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Speaker 2: This is Bloomberg Business Wait inside from the reporters and
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Speaker 2: gloom wal Business finance and tech news. The Bloomberg Business
Speaker 2: Week podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 3: She has been.
Speaker 1: Consistently reminding us that we are seeing earnings growth with
Speaker 1: analyst raising estimates and growth outside of the Magnificent seven,
Speaker 1: including growth and financials. She is out with Research today
Speaker 1: saying stop blaming earnings for S and P struggles. It's
Speaker 1: mostly about tech. Back with us as Gina Martin Adams,
Speaker 1: who is Bloomberg Intelligence, Director of Equity Strategy and Chief
Speaker 1: Equity Strategist. She too has had quite a week or so.
Speaker 1: She's back here in our Bloomberg Interactive Brokers Studio. I
Speaker 1: keep leaning on you. We keep leaning on you because
Speaker 1: I feel like I want to keep understanding fundamentally how
Speaker 1: companies are doing.
Speaker 4: Yeah, and I think that's fair, thank you very much.
Speaker 4: I don't know that that mays or that interested in
Speaker 4: the fundamentals right now, so rare though nonetheless, I do
Speaker 4: think that most of this if you go back to
Speaker 4: when this really started. It really started with tech valuations
Speaker 4: at extreme levels. Earning season coming all the tech stocks
Speaker 4: for the most part, with the exception of a few
Speaker 4: key like Intel. You know, they generally beat expectations, but
Speaker 4: there were nuances and did they beat on their cloud component?
Speaker 4: You know, that's the Microsoft story. On the Amazon story.
Speaker 4: We nitpicked into little details in the earning statement, and
Speaker 4: that's just a symptom I think of a market that
Speaker 4: got too irrationally exuberant about this space. The companies are
Speaker 4: still doing fine, fundamentals are still pretty solid. They're guiding
Speaker 4: us to expect a little bit less margin growth going forward,
Speaker 4: and that's left us with this kind of dearth of
Speaker 4: where do we go next. We are seeing some emergence
Speaker 4: of positivity in the rest of sectors, but I think
Speaker 4: we're at a point in time where we're not terribly
Speaker 4: confident that that's going to last, and at least in
Speaker 4: terms of market psychology, that's creating a lot of weakness
Speaker 4: and some degree of panic inequities. As the big stocks turnover,
Speaker 4: where do investors go. They're not really looking at buying
Speaker 4: a whole lot of these risky stocks that have lagged
Speaker 4: in this cycle, Joe.
Speaker 5: Well, when you say risky, are you talking about the
Speaker 5: S and P four ninety three? Are the other four
Speaker 5: hundred ninety three stocks little risky companies compared to the
Speaker 5: big It is amazing.
Speaker 4: Right, That's basically how it's played out is the seven
Speaker 4: have become so big and so dominant and have gathered
Speaker 4: so much mind share, market share, investor dollars that they
Speaker 4: are their own segment, and.
Speaker 3: They've represented all of the earnings growth.
Speaker 4: Absolutely all of the earnings growth for the next six quarters.
Speaker 4: I think that's so important and so key is when
Speaker 4: you look at the earnings growth trends, you've had this
Speaker 4: mass divergence between the seven and the rest. And sure
Speaker 4: there's some of the rest that have done fine, but
Speaker 4: the seven have so thoroughly dominated earnings growth that that's
Speaker 4: where we've been focused. All of our attention has been focused. Now,
Speaker 4: the four ninety three are emergent, this is the great news.
Speaker 4: I think we still need to gather confidence that that
Speaker 4: emergence can endure over the next several quarters. And that,
Speaker 4: to me is what last week was about, is the
Speaker 4: tech stacks were already melting down. We were starting to
Speaker 4: get a little confidence that the four ninety three might
Speaker 4: make up for some of that tech loss when suddenly
Speaker 4: you got some pretty nasty macro data and everyone said,
Speaker 4: oh no, the four ninety three can't possibly survive that
Speaker 4: kind of macro.
Speaker 1: Are you not so.
Speaker 3: Sure going forward?
Speaker 1: Because we've talked a lot about that. Beyond the big
Speaker 1: tech that we have seen earning's growth elsewhere, and that
Speaker 1: anamals we're ratcheting up or moving up.
Speaker 4: Estimates, right, and that gave us that opt we're still
Speaker 4: seeing that. We're still seeing it in guidance. Our guidance
Speaker 4: momentum score for third quarter actually continues to improve. So
Speaker 4: we're not seeing any evidence that would suggest the macro
Speaker 4: is yet overwhelming even the four ninety three's individual company
Speaker 4: performance or improvement or general trend growth into twenty twenty five.
Speaker 4: I am worried that maybe we will see that if
Speaker 4: we get bigger deterioration in the job market, what does
Speaker 4: that do to filter through? But we're not it yet.
Speaker 4: And you know, I've learned a long time ago that
Speaker 4: my forecast is worth about as much as you knows mine.
Speaker 4: So I will be happy to just take the guidance
Speaker 4: from the internal dynamics of the market itself. If the
Speaker 4: broader four ninety three starts to turn over, then we
Speaker 4: have to generally change ourselves.
Speaker 5: By the way, there used to be a great function
Speaker 5: on the terminal loss go, so I could pull off
Speaker 5: like Google and I could type loss go and it
Speaker 5: would show me a stock chart.
Speaker 3: And then when they fired people.
Speaker 5: Yeah, do you And I'm asking this because you know
Speaker 5: the the unemployment number rows to four ero point three percent,
Speaker 5: But in listening to Powell or in talking to Mike McKee,
Speaker 5: I know that a lot of that is because the
Speaker 5: labor market has grown, the supply of workers have grown.
Speaker 3: It's not because of mass layoffs.
Speaker 1: It's different.
Speaker 3: And you haven't seen that now, and you point that.
Speaker 4: Out, and I think that's yeah. I like to watch
Speaker 4: challenger layoffs and initial claims. Actually, I think you could
Speaker 4: get a lot of really false signals out of the
Speaker 4: unemployment rates. So I tend to view that as a
Speaker 4: lagging indicator and generally ignore it, understanding that the market
Speaker 4: occasional keys in on that as the end all be all,
Speaker 4: as in Friday. But nonetheless, when you look at challenger
Speaker 4: layoffs and initial claims, we've had little bumps up this year,
Speaker 4: but they still fail to surpass the bumps that we
Speaker 4: saw in twenty twenty two or twenty twenty three. So
Speaker 4: it appears that in the broader landscape of things, we're
Speaker 4: going through another sort of mini macro weakness in a
Speaker 4: series of mini macro hills that we've had to sort
Speaker 4: of surmount or surpass over the course of the last
Speaker 4: three years. This has been a very consistent story in
Speaker 4: the market. Is the macro's just week and sometimes it
Speaker 4: gets a little weaker, scares us, and it still stays weak.
Speaker 1: Well, this is what And you keep bringing this up,
Speaker 1: like we've all been around for a little while and
Speaker 1: we've seen a lot of different market cycles. And this
Speaker 1: doesn't feel like great financial crisis. This doesn't feel like,
Speaker 1: you know, a COVID outbreak, a global pandemic shutting everything down.
Speaker 1: And I understand why the markets fall off. It doesn't
Speaker 1: feel that nervous. However, things can when they start to
Speaker 1: go bad, Yeah, can move badly quickly.
Speaker 3: They can.
Speaker 4: And the interesting thing about this cycle that I think
Speaker 4: has been so hard for how many people, myself included,
Speaker 4: is that it does appear to just be this rolling
Speaker 4: weakness followed by many strength rolling in it's this constant
Speaker 4: rolling environment as opposed to a big cyclical sect. That's
Speaker 4: what I feel like, something like a rolling recessionary kind
Speaker 4: of experience, with many bouts of optimism that emerge occasionally,
Speaker 4: And in the S and P five hundred, that optimism
Speaker 4: was really entirely focused on the Max seven.
Speaker 1: Kind of rolling recession. Because you've talked about earnings recession
Speaker 1: already happening. Yeah, can it? Is it a better environment
Speaker 1: for the equity market because it kind of moves around?
Speaker 4: It does appear that, at least so far, it seems
Speaker 4: to be resulting in more corrective processes that refresh the
Speaker 4: bull trend. I mean, we've definitely seen that since the
Speaker 4: twenty twenty lows. We had a pretty big corrective process
Speaker 4: in twenty twenty two, we had another ten percent down
Speaker 4: draft last year. We're in the midst of yet another
Speaker 4: ten percent downdraft this year, and yet we're still trading
Speaker 4: above our two interney moving average on the S and
Speaker 4: P five hundred. So, at least so far, it's tough
Speaker 4: to stomach for a lot of people. Yeah, but that's
Speaker 4: sort of a lack of we just can't seem to
Speaker 4: develop the irrational exuberance for the broad market at large.
Speaker 4: I mean, certainly, even if you go back a month ago,
Speaker 4: you wouldn't hear everybody say I got to own the
Speaker 4: S and P five hundred. They just had to own
Speaker 4: the mag seven. So there was a pocket of optimism.
Speaker 4: But did it overwhelm the equity market at large, which
Speaker 4: usually characterizes tops. I would say no, All right.
Speaker 1: Kind of leave it on that note.
Speaker 3: Thank you.
Speaker 1: Gina Martin Adams, Boomberg Intelligence, Director of Equity Strategy and
Speaker 1: Chief Equity Strategist, joining us right here. Let's get to
Speaker 1: what I feel like is the bell of the market ball,
Speaker 1: and that is the rate environment.
Speaker 3: Yeah.
Speaker 5: Absolutely, I mean to me, it was made very clear
Speaker 5: this morning that we were watching and unwinding of the
Speaker 5: yen carry trade, and I wish there was a way
Speaker 5: maybe I just don't know, and there is to gauge
Speaker 5: how big that trade is and to watch it over time.
Speaker 5: I mean, you could look at the balance eat for
Speaker 5: the Bank of Japan, for example, but I don't know.
Speaker 3: Only we had someone to ask.
Speaker 1: We do have two people to ask. Let's get to
Speaker 1: it with us. As Bloomberg Economics Chief economist Tom or
Speaker 1: Like In our DC Bureau and Bloomberg News rates reporter
Speaker 1: Michael Mackenzie here in our Bloomberg Interactive Broker studio. Michael,
Speaker 1: Good to have you back. Tom Good to have you
Speaker 1: back as well. I do want to ask and feel
Speaker 1: free to like bring in what match just to ask,
Speaker 1: But I am curious about the rates trade today and
Speaker 1: how significant was and does it tell you that the
Speaker 1: Fed made a mistake last week?
Speaker 3: Well, the right straight to day has certainly wild.
Speaker 6: You've seen another thirty day, a thirty basis point range
Speaker 6: in the two year, which kind of is just extraordinary
Speaker 6: of volatility, and the two years now a little bit higher,
Speaker 6: and yield on this session ten years a little bit lower.
Speaker 6: We were briefly positive between the two year ten year curve.
Speaker 6: We now come back to me about minus ten eleven
Speaker 6: basis points. So you could sort of look at it
Speaker 6: and go, oh, nothing's really changed, But actually under the
Speaker 6: surface a lot has changed. And I think it's coming
Speaker 6: really from as Matt said, Japan, when we've seen the
Speaker 6: carry trade unwind. And I say this is experience because
Speaker 6: I was on a trading floor in nineteen ninety eight
Speaker 6: in Tokyo when LTCM blew up and I watched Salomon
Speaker 6: Smith Barney unwind a huge amount.
Speaker 3: Of carry trades.
Speaker 6: It will it just essentially compels everyone to go and
Speaker 6: buy what is the one thing I can own, and
Speaker 6: its treasuries. And you saw that. You saw the Tokyo
Speaker 6: stock market dropped two percent on Monday after a six
Speaker 6: percent drop on Friday. This is a huge onwine going.
Speaker 6: As someone said about a year ago Jim Grant's Observer
Speaker 6: conference here in New York, he said, Japan is the
Speaker 6: most dangerous peg in the world. And I always remember
Speaker 6: that a year ago because he was sort of setting
Speaker 6: in terrain that when the Bank of Japan finally starts
Speaker 6: to go, it's going to have global consequences.
Speaker 3: And it's having that now for the FED.
Speaker 6: So the Fed, of course, as Austin Goolsby said today,
Speaker 6: they're not going to react to just one number. Payrolls
Speaker 6: has a big one hundred thousand plus or minus discrepancy,
Speaker 6: so they're going to have.
Speaker 3: To wait for the data.
Speaker 6: What I think would worry the FED right now, though,
Speaker 6: is it sort of harkens back to what we saw
Speaker 6: in nineteen ninety eight. When these trades start to unwind,
Speaker 6: someone is left holding the bag. And just how big
Speaker 6: a financial accident is out there, because that's when it
Speaker 6: becomes systemic, that's when markets stopped functioning properly. We've heard
Speaker 6: a lot of people speak on the Bluemberg TV and
Speaker 6: radio today talking about liquidity. As long as liquidity, markets
Speaker 6: is fine and Marcus can function. And again, as Gina
Speaker 6: just said, the S and p' is nowhere near it's
Speaker 6: two on a day moving average. This is a contained
Speaker 6: correction that's working its way through the system. If it
Speaker 6: stays that way, the Fed can keep washing the data
Speaker 6: and then the bomb market will be judged on whether
Speaker 6: or not they've got too far ahead or not.
Speaker 1: Tom morlic I want to come bring you in on
Speaker 1: this in terms of you're listening to Michael McKenzie talk,
Speaker 1: and I am curious also about kind of the global
Speaker 1: economic backdrop and the differences that we're starting to see.
Speaker 1: Come on in on here and what's type of mind
Speaker 1: for you.
Speaker 3: So it's an interesting moment, Carol.
Speaker 7: We had the Fed last week send some pretty dubvish signals.
Speaker 7: Powell was pretty clear that a rate cut was on
Speaker 7: the agenda for September, and then we had the U
Speaker 7: unemployment data come in and that big downside surprise on
Speaker 7: the jobs numbers and upside surprise on how high unemployment
Speaker 7: had headed, and that kind of made the markets believe
Speaker 7: that the FED had made a mistake. Perhaps the FED
Speaker 7: was behind the curve. Perhaps they'd made a mistake by
Speaker 7: not cutting in July. Perhaps they'd need now to be
Speaker 7: more aggressive, delivering maybe a fifty basis point cut in September,
Speaker 7: maybe an intermediate cut even ahead of that September meeting.
Speaker 7: And then Japan, as Michael was suggesting, kind of compounds
Speaker 7: and accelerates the kind of the dynamic in global markets,
Speaker 7: because the yen carry trade had been a huge driver
Speaker 7: for prices of risk assets through that whole period where
Speaker 7: interest rates in Japan had been pegged at zero and
Speaker 7: the yen have been reliably depreciating, and suddenly, with the
Speaker 7: banker Japan hiking and the FED suggesting it was going
Speaker 7: to move pretty quickly in the other direction, we saw
Speaker 7: yen strength, expectations of higher yen rates, and that yen
Speaker 7: carry trade began a rapid unwind, hitting the nick really
Speaker 7: hard and hitting global risk assets. So that's the environment
Speaker 7: which the FED and which global investors and I confronting
Speaker 7: it's going to be an interesting few weeks ahead.
Speaker 3: Michael walk us through.
Speaker 5: I guess a carry trade is a broad term for
Speaker 5: it could be you could execute that trade in a
Speaker 5: number of different ways, and equally, I'm sure you can
Speaker 5: unwind it in a number of different ways. But is
Speaker 5: there any way to explain to our listeners how it
Speaker 5: gets unwound and how like how long that takes? Because
Speaker 5: this is not just one year of a carry trade.
Speaker 5: This is kind of a generation of traders who have
Speaker 5: become addicted to this pool of cheap money out of
Speaker 5: Japan to buy assets, you know, our yields in higher
Speaker 5: yielding economies.
Speaker 6: It's interesting actually because when we had the Mexican election result,
Speaker 6: the carrier trade got a bit of a wobble in July,
Speaker 6: and then suddenly it came roaring back and got very
Speaker 6: close to the peak just before the Mexican election, and
Speaker 6: then it's just gone down again, and it's gone down hard.
Speaker 6: So you've seen, I mean, clearly you can. One way
Speaker 6: to think about the size of the carry trade is
Speaker 6: look at the move in the Japanese yen. It's moved
Speaker 6: from one hundred and sixty two yen to one for
Speaker 6: two today, it's a huge.
Speaker 3: In like two and a half weeks.
Speaker 6: Yeah, it's just huge. But it's again if you go
Speaker 6: back to LTCM, that happened in a couple of days,
Speaker 6: like a twenty four hour period, so you can see
Speaker 6: the comparison there. I think in terms of the carry trade,
Speaker 6: it's it's essentially Japan. It doesn't cost you any money
Speaker 6: to borrow in yen. It's zero interest rates for years
Speaker 6: until recently when the Bank of Japan began rates, but
Speaker 6: even then it's still very, very low compared to the
Speaker 6: rest of the world. So you can effectively borrow in
Speaker 6: yen and go and buy T bills in America and
Speaker 6: pick up five percent, and as long as the currency
Speaker 6: keeps weakening, you're happy.
Speaker 3: So that's why it should have done that.
Speaker 6: It becomes a self reinforcing mechanism because the end keeps weakening.
Speaker 6: And then suddenly when you aid a last week said oh,
Speaker 6: actually we're raising raids and we're going to keep going potentially,
Speaker 6: suddenly everyone goes, ooh, this is going to hurt me.
Speaker 6: And the best analogy I can think of is you've
Speaker 6: got to think about markets. It's all about crowds, and
Speaker 6: you know It's sort of imagine a group of people
Speaker 6: sitting around a table eating donuts. Then one person decides,
Speaker 6: you know what, I've eaten a lot of donuts. And
Speaker 6: I'll use the example Warren Buffett owning Apple. He'd eaten
Speaker 6: a lot of donuts and you know, and suddenly, after
Speaker 6: a nine hundred percent gain on his Apple stock, he
Speaker 6: does what any good investor does, They rebalance a portfolio.
Speaker 6: His Apple holding was way too big compared to the
Speaker 6: rest of his portfolio, and so he moves and leaves,
Speaker 6: and then suddenly everyone looking it sits at the said goes, oh,
Speaker 6: I got to leave too, and it's that rush, and
Speaker 6: the carry tray gets really really bad. Because liquidity is
Speaker 6: great when things are nice and calm. When liquidity, when
Speaker 6: volatility starts to get going and people start heading for
Speaker 6: the exit, the price of liquidity imbalance becomes really really expensive.
Speaker 6: And that's what people are discovering now.
Speaker 1: So Tom Orel like because part of what I think
Speaker 1: is smart to have right now is kind of what
Speaker 1: is the economic backdrop globally. Right we've been talking about
Speaker 1: how the US economy is doing really well compared with
Speaker 1: the rest of the world. Maybe we're starting to rethink that.
Speaker 1: We just talked to Earnings with Gina Martin Adams about
Speaker 1: the US earnings picture, and yes, a lot is the
Speaker 1: mag seven, but there's also been some earnings growth in
Speaker 1: the rest of the sector, in other sectors. The question
Speaker 1: is whether that continues when you look at the global economy.
Speaker 1: Is the global economy coming undone? Is the US economy
Speaker 1: coming undone?
Speaker 7: It's interesting, Carol, I think the the macro dynamics look
Speaker 7: very different in Japan to how they look in the
Speaker 7: United States. We think about what's happening in Japan, Well,
Speaker 7: it's kind of a perfect storm for the NICK. You've
Speaker 7: got a yen going from weakening to strengthening, which reduces
Speaker 7: foreign earnings for japan Inc.
Speaker 3: You've got interest.
Speaker 7: Rates going from zero to something above zero, which increases
Speaker 7: the opportunity cost of holding equities. And you've got growing
Speaker 7: concern about weakness in the United States, one of the
Speaker 7: biggest customers for Japanese firms. So pull all of that
Speaker 7: together and it's easy to see why you had a
Speaker 7: pretty outsized.
Speaker 3: Reaction from the nicking. What do you think of you? Sorry, sorry,
Speaker 3: go on, go on.
Speaker 7: For the United States, though, many of those because they're
Speaker 7: actually pointing in the other direction. We've got a weakening dollar,
Speaker 7: we've got falling interest rates, we've got an economy which,
Speaker 7: even on the sort of more pessimistic forecasts, faces something
Speaker 7: which looks a bit more like a kind of bumpy
Speaker 7: landing or mild.
Speaker 3: Recession than a severe recession.
Speaker 7: So global macro environment, I'd say it was mixed, but
Speaker 7: I certainly wouldn't say that the drop in the nick
Speaker 7: A was a kind.
Speaker 3: Of canary in the coal mine for global macro.
Speaker 5: No, but that's I mean, when Carol talks about the
Speaker 5: nervousness around the Great Financial Crisis or LTCM or COVID,
Speaker 5: that's what last night's nick A drop reminded me of. Still,
Speaker 5: I woke up this morning and thought, that's crazy. I mean,
Speaker 5: we still added jobs on Friday. I know it wasn't
Speaker 5: as many as we thought, but unemployment at four point
Speaker 5: three percent is not awful. Why are so many people
Speaker 5: calling this morning? I watched Jeremy Siegel on CNBC call
Speaker 5: for an emergency rate cut of seventy five BIPs and
Speaker 5: then another seventy five at the regular meeting.
Speaker 3: That's way overblown.
Speaker 5: Is anyone really tom calling for an emergency rate cut
Speaker 5: or are some people saying it may happen, but it's
Speaker 5: a horrible idea.
Speaker 3: So it's interesting.
Speaker 7: Michael mentioned LTCM and the en carry trade, and of
Speaker 7: course the en carry trade also played a cameo role
Speaker 7: in the global financial crisis.
Speaker 3: There was a kind of dynamic back and forth.
Speaker 7: Between deteriorating US credit conditions, unwinding of the en carry trade,
Speaker 7: further deteriorating US credit conditions, and the collapse of the
Speaker 7: subprime mortgage market. So if we look at the last
Speaker 7: twenty twenty thirty years of sort of global economic and
Speaker 7: financial history, and we think about the yen carry trade,
Speaker 7: there is a reason to kind of be paying pretty
Speaker 7: close attention to this right now.
Speaker 3: Now. I should also say that.
Speaker 7: Financial markets are more dynamic and more responsive to sharp
Speaker 7: changes in circumstances than economists are. Right when the market's
Speaker 7: turned down, often that's before the economic forecasts have turned down.
Speaker 7: So when the markets do have these moments, it does
Speaker 7: sort of behoove us to pay pretty close attention. All
Speaker 7: of that said, Matt, I share your assessment. We think
Speaker 7: US unemployment is heading to five percent in twenty twenty five.
Speaker 7: That's a pretty high number. Relative to consensus. But we
Speaker 7: don't think that's a catastrophe, right. We think that's a
Speaker 7: bumpy landing, a mild recession. It's not a catastrophe for
Speaker 7: the US economy, it's not a catastrophe for the world.
Speaker 1: Michael McKenzie is saving you the last forty five seconds.
Speaker 1: Has anything out here in terms of what you're seeing
Speaker 1: seem catastrophic.
Speaker 3: No, not at this point.
Speaker 6: I think it's the market has certainly got itself worked
Speaker 6: up trying to work out just how bad is this
Speaker 6: carry trade on one going to continue?
Speaker 1: And do you expect it to continue?
Speaker 3: I think it will.
Speaker 6: I think people need to probably recalibrate and consolidate their
Speaker 6: positions once these things start that. I mean, it's been
Speaker 6: so cheap for so long, there's a lot this It's
Speaker 6: going to take a while for this to burn itself out.
Speaker 6: You may get days where it comes back a bit correct,
Speaker 6: but generally this has to burn itself out because central
Speaker 6: banks are in or on the move.
Speaker 1: Ninety percent of what we're seeing today in the move
Speaker 1: in terms of treasury is it because of the carry trade.
Speaker 6: I think a lot of it played a role. We
Speaker 6: got down a three sixty five on twos. We're now
Speaker 6: back around what three three eighty eight? I think, yeah, eight,
Speaker 6: So yeah, I mean, and then don't forget we're gonna
Speaker 6: have auctions coming tomorrow Wednesday, Thursday. There's very little economic data,
Speaker 6: only a couple more fits speacause really the bomb market's
Speaker 6: on hold until we hear from Chap Howell at Jackson Hole,
Speaker 6: and it's just going to be reacting to whatever markets
Speaker 6: are doing here in terms of risk, assets and liquidity. Again,
Speaker 6: if liquidity continues to tighten, that will raise the stakes
Speaker 6: for the fit here.
Speaker 1: All right, super smart guys, Thank you both of you,
Speaker 1: incredible Bloomberg Economics Chief economist Tom More like out there
Speaker 1: in our DC bureau and Bloomberg News Rates for reporter
Speaker 1: Michael Mackenzie. Right here in our Bloomberg Interactive Broker studio.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern Listen
Speaker 2: on Apple car Play and then Bright Auto with a
Speaker 2: Bloomberg Business app, or watch us live on YouTube.
Speaker 1: Carol Master along with Matt Miller. Matt in for Tim
Speaker 1: here on Bloomberg Business Week. Just take a look at
Speaker 1: shairs of Apple Charlie mentioned down four percent, down almost
Speaker 1: eleven percent at their lows today amid that broader really
Speaker 1: market sell off, Berkshire Hathaway selling seventy five point five
Speaker 1: billion dollars worth of Apple stock on a net basis.
Speaker 1: That's a big.
Speaker 5: Number, true, But you know what, last week, the market
Speaker 5: was down.
Speaker 3: Apple was up last week, So what's your point.
Speaker 5: So this was a freakout piece of news that we
Speaker 5: got over the weekend, And to me, like it's super
Speaker 5: exciting because Warren Buffett is the oracle of Omaha, right,
Speaker 5: He's the guy who you think is like behind the curtain,
Speaker 5: the guy who knows everything that.
Speaker 3: Utilize and holds, and he buys the holds.
Speaker 5: But now he's selling not only Apple but also Bank America,
Speaker 5: and he's like raising this massive pile of cash.
Speaker 3: And I'm thinking, what does he know that I don't know?
Speaker 1: Is he going to buy a country or something or several?
Speaker 1: I don't know? All right, So let's get more on
Speaker 1: the Berkshire move, what it may say about Berkshire and
Speaker 1: Buffett's macro think on the markets and perhaps the global
Speaker 1: economy or US economy. We welcome in Bloomberg's cat Daugherty
Speaker 1: covers banks and financials. Also with US is Bloomberg Intelligence
Speaker 1: senior industry analyst Matthew Palizola, both here in our studio.
Speaker 1: All right, guys, cat laid out first. First of all,
Speaker 1: what do we know about what Berkshire and mister Buffet
Speaker 1: are up to?
Speaker 8: So what we know is that he was unloading these
Speaker 8: shares as the S and P was rallying significantly and
Speaker 8: it was setting a record high in mid July. But
Speaker 8: now what we know is that as a result, he
Speaker 8: has this huge pile of cash that he now could deploy.
Speaker 3: So the question is will he and when.
Speaker 1: He's been trying to deploy cash for a long time.
Speaker 8: He has, and he's In the most recent Berkshire annual meeting,
Speaker 8: they reference that they have all this cash and that
Speaker 8: there has been issues of finding places to park it,
Speaker 8: and that's because deals are very few far in between,
Speaker 8: and the prices have not come down, so they're waiting
Speaker 8: for the deals that make sense to them as not
Speaker 8: the most risky investment, a solid investment that doesn't have
Speaker 8: quite as much volatility, something that would provide a steady,
Speaker 8: long term investment, which is what Bank of America was
Speaker 8: for Berkshire for all of these years, since twenty eleven.
Speaker 8: This was something that they bought and they held, and
Speaker 8: they continued to hold until now. I would also note though,
Speaker 8: that the selling is not the most significant cut. It's
Speaker 8: eight point eight percent through mid July through August.
Speaker 3: First of their Apple stake of their Bank of America
Speaker 3: Bank America.
Speaker 8: But they're still the largest holder of Bank of America stock.
Speaker 3: But why were they selling bank again?
Speaker 5: All right, so we're going to talk to Matt in
Speaker 5: a second about why they would sell Apple, and he
Speaker 5: kind of knew they were going to, But why would
Speaker 5: they sell Bank America. It's not like they have a
Speaker 5: huge concentrated position there.
Speaker 8: So it's above it's today at around twelve percent their
Speaker 8: speculation of standing shares. There's speculation that Berkshire at the
Speaker 8: firm is trying to get below the ten percent mark.
Speaker 8: At that point, they don't have to report every time
Speaker 8: they sell like they're doing now and signaling to the market.
Speaker 8: And there's also, yeah, porting, there's a lot of reporting
Speaker 8: and public there's a lot of eyes on speculation when
Speaker 8: you do that, and you're such a large holder.
Speaker 5: And such a smart guy like he likes to buy
Speaker 5: low and sell high. Right, maybe this is high, maybe
Speaker 5: this is the top, or maybe this is what Warren
Speaker 5: Buffet is telling it, and he's in the top.
Speaker 1: Of the he was selling in the beginning, it was
Speaker 1: at the top.
Speaker 8: The stock was trading at forty four dollars, and then
Speaker 8: their last statement that came out was showing that they
Speaker 8: were selling around forty one. So if you just think
Speaker 8: about that three dollars price difference. But now the stock
Speaker 8: is dipping well below that. So the question is is
Speaker 8: he continuing to sell.
Speaker 1: Thirt districts and change.
Speaker 5: So you want to talk, well, yeah, exactly, because Bank America, Yes,
Speaker 5: they have a big concentration in terms of Bank America,
Speaker 5: they have twelve percent, right, but the Apple trade is
Speaker 5: a big position on their balance sheet. Right, they have
Speaker 5: a massive weight of Apple, and you need to when
Speaker 5: it grows that much kind of rebalance your portfolio. And Matt,
Speaker 5: that's sort of what they were doing with their Apple shares, right,
Speaker 5: how should they sell their stake?
Speaker 9: So they sold half of the shares that they held,
Speaker 9: and they had sold some in the first quarter as well,
Speaker 9: so they sold fifty percent of what was remaining in
Speaker 9: the first quarter. Apple was fifty or forty percent ish
Speaker 9: of their portfolio. So one stock is too much, too
Speaker 9: many eggs in one basket exactly. And I don't want
Speaker 9: to damper in your enthusiasm, but I don't think he
Speaker 9: was calling a top or anything necessarily on the Apple stock.
Speaker 9: He looks at these companies as companies versus stocks, right,
Speaker 9: so he wants to own the company. It could be
Speaker 9: a comment on what he thinks about the earnings power
Speaker 9: going forward, and he has some concerns about China as well,
Speaker 9: doing their dugal business and China.
Speaker 5: But you know, it looks like he's calling a top
Speaker 5: right and fair from today, I don't disagree. Like Catherine said,
Speaker 5: from today, if you look back at where he sold
Speaker 5: it was.
Speaker 9: He's not the greatest investor of all time for no reason.
Speaker 1: To be fair. From kind of mid April, the stock
Speaker 1: Apples are up almost thirty percent, so you kind of
Speaker 1: can't get some of it. Is there anything though? You,
Speaker 1: as someone who follows bloomber of Hollis Berkshire and you
Speaker 1: follow Buffett, that he's making some statement in terms of
Speaker 1: the macro environment China or elsewhere or more globally.
Speaker 9: So I would say specifically to Apple at the May
Speaker 9: annual meeting. He got questions because they had sold I
Speaker 9: think it was like ten to thirteen percent of their
Speaker 9: position at that point, so they got some questions on
Speaker 9: why would you do this?
Speaker 3: And he talked.
Speaker 9: About really thinking that corporate tax rate would go up
Speaker 9: in the US, so maybe he wants to harvest some
Speaker 9: of these gains beforehand. And he talked about really aside
Speaker 9: from the not the US environment, but the Apple's dependence
Speaker 9: on China was a concern for him. So I don't
Speaker 9: know if it's necessarily a call on the macro environment.
Speaker 9: I think the timing of these the meltdown and this
Speaker 9: happening is coincidental.
Speaker 1: How much of this is Buffett? How much of this
Speaker 1: is the other players?
Speaker 9: I think this is mostly Buffett this call at least,
Speaker 9: so he's got the Apple call. The Apple call, yeah,
Speaker 9: I think the original in twenty sixteen when they first
Speaker 9: bought it. His investment deputies Welsher and Combs, I think
Speaker 9: played a role in bringing it to him. They have
Speaker 9: about a discretion over like ten percent of the portfolio,
Speaker 9: so this is clearly more than that. So it might
Speaker 9: have been a group decision, but I feel like not confirmed,
Speaker 9: but I feel like he would have been one of
Speaker 9: the driving.
Speaker 3: So now he has two hundred and what sixty seven billion.
Speaker 8: And seventy six point nine two hundred.
Speaker 5: And seventy six point and I was going to think, like,
Speaker 5: I'll recommend him to put it in Marcus, and then
Speaker 5: I get a better rate for the recommendation. You get
Speaker 5: like five and a half percent. There, what's he making
Speaker 5: on all this cash?
Speaker 9: So, I mean one of the things with the rise
Speaker 9: in interest rates has really helped take the pressure off
Speaker 9: holding cash, and their interest income, which comes through their
Speaker 9: insurance operations, has skyrocketed. It was something like one hundred
Speaker 9: million and then went up to over two billion, right,
Speaker 9: and just the interest on the cash that they got
Speaker 9: from the Apple investment could help their earnings next year
Speaker 9: by like over five percent.
Speaker 1: So it's putting it all in private credit, right.
Speaker 9: I mean, it's it's all in very short term fixed
Speaker 9: income and you know treasuries.
Speaker 1: Yeah, I don't know, Kat, come on back in here.
Speaker 1: I mean, you know, as someone who watches, you know
Speaker 1: the finance space, and certainly what Berkshire is up to.
Speaker 1: I mean, how are you thinking about what he does
Speaker 1: with the cash. I mean, he's been trying to put
Speaker 1: this to work for some time.
Speaker 8: I think today all of the notes that I've been
Speaker 8: seeing from the banks analysts that are suggesting that now
Speaker 8: is or we're getting close to a time more bargains
Speaker 8: might be coming, And the first thought that comes to
Speaker 8: my mind is, oh, well, Buffett, is he going to
Speaker 8: jump on the so called bargains or have we not
Speaker 8: yet seen the bottom? The time is?
Speaker 1: I mean this is not new.
Speaker 8: Timing is everything, but any signal that can come between,
Speaker 8: any signal from Berkshire going forward is going to be
Speaker 8: like the most watched signal in the marketplace I think
Speaker 8: of have we seen that bottom? Is this the right
Speaker 8: time to deploy? But again, Berkshire is looking at the fundamentals.
Speaker 8: He's looking at these companies as a long term investment.
Speaker 8: So he's not just going to think about this as oh,
Speaker 8: is this week or mid August the right time to
Speaker 8: deploy the cash. It's it's really still the fundamental work
Speaker 8: that they're doing on the specific investments the companies, and
Speaker 8: not just is it a reflection of how these companies
Speaker 8: are doing next quarter. It's it's the long term outlook.
Speaker 8: And so a lot are I think that the jitters
Speaker 8: were seeing if you're looking at or if you're looking
Speaker 8: at the sentiment and maybe drawing the connection to Berkshire
Speaker 8: is is this a reflection of the US economy and
Speaker 8: that Berkshire is signaling that there's more pain to be felt.
Speaker 8: That's why Bank of America as an investment in the
Speaker 8: US consumer is something that folks like to draw that connection.
Speaker 8: So really, any big question marks that he might be
Speaker 8: seeing might be digested by the marketplace or by investors today.
Speaker 3: By the way I'm looking at we're talking about it right.
Speaker 3: You know, if you type.
Speaker 5: Mm FA index GP on the Bloomberg you get a
Speaker 5: picture of all of the US money market assets or
Speaker 5: all US dollar money market assets around the globe six
Speaker 5: point one trillion dollars. And I just look, so Warren
Speaker 5: Buffett is holding basically five percent of all money market
Speaker 5: fund assets.
Speaker 3: If that's where he parked his money.
Speaker 1: That's pretty crazy.
Speaker 9: Yeah, I mean, it's respects. It's easy for them, you know,
Speaker 9: to to park it there. And one thing I'd like
Speaker 9: to note, they did buy a bunch of Chub stock
Speaker 9: in the first quarter. That would get me excited. That
Speaker 9: mega insurance deal in that world would be something that
Speaker 9: would really get.
Speaker 3: Me good, they buy all of Chubb. I mean they
Speaker 3: could six billion market cap.
Speaker 9: I don't know if Chubb would sell, but you know,
Speaker 9: if they're looking for a you know, precursor to their
Speaker 9: insurance operator.
Speaker 5: Kicked me out as a customer Chubb. I used to
Speaker 5: be a CHEB customer, but they will no longer a chure.
Speaker 1: Me r to be continued. There's obviously word of that
Speaker 1: cut Dougherty, Thank you so much. Finance reporter of Bloomberg News,
Speaker 1: Matt Palizzola. He's Property and Casualty insurance senior Alice, hence
Speaker 1: the Chubb comment. Here at Bloomberg Intelligence.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 2: flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Speaker 1: Kind of a crazy day, I feel like for the
Speaker 1: semiconductor space. I don't know if you noticed it, but
Speaker 1: the socks actually was positive for like a second.
Speaker 3: I did not notice that.
Speaker 5: I did notice that video is the biggest drag on
Speaker 5: the s and P five hundred at one point, I
Speaker 5: think three hundred and eighty billion dollars in market caps
Speaker 5: fifteen knocked.
Speaker 3: Off in video.
Speaker 5: Yeah, so that's kind of the chip maker to which
Speaker 5: I pay the most and almost all of my attention.
Speaker 3: But I know there are others.
Speaker 1: Like an Intel. Hey, it's still up one hundred percent
Speaker 1: so far this year, so let's get to it. Because
Speaker 1: Nvidia did slump the most in more than four years.
Speaker 1: The information coming out saying that Nvidia's upcoming artificial intelligence
Speaker 1: chips will be delayed due to design flaws. Information seting
Speaker 1: two unidentified people who well produce the chip and it's
Speaker 1: server hardware.
Speaker 5: So it's trading under one hundred dollars, under one hundred
Speaker 5: dollars a share right now for in video.
Speaker 1: That's kind of shocking, all right.
Speaker 5: It would be shocking if Abigail Doolittle hadn't told me
Speaker 5: last week or two weeks ago that this was going
Speaker 5: to happen.
Speaker 3: She's a technical analyst, right Watts.
Speaker 5: She was looking at the chart technicals and she at
Speaker 5: one point, I think it came under a level she
Speaker 5: was watching like one seventeen or one fourteen, and she said, oh,
Speaker 5: it's formed like a head and shoulders, or there's a
Speaker 5: breakaway here on an know the terms, and she said
Speaker 5: it's going to go blow one.
Speaker 3: Hundred, definitely blow.
Speaker 1: It's Nandy day moving average. All right, So let's get
Speaker 1: some sense of what is going on in the semispace overall,
Speaker 1: specifically Nvidia and a few of the other names. Back
Speaker 1: with us, as he always does to help us make sense,
Speaker 1: Bloomberg News US Semiconductor and networking reporter Ian King. He's
Speaker 1: out there in our San Francisco bureau.
Speaker 3: Ian good looking good.
Speaker 5: By the way, you're on TV right now, right, you're
Speaker 5: looking like a young bald Sean Connery.
Speaker 3: Right. The beer very much works for you.
Speaker 10: Well, I don't know what to say to that.
Speaker 1: A's only Matt Miller can do. I what do we
Speaker 1: know first of all about Nvidia and this delay? What
Speaker 1: do we need to know? How big a deal is this?
Speaker 10: So there are a lot of reports out there. There
Speaker 10: are a lot of reports that have conflicting pieces of information,
Speaker 10: some of which would indicate this is an enormously serious
Speaker 10: situation that I'll have, you know, months of work ahead
Speaker 10: of it in terms of sorting it out. We have
Speaker 10: other reports out there are saying, actually, it's relatively There
Speaker 10: are lots of different versions of this Blackwell chip, and
Speaker 10: the reports that are out there site different things. I
Speaker 10: think what you guys pointed to earlier actually should be
Speaker 10: the way to approach it, which is, when this stock opened,
Speaker 10: it was really bad, right, It was down a lot,
Speaker 10: and it got down as low as what fifteen percent.
Speaker 10: That's kind of disaster. Oh my god, this is the
Speaker 10: end of the run for this company. Settled back at
Speaker 10: a sort of down but not panic stricken level, and
Speaker 10: I think that's a reflection of what we've seen from
Speaker 10: a lot of Wall Street analysts who've done the work
Speaker 10: as we're doing the work to try to find out
Speaker 10: what actually happened, and is saying, yeah, this is not great.
Speaker 10: This is an example of you know, problems happened, this
Speaker 10: is engineering, But don't panic. This company is still in
Speaker 10: the lead and nobody's going to catch it anytime.
Speaker 5: Soon, certainly not Intel. And that stock is down sixty
Speaker 5: percent year to date. Obviously, it's far smaller than Vida.
Speaker 5: It's only an eighty five billion dollars market cap company, now,
Speaker 5: you know, compared to a two point six trillion dollar
Speaker 5: company that is in video or was this morning?
Speaker 3: Ian.
Speaker 5: I don't follow the company obviously as nearly as closely
Speaker 5: as you, but I hear every few months Pat Gelsinger
Speaker 5: out with a new plan to revive the company. I'm
Speaker 5: sure he has longer term plans, but is he doing
Speaker 5: a bad job as the CEO? I mean, is that
Speaker 5: what this stock price is telling.
Speaker 10: Us, what the stock price is telling you, is that
Speaker 10: this plan that he put in place from the minute
Speaker 10: he walked in is not delivering the results or any
Speaker 10: sense in investors minds that it's making progress towards the
Speaker 10: lofty goals that he's set out. I mean, Thursday, the
Speaker 10: only good thing that happened was that they didn't miss
Speaker 10: a revised down revenue outlook. Everything else, every measure, everything
Speaker 10: that they said caused a rolling thunder of increased concerns
Speaker 10: and the notes that if you did, and the reactions
Speaker 10: are pretty dark. There are people starting to say, is
Speaker 10: this a going concern? Is this an existential crisis for
Speaker 10: this company? So while he tried to fight Marc on
Speaker 10: the call and tried to be like, hey, things are
Speaker 10: still on track. This is just a rough quarter, you know,
Speaker 10: the reaction was like, part, we've kind of heard this before.
Speaker 10: We need more positive signs that the long term fundamental
Speaker 10: issues that you've got are being fixed.
Speaker 1: Ian, hang on for a second. Just want to mention
Speaker 1: a headline crossing the Bloomberg terminal and shares of Alphabet
Speaker 1: taking a bit of a dip on them. Google losing
Speaker 1: the Department of Justice anti trust suit over Search the
Speaker 1: Google judge or the judge in that case finding that
Speaker 1: the search giant violated anti trust laws. So we're looking
Speaker 1: at shares of Alphabet down about four point seven percent,
Speaker 1: so you know, a down day, yes, but dipping down
Speaker 1: a little bit lower on that news. Ian Pat Gelsinger.
Speaker 1: Back to chips we go Intel, specifically three and a
Speaker 1: half years on the job as CEO, is it time
Speaker 1: for a change in the C suite?
Speaker 10: All I can do is point out that a lot
Speaker 10: of the issues that Intel faces, whether it's the production technology,
Speaker 10: whether it's the product choices, whether it's the amount of
Speaker 10: factories they put in place, those with decisions that were
Speaker 10: made under his predecessors, right, and because of the nature
Speaker 10: of the chip industry. I mean, you know, the analogy
Speaker 10: that I saw in a note was like takes a
Speaker 10: long term, a long time to turn around a battleship
Speaker 10: where right now it feels like that battleship is thinking.
Speaker 10: So there's there a mixture of things that would go
Speaker 10: into that answering that kind of question, and you know
Speaker 10: that the board would be the arbiters of that.
Speaker 5: Well, what about the massive investments that they've made or
Speaker 5: the investments that they've planned. Obviously, this is the kind
Speaker 5: of business where you have to start breaking ground on
Speaker 5: a new fab years ahead of you know, production, and
Speaker 5: they have, i know, at least in the Columbus, Ohio area,
Speaker 5: made plans to build a huge capacity.
Speaker 3: Is that still all going to come to pass? And
Speaker 3: that's a very good question.
Speaker 10: I mean, what we've said all along in these discussions
Speaker 10: is what the semiconductor industry does is they build what's
Speaker 10: called the shell. They build the building, right the steel frame,
Speaker 10: put all of the you know, the infrastructure in it.
Speaker 10: But what they don't do is put the equipment in
Speaker 10: because guess what, when a piece of equipment costs tens
Speaker 10: of millions of dollars and you need thirty or forty
Speaker 10: of them for a product line, that's where the money is.
Speaker 10: That's what costs the money in the factory, and that's
Speaker 10: what immediately hits you in terms of the charges you
Speaker 10: have to take. So if you can't be sure that
Speaker 10: you're going to run these things twenty four to seven,
Speaker 10: you don't put them in place. You build a shell
Speaker 10: and then you let it sit, and then you wait
Speaker 10: until you think your business is going to come back,
Speaker 10: and then you fill it up. So what will really
Speaker 10: tell us whether this sort of turnaround plan is happening
Speaker 10: or not in these factories are going to be built
Speaker 10: is when we see that equipment being moved in right now,
Speaker 10: Ohio is not at that point. Look at the factories
Speaker 10: in Chandler, Arizona. Look at what's happening there, and that
Speaker 10: I'll tell us whether Intel is really committed to this
Speaker 10: massive expansion and is going to deliver on it.
Speaker 1: Intel, the excuse me? I mean Ian. The socks is
Speaker 1: down about twenty four percent from the early July high.
Speaker 1: Just got about twenty five seconds here. We talk about
Speaker 1: cycles with you all the time. Is it telling us
Speaker 1: that just things are slowing down more broadly and the
Speaker 1: demand is down real quickly.
Speaker 10: Now this isn't This is an Intel problem. And they've
Speaker 10: cut their revue, they've cut their dividend now, so a
Speaker 10: lot of funds. Even if they wanted to own Intel can't.
Speaker 10: So that's what's going on there. There's a lot of
Speaker 10: problems out.
Speaker 1: But even the socks being down that much isn't telling
Speaker 1: you anything that's worrisome.
Speaker 10: That, I mean, how much money came in. So it's
Speaker 10: a very cyclical industry. So you're absolutely right in that regard.
Speaker 1: All right, I'm going to leave it there. Ian is
Speaker 1: always Ian King a Bloomberg News watching the semi space.
Speaker 1: This is Bloomberg.
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Speaker 3: Umbromarcle a journal. Now about you let me drive? Oh no, no, no, no,
Speaker 3: all right, please, I'll travels.
Speaker 1: I want to drive.
Speaker 3: Good question? This plea is the drive to the clothes music?
Speaker 3: Well jog on Bloomberg Radio.
Speaker 1: All right, don't go into the story. But isn't it
Speaker 1: kind of funny that on a day where the bears
Speaker 1: are kind of in charge of there's a bear story
Speaker 1: that is among.
Speaker 11: The most read on the Bloomberg. Don't go into it. Yeah,
Speaker 11: I'm just gonna say that it's my favorite story today.
Speaker 11: And that's been the case since I woke up this morning.
Speaker 11: So nothing has been better than the Bear Show.
Speaker 3: It's like selling on the.
Speaker 1: Mart Mass Master Master. Have you seen Carol? Have you
Speaker 1: seen the story? We'll get into it later. First up, though,
Speaker 1: we are about eighteen s seventeen minutes away from the
Speaker 1: closing bell on this Monday. Let's get to it our
Speaker 1: drive to the closed guest Penny Pennington, she's CEO at
Speaker 1: Edward Jones, joining us from Saint Louis. Penny, nice to
Speaker 1: have you back with us. How are you?
Speaker 12: I'm great, Carol, good to be with you. And Matt Hope,
Speaker 12: y'all are well.
Speaker 3: What a day? Oh my goodness. It has been a day.
Speaker 1: But we feel, like we keep saying, listen, it's not
Speaker 1: the great financial crisis. We've seen market sell offs. It
Speaker 1: feels kind of.
Speaker 3: Orly now it does now, right, How do you feel, Penny?
Speaker 5: Because last night when I saw the nick A open
Speaker 5: up and immediately drop twelve percent, I was like, holy Camollie.
Speaker 3: It felt bad.
Speaker 1: And to be honest, this did you really say, Holy Kamoly.
Speaker 3: I said something like that.
Speaker 5: And then this this morning, you know, when we opened
Speaker 5: up down four percent, down five percent, it felt rough.
Speaker 12: Well, let's pretend we're all sitting in the movie theater
Speaker 12: together watching the economy in the market unfold. Our view
Speaker 12: is that we have not had a plot twist. This
Speaker 12: economy in this market is continuing to resolve toward a
Speaker 12: slightly softer economy, but also lower inflation, lower interest rates,
Speaker 12: productivity gains that we still expect as a result of technology,
Speaker 12: and AI. We really think that nothing that dramatic has
Speaker 12: changed because of the read that we got on Friday. Now, remember,
Speaker 12: going back just a month, we got a lower than
Speaker 12: expected read on inflation, which was good news, and so
Speaker 12: we really think that this is not a plot twist.
Speaker 12: We're continuing to advise our clients to stay focused on
Speaker 12: their goals and the long term, and this will play
Speaker 12: out over the next few weeks.
Speaker 1: So how do you make the distinction between bad news
Speaker 1: being good news for the equity markets and bad news
Speaker 1: being bad news for the equity markets.
Speaker 12: Well, I think the real distinction that matters is around
Speaker 12: uncertainty and so any form of news can be listed
Speaker 12: as adding to certainty or elevating uncertainty. And we're in
Speaker 12: a volatile period right now. The market is seeking out certainty,
Speaker 12: certainty for interest rates, certainty for inflation, certainly for the
Speaker 12: certainty for the prediction for what's going on with the economy.
Speaker 12: What we seek to make more certain for our clients
Speaker 12: is their long term goals. That's the job that we do,
Speaker 12: and in moments like this, I was thinking about that
Speaker 12: this morning, Carol. Under normal course of business, our financial
Speaker 12: advisors would have one hundred thousand scheduled engagements with our
Speaker 12: clients today. Now that may have increased just a little
Speaker 12: bit as people are talking to our financial India.
Speaker 1: I was curious if your phones were beginning off the
Speaker 1: hooks this morning, where.
Speaker 3: They or not?
Speaker 12: If they really weren't, If we've done our job well,
Speaker 12: then the job to do in a moment like this
Speaker 12: is to listen carefully to the concerns that our clients
Speaker 12: are bringing to us, put it in perspective for them,
Speaker 12: get them focused back on the long term orientation to
Speaker 12: their goals. Certainly, do some scenario planning. We're not going
Speaker 12: to put our put our head in the sand. We're
Speaker 12: going to do a little scenario planning and say, Okay,
Speaker 12: what happens if this kind of volatility were to carry
Speaker 12: on for just a little bit longer. And then, finally,
Speaker 12: and really importantly, where are the opportunities? Volatility like this
Speaker 12: presents opportunities to make sure that your portfolio is well balanced.
Speaker 3: But also if it.
Speaker 12: Got out of balance, it's a little bit to get
Speaker 12: it back and got imbalanced worn during.
Speaker 1: A moment that really makes a lot of worn buffet
Speaker 1: in Berkshire and now a client?
Speaker 12: Are they a client all across North America?
Speaker 4: You?
Speaker 5: I was talking this morning to the incoming CEO at Vanguard,
Speaker 5: and they see a little bit of a shift in
Speaker 5: the way their business is done just because of the
Speaker 5: amount of wealth that the boomers have gathered up. I
Speaker 5: think ed Yard Denny said he thinks it's about seventy.
Speaker 3: Five trillion dollars.
Speaker 5: And Sally Crawcheck pointed out that's going to be passed
Speaker 5: on now to the next generation. The majority of the people,
Speaker 5: by the way, who are going to accrue that wealth women, right,
Speaker 5: It's going to be a real shift in terms of
Speaker 5: what she calls the feminization of wealth. But what does
Speaker 5: that mean for a business like Edward Jones mean, you
Speaker 5: have been in business for over one hundred years.
Speaker 12: We have one hundred and two years and are working
Speaker 12: today with five generations of investors at one time. And
Speaker 12: so we're listening to each of those families. What is
Speaker 12: the legacy that I want to pass on their wealth legacy,
Speaker 12: but also their values legacy to the next two generations
Speaker 12: of their family members. We want to be the biographer
Speaker 12: of those stories to ensure that as much as their
Speaker 12: wealth transitions, their legacy and values transition. One thing that
Speaker 12: I would add to this conversation, and I'm glad that
Speaker 12: we're having it about this kind of transition, is the
Speaker 12: story around business owners in America. We have thirty three
Speaker 12: million business owners in America, and when you think about
Speaker 12: the engine of our economy that that is the same
Speaker 12: thing is about to happen. Business owners are thinking about
Speaker 12: the succession of their businesses.
Speaker 1: Our research shows us that about a third of.
Speaker 12: Business owners don't intend to have this succession conversation until
Speaker 12: just one or two years before they expect to want
Speaker 12: to transition the business. We don't think that that's enough time,
Speaker 12: and so a good financial advisor good financial advisory relationship,
Speaker 12: especially one that perhaps is with a financial advisor who
Speaker 12: has special designations associated with business owner transition. This is
Speaker 12: a really important thing for your family, for your business,
Speaker 12: for your employees, and for our economy.
Speaker 1: Hey, Penny, I got to ask you and got to
Speaker 1: be quick ten seconds. Are people calling you those saying
Speaker 1: and video it's on sale, this stock's on sale and I
Speaker 1: want to buy real quickly. Are you getting those.
Speaker 3: Calls to that? Absolutely?
Speaker 12: That might be the way the conversation starts. And then
Speaker 12: the next part of the conversation is why got it
Speaker 12: and how does this fit into your overall goal?
Speaker 1: Penny, thank you so much, really appreciate it.
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Speaker 3: Jermale