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Speaker 2: Bloomberg Intelligence Radio. All right, let's get back to those
Speaker 2: consumer confidence numbers, because we continue to see the soft
Speaker 2: data disappointing, yet we do not see that within the
Speaker 2: hard data dot dot dot. Yet consumer confidence falling to
Speaker 2: a two year low. From more on this, we are
Speaker 2: joined by Stephanie Guichard, senior economists at the Conference Board.
Speaker 2: She joins us, Stephanie walk us through this two year low.
Speaker 2: What was behind it?
Speaker 3: So the index fell seven point two points to ninety
Speaker 3: two point nine, and as you said, this was the
Speaker 3: lowest since August twenty twenty one. What's important is that
Speaker 3: now this okay, this was the fourth decline, and now
Speaker 3: the index is below that trench in which it has
Speaker 3: been overeing for the past two years. So it's clearly
Speaker 3: a week reading. What has been driving the decline is
Speaker 3: especially the expectation component of our index, where we see
Speaker 3: consumers negative about the future of the labor market, future
Speaker 3: label conditions, and importantly getting less more and more worried
Speaker 3: about future income.
Speaker 4: So, Stephanie, it seems like I would think one of
Speaker 4: the key issues here would be job security. And it
Speaker 4: seems like the job market is still the labor market's
Speaker 4: still pretty strong here. But is this just investors kind
Speaker 4: of taking in the day to day news flow and
Speaker 4: kind of putting that into a confidence kind of expectation.
Speaker 3: No, So for the current situation of the label market,
Speaker 3: I mean, consumers agree that the label market is still
Speaker 3: or actively strong, but looking into the next six months,
Speaker 3: we are getting worried. We're getting worried about the label
Speaker 3: mart in general. And what's interesting in US survey is
Speaker 3: that they're also getting worried about their income, which means
Speaker 3: that potentially about getting worried about losing their jobs in
Speaker 3: the next six months.
Speaker 2: Interesting that it's the labor part, not the inflation and
Speaker 2: rising up prices part. Where did that play into this?
Speaker 3: So we don't ask, especially, I mean, in our index
Speaker 3: we don't cover inflation directly. However, I mean we know
Speaker 3: and it has been the case for the past two years,
Speaker 3: consumers are not very happy about the level of prices
Speaker 3: and about the fact that inflation has stopped slowly. So
Speaker 3: that's I mean, this is clearly playing into consumers' mood,
Speaker 3: but it's not captured fully in our index because we
Speaker 3: focus on labor market, business condition, and future income.
Speaker 5: So I'm looking at the conference board.
Speaker 4: The expectations number came in at sixty five point two
Speaker 4: versus seventy two point or actually seventy four point eight
Speaker 4: last period, give usus a. Is that an order of bagnitude?
Speaker 4: Is that concerning?
Speaker 6: It?
Speaker 3: Is? I mean, we need to see whether this is
Speaker 3: getting confirmed next month, because as you know, the centex
Speaker 3: is going up and down on a months to months basis.
Speaker 3: But this is the lowest reading for the past twelve
Speaker 3: years as far as expectations are concerned.
Speaker 2: All right, one more questions as well. Do you do
Speaker 2: you do the survey? Is there any distinction between those
Speaker 2: that identify as independence, Democrats or republicans or is it
Speaker 2: across the board?
Speaker 3: So the survey is across the board.
Speaker 2: Meaning that the respondents identify across all of those three bases.
Speaker 2: So we is that what you mean?
Speaker 3: So we yeah, So the survey, the consumers, we survey
Speaker 3: across the board. They we have, you know, the different
Speaker 3: political groups covered. This is a representative sample of the
Speaker 3: US population.
Speaker 2: All right, definitely really appreciate it. Thank you so very much.
Speaker 2: Sepnickie Schard joining us from the Consumer Conference Board. She
Speaker 2: is a senior economist over there. After that drops to
Speaker 2: a two year low. But again we got a wait
Speaker 2: to see it in the hard data for us to
Speaker 2: suffer things to then affect sort of the real economy
Speaker 2: as well as the equity market and bond market, et cetera.
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Speaker 4: We had some home building news out today. New home
Speaker 4: sales came in kind of just a smidge blow expectation
Speaker 4: six hundred and seventy six thousand versus six hundred and
Speaker 4: eighty thousand. We also had KB Homes report some earning
Speaker 4: to day that we're a little disappointing to the street.
Speaker 4: This stock is down five percent. Let's check in with
Speaker 4: Drew Reading. He covers all the homebuilders for Bloomberg Intelligence Drew.
Speaker 4: Let's start with the new home sales number, six hundred
Speaker 4: and seventy six thousand. It's again kind of just a
Speaker 4: smidge blow expectations, but a little better than last month.
Speaker 4: What's an industry look like, what's the market look like
Speaker 4: these days?
Speaker 6: Yeah, so we're about up about you know, two percent,
Speaker 6: give or take month over month and year overy year.
Speaker 6: We've kind of been bumping along this mid six hundred
Speaker 6: thousand annualized pace since mid twenty twenty three, so you know,
Speaker 6: demand isn't necessarily bad, but we're not seeing that lift
Speaker 6: that we had hoped coming into the year. So overall,
Speaker 6: the start to spring has been very soft, as you
Speaker 6: would expect. Affordability is still the biggest challenge out there
Speaker 6: in the market. Home prices are up fifty percent, Mortgage
Speaker 6: rates have come down, but they're still in the high
Speaker 6: six percent range. And what's interesting now that we're starting
Speaker 6: to hear more and more and kind of corroborated by
Speaker 6: some of the data this morning, is that declining consumer
Speaker 6: confidence is becoming more of an issue for housing. We
Speaker 6: heard it from a number of builders, we heard it
Speaker 6: from KB Home last night, and it's you know, consumers
Speaker 6: are more concerned about the direction and growth in the economy,
Speaker 6: perhaps more concerned that their job isn't secure. So I
Speaker 6: think that caution is all also contributing to the softness
Speaker 6: we're seeing in the market.
Speaker 2: So that's so interesting because we talk a lot about
Speaker 2: the sentiment data and how that has to translate into
Speaker 2: the hard data, and we think one thinks about that
Speaker 2: more in terms of like retail sales or GDP. But
Speaker 2: your hypothesis from the read through we get we're getting
Speaker 2: from the actual homebuilders is that that's actually translating into
Speaker 2: putting the pause button now.
Speaker 6: Yeah, I think you have consumers out there who are saying,
Speaker 6: maybe now is not the best time to make such
Speaker 6: an important and large decision. You know, we've also heard
Speaker 6: it from the home improvement retailer, so people in the
Speaker 6: repair remodeling market are delaying large ticket discretionary projects.
Speaker 7: You know.
Speaker 6: A lot of it has to do with the fact
Speaker 6: that coming into the year, consumers were expecting rates to
Speaker 6: come down. You know, if they come down a little
Speaker 6: bit since January, like I said, down about fifty basis points,
Speaker 6: but I don't think we've gotten the relief that they
Speaker 6: need to see what's interesting we heard this from Lenar
Speaker 6: last week, is that they're having more trouble qualifying buyers.
Speaker 6: So maybe people have the down payment and they can
Speaker 6: afford monthly payment, but their overall debt levels just because
Speaker 6: of everything else that they're having to deal with the
Speaker 6: cumulative impact of inflation is getting it a little more
Speaker 6: challenging for them to qualify.
Speaker 4: So we heard from KB Home they reported today I
Speaker 4: see the stock down five percent of the fifty two
Speaker 4: week low. They also, I guess called out home affordability.
Speaker 4: What's what's gone on to KB?
Speaker 6: Yeah, so sentiment coming into the quarter was already pretty
Speaker 6: low across the space, and you know, they fell short
Speaker 6: of those expectations. Orders were down seventeen percent. They had
Speaker 6: guide it to orders being about flat, so a pretty
Speaker 6: significant miss on the order front. So they also cut
Speaker 6: their revenue guidance and their margin guidance. And the reason is,
Speaker 6: and this is something we're seeing across the space, more incentives,
Speaker 6: but they're doing it on the home price front. So
Speaker 6: they're reducing base home prices, which has been less common
Speaker 6: so far in the industry. They've cut prices in about
Speaker 6: fifty percent of their markets by an average of fifteen
Speaker 6: thousand dollars. They said that ranges anywhere from five to
Speaker 6: thirty thousand dollars. And what's interesting is they mentioned that
Speaker 6: they're having to get more aggressive in markets in Florida,
Speaker 6: which is something we heard from Lennard as well.
Speaker 2: That's really interesting. Also quite a big number when you
Speaker 2: mentioned that the worry about higher rates, right, and everyone's
Speaker 2: kind of expecting lower rates this year or the end
Speaker 2: of last year and didn't materialize. If we just sort
Speaker 2: of normalize around these levels, what's the lead time until
Speaker 2: consumers say, oh, okay, I can make I can be
Speaker 2: okay with seven percent.
Speaker 6: Yeah. I don't know how comfortable people are going to
Speaker 6: be with the seven percent mortgagery. I think you need
Speaker 6: to see maybe something in the low sixes. You know,
Speaker 6: we've heard in the past that anything with a five
Speaker 6: handle from the builders has done well. But I think,
Speaker 6: you know, I think maybe the way forward might be
Speaker 6: for at least for the builders is on home prices.
Speaker 6: Prices are, like I said, fifty percent above pre pandemic levels,
Speaker 6: and I think people are just having a lot of
Speaker 6: problem with that. Maybe there's a little bit of fear
Speaker 6: of buying at the top of the market that's holding
Speaker 6: them back. So again it goes to not only the
Speaker 6: confidence issue from the economy, but how confident are they
Speaker 6: in the sustainability of these elevated home prices. So rates
Speaker 6: are certainly a big component. As rates come down, you'll
Speaker 6: see that marginal home buyer come back in. But I
Speaker 6: don't think that's the only factor that's holding things back.
Speaker 4: All right, Drew, thanks so much for joining us. Drew
Speaker 4: reading homebloading analysts for Bloomberg Intelligence, joining us from Princeton,
Speaker 4: New Jersey.
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Speaker 5: Looks like the markets are kind of stabilized here.
Speaker 4: We had that Peaka trough pullback of about ten percent,
Speaker 4: and we've kind of been kind of bumping along, rolling
Speaker 4: a little bit two three percent off of that bottom.
Speaker 3: Here.
Speaker 5: Let's check out where we go from here.
Speaker 4: Grace Lee, Senior portfolio manager, Columbia thread Needle up in Boston,
Speaker 4: joining us via that zoom thing. So Grace again, peak
Speaker 4: to trough on yes and P five fund. Just a
Speaker 4: few days ago we kind of hit a ten percent
Speaker 4: correction level.
Speaker 5: We bounced a little bit here.
Speaker 4: How do you think about the market these days?
Speaker 8: Well, I think the market did have a healthy pullback.
Speaker 8: It was probably necessary after a couple really strong years,
Speaker 8: and it's it's probably warranted given all of the uncertainty,
Speaker 8: particularly with the Trump administration coming in not even one
Speaker 8: hundred days in and all of these these changes and
Speaker 8: executive orders and caraff threats and then pull back some
Speaker 8: on care for threats. So this is all I think,
Speaker 8: just part of a healthy digestion process, and I think
Speaker 8: it also might be heralding, you know, a shift in
Speaker 8: where investors might be looking for the next opportunities after
Speaker 8: you know, a huge run in, particularly growth stocks, which.
Speaker 2: Begs the very unsophisticated question, is it a sell the
Speaker 2: rally or by the dip scenario?
Speaker 8: Well, I think it's it's it might be a little
Speaker 8: bit more nuanced than that, you know, it might be
Speaker 8: more of a rotation by the dip in other uh,
Speaker 8: in other sectors, in other companies that that investors may
Speaker 8: not have looked at previously. It's not necessarily going back
Speaker 8: to the same things that have worked in the past.
Speaker 8: I do think the the market deserves to broaden out
Speaker 8: and is broadening out. And I think you can see
Speaker 8: that already. You're to date in the bifurcation between let's
Speaker 8: say value and growth stocks. You know, value investors like
Speaker 8: myself actually think things are are looking okay and feeling
Speaker 8: pretty decent in the market. You know, I think my
Speaker 8: growth peers maybe not not so much. But I think
Speaker 8: that you know, again, I think investors have maybe lost
Speaker 8: a little bit of their muscle memory and looking at
Speaker 8: at things that are not growth and momentum and tech,
Speaker 8: and so I think, you know, aside from from you know,
Speaker 8: selling the rally or uh, you know, or or rotating
Speaker 8: into the same old things, it's it's really you know,
Speaker 8: rotating into other things that that have not worked as well,
Speaker 8: and you know, are looking extremely inexpensive and actually attractive
Speaker 8: right now.
Speaker 4: Value versus growth, where do you see the opportunities here?
Speaker 4: This has been a market that's been driven by tech
Speaker 4: and the MAC seven for a long time.
Speaker 5: How do you see it going forward?
Speaker 8: Yeah, I think I think this might be the year
Speaker 8: for for value stocks. It is starting out that way,
Speaker 8: and I'm pretty I'm pretty optimistic about that. I think
Speaker 8: that the setup is actually very good for for value
Speaker 8: stocks in that you have had a couple of years
Speaker 8: of very strong growth driven markets, and and I think
Speaker 8: you're starting to see a little bit more hesitation on
Speaker 8: even things like the AI trade, and so for investors
Speaker 8: that want to hedge a little bit, take some chips
Speaker 8: off the table, not necessarily put it all in European stocks.
Speaker 8: You know, there's there's ordinary American stocks. I think people
Speaker 8: talk about is American exceptionalism over because of let's say
Speaker 8: deep seek. I would say that, you know, I think
Speaker 8: if they refocus on the American ordinariness, you know, the
Speaker 8: core companies that that make up the big base of
Speaker 8: the economy, you know, the bread and butter, and this
Speaker 8: is this largely pertains to traditional value stocks, you know,
Speaker 8: and these are the companies that put up reliable singles
Speaker 8: and doubles. They're usually not going to hit it out
Speaker 8: of the park. But you know, but I think that
Speaker 8: that's the area that again is starting to perk up
Speaker 8: this year and probably has some runway here.
Speaker 2: So that whole idea grace that Tina there is no alternative.
Speaker 2: That's why you have to buy us docs. It feels
Speaker 2: like Tina doesn't exist anymore. But that doesn't necessarily mean
Speaker 2: sell you stocks.
Speaker 4: Right right.
Speaker 8: It's just looking at again the ignored sectors of the market.
Speaker 8: I mean, could you if you could believe that the
Speaker 8: energy sector is up I think close to eight percent
Speaker 8: year to date, you know, and that's even with UH
Speaker 8: knowing that that OPEC plus might have a lot more
Speaker 8: oil coming on the market. So there's a lot of
Speaker 8: areas that have been really ignored by by a lot
Speaker 8: of investors who have really crowded into the growth tech
Speaker 8: space for such a long time. And you know, and
Speaker 8: I think it's looking at value stocks as not just
Speaker 8: a you know, run for shelter, but also just a
Speaker 8: good place to find you know, interesting companies UH and
Speaker 8: and sectors that are going to work you know in
Speaker 8: an in a moderating growth economy me which I think
Speaker 8: is what we're going to be seeing not necessarily recession,
Speaker 8: although if we do go into recession again, that a
Speaker 8: lot of these value and defensive stocks will work better
Speaker 8: as well.
Speaker 4: Right, all right, Grace, thank you so much. I always
Speaker 4: appreciate getting a few minutes of your time. Grace Lee,
Speaker 4: Senior Footfallway manager at Columbia Thread Needle.
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Speaker 4: I think we've gone several days with that really talking
Speaker 4: technology that's.
Speaker 5: Not like us.
Speaker 2: It's been like a full twenty four hours, is it?
Speaker 4: Yeah?
Speaker 2: Okay, yeah, well we'll counting weekend.
Speaker 5: It's like seventy two exactly.
Speaker 4: Mandy've sing joins us, he'll fix that right away. He's
Speaker 4: a senior tech analyst for Bloomberg Intelligence.
Speaker 5: A kind of the news that got our tension a
Speaker 5: little bit.
Speaker 4: Is Bloomberg News reporting tech chiefs foreign leaders urge President
Speaker 4: Trump to rethink AI chip curbs. What is the current
Speaker 4: understanding of how towers may impact.
Speaker 5: The global chip marking point?
Speaker 4: Because when I think about a global supply chain, chips
Speaker 4: is certainly right there.
Speaker 7: Absolutely, And look, I think the earliest export controls go
Speaker 7: back to twenty twenty two when the Biden administration imposed
Speaker 7: controls on Nvidia kind of shipping their highest end chip
Speaker 7: to China. So at that time it was really restricting
Speaker 7: their interconnect bandwidth because remember with AI, all these chips
Speaker 7: are used as a big cluster, so they thought that
Speaker 7: could prevent you know, China from using the latest Nvidia chips.
Speaker 7: That didn't suffice, so then they added kind of a
Speaker 7: new form of restriction, and then the diffusion real rule
Speaker 7: came into play, which was almost one hundred and sixty
Speaker 7: eight page rule around like how Nvidia is supposed to
Speaker 7: ship their latest and greatest chips to three different sets
Speaker 7: of allies in terms of you know, countries that have
Speaker 7: unrestricted access versus the ones where China could use them
Speaker 7: as a proxy to get access to the chips. So
Speaker 7: there were different sort of clauses in terms of restricting
Speaker 7: the access to those chips. But at this point, you know,
Speaker 7: given we keep hearing about Chinese llms and group being
Speaker 7: the latest one releasing their own LLM at low costs,
Speaker 7: It just goes to show that even with all the restrictions,
Speaker 7: it hasn't really impeded their progress in any way and
Speaker 7: they are able to, you know, build on whatever they
Speaker 7: have available.
Speaker 2: So to that point, do chip companies that are like, hey,
Speaker 2: just let us get a piece of the pie that's
Speaker 2: already going to build no matter what, or are they
Speaker 2: really losing revenue from this?
Speaker 7: Yeah, So there are two sides to it. One is,
Speaker 7: if you ask an LLLM company like open Ai, Sam
Speaker 7: Altman has said, had it not been the export controls,
Speaker 7: they would be more undersupplied. Remember this market has been
Speaker 7: undersupplied for a very long time. Everyone wants more GPUs
Speaker 7: that they don't have access to. If the export controls
Speaker 7: were not in place, these companies would be even more undersupplied.
Speaker 7: But the other side is Nvidia is saying I'm losing
Speaker 7: revenue because I have got, you know, twenty percent revenue
Speaker 7: exposure to China. It's getting lower and lower to the
Speaker 7: point that it will be less than ten percent now
Speaker 7: and I'm losing potential revenue that I could get by
Speaker 7: selling my chips. So there are both sides to it.
Speaker 7: But I think the fact that this market is undersupplied
Speaker 7: means that Nvidia does have you know, somebody to buy
Speaker 7: their chips, and they continue to command premium pricing for that.
Speaker 4: Do we have any idea where China is in terms
Speaker 4: of developing their chips, where their technology is.
Speaker 1: Yeah.
Speaker 7: So with the latest Group model release, what they said
Speaker 7: was they were able to bring down the pre training
Speaker 7: costs by twenty percent by using not just the chips
Speaker 7: that are available from Nvidia, but also their homegrown Huawei
Speaker 7: chips or you know, AMD chips. So they talked about
Speaker 7: a heterogeneous computer architecture and using that for pre training.
Speaker 7: And look, in the end, everyone is looking to optimize
Speaker 7: the infrastructure, more so in the case of Chinese llms
Speaker 7: because they don't have access to the latest and video chips,
Speaker 7: which give you more performance per unit of power than
Speaker 7: any other chip company can provide. So from that perspective,
Speaker 7: I feel they've done well in terms of using what's available.
Speaker 7: But clearly I think the US based LLM companies have
Speaker 7: an advantage given they have the best performing chips and
Speaker 7: they can train their models much better. They can use
Speaker 7: it for reasoning, so it is an advantage at the
Speaker 7: end of the day.
Speaker 2: That's what I was asking for and and deep seek, etc.
Speaker 2: Like Are they accurate in the same way that LM
Speaker 2: models in the US are accurate.
Speaker 7: No, I think the OpenAI models are way better when
Speaker 7: it comes to the reasoning capabilities and really the multimodeal
Speaker 7: capabilities that everyone cares about. At the end of the day,
Speaker 7: the use case for AI is not just a tech
Speaker 7: space prompt risk sponds. It's much more than that. If
Speaker 7: you're talking about AGI, and you know, everyone feels like
Speaker 7: we can get to AGI, it's it's not just tech space.
Speaker 7: You need audio, you need video, and the Chinese lms
Speaker 7: are still way behind when it comes to the other modalities.
Speaker 4: Right, let's be honest, you and anurag build a career
Speaker 4: on seven stocks. Basically the people still want to talk
Speaker 4: to you about the MAG seven or is that just passe?
Speaker 7: Absolutely? I mean you can't really talk about the indices
Speaker 7: without these MAG seven stocks. So, no matter what happens
Speaker 7: to the market, these are some of the best companies
Speaker 7: when it comes to generating free cash flow. And look,
Speaker 7: they have tremendous modes so and they drive the marks.
Speaker 4: I just feel like that, you know, fifteen percent or
Speaker 4: so drawn down in the MAG seven's is that temporary
Speaker 4: there's still that has knock anybody's confidence in those names.
Speaker 7: Yeah, it's still the prevailing sort of sentiment that you know,
Speaker 7: you buy the dips on these companies because they just
Speaker 7: are fantastic when it comes to generating free cash flow.
Speaker 2: Well, what I keep hearing a little bit though, too,
Speaker 2: is that where these things are built, like the data
Speaker 2: centers and how you power them, that's now kind of
Speaker 2: up for grabs. Like we know that they're going to
Speaker 2: work obviously in like Virginia, but are they really going
Speaker 2: to work in Texas? And are they really going to
Speaker 2: work in like North Dakota, And they're really going to
Speaker 2: work with all this energy? So it's like how you
Speaker 2: get it done? Feels like a question, But that shouldn't
Speaker 2: affect the actual cap expend or the demand. That's just
Speaker 2: sort of the back end part anyway.
Speaker 7: Yes, So the second to play that everyone keeps talking.
Speaker 2: Yeah, and that seems to be where the question marks are.
Speaker 2: Mandeep always a pleasure man keeps saying Bloomberg Intelligence senior
Speaker 2: tech industry analysts. And I should point out that spokespeople
Speaker 2: for the White House and Commerce Department did not respond
Speaker 2: to requests for comment on the story of tech chiefs
Speaker 2: and foreign leaders urging Trump to rethink some AI chip curbs.
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