,960 --> 00:13:25,440 Speaker 9: wasn't great with all the bud light issues that they 278 00:13:25,480 --> 00:13:29,040 Speaker 9: were having. And we think the streets at about forty percent, 279 00:13:29,040 --> 00:13:31,840 Speaker 9: they could easily grow fifty this year and the stocks 280 00:13:31,880 --> 00:13:34,679 Speaker 9: has can around thirteen percent share, and as I said earlier, 281 00:13:34,679 --> 00:13:36,520 Speaker 9: we think they can get to twenty And have. 282 00:13:36,440 --> 00:13:38,200 Speaker 4: You ever had them on those energy drinks? No, I'm 283 00:13:38,280 --> 00:13:38,880 Speaker 4: scared of them. 284 00:13:39,520 --> 00:13:42,040 Speaker 3: Yeah, a little bit bitlius. 285 00:13:42,720 --> 00:13:45,400 Speaker 9: Yeah, Celsius is a little bit healthier. It's all natural ingredients. 286 00:13:45,440 --> 00:13:48,120 Speaker 9: You still get the boost from caffeine. It's two hundred 287 00:13:48,160 --> 00:13:50,640 Speaker 9: milligrams of caffeine. So I definitely wouldn't take it for 288 00:13:50,720 --> 00:13:52,400 Speaker 9: you to go to bed, but it tastes better, it's 289 00:13:52,400 --> 00:13:54,200 Speaker 9: healthier than some of the other drinks out there. 290 00:13:54,600 --> 00:13:55,640 Speaker 3: Yeah, I don't know. 291 00:13:55,760 --> 00:13:58,880 Speaker 2: Hey, Brian, what's a what's a how do you divine 292 00:13:59,000 --> 00:14:01,840 Speaker 2: kind of like the market cap? Like what's a small cap, 293 00:14:02,000 --> 00:14:02,720 Speaker 2: what's a MidCap? 294 00:14:02,800 --> 00:14:03,000 Speaker 6: Few? 295 00:14:03,000 --> 00:14:06,760 Speaker 3: And what happens when they maybe grow out of those levels. 296 00:14:07,559 --> 00:14:12,479 Speaker 9: So the last the last six months has been abnormal 297 00:14:12,880 --> 00:14:15,719 Speaker 9: for the sector, and that there's been a huge bifurcation. 298 00:14:15,960 --> 00:14:18,640 Speaker 9: So within the Russell two thousand growth, for example, super 299 00:14:18,679 --> 00:14:21,640 Speaker 9: Micro is actually in the benchmark and it's over a 300 00:14:21,680 --> 00:14:24,880 Speaker 9: thirty billion market cap. So normally I would say the 301 00:14:24,960 --> 00:14:28,000 Speaker 9: range is between call it one hundred million up to 302 00:14:28,080 --> 00:14:31,240 Speaker 9: six or seven billion, but it has expanded over time. 303 00:14:31,320 --> 00:14:34,440 Speaker 9: The sweet spot really is in that two to five 304 00:14:35,000 --> 00:14:37,600 Speaker 9: billion dollar range, and those stocks tend to be a 305 00:14:37,600 --> 00:14:40,960 Speaker 9: little bit more inefficient, and we don't typically sell stock 306 00:14:40,960 --> 00:14:42,600 Speaker 9: when it gets too big. It's really when we think 307 00:14:42,960 --> 00:14:45,600 Speaker 9: it's efficiently priced based on the fundamentals, or we think 308 00:14:45,640 --> 00:14:47,720 Speaker 9: something bad is going to happen, we'll step aside. 309 00:14:47,880 --> 00:14:50,160 Speaker 7: It is a leading question because we're talking about you 310 00:14:50,200 --> 00:14:54,280 Speaker 7: manage a small cap growth fund, but growth versus value 311 00:14:54,280 --> 00:14:56,040 Speaker 7: in the rustle? Is it the same kind of thing 312 00:14:56,080 --> 00:14:59,080 Speaker 7: as what we see in the general market growth, tech, 313 00:14:59,240 --> 00:14:59,800 Speaker 7: everything else. 314 00:15:02,160 --> 00:15:05,840 Speaker 9: Well, in small cap growth you do have a larger 315 00:15:05,880 --> 00:15:11,520 Speaker 9: percentage of software companies, semiconductor companies, biotech, and a little 316 00:15:11,560 --> 00:15:15,360 Speaker 9: bit less financials and then some of the higher growth consumers. 317 00:15:15,400 --> 00:15:18,680 Speaker 9: But small cap growth and small cap value are relatively 318 00:15:19,320 --> 00:15:22,440 Speaker 9: highly correlated. But in different area there can be biggest versions, 319 00:15:22,440 --> 00:15:26,400 Speaker 9: Like in twenty twenty you saw growth massively outperformed value 320 00:15:26,440 --> 00:15:29,560 Speaker 9: and then it completely inverted the prior year. We frankly 321 00:15:29,560 --> 00:15:32,960 Speaker 9: try to be agnostic and try to find companies that 322 00:15:33,000 --> 00:15:36,960 Speaker 9: are growing reasonably quickly called fifteen percent, but are inefficiently priced, 323 00:15:37,160 --> 00:15:38,760 Speaker 9: So we kind of thread the needle there. 324 00:15:39,000 --> 00:15:41,680 Speaker 2: There's a good article in the Bloomberg Terminal today Florida 325 00:15:41,720 --> 00:15:46,200 Speaker 2: boom cools an area where home insurance costs tripled Hurricane 326 00:15:46,240 --> 00:15:48,640 Speaker 2: Ian worsened already rising homeowners rates, and they call that 327 00:15:48,680 --> 00:15:50,240 Speaker 2: like Naples Sarasota Cape Coral. 328 00:15:50,680 --> 00:15:53,160 Speaker 3: I noticed you guys own some exposure here. 329 00:15:53,400 --> 00:15:57,520 Speaker 2: HCI Group is a homeowner's insurance company based in Florida. 330 00:15:58,440 --> 00:15:59,800 Speaker 3: Uhh yes, what's that? 331 00:16:01,360 --> 00:16:04,920 Speaker 9: Yeah, So it's been a great stock because of the 332 00:16:04,960 --> 00:16:10,080 Speaker 9: dislocation in this particular geography. And what's happened is the 333 00:16:10,160 --> 00:16:12,960 Speaker 9: lawyers had the upper hand, not a big surprise for 334 00:16:12,960 --> 00:16:16,320 Speaker 9: an extended period here. A lot of insurers pulled out 335 00:16:16,360 --> 00:16:19,120 Speaker 9: because of that because they were having massive losses. The 336 00:16:19,200 --> 00:16:22,160 Speaker 9: state legislature came in made it so that it was 337 00:16:22,200 --> 00:16:25,960 Speaker 9: more reasonable and favorable to insurers. Each CI was set 338 00:16:26,040 --> 00:16:29,440 Speaker 9: up well to write new premiums profitably, as well as 339 00:16:29,480 --> 00:16:33,240 Speaker 9: takeover existing premiums from the state entity, which is called citizens, 340 00:16:33,680 --> 00:16:37,800 Speaker 9: which allowed them to dramatically apperform expectations and earnings. Growth 341 00:16:37,800 --> 00:16:39,960 Speaker 9: is significant. So it's trading eleven times zarniings. We have 342 00:16:39,960 --> 00:16:42,520 Speaker 9: to think there's upside of that number. And they're just 343 00:16:42,560 --> 00:16:44,480 Speaker 9: set up well because the supply demand in the area, 344 00:16:44,480 --> 00:16:46,760 Speaker 9: and as you know, the area is really growing, so 345 00:16:46,880 --> 00:16:48,720 Speaker 9: you have a lot of people moving here, so demand 346 00:16:48,760 --> 00:16:49,160 Speaker 9: is strong. 347 00:16:49,400 --> 00:16:51,680 Speaker 4: As Paul talks about all the time, you do want 348 00:16:51,720 --> 00:16:52,160 Speaker 4: to move here? 349 00:16:52,680 --> 00:16:54,360 Speaker 3: No, no, he doesn't that's a hard note. 350 00:16:54,400 --> 00:16:55,880 Speaker 4: Okay, it's a hard no, but it does get jealous 351 00:16:55,880 --> 00:16:56,440 Speaker 4: of the pond trees. 352 00:16:56,600 --> 00:16:56,760 Speaker 3: Yes. 353 00:16:57,160 --> 00:16:59,440 Speaker 7: What I find interesting though, when you talk about insures 354 00:16:59,680 --> 00:17:01,440 Speaker 7: is that you know Florida is going to get hit 355 00:17:01,480 --> 00:17:03,720 Speaker 7: with storm after storm, and it is a bit worse now, 356 00:17:03,760 --> 00:17:05,639 Speaker 7: and I just wonder how the risk premium got to 357 00:17:05,640 --> 00:17:06,560 Speaker 7: bake into these docks. 358 00:17:08,240 --> 00:17:13,719 Speaker 9: So whether it's a big issue obviously during hurricane season, 359 00:17:14,800 --> 00:17:16,560 Speaker 9: HCI has been here forever and they did a good 360 00:17:16,640 --> 00:17:20,280 Speaker 9: job pricing for that risk. So you just got to 361 00:17:20,320 --> 00:17:22,840 Speaker 9: assume over extended period of time that when you take 362 00:17:22,880 --> 00:17:24,760 Speaker 9: your lumps, you're going to more than make up for 363 00:17:24,840 --> 00:17:27,679 Speaker 9: it based on pricing, And as you've noted from that article, 364 00:17:27,680 --> 00:17:28,920 Speaker 9: pricing is up huge and there are a lot of 365 00:17:28,920 --> 00:17:32,480 Speaker 9: different reasons for that. In condos, for example, there was 366 00:17:32,480 --> 00:17:36,160 Speaker 9: that condo that went down in Miami and that jacked 367 00:17:36,240 --> 00:17:40,760 Speaker 9: up premiums all over the area, and an insurance companies 368 00:17:40,760 --> 00:17:45,000 Speaker 9: were able to capitalize because now condos realized they just 369 00:17:45,000 --> 00:17:51,000 Speaker 9: had to become conforming with state codes. So to me, 370 00:17:51,400 --> 00:17:54,600 Speaker 9: hurricanes are a manageable risk here. There's actually been less 371 00:17:54,600 --> 00:17:58,360 Speaker 9: direct hurricane impacts on Southeast Florida than in the up 372 00:17:58,320 --> 00:18:00,840 Speaker 9: to the northeast where you guys are so but you 373 00:18:00,880 --> 00:18:03,000 Speaker 9: do have a fair amount happening happening in the golf, 374 00:18:03,040 --> 00:18:05,879 Speaker 9: but there's less population in Florida and the golf and 375 00:18:05,960 --> 00:18:07,000 Speaker 9: on the southeast side. 376 00:18:07,280 --> 00:18:09,680 Speaker 2: Hi, Rian, thank you so much for joining us. As always, 377 00:18:09,680 --> 00:18:13,080 Speaker 2: Brian Smallock. He's a principal and portfolio manager of the 378 00:18:13,119 --> 00:18:16,639 Speaker 2: Hood River Small Cap Growth Fund. Not in Bend, Oregon, 379 00:18:16,760 --> 00:18:20,680 Speaker 2: but in Palm Beach Gardens, Florida. 380 00:18:21,000 --> 00:18:24,879 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 381 00:18:24,960 --> 00:18:27,600 Speaker 1: weekdays at ten am Eastern on Apple car Play and 382 00:18:27,600 --> 00:18:30,240 Speaker 1: then broud Otto with the Bloomberg Business app. Listen on 383 00:18:30,320 --> 00:18:33,600 Speaker 1: demand wherever you get your podcasts, or watch us live 384 00:18:33,680 --> 00:18:35,040 Speaker 1: on YouTube. 385 00:18:35,760 --> 00:18:37,080 Speaker 4: I want to know what's up with Craft? 386 00:18:37,320 --> 00:18:40,000 Speaker 7: So that' stock is moving a wopping six percent, it's 387 00:18:40,040 --> 00:18:44,240 Speaker 7: down six percent. Organic sales decline wasn't so great. It 388 00:18:44,359 --> 00:18:46,440 Speaker 7: was a lackluster end of the year and that's really 389 00:18:46,520 --> 00:18:47,359 Speaker 7: dragging on sales. 390 00:18:47,400 --> 00:18:48,159 Speaker 4: So what's up with that? 391 00:18:48,280 --> 00:18:51,639 Speaker 7: Let's go to Jim Bartash's she has Boomberg Intelligence Senior analyst, 392 00:18:51,720 --> 00:18:55,760 Speaker 7: retail Staples and packaged foods. Jen what was just so 393 00:18:55,880 --> 00:18:57,280 Speaker 7: bad about Craft? 394 00:18:58,000 --> 00:19:01,800 Speaker 8: Well, the big surprise for Craft that volume was down, 395 00:19:01,840 --> 00:19:04,440 Speaker 8: which was not a surprise, but it was down more 396 00:19:04,520 --> 00:19:07,919 Speaker 8: than prices rose, and that really put pressure on the 397 00:19:07,920 --> 00:19:12,040 Speaker 8: ability to generate sales growth, and so organic sales were 398 00:19:12,200 --> 00:19:17,280 Speaker 8: negative for the first time since twenty twenty. And although 399 00:19:17,280 --> 00:19:20,200 Speaker 8: there's some momentum in the business, it's got people concerned. 400 00:19:20,760 --> 00:19:23,120 Speaker 2: So, Jen, as I understand the package food business from 401 00:19:23,160 --> 00:19:25,760 Speaker 2: reading your research and talking to you, you know, I 402 00:19:25,800 --> 00:19:28,320 Speaker 2: guess post pandemic volumes are down, but then they've been 403 00:19:28,359 --> 00:19:31,760 Speaker 2: able to make up for it by raising prices. More so, 404 00:19:31,880 --> 00:19:33,240 Speaker 2: is that game kind of played out now? 405 00:19:34,040 --> 00:19:37,239 Speaker 8: Yeah. Basically a lot of these companies have run out 406 00:19:37,280 --> 00:19:40,000 Speaker 8: of their pricing power. And what that means is, you know, 407 00:19:40,080 --> 00:19:42,480 Speaker 8: they were able to raise prices because their input costs 408 00:19:42,520 --> 00:19:45,960 Speaker 8: were hire, whether it was ingredients or transportation or packaging. 409 00:19:46,280 --> 00:19:49,800 Speaker 8: But as inflation is coming down, they're losing the ability 410 00:19:49,840 --> 00:19:53,280 Speaker 8: to pass through additional price increases, which means that if 411 00:19:53,320 --> 00:19:56,840 Speaker 8: you want to have top line growth or organic sales growth, 412 00:19:57,119 --> 00:20:00,720 Speaker 8: you have to have positive volume growth because you're not 413 00:20:00,760 --> 00:20:04,000 Speaker 8: getting it from just higher price anymore. And the problem 414 00:20:04,040 --> 00:20:06,800 Speaker 8: for Craft Hends has right now is that volume is 415 00:20:06,840 --> 00:20:10,920 Speaker 8: still down, price is lower than it's been and they're 416 00:20:10,920 --> 00:20:13,680 Speaker 8: not seeing that bounce back in volume that typically lower 417 00:20:13,680 --> 00:20:14,879 Speaker 8: pricing would encourage. 418 00:20:14,920 --> 00:20:17,359 Speaker 7: Okay, so a couple things to focus on. Let's go 419 00:20:17,359 --> 00:20:19,040 Speaker 7: to the product side then, because you mentioned that a 420 00:20:19,040 --> 00:20:21,760 Speaker 7: few times so volumes are down, it doesn't seem like 421 00:20:21,840 --> 00:20:23,919 Speaker 7: that's just a pricing power thing. Do they not have 422 00:20:24,000 --> 00:20:25,240 Speaker 7: the right products right now? 423 00:20:26,240 --> 00:20:28,720 Speaker 8: Well, I think their portfolio is actually pretty good. It's 424 00:20:28,760 --> 00:20:31,760 Speaker 8: just that the consumer is not buying as much as 425 00:20:31,760 --> 00:20:34,680 Speaker 8: they were before. So if you think back to pre pandemic, 426 00:20:34,760 --> 00:20:37,800 Speaker 8: people had huge pantries and everything was stocked. They had 427 00:20:37,840 --> 00:20:40,639 Speaker 8: lots of boxed goods in there. And now people are 428 00:20:40,680 --> 00:20:42,720 Speaker 8: still a little bit more conservative and buying more on 429 00:20:42,760 --> 00:20:46,159 Speaker 8: a need basis rather than a stockpiling basis. And so 430 00:20:47,119 --> 00:20:50,880 Speaker 8: until people start to bulk up those pantries again, it's 431 00:20:50,920 --> 00:20:53,120 Speaker 8: hard to entice them to buy more than what they 432 00:20:53,200 --> 00:20:54,200 Speaker 8: just need for this week. 433 00:20:54,840 --> 00:20:57,520 Speaker 2: So as I look at the analyst forecast, jen, I 434 00:20:57,600 --> 00:20:59,600 Speaker 2: kind of see the one and a half to two 435 00:20:59,640 --> 00:21:01,520 Speaker 2: to two and a half percent revenue growth in the 436 00:21:01,520 --> 00:21:05,600 Speaker 2: next several years. That really is the story for most 437 00:21:05,640 --> 00:21:08,960 Speaker 2: of these consumer package goods companies, isn't it. 438 00:21:08,960 --> 00:21:12,000 Speaker 8: It really is, especially for companies where the bulk of 439 00:21:12,040 --> 00:21:14,520 Speaker 8: their portfolio are what you would call center of the 440 00:21:14,520 --> 00:21:18,600 Speaker 8: store items, so that's the candy items, the boxed items. 441 00:21:19,320 --> 00:21:22,879 Speaker 8: You know, that type of outlook for top line growth 442 00:21:23,000 --> 00:21:25,479 Speaker 8: is pretty much in line with where you would expect 443 00:21:25,480 --> 00:21:30,399 Speaker 8: normal inflation rates to be, and so that in and 444 00:21:30,400 --> 00:21:33,840 Speaker 8: of itself is probably a reasonable expectation for where these 445 00:21:34,040 --> 00:21:36,119 Speaker 8: where these companies can go over the next few years. 446 00:21:36,400 --> 00:21:39,760 Speaker 7: Do you think that prices then will come down or 447 00:21:39,800 --> 00:21:41,160 Speaker 7: do you think that they stay sticky? 448 00:21:42,760 --> 00:21:47,040 Speaker 8: Prices will slowly come down. Retailers are looking to pass 449 00:21:47,080 --> 00:21:49,720 Speaker 8: through cost savings to their customers, so there will be 450 00:21:49,880 --> 00:21:53,920 Speaker 8: higher pressure on package food companies to lower prices as well. 451 00:21:54,640 --> 00:21:58,320 Speaker 8: And as their input costs or their packaging packaging costs 452 00:21:58,320 --> 00:22:01,159 Speaker 8: come down, it's harder for them to just tofy holding 453 00:22:01,200 --> 00:22:04,239 Speaker 8: prices at a higher level and not passing through some 454 00:22:04,280 --> 00:22:07,240 Speaker 8: of those savings. So while prices may never come back 455 00:22:07,280 --> 00:22:09,720 Speaker 8: down to where they were pre pandemic, they should come 456 00:22:09,760 --> 00:22:11,800 Speaker 8: down a little bit from where they were in terms 457 00:22:11,840 --> 00:22:13,480 Speaker 8: of peak pricing in the last eighteen month. 458 00:22:13,520 --> 00:22:15,359 Speaker 4: A little bit, I don't know if we like a 459 00:22:15,359 --> 00:22:15,760 Speaker 4: little bit. 460 00:22:15,840 --> 00:22:18,200 Speaker 3: No, we don't. And that's and that's what that's the problem. 461 00:22:18,240 --> 00:22:18,919 Speaker 3: That's a problem. 462 00:22:19,080 --> 00:22:21,920 Speaker 2: That's a problem for a lot of people, and it's 463 00:22:21,920 --> 00:22:25,240 Speaker 2: a problem for the politicians who are saying inflation is still. 464 00:22:25,040 --> 00:22:25,840 Speaker 3: A bad story here. 465 00:22:26,000 --> 00:22:28,439 Speaker 2: So all right, So Jen, with these names like Craft 466 00:22:28,520 --> 00:22:31,240 Speaker 2: Hinds and General Mills and Kellogg's, I got a you know, 467 00:22:31,280 --> 00:22:32,720 Speaker 2: low single digit revenue growth. 468 00:22:33,119 --> 00:22:33,560 Speaker 3: I'm looking. 469 00:22:33,600 --> 00:22:37,040 Speaker 2: I got dividend yields for Craft Highs about four point 470 00:22:37,080 --> 00:22:40,159 Speaker 2: seven percent. I mean, what am I owning this thing for? 471 00:22:40,320 --> 00:22:43,359 Speaker 2: Am I owning it for single digit kind of maybe 472 00:22:43,400 --> 00:22:45,400 Speaker 2: stock prece return plus some dividend yield. 473 00:22:45,440 --> 00:22:46,720 Speaker 3: And that's and that's my game. 474 00:22:48,320 --> 00:22:51,200 Speaker 8: That's that's that's probably the value play at the moment, right, 475 00:22:51,240 --> 00:22:54,520 Speaker 8: meaning you've got steady kind of slow and steady growth, 476 00:22:54,560 --> 00:22:59,560 Speaker 8: you've got a reasonable dividend. They do do share buybacks, 477 00:22:59,600 --> 00:23:03,040 Speaker 8: you know, so there's some some shareholder benefit there, and 478 00:23:03,280 --> 00:23:05,760 Speaker 8: you know, as consumers start to pick up their spending, 479 00:23:06,119 --> 00:23:08,320 Speaker 8: then we may see a better outlook for these companies 480 00:23:08,359 --> 00:23:08,760 Speaker 8: as well. 481 00:23:09,440 --> 00:23:11,560 Speaker 4: Who does Craft This is a really dumb question. Who 482 00:23:11,600 --> 00:23:12,960 Speaker 4: does Craft compete with? 483 00:23:13,400 --> 00:23:14,960 Speaker 7: Like the Coke and PEPSI I know that PEPs was 484 00:23:15,000 --> 00:23:16,680 Speaker 7: all like snack snack snacks, but they have the soft 485 00:23:16,760 --> 00:23:19,639 Speaker 7: drink business. Who's like a straight up Craft competitor. 486 00:23:20,800 --> 00:23:24,359 Speaker 8: Someone like Caniagra would be, you know, or Campbell Soup. 487 00:23:24,920 --> 00:23:27,000 Speaker 8: You know, those would be kind of those center type 488 00:23:27,040 --> 00:23:31,120 Speaker 8: store companies that would compete most directly with the Craft Times. 489 00:23:31,359 --> 00:23:33,600 Speaker 2: Hey, Jen, I look at the at the holder's list 490 00:23:33,640 --> 00:23:36,480 Speaker 2: here and I forgot about this. Berkshire Hathway Warren Buffett 491 00:23:36,680 --> 00:23:39,960 Speaker 2: by far the biggest shareholder of this company with about 492 00:23:39,960 --> 00:23:41,840 Speaker 2: twenty six twenty seven percent ownership. 493 00:23:42,359 --> 00:23:43,080 Speaker 3: What what? 494 00:23:43,080 --> 00:23:45,840 Speaker 2: What is Berkshire Hathway publicly said about this investment? How 495 00:23:45,840 --> 00:23:47,639 Speaker 2: long have they owned it? What do they say about 496 00:23:47,640 --> 00:23:48,480 Speaker 2: their stake here? 497 00:23:49,400 --> 00:23:52,720 Speaker 8: They've been involved for a very very long time. Haven't 498 00:23:52,720 --> 00:23:56,880 Speaker 8: made a lot of public comments lately. But when Kraft 499 00:23:56,920 --> 00:23:59,960 Speaker 8: Times began its transformation plan, which was now a little 500 00:24:00,160 --> 00:24:06,199 Speaker 8: or three years ago, Berkshire Halfway was very pro They 501 00:24:06,200 --> 00:24:09,960 Speaker 8: were very positive on that transformation story. And to be fair, 502 00:24:10,080 --> 00:24:13,720 Speaker 8: Craft Times has executed on that transformation plan and generally 503 00:24:13,720 --> 00:24:17,240 Speaker 8: ahead of schedule when it comes to cost savings initiatives, 504 00:24:17,520 --> 00:24:22,320 Speaker 8: streamlining things, rebalancing their portfolio. So they really have been 505 00:24:22,359 --> 00:24:25,280 Speaker 8: sticking to that plan and delivering ahead of schedule. It's 506 00:24:25,320 --> 00:24:27,240 Speaker 8: just that it's a multi year process. 507 00:24:27,119 --> 00:24:28,919 Speaker 7: Right, And like it's a tough time, and I get it, 508 00:24:28,960 --> 00:24:30,760 Speaker 7: and there's inflation and then there's the demand. Do you 509 00:24:30,800 --> 00:24:32,440 Speaker 7: think that the stock move I mean, I'm just looking 510 00:24:32,440 --> 00:24:34,199 Speaker 7: at the chart here is it overdone? 511 00:24:36,040 --> 00:24:37,840 Speaker 8: Well? Part of it, you know, part of it is 512 00:24:37,880 --> 00:24:42,119 Speaker 8: the concern about the volume. And when they gave their 513 00:24:42,119 --> 00:24:45,399 Speaker 8: guidance for twenty twenty four, the company actually said that 514 00:24:45,440 --> 00:24:47,560 Speaker 8: they think volume is going to shift to positive growth 515 00:24:47,640 --> 00:24:50,040 Speaker 8: in the second half of the year. That seems like 516 00:24:50,119 --> 00:24:52,560 Speaker 8: it might be overly optimistic and is probably part of 517 00:24:52,600 --> 00:24:54,760 Speaker 8: what's contributing to that stock decline today. 518 00:24:55,240 --> 00:24:57,719 Speaker 2: So Jen, in your coverage area, you know, you got 519 00:24:57,760 --> 00:25:00,399 Speaker 2: to Staples, the package food companies. What's the kind of 520 00:25:00,400 --> 00:25:02,560 Speaker 2: the best idea? What do you talk to clients about 521 00:25:02,720 --> 00:25:03,760 Speaker 2: most often? 522 00:25:04,840 --> 00:25:07,679 Speaker 8: Well, right now we're talking to people about, you know, 523 00:25:07,720 --> 00:25:10,520 Speaker 8: who is it that has taken the least amount of 524 00:25:10,560 --> 00:25:13,800 Speaker 8: price increases over the last say, eighteen months, and where 525 00:25:13,840 --> 00:25:17,480 Speaker 8: are volumes holding up? Because to be successful over twenty 526 00:25:17,520 --> 00:25:20,320 Speaker 8: twenty four and into twenty twenty five, it really is 527 00:25:20,320 --> 00:25:23,240 Speaker 8: that question of how are you going to actually drive 528 00:25:23,840 --> 00:25:27,399 Speaker 8: overall growth and profitability. And so the companies that have 529 00:25:27,600 --> 00:25:31,480 Speaker 8: been more conservative and been more prudent in that approach 530 00:25:32,080 --> 00:25:34,240 Speaker 8: are the ones who are positioned right now to maybe 531 00:25:34,320 --> 00:25:35,080 Speaker 8: benefit from. 532 00:25:34,920 --> 00:25:37,240 Speaker 3: That, So you haven't benefit from those. Actually, what's a 533 00:25:37,280 --> 00:25:38,320 Speaker 3: representative name there? 534 00:25:39,400 --> 00:25:42,479 Speaker 8: So a good example there would be Mandolies where they 535 00:25:42,480 --> 00:25:46,360 Speaker 8: took a lot less price than and actually the spinoff 536 00:25:46,400 --> 00:25:52,200 Speaker 8: from Kraft Times career. Yeah, but they've been very They've 537 00:25:52,200 --> 00:25:54,800 Speaker 8: been a little bit more prudent in terms of their 538 00:25:54,840 --> 00:25:57,159 Speaker 8: price increases. And what we've also seen is that their 539 00:25:57,200 --> 00:26:00,679 Speaker 8: volume has held up better Hershey, is another one where 540 00:26:00,720 --> 00:26:02,679 Speaker 8: their volumes have held up, and part of that is 541 00:26:02,680 --> 00:26:03,920 Speaker 8: that people love their chocolate. 542 00:26:04,960 --> 00:26:09,160 Speaker 4: That's true. I don't care about the Flowers examples. I'll 543 00:26:09,200 --> 00:26:09,840 Speaker 4: definitely take. 544 00:26:09,880 --> 00:26:12,399 Speaker 2: We're learning a lot about Jen, we're learning a lot 545 00:26:12,400 --> 00:26:15,000 Speaker 2: about Alex and her Valentine's Day preferences. 546 00:26:15,200 --> 00:26:17,680 Speaker 3: So flowers know, but chocolate, well. 547 00:26:17,640 --> 00:26:18,480 Speaker 4: I don't want anything. 548 00:26:18,840 --> 00:26:20,560 Speaker 3: Don't stupid but stupid. 549 00:26:20,640 --> 00:26:26,360 Speaker 10: If one tray herself as like this, simple girl, no demands, 550 00:26:27,200 --> 00:26:28,160 Speaker 10: I don't buy it for a. 551 00:26:28,240 --> 00:26:29,320 Speaker 4: Minute, simple girl? 552 00:26:29,880 --> 00:26:33,359 Speaker 7: What No do I like Valentine's No, it's done. But 553 00:26:33,400 --> 00:26:36,440 Speaker 7: will I eat chocolate? Absolutely as long as it's high 554 00:26:36,560 --> 00:26:41,640 Speaker 7: end dark chocolate. Hey, Jen, what what's something you really 555 00:26:41,640 --> 00:26:42,600 Speaker 7: don't like right now? 556 00:26:42,720 --> 00:26:42,800 Speaker 8: Like? 557 00:26:42,840 --> 00:26:45,600 Speaker 7: What sort of a negative trend because I'm also trying 558 00:26:45,600 --> 00:26:48,719 Speaker 7: to understand for some of these names, the normalization that 559 00:26:48,760 --> 00:26:52,040 Speaker 7: we've seen sort of backtrack the last four years and 560 00:26:52,160 --> 00:26:53,919 Speaker 7: erase that, and that's where you have to kind of 561 00:26:53,920 --> 00:26:54,960 Speaker 7: pick up and go from there. 562 00:26:56,000 --> 00:26:57,720 Speaker 8: Well, I think one of the I think one of 563 00:26:57,720 --> 00:27:01,080 Speaker 8: the things that is an issue for the industry is 564 00:27:01,080 --> 00:27:04,360 Speaker 8: that everyone still believes that they can optimize their portfolio 565 00:27:04,680 --> 00:27:06,680 Speaker 8: and that they're going to find a buyer for the 566 00:27:06,760 --> 00:27:09,360 Speaker 8: products and the product lines that they don't want at 567 00:27:09,359 --> 00:27:12,840 Speaker 8: a good multiple. And you know, at the end of 568 00:27:12,920 --> 00:27:14,960 Speaker 8: the day, there aren't a lot of buyers out there 569 00:27:15,040 --> 00:27:19,600 Speaker 8: for you know, categories that are slow growth or declining, 570 00:27:20,400 --> 00:27:22,520 Speaker 8: and so there's maybe a little bit of a mismatch 571 00:27:22,520 --> 00:27:26,000 Speaker 8: in terms of the belief that they can streamline their portfolio, 572 00:27:26,280 --> 00:27:28,560 Speaker 8: get up you know, all the value that they think 573 00:27:28,560 --> 00:27:31,959 Speaker 8: they deserve out of it, and yet I don't see 574 00:27:32,000 --> 00:27:35,040 Speaker 8: a whole, you know, a whole suite of buyers lining 575 00:27:35,160 --> 00:27:37,080 Speaker 8: up to look at those products. 576 00:27:38,119 --> 00:27:43,200 Speaker 2: Hershey, this company went public in nineteen twenty seven. Oh boy, 577 00:27:43,359 --> 00:27:46,639 Speaker 2: they did one follow on offering, and then for about 578 00:27:46,640 --> 00:27:51,280 Speaker 2: a period about twelve months in nineteen ninety three or four, 579 00:27:51,720 --> 00:27:54,359 Speaker 2: we pitched them hard on doing another following. We actually 580 00:27:54,359 --> 00:27:56,800 Speaker 2: had a good analyst on the name in the company 581 00:27:56,840 --> 00:27:58,960 Speaker 2: like this, We went to Hershey probably six or seven 582 00:27:59,000 --> 00:28:02,879 Speaker 2: times in a space you're pitching a falling pitching. Nothing 583 00:28:03,320 --> 00:28:05,320 Speaker 2: didn't get paid, but the got the Hershey and got 584 00:28:05,359 --> 00:28:06,320 Speaker 2: a lot of Hershey chocolate. 585 00:28:07,040 --> 00:28:07,520 Speaker 3: There's that. 586 00:28:07,600 --> 00:28:10,560 Speaker 2: So, so, Jen, what does a company like Hershey do? 587 00:28:10,640 --> 00:28:12,600 Speaker 2: It's one of those things. I know they've gotten bigger 588 00:28:12,600 --> 00:28:15,960 Speaker 2: through some acquisitions, but there's still relatively a small player 589 00:28:16,000 --> 00:28:16,679 Speaker 2: relative to some of the. 590 00:28:16,680 --> 00:28:17,399 Speaker 3: Other big names. 591 00:28:17,880 --> 00:28:20,200 Speaker 2: But is there a brand so good that they can 592 00:28:20,320 --> 00:28:22,240 Speaker 2: kind of remain independent? 593 00:28:23,359 --> 00:28:26,280 Speaker 8: Yeah, I believe that the Hershey brand is really iconic. 594 00:28:26,280 --> 00:28:28,320 Speaker 8: And if you think about some of their uh some 595 00:28:28,400 --> 00:28:32,200 Speaker 8: of their biggest chocolate lines, there really aren't a lot 596 00:28:32,240 --> 00:28:38,400 Speaker 8: of uh, mass targeted competitors out there, so, you know, 597 00:28:38,480 --> 00:28:43,800 Speaker 8: people may prefer the higher end alex, you know, but 598 00:28:43,800 --> 00:28:45,760 Speaker 8: but when it comes to kind of that mass market, 599 00:28:46,480 --> 00:28:49,440 Speaker 8: it's hard for an external brand to come in and 600 00:28:49,480 --> 00:28:52,720 Speaker 8: get the kind of penetration that Hershey has. And in addition, 601 00:28:52,800 --> 00:28:55,520 Speaker 8: Hershey has really done a good job of diversifying into 602 00:28:55,640 --> 00:28:58,360 Speaker 8: the broader snacking, so they own you know, they own 603 00:28:58,400 --> 00:29:02,320 Speaker 8: popcorn brand they own, you know, Pretzel brand, so you 604 00:29:02,360 --> 00:29:04,959 Speaker 8: know they've they've done a good job of diversifying and 605 00:29:05,000 --> 00:29:07,840 Speaker 8: that'll help, you know, that'll help them with their long 606 00:29:07,920 --> 00:29:08,720 Speaker 8: term growth as well. 607 00:29:09,120 --> 00:29:09,720 Speaker 4: Really interesting. 608 00:29:09,720 --> 00:29:12,320 Speaker 7: I'm surprised that John Tucker didn't have some weird factoid 609 00:29:12,320 --> 00:29:13,480 Speaker 7: about Hershey, Pennsylvania. 610 00:29:13,800 --> 00:29:16,800 Speaker 3: We have the Hershey School and all that kind of stuff, and. 611 00:29:16,840 --> 00:29:18,800 Speaker 7: Yeah, but I mean like weird off the beaten track, 612 00:29:19,000 --> 00:29:20,760 Speaker 7: like here's where the cemetery. 613 00:29:20,920 --> 00:29:23,320 Speaker 10: I don't have any fun facts about Hershey, but I 614 00:29:23,320 --> 00:29:26,640 Speaker 10: suspect it's out in that region of the world because 615 00:29:27,040 --> 00:29:30,760 Speaker 10: there are lots of farms and milk cows that give 616 00:29:30,840 --> 00:29:31,600 Speaker 10: milk and stuff. 617 00:29:31,640 --> 00:29:35,320 Speaker 7: I could have told you that. All right, we really 618 00:29:35,400 --> 00:29:37,200 Speaker 7: appreciate it. It's so great to catch up with you. 619 00:29:37,280 --> 00:29:42,000 Speaker 7: Such wonderful analysis. Jen Bartasha's Consumer Staples Bloomberg Intelligence senior 620 00:29:42,080 --> 00:29:46,200 Speaker 7: industry analysts, and she covers everything everything, everything food related, 621 00:29:46,240 --> 00:29:47,240 Speaker 7: which is just such. 622 00:29:47,040 --> 00:29:51,000 Speaker 2: An years ago which still shocks me to this day. 623 00:29:51,120 --> 00:29:54,800 Speaker 2: The number one supermarket chain in the United States is Amazon. 624 00:29:55,720 --> 00:29:58,479 Speaker 3: What no, I mean Walmart. I'm sorry Walmart. 625 00:29:58,600 --> 00:29:59,960 Speaker 4: Oh, okay, okay, that makes more sense. 626 00:30:00,120 --> 00:30:02,360 Speaker 3: Sorry, right, and I forgot about that. But when you 627 00:30:02,360 --> 00:30:05,000 Speaker 3: do go in there. They're just massive square footage. 628 00:30:05,080 --> 00:30:07,160 Speaker 4: It's huge. H I mean, isn't where they make the 629 00:30:07,200 --> 00:30:08,640 Speaker 4: majority of their money or. 630 00:30:08,680 --> 00:30:12,200 Speaker 2: I think I think it drives traffic and they make 631 00:30:12,240 --> 00:30:15,000 Speaker 2: it on it because it I think, you know, supermarkets, 632 00:30:15,000 --> 00:30:16,960 Speaker 2: I think the margins are really really, really really low, 633 00:30:17,160 --> 00:30:18,320 Speaker 2: so you make it up on buy them and you 634 00:30:18,360 --> 00:30:20,160 Speaker 2: bring them into the store and they buy other stuff. 635 00:30:21,680 --> 00:30:25,560 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 636 00:30:25,640 --> 00:30:29,160 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 637 00:30:29,200 --> 00:30:31,960 Speaker 1: Auto with the Bloomberg Business app. You can also listen 638 00:30:32,080 --> 00:30:35,160 Speaker 1: live on Amazon Alexa from our flagship New York station. 639 00:30:35,520 --> 00:30:38,320 Speaker 1: Just say Alexa playing Bloomberg eleven thirty. 640 00:30:39,040 --> 00:30:40,880 Speaker 7: Okay, let's get to the markets here at the SP's 641 00:30:40,960 --> 00:30:43,720 Speaker 7: up four tenth of one percent. You know, I kind 642 00:30:43,720 --> 00:30:45,520 Speaker 7: of felt like this was going to happen yesterday when 643 00:30:45,520 --> 00:30:47,520 Speaker 7: we had that big sell off, particularly as we closed 644 00:30:47,560 --> 00:30:48,280 Speaker 7: off the lows. 645 00:30:48,320 --> 00:30:50,560 Speaker 4: But the question is how sustainable is this? Sort of 646 00:30:50,600 --> 00:30:51,600 Speaker 4: by the dip narrative? 647 00:30:51,800 --> 00:30:55,320 Speaker 7: So let's ask Nancy Davis, founder and CEO of Quadratic 648 00:30:55,440 --> 00:30:59,440 Speaker 7: Capital Management. She joins us now from Greenwich, Connecticut. Nancy, 649 00:30:59,440 --> 00:31:02,280 Speaker 7: how do I own understand the price action right now 650 00:31:02,360 --> 00:31:03,240 Speaker 7: on the main index. 651 00:31:04,800 --> 00:31:06,680 Speaker 6: Well, Alex, I think you said it. Well, it's a 652 00:31:06,680 --> 00:31:07,600 Speaker 6: little confusing. 653 00:31:07,800 --> 00:31:11,920 Speaker 11: I mean, it's basically good data. Yesterday we had a 654 00:31:11,960 --> 00:31:18,280 Speaker 11: stronger inflation, less FED height or FED cuts, and that's 655 00:31:18,320 --> 00:31:21,320 Speaker 11: what's kind of fueling the market. The market's on hope 656 00:31:21,480 --> 00:31:24,120 Speaker 11: right now that the FED is going to ease rates 657 00:31:24,520 --> 00:31:27,600 Speaker 11: and save everything from being overly tight. 658 00:31:28,880 --> 00:31:31,520 Speaker 2: So you know, I'm looking at the bond market here 659 00:31:31,560 --> 00:31:34,160 Speaker 2: because boy, in twenty twenty two, the bond market just 660 00:31:34,160 --> 00:31:36,640 Speaker 2: got crushy. There's no place left to hide. The sixty 661 00:31:36,720 --> 00:31:39,800 Speaker 2: forty portfolio did nothing for you, a little bit of 662 00:31:39,840 --> 00:31:43,440 Speaker 2: a positive performance, and last year, thanks goodness to November December. 663 00:31:43,720 --> 00:31:45,480 Speaker 2: But here we are starting off the year again in 664 00:31:45,560 --> 00:31:46,680 Speaker 2: the red for fixed income. 665 00:31:47,280 --> 00:31:51,120 Speaker 3: What is what do we do in the fixed income space? Nancy? 666 00:31:52,480 --> 00:31:55,480 Speaker 11: Well, it's tricky because the US yield curve is so 667 00:31:55,800 --> 00:31:59,440 Speaker 11: incredibly inverted. So what that means is that longer dated 668 00:31:59,480 --> 00:32:03,880 Speaker 11: interest rates are anticipating the FED will aggressively cut rates, 669 00:32:04,200 --> 00:32:06,360 Speaker 11: and everybody in the bond market is kind of holding 670 00:32:06,360 --> 00:32:09,280 Speaker 11: out their hands saying okay, cut now. And the market 671 00:32:09,360 --> 00:32:13,680 Speaker 11: being inverted, you're getting paid less yield to take more 672 00:32:13,800 --> 00:32:17,200 Speaker 11: duration risk. And so the market has been rushing into credit, 673 00:32:17,680 --> 00:32:21,640 Speaker 11: private credit, public credit. So credit spreads are incredibly tight, 674 00:32:22,240 --> 00:32:26,600 Speaker 11: right along with their corporate cousin equities, So those financial 675 00:32:26,640 --> 00:32:29,000 Speaker 11: assets that are at all time highs. And then if 676 00:32:29,000 --> 00:32:32,520 Speaker 11: you look at the treasury market, you can buy a 677 00:32:32,560 --> 00:32:36,040 Speaker 11: one month T bill and get paid five point four percent, 678 00:32:36,640 --> 00:32:39,239 Speaker 11: or you can lend money to the US Treasury for 679 00:32:39,440 --> 00:32:43,040 Speaker 11: ten years and get over a percent less. So it's 680 00:32:43,040 --> 00:32:46,200 Speaker 11: a really crazy environment because the yield curve is not 681 00:32:46,320 --> 00:32:50,000 Speaker 11: normally this inverted for this long and it's really I 682 00:32:50,000 --> 00:32:52,760 Speaker 11: think a message to bond investors that you're not being 683 00:32:52,800 --> 00:32:54,840 Speaker 11: paid to take duration risks. 684 00:32:55,200 --> 00:32:56,880 Speaker 7: So it's funny you mentioned that because a week ago, 685 00:32:57,000 --> 00:33:00,240 Speaker 7: the conversation was, Okay, my three month T bill was up? 686 00:33:00,280 --> 00:33:01,920 Speaker 7: What do I do with the money? Do I do 687 00:33:02,000 --> 00:33:04,000 Speaker 7: I go into equities? Now do I do something else? 688 00:33:04,040 --> 00:33:06,440 Speaker 7: And now it's like whoof Nope, gotta stay, gotta stay, 689 00:33:06,480 --> 00:33:09,640 Speaker 7: because that the money market funds are just really too attractive. 690 00:33:11,160 --> 00:33:14,440 Speaker 7: How do you then navigate an environment where we're going 691 00:33:14,520 --> 00:33:17,760 Speaker 7: to get three cuts maybe for normalization rather than something 692 00:33:17,840 --> 00:33:18,480 Speaker 7: more dramatic. 693 00:33:20,000 --> 00:33:22,960 Speaker 11: I mean, I think most people do have equities in 694 00:33:23,000 --> 00:33:26,000 Speaker 11: their portfolio, and the equity market is really hanging on 695 00:33:26,080 --> 00:33:28,520 Speaker 11: to this premise that the FED is going to cut rates. 696 00:33:28,960 --> 00:33:32,040 Speaker 11: So I think it's reasonable to have some short term treasuries. 697 00:33:32,200 --> 00:33:34,440 Speaker 11: And I don't think you're really getting paid for the 698 00:33:34,520 --> 00:33:37,160 Speaker 11: risk to take credit risk, because it's similar. You know, 699 00:33:37,200 --> 00:33:39,440 Speaker 11: if you think about owning a corporate bond and owning 700 00:33:39,480 --> 00:33:42,600 Speaker 11: a corporate stock, it's a similar corporate beta, and corporates 701 00:33:42,640 --> 00:33:45,240 Speaker 11: are really expensive right now, so I think it makes 702 00:33:45,280 --> 00:33:48,600 Speaker 11: more sense to just have treasury exposure and not add 703 00:33:48,640 --> 00:33:51,880 Speaker 11: that credit risk into your bond portfolio because you already 704 00:33:51,960 --> 00:33:54,040 Speaker 11: have it on the equity side. 705 00:33:54,240 --> 00:33:56,400 Speaker 2: You know, I was surprised last year when we did 706 00:33:56,400 --> 00:33:58,720 Speaker 2: get some decent performance out of fixed income, that high 707 00:33:58,840 --> 00:34:01,680 Speaker 2: yield was the real outperformer. And I would have thought 708 00:34:01,680 --> 00:34:04,400 Speaker 2: with all the discussion of everybody talking about a recession 709 00:34:04,440 --> 00:34:06,000 Speaker 2: right around the corner, that you wouldn't want to take 710 00:34:06,040 --> 00:34:06,840 Speaker 2: that level of risk. 711 00:34:07,240 --> 00:34:08,600 Speaker 3: What happened in the HYLD space. 712 00:34:08,640 --> 00:34:11,879 Speaker 2: And I assume, just by your previous comment that you're 713 00:34:11,920 --> 00:34:13,919 Speaker 2: not being enticed by the hyold space this year. 714 00:34:15,239 --> 00:34:18,480 Speaker 11: Yeah, I think high yield investment grade pretty much anything 715 00:34:18,520 --> 00:34:21,800 Speaker 11: with a credit spread. What you want is credit spreads tighter. 716 00:34:21,960 --> 00:34:24,760 Speaker 11: If you own bonds with credit risk, and credit spreads 717 00:34:24,760 --> 00:34:29,160 Speaker 11: are near you know, their tenth percentile of all time tightness. 718 00:34:29,200 --> 00:34:32,359 Speaker 11: So you know, especially I think I caution people it's 719 00:34:32,360 --> 00:34:35,360 Speaker 11: not just high yield, it's also short dated. A lot 720 00:34:35,400 --> 00:34:37,759 Speaker 11: of people have been going into short duration funds, and 721 00:34:37,760 --> 00:34:40,319 Speaker 11: if you look at your short duration funds that take 722 00:34:40,360 --> 00:34:43,440 Speaker 11: credit risk, you know, ig credit spreads are around thirty 723 00:34:43,480 --> 00:34:46,840 Speaker 11: basis points for the three year point. It's even tighter 724 00:34:46,880 --> 00:34:49,319 Speaker 11: when you go closer in and there you need a 725 00:34:49,360 --> 00:34:52,239 Speaker 11: company to amend or extend, right, they either have to 726 00:34:52,280 --> 00:34:54,239 Speaker 11: pay back the loan or they have to turn it out. 727 00:34:54,600 --> 00:34:57,959 Speaker 11: So it's really you know, it can only go to zero, right, 728 00:34:58,040 --> 00:35:00,719 Speaker 11: so there's very little. You know, you're taking a lot 729 00:35:00,760 --> 00:35:03,160 Speaker 11: of risk and not getting a ton of return. And 730 00:35:03,239 --> 00:35:06,320 Speaker 11: so going back to those tea bills, like, yeah, maybe 731 00:35:06,640 --> 00:35:09,120 Speaker 11: maybe the FED is going to cut rates, but then 732 00:35:09,160 --> 00:35:11,920 Speaker 11: you should be okay on your equity side of the portfolio. 733 00:35:12,280 --> 00:35:14,120 Speaker 11: And if they don't cut rates, you don't have that 734 00:35:14,200 --> 00:35:16,880 Speaker 11: reinvestment risk. So I don't I don't think T bills. 735 00:35:17,200 --> 00:35:20,279 Speaker 11: They're they're boring and they're not super exciting, but I 736 00:35:20,280 --> 00:35:21,160 Speaker 11: don't think they're bad. 737 00:35:22,520 --> 00:35:24,960 Speaker 7: You also mentioned here in your notes of the fiscal 738 00:35:25,000 --> 00:35:29,640 Speaker 7: situation and watching the deficit. I feel like, yes, except 739 00:35:29,680 --> 00:35:31,799 Speaker 7: no one seems to care, So like, what do you 740 00:35:31,840 --> 00:35:32,279 Speaker 7: do with that? 741 00:35:33,920 --> 00:35:34,120 Speaker 6: Yeah? 742 00:35:34,160 --> 00:35:37,879 Speaker 11: No, Alex, You're exactly right, nobody cares. But I think 743 00:35:38,239 --> 00:35:41,359 Speaker 11: that's also the time when nobody's talking about something, it's 744 00:35:41,400 --> 00:35:44,360 Speaker 11: important to be mindful of it because usually that risk 745 00:35:44,480 --> 00:35:48,799 Speaker 11: is not priced. You know, the Treasury Department does have 746 00:35:48,880 --> 00:35:51,759 Speaker 11: to refinance a tremendous amount of debt, we have a 747 00:35:51,760 --> 00:35:54,359 Speaker 11: ton of fiscal spending, we have an election year. There's 748 00:35:54,400 --> 00:35:58,840 Speaker 11: really even no election premium priced into the volatility markets. 749 00:35:58,840 --> 00:36:00,640 Speaker 11: I mean, talk about pulling my hair out. I want 750 00:36:00,680 --> 00:36:02,359 Speaker 11: to grab people and be like, what's wrong with you? 751 00:36:02,400 --> 00:36:05,000 Speaker 11: Do you realize what's around the corner and what we're 752 00:36:05,000 --> 00:36:07,640 Speaker 11: going to be facing. So I think that's the time 753 00:36:07,719 --> 00:36:10,640 Speaker 11: that investors. You know, in all markets, you want to 754 00:36:10,640 --> 00:36:13,320 Speaker 11: buy things that are low and sell things that are high. 755 00:36:13,400 --> 00:36:16,160 Speaker 11: And there's certain things in the fixed income markets that 756 00:36:16,200 --> 00:36:20,920 Speaker 11: are really inexpensively priced, and then there's ninety percent of 757 00:36:20,920 --> 00:36:23,600 Speaker 11: the market that's really expensive, so you want to kind 758 00:36:23,640 --> 00:36:27,720 Speaker 11: of avoid the expensive stuff and buy the cheaply priced things. 759 00:36:27,760 --> 00:36:30,800 Speaker 2: In my opinion, so what is the FED going to 760 00:36:30,960 --> 00:36:32,920 Speaker 2: do this year. I guess obviously the March cut is 761 00:36:32,960 --> 00:36:35,480 Speaker 2: off the table. I think people are now really debating 762 00:36:35,600 --> 00:36:38,360 Speaker 2: May and maybe even suggesting June might be the first, 763 00:36:38,600 --> 00:36:39,680 Speaker 2: might be the launching point. 764 00:36:40,000 --> 00:36:40,640 Speaker 3: What do you think? 765 00:36:42,000 --> 00:36:45,000 Speaker 11: I think it's really hard to predict what policy makers 766 00:36:45,000 --> 00:36:47,600 Speaker 11: are going to do, and then it's even harder to 767 00:36:47,680 --> 00:36:50,120 Speaker 11: predict what markets are going to do in response to 768 00:36:50,160 --> 00:36:54,120 Speaker 11: that policy, because it's all related to expectations. Right. You know, 769 00:36:54,160 --> 00:36:57,240 Speaker 11: if we if we rewind before the FED started hiking 770 00:36:57,320 --> 00:36:59,720 Speaker 11: rates and the dot plots started to come out higher, 771 00:37:00,120 --> 00:37:03,200 Speaker 11: I don't think any economist out there would have said, Okay, 772 00:37:03,239 --> 00:37:06,480 Speaker 11: the Fed's going to hike to five twenty five and 773 00:37:06,520 --> 00:37:09,400 Speaker 11: about a twelve month window. I think nobody was talking 774 00:37:09,440 --> 00:37:13,040 Speaker 11: about that, and now everybody is talking about rate cuts. 775 00:37:13,080 --> 00:37:15,680 Speaker 11: It's just a question of how many, how quickly, and 776 00:37:15,719 --> 00:37:18,000 Speaker 11: when is it going to happen. I think we also 777 00:37:18,040 --> 00:37:21,240 Speaker 11: have to be mindful of the Silicon Valley swap lines. 778 00:37:21,320 --> 00:37:25,839 Speaker 11: So the BTSP program is expiring in March. That's put 779 00:37:25,880 --> 00:37:28,800 Speaker 11: a ton of liquidity out there in the system that's 780 00:37:28,840 --> 00:37:30,400 Speaker 11: going to be coming out. So I think there are 781 00:37:30,400 --> 00:37:33,960 Speaker 11: a lot of things out there that are catalysts to 782 00:37:34,040 --> 00:37:38,080 Speaker 11: make markets more normal and fixed income, I think having 783 00:37:38,160 --> 00:37:41,319 Speaker 11: an upward sloping yield curve. You know that's not some 784 00:37:41,440 --> 00:37:44,720 Speaker 11: kind of tail event, right, that would just be normal. 785 00:37:44,840 --> 00:37:48,719 Speaker 11: Like in normal environments, when you lend somebody money longer, 786 00:37:49,040 --> 00:37:52,520 Speaker 11: whether it's a sovereign or a municipality or a corporate, 787 00:37:52,840 --> 00:37:57,000 Speaker 11: you typically get paid more interest to lend longer, right, 788 00:37:57,040 --> 00:38:00,319 Speaker 11: because it's more risks. Right now, we're not seeing that. 789 00:38:00,360 --> 00:38:01,759 Speaker 11: So I think there are a lot of ways to 790 00:38:01,840 --> 00:38:04,400 Speaker 11: kind of play for a more normal market, and it 791 00:38:04,440 --> 00:38:09,360 Speaker 11: doesn't necessarily have to be dependent on the FED just 792 00:38:09,480 --> 00:38:12,680 Speaker 11: cutting rates, because I think the longer the FED pushes 793 00:38:12,719 --> 00:38:16,719 Speaker 11: off the rate cuts, the more the economy, especially all 794 00:38:16,760 --> 00:38:19,560 Speaker 11: the corporates out there that have debt will have to refinance. 795 00:38:19,600 --> 00:38:22,719 Speaker 11: So it could potentially be higher for longer means more 796 00:38:22,800 --> 00:38:27,440 Speaker 11: cuts faster later because the economy is really slowing. So 797 00:38:27,760 --> 00:38:29,000 Speaker 11: I think it's tricky. 798 00:38:28,680 --> 00:38:30,360 Speaker 4: That, all right, Nancy, We appreciate it. 799 00:38:30,440 --> 00:38:34,120 Speaker 7: Nancy Davis, founder and CEO of Quadratic Capital Management talking 800 00:38:34,200 --> 00:38:36,759 Speaker 7: about fixed income, and then also you layer in the 801 00:38:36,800 --> 00:38:40,000 Speaker 7: election timetable and the idea that the closer you get 802 00:38:40,040 --> 00:38:41,640 Speaker 7: to the election and the more you cut the more it. 803 00:38:41,600 --> 00:38:43,719 Speaker 4: Looks political, and that kind of changes the framework to 804 00:38:43,800 --> 00:38:44,239 Speaker 4: a little bit. 805 00:38:44,520 --> 00:38:46,680 Speaker 2: Yeah, so I think if you start, maybe that takes 806 00:38:46,680 --> 00:38:47,879 Speaker 2: some of the political risk at you start. 807 00:38:48,000 --> 00:38:49,080 Speaker 3: Olentially see how play that. 808 00:38:49,640 --> 00:38:54,160 Speaker 1: This is the Bloomberg Intelligence Podcast, available on apples, Spotify, 809 00:38:54,360 --> 00:38:57,280 Speaker 1: and anywhere else you will get your podcasts. 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