1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:23,720 Speaker 1: at Bloomberg dot com slash podcast. Credit Swiss Group. I'm 7 00:00:23,720 --> 00:00:26,040 Speaker 1: looking at the share trading in Europe right now, down 8 00:00:26,200 --> 00:00:30,159 Speaker 1: sixteen per cent on the back of some news of 9 00:00:30,200 --> 00:00:33,960 Speaker 1: a major restructuring, yet another major restructuring of this leading 10 00:00:34,000 --> 00:00:39,480 Speaker 1: European investment bank, Quasi Global Investment Bank um Credit Swiss. 11 00:00:39,479 --> 00:00:42,880 Speaker 1: They're also gonna issue four billions share sale four billion 12 00:00:42,880 --> 00:00:45,960 Speaker 1: dollars to fund the revamp, and that's obviously weighing on 13 00:00:46,080 --> 00:00:48,040 Speaker 1: the stock. Let's bring in Allison Williams. She's a senior 14 00:00:48,080 --> 00:00:52,519 Speaker 1: global banks analysts for Bloomberg Intelligence. So Allison give us 15 00:00:52,560 --> 00:00:57,000 Speaker 1: kind of the layout here of this latest restructuring of 16 00:00:57,400 --> 00:01:02,480 Speaker 1: Credit Suis Group. So let's start with the strategic changes, 17 00:01:02,560 --> 00:01:05,640 Speaker 1: which I think they are doing the right thing. They 18 00:01:05,800 --> 00:01:09,280 Speaker 1: are um sort of carving out the part of their 19 00:01:09,319 --> 00:01:12,720 Speaker 1: trading business that really does not align with the core 20 00:01:12,840 --> 00:01:16,920 Speaker 1: wealth unit. UM. I think this is not a surprise. 21 00:01:16,959 --> 00:01:21,280 Speaker 1: They're going to be selling that to Apollo and Pimco, 22 00:01:21,480 --> 00:01:24,640 Speaker 1: remaining some some residual assets, but that will free up 23 00:01:24,640 --> 00:01:28,679 Speaker 1: some capital that they can allocate elsewhere. Um. And then 24 00:01:28,720 --> 00:01:31,880 Speaker 1: the other interesting changes bringing back the first Boston name, 25 00:01:31,959 --> 00:01:36,319 Speaker 1: so a little throwback their avie you um and uh 26 00:01:36,440 --> 00:01:39,280 Speaker 1: They're gonna so that that's sort of an interesting point. 27 00:01:39,319 --> 00:01:41,600 Speaker 1: They're going to carve out that part of the investment 28 00:01:41,640 --> 00:01:44,039 Speaker 1: bank and make it a little bit of a more 29 00:01:44,080 --> 00:01:48,320 Speaker 1: of a boutique with some outside money, which is interesting. 30 00:01:48,360 --> 00:01:51,040 Speaker 1: But my feeling is that the main thing that will 31 00:01:51,080 --> 00:01:55,279 Speaker 1: accomplish is to provide a way to compensate the talent 32 00:01:55,320 --> 00:01:58,040 Speaker 1: and retain that talent that is so important to that business, 33 00:01:58,040 --> 00:02:01,320 Speaker 1: which you know Paul and and um and so you know, 34 00:02:01,400 --> 00:02:04,200 Speaker 1: this boutique structure has worked with all these spinouts at 35 00:02:04,200 --> 00:02:06,400 Speaker 1: Greenhill sort of began that trend a long time ago. 36 00:02:06,480 --> 00:02:10,240 Speaker 1: So we'll see, UM, we'll see that and I think 37 00:02:10,240 --> 00:02:13,840 Speaker 1: that UM the big surprise. So so I think those 38 00:02:13,880 --> 00:02:16,840 Speaker 1: were expected. They're going to focus on wealth, that's that's expected, 39 00:02:17,080 --> 00:02:19,679 Speaker 1: have some assets in a bad bank, that's that those 40 00:02:19,720 --> 00:02:22,640 Speaker 1: are all sort of expected things. The quarter was weak 41 00:02:22,840 --> 00:02:26,480 Speaker 1: generally as expected. The big surprise that drove the four 42 00:02:26,520 --> 00:02:29,120 Speaker 1: billion dollar loss was that they took a three point 43 00:02:29,160 --> 00:02:34,079 Speaker 1: seven billion UM deferred tax impairment as part of the 44 00:02:34,200 --> 00:02:38,440 Speaker 1: UM overall look, and so that set their capital UM 45 00:02:38,480 --> 00:02:41,520 Speaker 1: you know, back a little bit UM by fifty basis 46 00:02:41,520 --> 00:02:44,720 Speaker 1: points their their capital ratio UM, which we know is 47 00:02:44,720 --> 00:02:47,000 Speaker 1: is one of the important things that they need to 48 00:02:47,040 --> 00:02:52,480 Speaker 1: work on going forward. The four billion dollar UM capital 49 00:02:52,600 --> 00:02:57,239 Speaker 1: rays that they announced, UM, you know, it's I think 50 00:02:57,280 --> 00:02:59,280 Speaker 1: the reason why the stock is week today is first 51 00:02:59,280 --> 00:03:01,240 Speaker 1: of all, that it has to price, so it's always 52 00:03:01,240 --> 00:03:04,000 Speaker 1: gonna be hard for a stock to UM do well 53 00:03:04,440 --> 00:03:07,480 Speaker 1: ahead of that. There's some technical issues, and then there 54 00:03:07,520 --> 00:03:10,320 Speaker 1: are a lot of details missing and so I think, um, 55 00:03:10,360 --> 00:03:12,080 Speaker 1: you know, they're gonna be We don't know what the 56 00:03:12,120 --> 00:03:15,200 Speaker 1: pricing is on the on the UM securitized product groups 57 00:03:15,200 --> 00:03:17,200 Speaker 1: sale that I just told you about, So we have 58 00:03:17,240 --> 00:03:19,160 Speaker 1: no idea how much money they're gonna get there. We 59 00:03:19,200 --> 00:03:22,080 Speaker 1: want to know about that. What is all the profit 60 00:03:22,160 --> 00:03:25,280 Speaker 1: that they're giving up with the things that they're selling. UM, 61 00:03:25,440 --> 00:03:28,000 Speaker 1: they haven't you know, given the full look of what 62 00:03:28,040 --> 00:03:31,640 Speaker 1: that first Boston Investment Banking car about is going to 63 00:03:31,720 --> 00:03:34,680 Speaker 1: look like. So there's there's a lack of details on 64 00:03:34,760 --> 00:03:38,120 Speaker 1: those things. We have. The four billion capital rais coming. 65 00:03:38,160 --> 00:03:40,200 Speaker 1: I would say the four billion was sort of a 66 00:03:40,240 --> 00:03:44,560 Speaker 1: consensus UM, and I would say that the restructuring charges 67 00:03:45,080 --> 00:03:49,080 Speaker 1: UM also probably about in line with consensus. Well, let's 68 00:03:49,120 --> 00:03:51,920 Speaker 1: talk about the capital raise, because they were trying to 69 00:03:52,240 --> 00:03:57,000 Speaker 1: avoid this, right, just given how low the shares are trading, 70 00:03:57,080 --> 00:03:59,440 Speaker 1: I mean, was this kind of a last ditch effort. 71 00:04:00,960 --> 00:04:03,360 Speaker 1: I mean, I think that they need capital. So the 72 00:04:03,400 --> 00:04:08,200 Speaker 1: two alternatives, right are a dilutive capital raising, which, as 73 00:04:08,240 --> 00:04:10,960 Speaker 1: you said, UM, no one wants to do, especially with 74 00:04:11,200 --> 00:04:14,400 Speaker 1: UM the steep valuation the stock at point three times 75 00:04:15,080 --> 00:04:18,919 Speaker 1: UM price to book, so that was something they would 76 00:04:19,000 --> 00:04:21,240 Speaker 1: want to avoid. But I do think that, you know, 77 00:04:21,640 --> 00:04:25,000 Speaker 1: given the situation that they're in and where we are today, 78 00:04:25,040 --> 00:04:28,520 Speaker 1: the most important thing for them is to one set 79 00:04:28,560 --> 00:04:31,240 Speaker 1: the clear path forward, which I think they've done, and 80 00:04:31,240 --> 00:04:34,160 Speaker 1: and be aggressive enough in terms of what that strategy is, 81 00:04:34,800 --> 00:04:37,800 Speaker 1: and to raise enough capital so that they don't have 82 00:04:37,880 --> 00:04:41,200 Speaker 1: to come back UM. So they do need to fund 83 00:04:41,279 --> 00:04:43,400 Speaker 1: these stuffs going forward. They could either do it through 84 00:04:43,440 --> 00:04:46,320 Speaker 1: assets sales, or they could do through the dilutive um 85 00:04:46,360 --> 00:04:50,080 Speaker 1: capital raising. You know, it's it's not neither were good. 86 00:04:50,160 --> 00:04:52,960 Speaker 1: Neither were or are good choices because the valuations of 87 00:04:53,040 --> 00:04:56,200 Speaker 1: things that they're selling are so low. Um So so 88 00:04:56,279 --> 00:04:59,720 Speaker 1: either way I think is a tough choice. But you know, 89 00:04:59,800 --> 00:05:02,440 Speaker 1: the but raising enough so that they don't have to 90 00:05:02,480 --> 00:05:04,400 Speaker 1: come back, because keep in mind that we think that 91 00:05:04,560 --> 00:05:07,599 Speaker 1: markets are going to be uncertain from here. For structuring 92 00:05:07,640 --> 00:05:11,080 Speaker 1: never goes into a straight line. Um, you know, you're 93 00:05:11,120 --> 00:05:14,359 Speaker 1: not gonna want to have to have that overhang, which 94 00:05:14,400 --> 00:05:17,960 Speaker 1: in a way, um you know, just becomes a vicious 95 00:05:18,000 --> 00:05:20,040 Speaker 1: loop with the stock. So just real quickly, but I 96 00:05:20,080 --> 00:05:22,279 Speaker 1: got about a forty five seconds left. So is the 97 00:05:22,320 --> 00:05:26,000 Speaker 1: remaining credit Swiss just basically a European private wealth manager? 98 00:05:26,120 --> 00:05:29,400 Speaker 1: Is that it? I mean, if you step back and 99 00:05:29,440 --> 00:05:32,960 Speaker 1: look at the change in their revenue mixed, which is 100 00:05:32,960 --> 00:05:36,880 Speaker 1: what they're projecting, trading is going to go from to 101 00:05:38,240 --> 00:05:42,200 Speaker 1: so it's still there and you know the CSFB name, 102 00:05:42,400 --> 00:05:46,160 Speaker 1: that's still going to be likeent of revenue, so it's 103 00:05:46,160 --> 00:05:49,440 Speaker 1: not totally turning away. They're taking a chunk of trading 104 00:05:49,440 --> 00:05:51,040 Speaker 1: that really doesn't have to do with much of a 105 00:05:51,120 --> 00:05:55,479 Speaker 1: business and sort of sort of that of revenue will 106 00:05:55,520 --> 00:06:01,880 Speaker 1: shift towards um wealth. But so it's the capital, you know, 107 00:06:01,920 --> 00:06:05,400 Speaker 1: the capital and the returns because are what's important, because 108 00:06:05,440 --> 00:06:09,520 Speaker 1: even though the revenue is shrinking, the capital allocated to 109 00:06:09,600 --> 00:06:12,920 Speaker 1: that um was intense and that sort of is lower return. 110 00:06:13,440 --> 00:06:16,040 Speaker 1: The stocks are valued based on what profitability you can 111 00:06:16,040 --> 00:06:18,960 Speaker 1: give me or give the investor, and so I think 112 00:06:19,000 --> 00:06:22,880 Speaker 1: that's that's the shift. So some shift, but not totally 113 00:06:22,880 --> 00:06:25,640 Speaker 1: going away. All right, good stuff as always, and I 114 00:06:25,880 --> 00:06:28,000 Speaker 1: I will note that Michael Klein, one of the top 115 00:06:28,000 --> 00:06:31,479 Speaker 1: bankers on Wall Street and a board member of Credit Swiss, 116 00:06:31,520 --> 00:06:33,320 Speaker 1: is going to become the CEO of this new c 117 00:06:33,720 --> 00:06:35,960 Speaker 1: S First Boston. So I'm going to keep an eye 118 00:06:36,000 --> 00:06:39,719 Speaker 1: on that boutique investment bank for sure. Alison Williams, Senior 119 00:06:39,760 --> 00:06:43,279 Speaker 1: Global Banks analyst for Bloomberg Intelligence, giving us the breakdown 120 00:06:43,360 --> 00:06:48,320 Speaker 1: kind of yet another restructuring of one of Switzerland's leading banks, 121 00:06:48,320 --> 00:06:51,280 Speaker 1: one of Europe's leading banks. Tough tough times, trying to 122 00:06:51,560 --> 00:06:57,719 Speaker 1: restructure and make it to the other side. When we 123 00:06:57,760 --> 00:07:01,920 Speaker 1: started off this morning with uh the ECB raising their 124 00:07:02,000 --> 00:07:04,960 Speaker 1: benchmark rate by seventy five basis points, we also got 125 00:07:04,960 --> 00:07:07,680 Speaker 1: a lot of economic data out today, led by the 126 00:07:07,720 --> 00:07:09,760 Speaker 1: GDP number came in a little bit better and expected 127 00:07:09,760 --> 00:07:13,280 Speaker 1: plus two points six percent. Remember was minus zero point 128 00:07:13,320 --> 00:07:15,920 Speaker 1: six percent last quarter, So kind of brings us back 129 00:07:15,960 --> 00:07:18,440 Speaker 1: to the same discussion. What's the Federal Reserve gonna do 130 00:07:18,440 --> 00:07:20,840 Speaker 1: as it looks at all these ECO data points. Let's 131 00:07:20,880 --> 00:07:23,040 Speaker 1: check in with Matt Stucky. He's a senior portfolio manager 132 00:07:23,080 --> 00:07:27,560 Speaker 1: at Northwestern Mutual. Matt, you know, we obviously the ECB. 133 00:07:27,680 --> 00:07:30,000 Speaker 1: What we heard from Madame Legard this morning, what we 134 00:07:30,360 --> 00:07:34,480 Speaker 1: have been hearing from Federal Reserve officials leading FED Chairman 135 00:07:34,560 --> 00:07:38,040 Speaker 1: j pal is the focus is on inflation. What is 136 00:07:38,640 --> 00:07:41,080 Speaker 1: your inflation called Northwestern Mutual? And then how does that 137 00:07:41,160 --> 00:07:44,200 Speaker 1: kind of drive where you think this Federal Reserve will 138 00:07:44,240 --> 00:07:47,760 Speaker 1: go from here? Well, good morning. Uh, you know, first 139 00:07:47,800 --> 00:07:50,000 Speaker 1: and foremost we are are called Northwestern Mesia was that 140 00:07:50,040 --> 00:07:52,120 Speaker 1: inflation is set to roll over here as we entered 141 00:07:52,120 --> 00:07:56,720 Speaker 1: into three. However, we do think that, um, you know, 142 00:07:56,760 --> 00:07:58,520 Speaker 1: you're not really going to see in the official CPI 143 00:07:58,680 --> 00:08:02,080 Speaker 1: numbers until we turn over into the next year because 144 00:08:02,120 --> 00:08:06,520 Speaker 1: of the lagged effects of housing. Housing enters into CPIS. 145 00:08:06,600 --> 00:08:08,320 Speaker 1: We all know with the twelve to eighteen month leg 146 00:08:08,360 --> 00:08:10,760 Speaker 1: and so right now we're just dealing with you know, 147 00:08:11,480 --> 00:08:14,960 Speaker 1: the housing market that we had, and that's light years 148 00:08:14,960 --> 00:08:17,400 Speaker 1: different than the current environment. So it's going to take 149 00:08:17,440 --> 00:08:21,400 Speaker 1: time for this, this inflation number two to roll over. 150 00:08:21,480 --> 00:08:24,440 Speaker 1: But you know, the end destination in our our minds 151 00:08:24,640 --> 00:08:28,600 Speaker 1: is very different than the stick inflation argument that that's 152 00:08:28,880 --> 00:08:32,120 Speaker 1: still out there today. And obviously we're in the heart 153 00:08:32,240 --> 00:08:34,360 Speaker 1: of earning season, and when we think about what the 154 00:08:34,400 --> 00:08:38,200 Speaker 1: FED is trying to accomplish in trying to get a 155 00:08:38,200 --> 00:08:41,720 Speaker 1: grip on inflation, trying to bring demand down. When you 156 00:08:41,920 --> 00:08:45,240 Speaker 1: are passing through some of the earnings reports that we're getting, 157 00:08:45,679 --> 00:08:48,640 Speaker 1: what do you think would be better from the Fed's perspective. 158 00:08:48,679 --> 00:08:52,559 Speaker 1: Would it be better if companies were just trailing estimates 159 00:08:52,679 --> 00:08:57,800 Speaker 1: missing everything, or if companies were still beating by a 160 00:08:57,840 --> 00:09:00,520 Speaker 1: mile right now like they were you know maybe here 161 00:09:00,720 --> 00:09:04,640 Speaker 1: or two years ago. Well, the FED definitely wants to 162 00:09:04,640 --> 00:09:06,840 Speaker 1: bring in flight inflation lower, and they want to do 163 00:09:06,920 --> 00:09:11,240 Speaker 1: so without, uh, without you know, really putting a lot 164 00:09:11,280 --> 00:09:13,160 Speaker 1: of people out of work. But you know, I think 165 00:09:13,160 --> 00:09:17,000 Speaker 1: at a high level of profits and employment are are correlated, uh, 166 00:09:17,040 --> 00:09:21,080 Speaker 1: and so higher inflation, weaker aggregate demand from consumers. As 167 00:09:21,160 --> 00:09:24,440 Speaker 1: results of all of this um monetary policy tightening is 168 00:09:24,440 --> 00:09:27,880 Speaker 1: inevitably going to lead to lower profits UM. And so 169 00:09:28,240 --> 00:09:29,800 Speaker 1: you know, you look on the other side of this, 170 00:09:30,200 --> 00:09:33,960 Speaker 1: you have to expect um employment to suffer as we 171 00:09:34,000 --> 00:09:36,960 Speaker 1: move into and we're starting to see that show up 172 00:09:36,960 --> 00:09:39,760 Speaker 1: in the survey data. You just look at the conference 173 00:09:39,800 --> 00:09:42,760 Speaker 1: board information that we got last week. The labor differential 174 00:09:42,960 --> 00:09:46,679 Speaker 1: you know, starting to migrate back um, away from the 175 00:09:46,720 --> 00:09:49,280 Speaker 1: strength that we saw you know, the last twelve months. 176 00:09:49,760 --> 00:09:53,320 Speaker 1: And you know, the spread between how how how people 177 00:09:53,360 --> 00:09:56,040 Speaker 1: are asking are answering the question of our jobs easy 178 00:09:56,400 --> 00:09:58,640 Speaker 1: or versus hard to get right now is starting to 179 00:09:58,679 --> 00:10:01,120 Speaker 1: correlate towards an increase in the employment rate. And so 180 00:10:01,400 --> 00:10:03,280 Speaker 1: I think that's what the Fed wants to see. They 181 00:10:03,320 --> 00:10:07,400 Speaker 1: want to see, um, some labor market slack re enter 182 00:10:07,480 --> 00:10:11,160 Speaker 1: into into the economy and UM, you know, we'll we'll 183 00:10:11,200 --> 00:10:15,160 Speaker 1: likely see that UM in the coming quarters. We've had 184 00:10:15,600 --> 00:10:20,040 Speaker 1: almost half of the SMP five companies report earnings. UM. 185 00:10:20,200 --> 00:10:22,080 Speaker 1: You know, so we had some tech disappointment, but some 186 00:10:22,120 --> 00:10:25,800 Speaker 1: other parts of the market is showing some decent numbers 187 00:10:25,800 --> 00:10:30,440 Speaker 1: relative expectations. You get any takeaways here at this point, yeah, Um, 188 00:10:30,559 --> 00:10:32,439 Speaker 1: you know, I think a broad takeaway is that certain 189 00:10:32,480 --> 00:10:34,880 Speaker 1: parts of the economy, you know, this is going to 190 00:10:34,960 --> 00:10:37,720 Speaker 1: feel like a pre severe recession, and in other parts 191 00:10:37,760 --> 00:10:40,560 Speaker 1: of the economy, this is gonna be almost as if, 192 00:10:40,679 --> 00:10:42,480 Speaker 1: you know, we don't really feel much of the recession 193 00:10:42,520 --> 00:10:46,199 Speaker 1: at all. We're still rebalancing consumer spending back towards the 194 00:10:46,320 --> 00:10:50,319 Speaker 1: historical mix of services to goods. Um. You know, we 195 00:10:50,320 --> 00:10:52,559 Speaker 1: were in a very very strong good spending environment and 196 00:10:52,679 --> 00:10:57,120 Speaker 1: stay at home um um uh uh spending profile that 197 00:10:57,320 --> 00:11:00,560 Speaker 1: really promoted good spending. I mean, good spending jump thirtiesome 198 00:11:00,640 --> 00:11:04,200 Speaker 1: percentage points year on year, and you know, we're normalizing 199 00:11:04,240 --> 00:11:07,200 Speaker 1: down down to historical averages, and so for those companies 200 00:11:07,240 --> 00:11:08,960 Speaker 1: that operate in that area is going to feel pretty 201 00:11:08,960 --> 00:11:11,880 Speaker 1: pretty painful. On the other hand, on the service to side, 202 00:11:11,920 --> 00:11:14,680 Speaker 1: you know, demand still remains pretty good, and you know, 203 00:11:14,880 --> 00:11:17,640 Speaker 1: we would we would expect that to be pretty resilient. 204 00:11:17,679 --> 00:11:19,920 Speaker 1: And if you look back through historical recessions and we 205 00:11:19,960 --> 00:11:21,840 Speaker 1: do think we're gonna have some sort of a version 206 00:11:21,840 --> 00:11:24,240 Speaker 1: of MODELD recessions, services demand has to hang in there 207 00:11:24,240 --> 00:11:26,240 Speaker 1: pretty well. It's it's the good side of things that 208 00:11:26,679 --> 00:11:28,640 Speaker 1: you know, it really takes the brunt of brunt of 209 00:11:28,679 --> 00:11:31,920 Speaker 1: the weakness and So, Matt, when you survey the cross 210 00:11:32,040 --> 00:11:37,240 Speaker 1: asset landscape right now, where do you see the most opportunity? Yeah. 211 00:11:37,280 --> 00:11:39,320 Speaker 1: For the for the last couple of years, we've been 212 00:11:39,480 --> 00:11:42,760 Speaker 1: tilting our our client's portfolios towards cheaper parts of the market, 213 00:11:43,000 --> 00:11:48,040 Speaker 1: areas that can't absorb some weakness in terms of earning 214 00:11:48,200 --> 00:11:51,560 Speaker 1: revisions to the to the downside. UM, and we see 215 00:11:51,559 --> 00:11:54,600 Speaker 1: no reason to change that view. UM. You know, I 216 00:11:54,640 --> 00:11:57,559 Speaker 1: think if you just look at a sector neutral kind 217 00:11:57,559 --> 00:12:00,800 Speaker 1: of value tilt in the large up space, you're only 218 00:12:00,880 --> 00:12:03,920 Speaker 1: paying eight and a half nine times forward earnings for 219 00:12:04,080 --> 00:12:07,080 Speaker 1: portfolio that's constructed in that manner. And so that's a 220 00:12:07,080 --> 00:12:10,400 Speaker 1: lot of cushion against UM an environment that we see, 221 00:12:10,640 --> 00:12:15,240 Speaker 1: following Ernie's expectations as the lagged effects of tiny monetary policy, 222 00:12:15,320 --> 00:12:18,880 Speaker 1: higher inflation starts to impact aggregate demand. Uh. And so 223 00:12:18,960 --> 00:12:21,400 Speaker 1: that's how we've positioned our portfolio the last couple of years, 224 00:12:21,400 --> 00:12:22,920 Speaker 1: and we just don't see a reason to change at 225 00:12:22,920 --> 00:12:25,720 Speaker 1: this point. All right, Matt, good stuff. Really appreciate getting 226 00:12:25,720 --> 00:12:28,640 Speaker 1: your time. Matt Stucky. He's a senior portfolio manager of 227 00:12:28,720 --> 00:12:32,360 Speaker 1: Northwestern Mutual based in Milwaukee. And I've said it once. 228 00:12:32,400 --> 00:12:34,760 Speaker 1: Let's say it again. There are some smart money managers 229 00:12:34,840 --> 00:12:37,760 Speaker 1: in Milwaukee. Wouldn't think of it, but it is a 230 00:12:37,920 --> 00:12:41,640 Speaker 1: go to stop for an intrepid cell side analyst. Look 231 00:12:41,640 --> 00:12:43,600 Speaker 1: at me for some I I votes, um so, I 232 00:12:43,600 --> 00:12:45,760 Speaker 1: spent a lot of time in Milwaukee back in the day. 233 00:12:48,000 --> 00:12:51,640 Speaker 1: This could be the interesting discussion most interests the discussion 234 00:12:51,640 --> 00:12:54,720 Speaker 1: of the morning. Uh Asotash potty managing partner. He runs 235 00:12:55,040 --> 00:12:57,360 Speaker 1: North America for mckensey, which I think is some little 236 00:12:57,520 --> 00:13:02,560 Speaker 1: consulting firm or something. Yeah, anyhow, attaches in our Bloomberg 237 00:13:02,559 --> 00:13:06,559 Speaker 1: Interactive Broker studio. Asotas, thanks so much for joining us here. Um, 238 00:13:06,600 --> 00:13:08,880 Speaker 1: you've got a new book out. We'll get to your 239 00:13:08,880 --> 00:13:10,840 Speaker 1: practice and what McKinsey's doing and all that kind of stuff. 240 00:13:11,200 --> 00:13:14,760 Speaker 1: The titanium economy, I've not heard that term before. What 241 00:13:15,040 --> 00:13:18,800 Speaker 1: is the titanium economy, Paul, It's great to be here. 242 00:13:19,640 --> 00:13:24,520 Speaker 1: The titanium economies all around us. It actually constitutes a 243 00:13:24,600 --> 00:13:28,560 Speaker 1: portion of the manufacturing. We call this industrial technology. These 244 00:13:28,559 --> 00:13:32,920 Speaker 1: companies are durable, they're resistant. You don't actually see them, 245 00:13:32,920 --> 00:13:35,920 Speaker 1: which is why we coined the phrase the titanium economy. 246 00:13:36,160 --> 00:13:39,320 Speaker 1: And these companies are six thousand of them. They've been 247 00:13:39,360 --> 00:13:44,160 Speaker 1: around for the last years, yet they often don't get 248 00:13:44,200 --> 00:13:47,080 Speaker 1: talked about. These are not the companies with the business 249 00:13:47,080 --> 00:13:49,840 Speaker 1: to consumer brands. They don't buy the Super Bowl ads. 250 00:13:49,840 --> 00:13:53,120 Speaker 1: They often the CEOs often don't make it to the 251 00:13:53,120 --> 00:13:56,280 Speaker 1: front page of the newspaper. Yet when we spend time, 252 00:13:56,400 --> 00:13:59,959 Speaker 1: what we found is that these companies, these companies are profitable, 253 00:14:01,080 --> 00:14:05,120 Speaker 1: they've been around for decades. Only are actually public and 254 00:14:05,200 --> 00:14:09,320 Speaker 1: the vast majority are private. And the thing that struck 255 00:14:09,360 --> 00:14:11,800 Speaker 1: us was this not just past, this could be the 256 00:14:11,840 --> 00:14:14,760 Speaker 1: future of the American economy and hence hence the reason 257 00:14:14,800 --> 00:14:17,560 Speaker 1: we put a focus on it. So names some names here, 258 00:14:17,600 --> 00:14:22,600 Speaker 1: what is the quintessential Titanium Economy Company? So, Katie, we 259 00:14:22,640 --> 00:14:24,960 Speaker 1: could have written this as saying, there are these are 260 00:14:24,960 --> 00:14:28,160 Speaker 1: the fifty companies you didn't know about, an hundred fifty 261 00:14:28,160 --> 00:14:31,760 Speaker 1: places you never visited. And let me take a couple 262 00:14:31,760 --> 00:14:35,120 Speaker 1: of examples. One is an example of a company called 263 00:14:35,560 --> 00:14:45,360 Speaker 1: Brady Corporation. Excuse me. They're based in Milwaukee, and they've 264 00:14:45,360 --> 00:14:48,360 Speaker 1: been around since nineteen fourteen, and they initially came up 265 00:14:48,360 --> 00:14:51,280 Speaker 1: with technology that was used during the military during World 266 00:14:51,280 --> 00:14:53,640 Speaker 1: War Two. So when you were in extreme temperatures and 267 00:14:53,680 --> 00:14:57,440 Speaker 1: you needed to separate electrical wires to provide safety. Today 268 00:14:57,480 --> 00:14:59,640 Speaker 1: that same companies around and what they do is they 269 00:14:59,680 --> 00:15:04,360 Speaker 1: provide technology that is used for identification of babies, the 270 00:15:04,400 --> 00:15:08,760 Speaker 1: baby bracelets in hospitals. Right, that's one example of a company. 271 00:15:09,160 --> 00:15:11,280 Speaker 1: Another example of a company, if that go down south, 272 00:15:11,400 --> 00:15:15,800 Speaker 1: is Corbo, which is based in Raleigh. When we are 273 00:15:15,840 --> 00:15:18,480 Speaker 1: able to text and speak on the phones at the 274 00:15:18,520 --> 00:15:21,640 Speaker 1: same time, it's because of the company called Corbo, and 275 00:15:21,680 --> 00:15:25,160 Speaker 1: they make the components that actually use that allow us 276 00:15:25,160 --> 00:15:28,080 Speaker 1: to be able to text and speak on the phone 277 00:15:28,200 --> 00:15:30,720 Speaker 1: at the same time. Right. So these are just two 278 00:15:30,720 --> 00:15:33,160 Speaker 1: examples of like things that we have come across in 279 00:15:33,200 --> 00:15:34,960 Speaker 1: our day to day lives. And that's why we said 280 00:15:35,000 --> 00:15:36,840 Speaker 1: these companies are all around us. I mean we use 281 00:15:36,880 --> 00:15:40,440 Speaker 1: the products on a continuous basis every single day, yet 282 00:15:40,440 --> 00:15:44,680 Speaker 1: we never actually see them. Why aren't more of these companies, 283 00:15:45,360 --> 00:15:48,600 Speaker 1: you know, public? Why where how do they capitalize on 284 00:15:48,760 --> 00:15:51,920 Speaker 1: themselves that they don't go to the public markets? So 285 00:15:52,040 --> 00:15:54,520 Speaker 1: many of these poul I get that question a lot. 286 00:15:54,640 --> 00:15:59,040 Speaker 1: Many of these companies have been around for decades. These 287 00:15:59,040 --> 00:16:02,280 Speaker 1: are companies that are parade. They have a degree of specialization. 288 00:16:02,360 --> 00:16:05,120 Speaker 1: We call these micro verticals. So these six thousand companies, 289 00:16:05,120 --> 00:16:08,120 Speaker 1: they operate in roughly ninety or so different micro verticals. 290 00:16:08,760 --> 00:16:11,320 Speaker 1: They have come up with a playbook that actually allows 291 00:16:11,400 --> 00:16:13,760 Speaker 1: them to be able to drive a consistent level of 292 00:16:13,800 --> 00:16:18,920 Speaker 1: revenue growth and a consistent level of a strong economic performance. 293 00:16:19,040 --> 00:16:21,520 Speaker 1: We look at return on invested capital, and they have 294 00:16:21,640 --> 00:16:24,040 Speaker 1: solid return and invested capital and they've been doing that 295 00:16:24,080 --> 00:16:28,520 Speaker 1: for decades. These companies have been in the mode of consistent, 296 00:16:28,600 --> 00:16:32,760 Speaker 1: steady operating performance, and as a result, often the change 297 00:16:32,800 --> 00:16:37,760 Speaker 1: in ownership is driven by is driven much more by 298 00:16:37,320 --> 00:16:40,560 Speaker 1: and by by the transition of a founder, et cetera. 299 00:16:41,360 --> 00:16:43,800 Speaker 1: The strange thing that we found back to capitalists, they 300 00:16:43,800 --> 00:16:46,480 Speaker 1: only get less than one percent of today's venture capital 301 00:16:46,520 --> 00:16:49,920 Speaker 1: funding actually goes into the titanium economy. And since we 302 00:16:50,040 --> 00:16:52,560 Speaker 1: published this book, interestingly, we've had reach outs from a 303 00:16:52,560 --> 00:16:55,440 Speaker 1: couple of venture capitalists who are actually interested in finding 304 00:16:55,480 --> 00:17:00,680 Speaker 1: out more. I like this conversation because it feels somewhat 305 00:17:00,720 --> 00:17:04,399 Speaker 1: more hopeful than the conversations we typically have around US manufacturing, 306 00:17:04,760 --> 00:17:08,040 Speaker 1: for example, and the decline of that industry. But to 307 00:17:08,160 --> 00:17:12,720 Speaker 1: your point, this is thriving. It's just undercovered, under talked about. 308 00:17:13,320 --> 00:17:15,760 Speaker 1: That's exactly right, and this is you know, the thing 309 00:17:15,800 --> 00:17:20,080 Speaker 1: that struck us was jobs in the titanium economy. Companies 310 00:17:20,720 --> 00:17:23,520 Speaker 1: um you know, typically are about sixty tho not of 311 00:17:23,600 --> 00:17:26,080 Speaker 1: sixty tho dollars a year, which is two x what 312 00:17:26,200 --> 00:17:29,680 Speaker 1: it is in the services sector, right and often. The 313 00:17:30,040 --> 00:17:32,960 Speaker 1: thing that we also found is that these companies don't 314 00:17:33,000 --> 00:17:37,760 Speaker 1: actually have any difficulty in retaining talent, but they have 315 00:17:37,880 --> 00:17:41,119 Speaker 1: a real challenge and attracting talent because no one actually 316 00:17:41,119 --> 00:17:43,439 Speaker 1: knows about them. So last year, when we looked across 317 00:17:43,440 --> 00:17:46,240 Speaker 1: the economy, there was not of a million jobs that 318 00:17:46,320 --> 00:17:49,359 Speaker 1: went unfulfilled, which from the standpoint if you quantify the 319 00:17:49,520 --> 00:17:52,160 Speaker 1: economic impact of that, from the standpoint of the GDP 320 00:17:52,480 --> 00:17:55,919 Speaker 1: of the of the United States, that's actually massive. So, 321 00:17:57,560 --> 00:17:59,560 Speaker 1: as a head of kids in North America, you and 322 00:17:59,600 --> 00:18:02,560 Speaker 1: you're anti teams. You talked to pretty much everybody here, 323 00:18:02,840 --> 00:18:05,440 Speaker 1: and at the beginning of the pandemic, you know, when 324 00:18:05,480 --> 00:18:09,080 Speaker 1: the supply chain really seized up, a lot of companies, 325 00:18:09,080 --> 00:18:11,639 Speaker 1: a lot of industries, a lot of politicians said we 326 00:18:11,680 --> 00:18:15,360 Speaker 1: need to reshore some of this stuff, like semicituctor manufacturing. 327 00:18:15,680 --> 00:18:18,920 Speaker 1: When you talk to your clients, is that really going 328 00:18:19,000 --> 00:18:21,520 Speaker 1: to happen or was that just rhetoric at the beginning 329 00:18:21,520 --> 00:18:24,320 Speaker 1: of the pandemic. Do you think because face I mean, 330 00:18:24,320 --> 00:18:26,600 Speaker 1: you know as well as anybody this is a global 331 00:18:26,640 --> 00:18:29,200 Speaker 1: economy and what's happened over the last three or four 332 00:18:29,240 --> 00:18:33,560 Speaker 1: generations is that going to be reversed at all? So well, Uh, 333 00:18:34,119 --> 00:18:36,159 Speaker 1: If I go back with the thing that the pandemic 334 00:18:36,200 --> 00:18:40,080 Speaker 1: did is I think historically companies had been focused on 335 00:18:40,320 --> 00:18:43,959 Speaker 1: purely efficiency, which is the lowest cost. The thing the 336 00:18:43,960 --> 00:18:46,919 Speaker 1: pandemic did was it introduced a new term called resilience. 337 00:18:47,200 --> 00:18:49,760 Speaker 1: And resilience means many different things, but you can actually 338 00:18:49,840 --> 00:18:52,200 Speaker 1: quantify and say if you have a shock in the 339 00:18:52,280 --> 00:18:55,240 Speaker 1: in the supply chain, a shock could be because of logistics, 340 00:18:55,840 --> 00:18:58,200 Speaker 1: it could be because of you know a Tier two 341 00:18:58,240 --> 00:19:01,040 Speaker 1: or Tier three suppliers that you know that that that 342 00:19:01,119 --> 00:19:03,800 Speaker 1: it actually has a big financial impact on the business. 343 00:19:03,840 --> 00:19:07,120 Speaker 1: And we quantified that to the McKenzie Global Institute and 344 00:19:07,160 --> 00:19:10,679 Speaker 1: we said for many different companies it could be up 345 00:19:10,720 --> 00:19:13,920 Speaker 1: to thirty to fifty of annual earnings over a five 346 00:19:13,960 --> 00:19:16,440 Speaker 1: to ten year period. The interesting thing was they had 347 00:19:16,480 --> 00:19:19,280 Speaker 1: been facing that level of impact over the past ten years, 348 00:19:19,280 --> 00:19:21,840 Speaker 1: except COVID put a microscope and a focus on it, 349 00:19:22,480 --> 00:19:24,920 Speaker 1: so as we look at it now. Every company is 350 00:19:24,960 --> 00:19:27,200 Speaker 1: therefore starting to rethink and say what does supply chain 351 00:19:27,280 --> 00:19:30,680 Speaker 1: resilience actually mean for them? And it might imply very 352 00:19:30,680 --> 00:19:33,800 Speaker 1: different answers for very different institutions. But the question is 353 00:19:33,920 --> 00:19:36,199 Speaker 1: very much on the table with CEOs and with boards. 354 00:19:37,200 --> 00:19:38,719 Speaker 1: And we only have about a minute left with you. 355 00:19:38,760 --> 00:19:41,720 Speaker 1: But I am curious what inspired you to write this book? 356 00:19:41,760 --> 00:19:44,440 Speaker 1: What led you to sitting down and saying, I gotta 357 00:19:44,440 --> 00:19:47,359 Speaker 1: write a book about this. So I started with McKenzie 358 00:19:47,400 --> 00:19:50,840 Speaker 1: twenty seven years ago. And then when I when I 359 00:19:50,880 --> 00:19:53,000 Speaker 1: came to the United States the first time, I spent 360 00:19:53,320 --> 00:19:56,400 Speaker 1: a portion of my life in Cleveland, where serving industrial companies. 361 00:19:56,760 --> 00:19:59,879 Speaker 1: Then I went to the Silicon Valley, where serving technology company. 362 00:20:00,560 --> 00:20:03,920 Speaker 1: I noticed that both were driving innovation. But yet when 363 00:20:03,960 --> 00:20:07,520 Speaker 1: we talk about innovation, we only talk about innovation on 364 00:20:07,600 --> 00:20:10,159 Speaker 1: the tech on the West Coast, and we missed this 365 00:20:10,240 --> 00:20:13,040 Speaker 1: other critical aspect of the of the innovation which should 366 00:20:13,080 --> 00:20:16,240 Speaker 1: really be a bedrock of the American economy. Absolutely, some 367 00:20:16,280 --> 00:20:20,719 Speaker 1: good stuff, really fascinating Asotas party. Uh, managing partner for 368 00:20:20,880 --> 00:20:24,240 Speaker 1: McKinsey of North America. UH, there's some pretty smart people, 369 00:20:24,520 --> 00:20:30,040 Speaker 1: you know, come in contact a lot of McKinsey folks. Uh. Apparently, 370 00:20:30,040 --> 00:20:33,320 Speaker 1: apparently they charge a lot and it ain't free. These 371 00:20:33,320 --> 00:20:35,639 Speaker 1: guys give you in terms of advice asotas. Thanks so 372 00:20:35,720 --> 00:20:37,840 Speaker 1: much for joining us. We appreciate it. His book is 373 00:20:37,880 --> 00:20:45,560 Speaker 1: The Titanium Economy. Sounds pretty interesting out there. And Nashta 374 00:20:45,840 --> 00:20:48,480 Speaker 1: down seven tents percent, seven tents of one percent on 375 00:20:48,760 --> 00:20:51,080 Speaker 1: some of those week tech earnings. Um, and it's it 376 00:20:51,080 --> 00:20:53,160 Speaker 1: hasn't been across the board, but there's been a lot 377 00:20:53,200 --> 00:20:55,720 Speaker 1: of headwinds that have become really apparent for investors in 378 00:20:55,760 --> 00:20:59,320 Speaker 1: his technology space, painfully apparent, and one of them is 379 00:20:59,359 --> 00:21:01,800 Speaker 1: digital average zing. But let's bring on and round table 380 00:21:01,880 --> 00:21:04,040 Speaker 1: this thing a little bit. We'll bring on Man Deep 381 00:21:04,080 --> 00:21:06,680 Speaker 1: singh Uh. He's in our Bloomberg Interactive Broker studio, a 382 00:21:06,880 --> 00:21:09,600 Speaker 1: rock Rona. He's on the phone. They are both senior 383 00:21:09,640 --> 00:21:14,040 Speaker 1: technology analysts for Bloomberg Intelligence. They covered the entire tech space. 384 00:21:14,080 --> 00:21:16,760 Speaker 1: They've been doing it for decades, and we need to 385 00:21:16,760 --> 00:21:19,320 Speaker 1: break it down. Uh, Man Deep, Let's start with you 386 00:21:19,600 --> 00:21:23,640 Speaker 1: and Facebook. Um, this is my takeaway from the Facebook call, 387 00:21:23,680 --> 00:21:28,320 Speaker 1: which I did listen to last night. We have slowing 388 00:21:28,320 --> 00:21:33,000 Speaker 1: revenue growth for a variety of reasons. We're gonna continue 389 00:21:33,000 --> 00:21:36,200 Speaker 1: to ramp up our spending on a business meta that 390 00:21:36,280 --> 00:21:39,840 Speaker 1: none of you really understand or support. That's a tough 391 00:21:39,920 --> 00:21:42,800 Speaker 1: message for stock and I'm like, how can that stock 392 00:21:42,840 --> 00:21:46,840 Speaker 1: work with that type of message? And stocks down today? 393 00:21:46,880 --> 00:21:51,240 Speaker 1: What's your takeaway here about the Facebook story going forward? Yeah, Look, 394 00:21:51,280 --> 00:21:53,880 Speaker 1: I think the print wasn't bad. So if you look 395 00:21:53,920 --> 00:21:57,720 Speaker 1: at the impressions growth SEV growth, given you know, all 396 00:21:57,760 --> 00:22:00,840 Speaker 1: the product changes they're making to compete with TikTok, it 397 00:22:01,000 --> 00:22:04,120 Speaker 1: was in line, in fact better than expectations. The problem 398 00:22:04,200 --> 00:22:07,439 Speaker 1: was the guide, and that too. They seem to have 399 00:22:07,560 --> 00:22:10,520 Speaker 1: reined in the expenses for this year's In fact, they 400 00:22:10,520 --> 00:22:13,600 Speaker 1: started off the year with llion opex guide. They brought 401 00:22:13,680 --> 00:22:17,399 Speaker 1: it down to eighty seven, but for next year they're 402 00:22:17,440 --> 00:22:22,000 Speaker 1: saying it will be one billion, when the top line 403 00:22:22,040 --> 00:22:25,000 Speaker 1: has flowing to two percent growth. So and then on 404 00:22:25,040 --> 00:22:28,040 Speaker 1: the capex side, they kept talking about how they need 405 00:22:28,119 --> 00:22:31,720 Speaker 1: to invest more in data centers to catch up to TikTok. 406 00:22:31,800 --> 00:22:34,879 Speaker 1: So it wasn't a good message in terms of just 407 00:22:35,040 --> 00:22:37,720 Speaker 1: you know, cost discipline that a company like Facebook needs 408 00:22:37,720 --> 00:22:39,760 Speaker 1: to show at this point. And you made a great 409 00:22:39,760 --> 00:22:42,960 Speaker 1: point to me just a minute ago, how can I 410 00:22:43,040 --> 00:22:45,199 Speaker 1: kind of get away with doing this. And the answer 411 00:22:45,359 --> 00:22:48,959 Speaker 1: is the super voting rights that Mr. Zuckerberg has. And 412 00:22:49,040 --> 00:22:52,320 Speaker 1: look for a company of this size which was almost 413 00:22:52,480 --> 00:22:55,720 Speaker 1: a trillion dollars in market cap and now it's down 414 00:22:55,760 --> 00:23:01,240 Speaker 1: se lost seventy percent off its values. If fields irresponsible 415 00:23:01,320 --> 00:23:04,400 Speaker 1: and to an extent, they brought it down to themselves, 416 00:23:04,400 --> 00:23:06,440 Speaker 1: you know, in terms of doing it in this fashion. 417 00:23:07,600 --> 00:23:09,400 Speaker 1: All right, it's not a bad guy to be. Mark 418 00:23:09,480 --> 00:23:15,040 Speaker 1: Zuckerberg have all encompassing power. But today yeah, that's true, 419 00:23:15,160 --> 00:23:16,520 Speaker 1: that's true. We still is more than me. But in 420 00:23:16,600 --> 00:23:19,400 Speaker 1: any case, on a rug wrapped this into what we're 421 00:23:19,520 --> 00:23:23,160 Speaker 1: expecting this afternoon. We have Apple, we have Amazon. Obviously 422 00:23:23,240 --> 00:23:27,160 Speaker 1: very different businesses from the likes of Meta. But I mean, 423 00:23:27,200 --> 00:23:30,440 Speaker 1: if we think about all of the numbers that we 424 00:23:30,520 --> 00:23:34,359 Speaker 1: got from Microsoft Alphabet, the mood music is pretty grim 425 00:23:34,400 --> 00:23:37,520 Speaker 1: at this point. Our Apple and Amazon gonna move the 426 00:23:37,560 --> 00:23:41,240 Speaker 1: needle at all, and if it's going to be very interesting, 427 00:23:41,280 --> 00:23:44,760 Speaker 1: and I think one would say logically both of them 428 00:23:44,760 --> 00:23:47,600 Speaker 1: should show some weakness, you know, from the Apple side 429 00:23:47,600 --> 00:23:50,320 Speaker 1: of faith, we should see you know, good demand in 430 00:23:50,359 --> 00:23:53,679 Speaker 1: the US offset by the good demand in Europe and China. 431 00:23:54,240 --> 00:23:57,040 Speaker 1: Um and for Amazon. You know, we are expecting the 432 00:23:57,400 --> 00:24:00,280 Speaker 1: cloud business book slowdown as well. That is some learned 433 00:24:00,280 --> 00:24:03,359 Speaker 1: to uh you know what we saw in Microsoft not 434 00:24:03,480 --> 00:24:05,560 Speaker 1: so much in this quarter, but they have guidance for 435 00:24:05,680 --> 00:24:09,320 Speaker 1: next quarter which should temper some expectations. But the big 436 00:24:09,400 --> 00:24:11,959 Speaker 1: question in both cases will be how much of that 437 00:24:12,119 --> 00:24:15,119 Speaker 1: is already priced in the stock declining over the past 438 00:24:15,600 --> 00:24:17,360 Speaker 1: several months. I think it's going to be a very 439 00:24:17,400 --> 00:24:24,359 Speaker 1: interesting earnings tonight. So I guess on the Apple story here, 440 00:24:24,720 --> 00:24:28,119 Speaker 1: what do you think their message really needs to be here? Um? 441 00:24:28,200 --> 00:24:32,760 Speaker 1: Is it still focus on new and cool products or hey, folks, 442 00:24:32,800 --> 00:24:35,959 Speaker 1: take your to take your focus away from that and 443 00:24:36,040 --> 00:24:38,120 Speaker 1: focus on the services business. What do you think they're 444 00:24:38,440 --> 00:24:41,480 Speaker 1: the message they need to get across tonight? Is I 445 00:24:41,480 --> 00:24:43,199 Speaker 1: think the message is going to be focused on the 446 00:24:43,200 --> 00:24:46,360 Speaker 1: complete ecosystem, not so much honeing just on the iPhone 447 00:24:46,440 --> 00:24:48,800 Speaker 1: numbers all the time. But look at what they have 448 00:24:48,880 --> 00:24:51,800 Speaker 1: done in terms of you know, the clients adopting far 449 00:24:51,880 --> 00:24:55,680 Speaker 1: more products, everything from Max to air pods. And then 450 00:24:55,760 --> 00:24:59,280 Speaker 1: the services business where they are investing aggressively because you know, 451 00:24:59,320 --> 00:25:03,440 Speaker 1: frankly speak, services business does something more than just add revenue. 452 00:25:03,480 --> 00:25:08,080 Speaker 1: It adds a really high margin profit to uh Apple's 453 00:25:08,119 --> 00:25:12,680 Speaker 1: bottom line. Services business have gross margins of about compared 454 00:25:12,720 --> 00:25:15,600 Speaker 1: to products, which is only in the fogies. So as 455 00:25:15,680 --> 00:25:17,800 Speaker 1: they grew up the services business, I think it is 456 00:25:17,840 --> 00:25:19,840 Speaker 1: going to be beneficial to Apple in the long run. 457 00:25:20,600 --> 00:25:23,959 Speaker 1: Can I in check some ANTEC data? And here my 458 00:25:24,040 --> 00:25:27,200 Speaker 1: husband bought an iPhone for the first time this week, 459 00:25:27,280 --> 00:25:31,200 Speaker 1: which is fascinating. Here he's always been an introducer, but 460 00:25:31,240 --> 00:25:33,719 Speaker 1: he bought his very first iPhone. I told one of 461 00:25:33,760 --> 00:25:37,520 Speaker 1: our family friends that her husband also bought his first 462 00:25:37,520 --> 00:25:39,520 Speaker 1: iPhone in the past few months. So I don't think 463 00:25:39,560 --> 00:25:44,719 Speaker 1: there's any there's still the total addressable market has not 464 00:25:44,800 --> 00:25:47,800 Speaker 1: been completely tapped yet. But I mean, deep, I want 465 00:25:47,800 --> 00:25:49,159 Speaker 1: to go back to Meta because you were saying it 466 00:25:49,200 --> 00:25:53,960 Speaker 1: wasn't that bad. Maybe you look at the share price today, 467 00:25:54,560 --> 00:25:59,200 Speaker 1: twenty three percent down in Meta shares. Is this an overreaction? 468 00:25:59,800 --> 00:26:03,480 Speaker 1: It certainly is. And from a valuation perspective, look if 469 00:26:03,520 --> 00:26:06,480 Speaker 1: they've walked back their comments or the guidance around you know, 470 00:26:06,560 --> 00:26:10,560 Speaker 1: the opics and capex they gave three that would add 471 00:26:10,600 --> 00:26:13,120 Speaker 1: about you know, ten billion dollars in free cash flow 472 00:26:13,160 --> 00:26:16,440 Speaker 1: that the company could generate more, and that certainly would 473 00:26:16,520 --> 00:26:18,919 Speaker 1: drive a rerating of the stock. But the question is 474 00:26:19,200 --> 00:26:21,960 Speaker 1: how quickly do they do it? And you know, again 475 00:26:22,000 --> 00:26:24,439 Speaker 1: it comes back to voting rights. Right now, it's just 476 00:26:24,560 --> 00:26:27,440 Speaker 1: one person who's making all the decisions. There is the 477 00:26:27,480 --> 00:26:31,800 Speaker 1: bloom off the rose for the digital advertising play writ large, 478 00:26:32,280 --> 00:26:35,680 Speaker 1: I jump off the bandwagon, No, I think. Look, digital 479 00:26:35,760 --> 00:26:41,240 Speaker 1: ad has always been a cyclical market and that's not changing. Yes, 480 00:26:41,720 --> 00:26:45,600 Speaker 1: it's gonna grow, you know, about two times GDP and 481 00:26:45,880 --> 00:26:48,879 Speaker 1: if the GDP slowing down, that's going to impact you know, 482 00:26:48,920 --> 00:26:53,399 Speaker 1: inflation is somewhat a headwind for all the digital ad vendors. 483 00:26:53,440 --> 00:26:55,520 Speaker 1: And we will come out of this. I mean, I 484 00:26:55,520 --> 00:26:58,879 Speaker 1: have no doubt that search and YouTube will grow, you know, 485 00:26:59,040 --> 00:27:02,680 Speaker 1: much faster than they're growing now. Question for Meta is 486 00:27:02,760 --> 00:27:05,320 Speaker 1: can they keep the engagement because once you lose your 487 00:27:05,320 --> 00:27:08,680 Speaker 1: critical users and and they seem to have migrated to 488 00:27:08,760 --> 00:27:12,920 Speaker 1: apps like Snapchat roadblocks, I mean the young demographic TikTok. 489 00:27:13,400 --> 00:27:15,720 Speaker 1: I think that is the one that is worrying me 490 00:27:15,760 --> 00:27:17,880 Speaker 1: the most, and that's why Meta is making this huge 491 00:27:17,920 --> 00:27:22,680 Speaker 1: pivot and real quick on a rug is the tech 492 00:27:22,880 --> 00:27:27,480 Speaker 1: spend call macro calls that's still in place. Yes, I 493 00:27:27,480 --> 00:27:29,359 Speaker 1: mean one of the things if you see, Paul, if 494 00:27:29,400 --> 00:27:32,080 Speaker 1: you look at the results from service now, they were 495 00:27:32,119 --> 00:27:35,680 Speaker 1: pretty spectacular. They were unbelievably strong. So if you look 496 00:27:35,720 --> 00:27:38,000 Speaker 1: at it, most software names are up today. So from 497 00:27:38,000 --> 00:27:40,679 Speaker 1: our side, you know, we still think software is the 498 00:27:40,680 --> 00:27:43,159 Speaker 1: place to be in terms of you know, spending for 499 00:27:43,480 --> 00:27:46,399 Speaker 1: enterprises because it generates the hardest part of y. The 500 00:27:46,440 --> 00:27:48,800 Speaker 1: other areas such as hardware is are the one that 501 00:27:48,880 --> 00:27:52,200 Speaker 1: is getting impacted the most. Alright, good stuff, you guys, 502 00:27:52,240 --> 00:27:54,439 Speaker 1: really appreciate you putting into perspective. We've got some more 503 00:27:54,520 --> 00:27:56,879 Speaker 1: names after the close Apple, Amazon, but so far it's 504 00:27:56,920 --> 00:27:59,200 Speaker 1: been a little bit underwhelming from the world of big tech. 505 00:27:59,760 --> 00:28:02,480 Speaker 1: But love getting some perspective on a Rock Rana senior 506 00:28:02,520 --> 00:28:05,600 Speaker 1: software analyst for Bloomberg Intelligence and Men Deep Seeing senior 507 00:28:05,600 --> 00:28:08,040 Speaker 1: tech analyst with Bloomberg Intelligence joining us, just giving us 508 00:28:08,280 --> 00:28:10,679 Speaker 1: kind of some perspective here. There's a lot of names here, 509 00:28:10,680 --> 00:28:13,880 Speaker 1: like Meta that's really really taking it on the chin 510 00:28:13,960 --> 00:28:20,560 Speaker 1: off here. Market trying to digest a lot of earnings here. 511 00:28:21,000 --> 00:28:24,080 Speaker 1: We had the ECB raising rates as well earlier this morning. 512 00:28:24,160 --> 00:28:27,160 Speaker 1: Question then we'll be um, you know, what will the 513 00:28:27,200 --> 00:28:29,200 Speaker 1: Federal Reserve do next week? And I think we're probably 514 00:28:29,200 --> 00:28:31,280 Speaker 1: going to cover that, don't you think, Katie, Yeah, it's 515 00:28:31,520 --> 00:28:35,120 Speaker 1: you know the topic of conversation. All right, let's talk 516 00:28:35,119 --> 00:28:37,120 Speaker 1: about these markets here we can do with a good friend. 517 00:28:37,359 --> 00:28:42,600 Speaker 1: Katarina Siminetti's senior vice president at Morgan Stanley Private Wealth Management. Katarina, 518 00:28:42,680 --> 00:28:46,200 Speaker 1: there's a lot of talk in the marketplace about whether 519 00:28:46,280 --> 00:28:49,840 Speaker 1: this market is setting in a bottom and I don't 520 00:28:49,840 --> 00:28:52,800 Speaker 1: even know how to measure it, determine it, you know, 521 00:28:53,240 --> 00:28:55,080 Speaker 1: how do you think about it? Are you getting phone 522 00:28:55,120 --> 00:28:57,480 Speaker 1: calls like that from your clients like, hey, Katarina, is 523 00:28:57,480 --> 00:28:59,360 Speaker 1: this the bottom? Do we needed to be putting fresh 524 00:28:59,400 --> 00:29:02,840 Speaker 1: capital to work here? Well, Paul and Katie, thank you 525 00:29:02,960 --> 00:29:06,760 Speaker 1: for having me on. And absolutely, you know, this is 526 00:29:06,800 --> 00:29:10,040 Speaker 1: exactly the type of types of calls that we're getting 527 00:29:10,120 --> 00:29:13,680 Speaker 1: because you know, investors are seeing that they if we 528 00:29:13,760 --> 00:29:16,200 Speaker 1: haven't hit the bottom and the bear market yet, then 529 00:29:16,280 --> 00:29:19,160 Speaker 1: maybe the end is near. And the question is, you know, 530 00:29:19,360 --> 00:29:23,240 Speaker 1: they should we increase our equity exposure? And it's naturally 531 00:29:23,240 --> 00:29:25,680 Speaker 1: to be wondering this, you know, are we done? And 532 00:29:25,720 --> 00:29:29,200 Speaker 1: it's a really hard coal because in our review, even 533 00:29:29,240 --> 00:29:32,280 Speaker 1: though the rallies like this are you know, much needed, 534 00:29:32,320 --> 00:29:34,720 Speaker 1: they provide this relief that we're so craving important. We 535 00:29:34,760 --> 00:29:37,680 Speaker 1: want to be optimistic, and we have to look into 536 00:29:38,560 --> 00:29:40,720 Speaker 1: the long run. You know, we think that the market 537 00:29:40,760 --> 00:29:43,520 Speaker 1: already priced in the FED action, but we still have 538 00:29:43,720 --> 00:29:47,040 Speaker 1: earnings revisions from the table, and until we're done with those, 539 00:29:47,080 --> 00:29:50,240 Speaker 1: which might take a quarter or even two, the volatility 540 00:29:50,280 --> 00:29:53,320 Speaker 1: is going to remain high. So average into the market 541 00:29:53,400 --> 00:29:56,040 Speaker 1: is definitely the way to go here in the long run. 542 00:29:56,160 --> 00:29:59,680 Speaker 1: It is absolutely important to be invested in stay the course, 543 00:30:00,040 --> 00:30:02,920 Speaker 1: and very soon we're going to be ready to recommend 544 00:30:02,920 --> 00:30:07,840 Speaker 1: more aggressive place like cyclical exposure, like consumer discretionary services, manufacturing. 545 00:30:08,040 --> 00:30:11,400 Speaker 1: But for now, our coal remains staple state, defensive state 546 00:30:11,480 --> 00:30:15,640 Speaker 1: the course, you know, stick with healthcare, energy, consumer staples. 547 00:30:15,680 --> 00:30:18,840 Speaker 1: You know, there are preferred defensive sectors because they offer 548 00:30:19,080 --> 00:30:23,280 Speaker 1: you attractive yields and price stability, operational efficiency, things that 549 00:30:23,400 --> 00:30:26,640 Speaker 1: we need to hold on to the order to, you know, 550 00:30:26,680 --> 00:30:30,400 Speaker 1: to sustain integrity of the portfolio within this volatility. And 551 00:30:30,480 --> 00:30:33,760 Speaker 1: Katarina from your chair, what is the bigger factor? And 552 00:30:33,840 --> 00:30:36,320 Speaker 1: you're thinking right now when you're putting together a portfolio, 553 00:30:36,480 --> 00:30:39,240 Speaker 1: is it earnings or is it the FED? And I 554 00:30:39,320 --> 00:30:43,760 Speaker 1: realized the two obviously bleed into each other. Katie, I 555 00:30:43,800 --> 00:30:45,560 Speaker 1: think that we we had a lot of talk about 556 00:30:45,600 --> 00:30:48,560 Speaker 1: the FED, and in our view, you know, we kind 557 00:30:48,560 --> 00:30:51,240 Speaker 1: of know what to expect. You know, FED is going 558 00:30:51,280 --> 00:30:53,440 Speaker 1: to be a rising rates until it's time to pivot. 559 00:30:53,600 --> 00:30:56,720 Speaker 1: Eventually they're going to pivot. The end is inside, you know. 560 00:30:56,800 --> 00:30:59,320 Speaker 1: So I think that then we're looking at the FED action, 561 00:30:59,520 --> 00:31:02,720 Speaker 1: there's not much, you know, to be surprised about. But 562 00:31:02,840 --> 00:31:06,800 Speaker 1: earnings revisions are on the table and the rates have 563 00:31:06,840 --> 00:31:09,800 Speaker 1: been priced in, but the earnings risk still remains high, 564 00:31:10,000 --> 00:31:12,040 Speaker 1: and in our view, that's what is going to bring 565 00:31:12,080 --> 00:31:15,200 Speaker 1: another leg down. Well, we really want to be optimistic, 566 00:31:15,440 --> 00:31:17,920 Speaker 1: and we should hold on to this optimism because in 567 00:31:17,960 --> 00:31:20,360 Speaker 1: the long run, this is exactly what we need. This 568 00:31:20,520 --> 00:31:23,840 Speaker 1: bear market, in our view, is not over and we 569 00:31:23,920 --> 00:31:27,560 Speaker 1: need to see this earning revision cycle completed. That will 570 00:31:27,640 --> 00:31:30,360 Speaker 1: be the pivoting pivoting point for the economy to move 571 00:31:30,520 --> 00:31:33,560 Speaker 1: into the next bull market. And it is absolutely coming. 572 00:31:33,600 --> 00:31:37,480 Speaker 1: We're probably in into this bear market, you know. We're 573 00:31:37,520 --> 00:31:40,480 Speaker 1: kind of looking that perhaps towards the second half of 574 00:31:40,480 --> 00:31:43,640 Speaker 1: the next year, FED might start cutting rates and we 575 00:31:43,640 --> 00:31:46,280 Speaker 1: will see the acceleration of the global economy. But we're 576 00:31:46,280 --> 00:31:48,640 Speaker 1: not there yet. Before we get there, we need to 577 00:31:48,680 --> 00:31:52,160 Speaker 1: get through this final stage of the bear market that 578 00:31:52,240 --> 00:31:54,920 Speaker 1: might be difficult for investors. So psychologically, we need to 579 00:31:54,960 --> 00:31:58,040 Speaker 1: prepare ourselves to stay the course, stay defensive, stay put, 580 00:31:58,320 --> 00:32:02,280 Speaker 1: but also trade into the volatility and position portfolios for 581 00:32:02,360 --> 00:32:07,680 Speaker 1: the recovery that is definitely coming. Katarina, how about them? 582 00:32:07,720 --> 00:32:09,800 Speaker 1: I look at it to your treasury boy, it's four 583 00:32:09,840 --> 00:32:11,960 Speaker 1: point three percent right now, I can actually get some 584 00:32:12,720 --> 00:32:15,160 Speaker 1: return on my cash. Are you do you have clients 585 00:32:15,160 --> 00:32:17,000 Speaker 1: calling you up saying, hey, can I buy a CD 586 00:32:17,200 --> 00:32:20,400 Speaker 1: or something like that. Well, Paul, that's a nice change 587 00:32:20,440 --> 00:32:22,720 Speaker 1: from the beginning of the year. You know. The the 588 00:32:22,760 --> 00:32:26,160 Speaker 1: difficult part about you know, starting this year was the 589 00:32:26,200 --> 00:32:28,400 Speaker 1: fact that bonds were down on stocks were down at 590 00:32:28,400 --> 00:32:31,120 Speaker 1: the same time. There was basically no place to hide. 591 00:32:31,320 --> 00:32:34,080 Speaker 1: And right now we're seeing that, you know, finally we 592 00:32:34,120 --> 00:32:37,440 Speaker 1: can get attractive yields in treasuries, you know, c d s, 593 00:32:37,560 --> 00:32:39,960 Speaker 1: even money market rates are coming up. But where we 594 00:32:40,040 --> 00:32:43,080 Speaker 1: see the rates being the most attractive are short term, 595 00:32:43,200 --> 00:32:46,080 Speaker 1: high quality corporate bonds. You know, really, you know, there 596 00:32:46,360 --> 00:32:50,040 Speaker 1: are options for investors finally, you know, so forth the 597 00:32:50,120 --> 00:32:52,680 Speaker 1: individuals who are not looking to increase the direquity exposure 598 00:32:52,760 --> 00:32:55,000 Speaker 1: that are concerned they don't necessarily want to be in 599 00:32:55,040 --> 00:32:57,800 Speaker 1: the market right now because they're worried about all the 600 00:32:57,920 --> 00:33:00,720 Speaker 1: risks that we're still facing. You know, that are attractive 601 00:33:00,800 --> 00:33:03,480 Speaker 1: yields that you know we're finally can get you on 602 00:33:03,520 --> 00:33:06,280 Speaker 1: the fixt income side. And Katerina, I want to go 603 00:33:06,360 --> 00:33:09,200 Speaker 1: back to the idea of a FED pivot because markets 604 00:33:09,200 --> 00:33:12,440 Speaker 1: have been trying to time this trade for about six 605 00:33:12,480 --> 00:33:16,920 Speaker 1: months now. Hasn't worked yet. But we talk about economic 606 00:33:17,080 --> 00:33:20,560 Speaker 1: data often in trying to suss out whether we're starting 607 00:33:20,560 --> 00:33:24,440 Speaker 1: to see the real economic impacts of tightening financial conditions. 608 00:33:24,440 --> 00:33:26,720 Speaker 1: But when you look at the earnings releases that we've 609 00:33:26,720 --> 00:33:29,360 Speaker 1: gotten over the past couple of weeks, are you starting 610 00:33:29,360 --> 00:33:32,880 Speaker 1: to see evidence that uh conditions are tighter in some 611 00:33:33,000 --> 00:33:37,600 Speaker 1: of those numbers. Well, you know, we certainly wouldn't want 612 00:33:37,600 --> 00:33:39,440 Speaker 1: to be in the seat of the Federal Reserve right 613 00:33:39,480 --> 00:33:42,120 Speaker 1: now because they're trying to achieve the soft landing. But 614 00:33:42,480 --> 00:33:45,160 Speaker 1: you know, there is a delay to their action, and 615 00:33:45,200 --> 00:33:48,240 Speaker 1: we don't really know how the economy is going to respond. 616 00:33:48,520 --> 00:33:51,239 Speaker 1: You know, in our deep hope is that you know, 617 00:33:51,320 --> 00:33:53,320 Speaker 1: even if we get the reception it's going to be 618 00:33:53,360 --> 00:33:56,240 Speaker 1: a mild recession and not a severe one, and hopefully 619 00:33:56,280 --> 00:33:58,560 Speaker 1: we will be able to avoid it all together, you know. 620 00:33:58,640 --> 00:34:01,520 Speaker 1: But that's the challenging for the FAD is, you know, 621 00:34:01,600 --> 00:34:04,400 Speaker 1: they want to tighten and they want to get inflation 622 00:34:04,480 --> 00:34:07,640 Speaker 1: under control, but still by the way, is remaining high 623 00:34:07,720 --> 00:34:10,799 Speaker 1: and there is a chance that inflation might stay at 624 00:34:10,840 --> 00:34:13,440 Speaker 1: the higher levels levels in com person to what we 625 00:34:13,640 --> 00:34:16,080 Speaker 1: have seen historically, you know, and that might be our 626 00:34:16,160 --> 00:34:19,600 Speaker 1: new normal. But that's the challenge, that's the balancing act 627 00:34:19,680 --> 00:34:22,239 Speaker 1: that that FED is facing right now, is you know, 628 00:34:22,320 --> 00:34:24,640 Speaker 1: they need to tighten. They need to, you know, to 629 00:34:24,800 --> 00:34:27,640 Speaker 1: address the inflation. The dollar is high and the course 630 00:34:27,719 --> 00:34:30,640 Speaker 1: for a good reason, you know, with oil prices being high, 631 00:34:30,719 --> 00:34:33,399 Speaker 1: with us, you know, seemingly doing better than the rest 632 00:34:33,400 --> 00:34:36,040 Speaker 1: of the world, you know, But they don't want to overshoot. 633 00:34:36,080 --> 00:34:38,120 Speaker 1: They don't want to tighten so much that you know 634 00:34:38,160 --> 00:34:41,480 Speaker 1: it will bring the economy into recession. Katerina, thank you 635 00:34:41,520 --> 00:34:44,640 Speaker 1: so much for joining us. Always appreciate getting your perspective. 636 00:34:44,680 --> 00:34:48,520 Speaker 1: Caterina Seminety, She's a senior vice president private wealth advisor 637 00:34:48,640 --> 00:34:52,480 Speaker 1: at a little firm called Morgan Stanley UM and Katie 638 00:34:52,480 --> 00:34:55,400 Speaker 1: I think one of the key takeaways from Katerina's comments 639 00:34:55,440 --> 00:34:58,319 Speaker 1: where she felt like, maybe we were nine of the 640 00:34:58,360 --> 00:35:00,640 Speaker 1: way through this bear market, there's light at the end 641 00:35:00,680 --> 00:35:02,160 Speaker 1: of the tunnel, that type of argument. I'm not sure 642 00:35:02,160 --> 00:35:04,799 Speaker 1: if that number is accurate, but I feel like that's 643 00:35:04,880 --> 00:35:07,279 Speaker 1: kind of a building consensus here that we're closer to 644 00:35:07,280 --> 00:35:09,319 Speaker 1: the end than the beginning of the bear market. I 645 00:35:09,360 --> 00:35:11,120 Speaker 1: think that just the price action of the past few 646 00:35:11,160 --> 00:35:12,840 Speaker 1: days supports that when you think about the fact that 647 00:35:12,880 --> 00:35:16,680 Speaker 1: the SMP five still fighting to stay green even though 648 00:35:16,800 --> 00:35:19,960 Speaker 1: big Tech, as we've mentioned over and over again, uh 649 00:35:20,160 --> 00:35:22,440 Speaker 1: been a bit of a disappointment, to put it mildly 650 00:35:23,560 --> 00:35:27,400 Speaker 1: kind all right, we had lots and lots of earnings 651 00:35:27,480 --> 00:35:29,839 Speaker 1: last night. Today we're gonna have some more earnings after 652 00:35:29,920 --> 00:35:32,200 Speaker 1: the clothes led by Apple and Amazon. One of the 653 00:35:32,280 --> 00:35:35,040 Speaker 1: names that really jumped out at me because I love 654 00:35:35,160 --> 00:35:39,840 Speaker 1: industrial America, is Caterpillar. Cat stocks up eight point two percent. 655 00:35:39,880 --> 00:35:41,960 Speaker 1: They had some good numbers, and I want to break 656 00:35:42,000 --> 00:35:43,480 Speaker 1: it down and get a closer look. And we can 657 00:35:43,560 --> 00:35:46,359 Speaker 1: do that with Chris Chile. You know, he covers all 658 00:35:46,400 --> 00:35:51,200 Speaker 1: the industrial companies for Bloomberg Intelligence. He's based in Bloomberg Intelligences, 659 00:35:51,760 --> 00:35:55,520 Speaker 1: Princeton Office, Chris, some they're selling some tractors, they're selling 660 00:35:55,560 --> 00:35:59,480 Speaker 1: some Bacco's tell us about the quarter there are, It 661 00:35:59,560 --> 00:36:01,840 Speaker 1: was a really a strong print within across the board. 662 00:36:01,840 --> 00:36:04,600 Speaker 1: Beat Um, the volumes were good, but I think pricing 663 00:36:04,680 --> 00:36:08,200 Speaker 1: continues to be the real standout here, up fourteen percent 664 00:36:08,280 --> 00:36:11,080 Speaker 1: in the quarter. Uh, and that momentum should really be 665 00:36:11,680 --> 00:36:15,040 Speaker 1: sustained into four que. And you know, despite all the 666 00:36:15,040 --> 00:36:18,520 Speaker 1: headlines we see around the economy is slowing, demand continues 667 00:36:18,560 --> 00:36:21,800 Speaker 1: to be healthy across most of CATS and markets. Orders 668 00:36:21,880 --> 00:36:25,480 Speaker 1: maintain their double digit growth trajectory. So that should really 669 00:36:25,480 --> 00:36:29,959 Speaker 1: support a really favorable backdrop for that moving into next year. Absolutely. 670 00:36:30,000 --> 00:36:32,480 Speaker 1: I mean that's why this report caught my attention. I 671 00:36:32,520 --> 00:36:35,479 Speaker 1: thought that with all the inflation we keep talking about, 672 00:36:35,480 --> 00:36:37,440 Speaker 1: this is going to be another gloom and doom report 673 00:36:37,480 --> 00:36:41,480 Speaker 1: when you think about Caterpillars reputation as this bell weather 674 00:36:41,560 --> 00:36:44,520 Speaker 1: for the economy. But Chris, in your view, I mean, 675 00:36:44,600 --> 00:36:48,600 Speaker 1: how much was this actual strength in the numbers versus 676 00:36:48,800 --> 00:36:53,319 Speaker 1: expectations maybe being too low. Um, It's probably a little 677 00:36:53,320 --> 00:36:55,279 Speaker 1: bit of both, you know. I think part of the 678 00:36:55,280 --> 00:36:58,880 Speaker 1: story around CAT has been somewhat you know, lackluster margins, 679 00:36:58,960 --> 00:37:02,080 Speaker 1: especially in their kind of war businesses coming out of 680 00:37:02,080 --> 00:37:06,040 Speaker 1: this post COVID recovery. So it was very encouraging to 681 00:37:06,080 --> 00:37:10,279 Speaker 1: see and across the board beat across all units UM 682 00:37:10,440 --> 00:37:12,600 Speaker 1: this quarter, which is the first time we've seen this 683 00:37:12,640 --> 00:37:15,239 Speaker 1: in a long time. UM. And really it was a 684 00:37:15,280 --> 00:37:19,200 Speaker 1: combination of both very strong pricing and volumes UM. I 685 00:37:19,200 --> 00:37:21,359 Speaker 1: think the supply chain easing up a little bit has 686 00:37:21,719 --> 00:37:25,359 Speaker 1: helped them get more equipment out of the factory. Chris, 687 00:37:25,440 --> 00:37:27,560 Speaker 1: I'm just looking at the pg e O function on 688 00:37:27,560 --> 00:37:29,560 Speaker 1: the Bloomberg TERMO for for CAT and I see that 689 00:37:29,600 --> 00:37:33,400 Speaker 1: at six the revenue is outside of the US, inside 690 00:37:33,440 --> 00:37:35,640 Speaker 1: the US. Did they call out any regions of the 691 00:37:35,640 --> 00:37:37,960 Speaker 1: world that are particularly strong or weak. I mean we 692 00:37:38,040 --> 00:37:40,800 Speaker 1: kind of think about Europe is in a really tough spot, 693 00:37:41,120 --> 00:37:44,799 Speaker 1: exacerbated by by the war in Ukraine. Yeah, if you 694 00:37:44,840 --> 00:37:49,680 Speaker 1: think about going across around the globe here, UM, you know, 695 00:37:50,480 --> 00:37:53,480 Speaker 1: revenues were up in all regions. You know, we did 696 00:37:53,480 --> 00:37:57,680 Speaker 1: see some deceleration or some softness UM in Europe and 697 00:37:57,719 --> 00:38:02,120 Speaker 1: Asia Asia. It's really function of China, UM, which is 698 00:38:02,160 --> 00:38:04,960 Speaker 1: not surprising if you take out China, Asia was actually 699 00:38:05,080 --> 00:38:08,400 Speaker 1: up UM and a little bit of softness in Europe, 700 00:38:08,400 --> 00:38:10,160 Speaker 1: but you know what, there's still a lot of infrastructure 701 00:38:10,160 --> 00:38:13,279 Speaker 1: investments over there, so that has held up demand reasonably well. 702 00:38:13,320 --> 00:38:18,520 Speaker 1: In this environment, North America continues to be unbelievably strong, um, 703 00:38:18,560 --> 00:38:20,880 Speaker 1: even though we were starting to see obviously some weakness 704 00:38:20,880 --> 00:38:24,040 Speaker 1: on the residential construction side, but non residential continues to 705 00:38:24,040 --> 00:38:27,200 Speaker 1: be a real standout. Yeah, this this demand and the 706 00:38:27,239 --> 00:38:29,279 Speaker 1: pricing side of this business, let's just focus on the 707 00:38:29,320 --> 00:38:35,560 Speaker 1: America's christ Like a typical customer of Caterpillar. Yes, so 708 00:38:35,920 --> 00:38:38,319 Speaker 1: all their equipment goes through dealers, and then through the 709 00:38:38,360 --> 00:38:41,759 Speaker 1: dealer channel that goes out to uh, you know, it 710 00:38:41,800 --> 00:38:46,920 Speaker 1: could be infrastructure investments, large industrial projects, petrochemicals. I mean, 711 00:38:47,120 --> 00:38:52,880 Speaker 1: it really spans the gamut of the non residential construction sector. UM. 712 00:38:52,920 --> 00:38:56,920 Speaker 1: That's roughly you know, three quarters of their construction business. Uh. 713 00:38:56,960 --> 00:38:59,719 Speaker 1: And then obviously they have you know, a mining equipment 714 00:38:59,719 --> 00:39:02,560 Speaker 1: business this which you know continues to make steady progress. 715 00:39:02,560 --> 00:39:06,160 Speaker 1: Industrial America isn't a christ. And then don't forget I 716 00:39:06,200 --> 00:39:08,560 Speaker 1: mean the the energy and transportation business. You know, with 717 00:39:08,600 --> 00:39:11,440 Speaker 1: these higher oil and commodity prices, UM, that's certainly a 718 00:39:11,440 --> 00:39:15,160 Speaker 1: tail win there as well. This isn't the titanium, this 719 00:39:15,239 --> 00:39:19,279 Speaker 1: is the industrial economy. But Chris, if we continue on 720 00:39:19,320 --> 00:39:23,360 Speaker 1: this metaphor of you know, Caterpillar being this economic bell weather, 721 00:39:23,400 --> 00:39:26,440 Speaker 1: when you look through this report, are we past peak 722 00:39:26,520 --> 00:39:31,200 Speaker 1: supply chain worry? I think we're getting there. Um. You know, 723 00:39:31,239 --> 00:39:34,040 Speaker 1: this was the first quarter that CAT had actually called 724 00:39:34,040 --> 00:39:37,239 Speaker 1: out some pockets of improvement in the supply chain, and 725 00:39:37,280 --> 00:39:39,239 Speaker 1: really up to this point they had been reluctant to 726 00:39:39,280 --> 00:39:41,440 Speaker 1: do that. We had heard that from a number of 727 00:39:41,480 --> 00:39:44,719 Speaker 1: other companies. Um. CAT tends to be I think a 728 00:39:44,719 --> 00:39:47,279 Speaker 1: little bit more conservative from this standpoint. So for them 729 00:39:47,320 --> 00:39:51,319 Speaker 1: to start citing some pockets of improvement, I think we're 730 00:39:51,360 --> 00:39:54,960 Speaker 1: probably past the peak. Um. But you know, things are 731 00:39:55,280 --> 00:39:58,640 Speaker 1: quite fluid. Um. There's still you know, numerous supply issues 732 00:39:58,920 --> 00:40:02,880 Speaker 1: around chips and engine components. But to see the volumes 733 00:40:02,960 --> 00:40:05,360 Speaker 1: jump here, um, I think that's a sign that we're 734 00:40:05,400 --> 00:40:08,000 Speaker 1: probably past the peak. All right, Chris, great stuff. We 735 00:40:08,040 --> 00:40:10,920 Speaker 1: appreciate you hopping on breaking down Caterpillar stock up a 736 00:40:10,920 --> 00:40:14,080 Speaker 1: little over eight percent, So some good numbers at of Deerfield, 737 00:40:14,080 --> 00:40:17,160 Speaker 1: Illinois at Screams of Middle America. Great stuff there. Chris 738 00:40:17,200 --> 00:40:23,320 Speaker 1: Chileo covers industrial companies for Bloomberg Intelligence. Thanks for listening 739 00:40:23,320 --> 00:40:26,799 Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen 740 00:40:26,840 --> 00:40:31,120 Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer. 741 00:40:31,520 --> 00:40:36,040 Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller. Pt 742 00:40:36,120 --> 00:40:38,720 Speaker 1: On fal Sweeney I'm on Twitter at pt Sweeney. Before 743 00:40:38,719 --> 00:40:41,560 Speaker 1: the podcast, you can always catch us worldwide at Bloomberg 744 00:40:41,640 --> 00:40:41,879 Speaker 1: Radio