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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moving news.

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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 1: I tell you this auto strike just it ain't going

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Speaker 1: away here. It seems like it's getting even worse. The

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Speaker 1: UAW just came across the Bloomberg terminal around ten to

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Speaker 1: fifteen Wall Street time. The UAW says five thousand members

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Speaker 1: at GM Arlington Assembly join strike. So this is kind

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Speaker 1: of going the wrong way, and it got to the

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Speaker 1: point now where General Motors today I have to putt

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Speaker 1: out some good numbers removes guidance because of the strike.

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Speaker 1: So I don't know what's going on there. But I

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Speaker 1: know who does know, Kevin Tyne, and he's a senior

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Speaker 1: automotive analyst for Bloomberg Intelligence. He joined just via zoom

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Speaker 1: from our Princeton office. Kevin, tell us what GM said today,

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Speaker 1: you know about the strike and how it's impacting their

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Speaker 1: I guess operations.

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Speaker 3: Yeah, well, look that was strike started late late in

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Speaker 3: the third quarter, so it would be the impact. I

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Speaker 3: mean every day of the fourth quarter so far has

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Speaker 3: been impacted by the strike. But you know, the backwards

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Speaker 3: looking results were actually pretty good, better than expected, and

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Speaker 3: just show the profitability that the company can produce and

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Speaker 3: the you know, removing some guidance. There is just an

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Speaker 3: issue of not flaunting that you're going to make fourteen

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Speaker 3: billion when you're trying to negotiate with the union. But

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Speaker 3: you know, it could mean it's close, right that this

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Speaker 3: is the final turns of the screw that kind of

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Speaker 3: gets the manufacturer to give what the union thinks they deserve.

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Speaker 3: I think they're probably close on the wage, the increase,

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Speaker 3: the percentage, and probably the ratification bonus. I think it's

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Speaker 3: all the sort of secondary issues there in terms of

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Speaker 3: headcount capacity, you know, new product plants and things like that,

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Speaker 3: that are the sticking points this late in the negotiations.

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Speaker 4: Why are only some plants on strike?

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Speaker 3: Well, you know, it looks bad for everyone, and it's

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Speaker 3: very difficult to put out that many workers, right because

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Speaker 3: then they go to the strike fund and then you

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Speaker 3: completely shut down everything. And I think it's just counterproductive

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Speaker 3: to say, you know, we're not going to produce anything

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Speaker 3: at all, then you're putting the host in real danger.

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Speaker 1: All right, So, Kevin, I guess the big issue, as

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Speaker 1: I understand it, is, you know, as the industry, I

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Speaker 1: guess he continues its evolution in the EV front, there's

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Speaker 1: a real question as to how many jobs are going

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Speaker 1: to be needed and where those jobs are going to be,

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Speaker 1: and they're going to be different types of jobs, to

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Speaker 1: the point where I guess the companies are saying, hey,

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Speaker 1: we can't guarantee X number of positions because quite frankly,

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Speaker 1: we don't know what positions we're going to need. Is

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Speaker 1: that kind of where we are? And if so, I

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Speaker 1: don't know how you resolve that.

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Speaker 3: Yeah, And look in the other issue too, is that

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Speaker 3: as labor costs increase for those union shops, they're only

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Speaker 3: GM Ford and STILLANTIS brands. So even if there were

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Speaker 3: no EV transition, the domestic manufacturers and their brands are

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Speaker 3: going to be less competitive against even you know, Honda

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Speaker 3: in Ohio, or Nissan and Tennessee or any of the

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Speaker 3: plants down in the South that are not unionized. Never

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Speaker 3: mind the EV manufacturers who are not unionized.

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Speaker 1: As well.

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Speaker 3: So you know, there's the EV transition is part of it.

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Speaker 3: But the manufacturers have been very profitable on internal combustion,

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Speaker 3: but by making fewer vehicles. So I think that's where

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Speaker 3: the capacity and the headcount uncertainty comes in as well,

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Speaker 3: where you're saying, you know, yes, we're making money, but

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Speaker 3: we're doing it on fewer units. We can't be behold

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Speaker 3: into these capacity you know, in footprint requirements going forward

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Speaker 3: when we don't know that we're actually going to need

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Speaker 3: that much.

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Speaker 4: What are the UAW members being paid and what are

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Speaker 4: they asking for?

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Speaker 3: Yeah, so you know, when you look at it all

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Speaker 3: in as the cost to the manufacturer, it's probably in

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Speaker 3: the sixty dollars per hour range, and it'll go up

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Speaker 3: into the nineties and maybe even higher depending where the

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Speaker 3: contract is ultimately done.

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Speaker 4: You know.

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Speaker 3: And then you compare that all in to the transplants

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Speaker 3: of European or Asian manufacturers or EV manufacturers and there there,

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Speaker 3: you know, the cost to the company is significantly less,

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Speaker 3: you know, And that's what probably needs to be reconciled

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Speaker 3: and what the domestic manufacturers are saying, Look, if you

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Speaker 3: want to increase your membership, you can't just keep coming

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Speaker 3: back to us, right, you take your twenty five percent

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Speaker 3: increase and go show it to some of these other

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Speaker 3: manufacturers and try and build your base that way, because

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Speaker 3: we don't have much more to give.

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Speaker 1: So, Kevin, when we do get a resolution, is it

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Speaker 1: going to be are we just assuming that it's going

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Speaker 1: to apply to all three of the big three automakers?

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Speaker 5: Oops?

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Speaker 1: Kevin hears uh, I think we lost Kevin. All right,

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Speaker 1: Well that was my big smart question the day, and

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Speaker 1: we need to know. I think we lost the audio

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Speaker 1: with Kevin, so we'll have to go back to that.

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Speaker 1: But again, you know, it's serious here for these automakers

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Speaker 1: because you know, I mean Jim again pulling its guidance.

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Speaker 1: But as Kevin said, maybe that just might be a

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Speaker 1: negotiating tactic here. You don't want to say, oh, yeah,

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Speaker 1: we we reiterate our profit guidance of fourteen billion dollars

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Speaker 1: or something like that when you're trying to plead, you know,

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Speaker 1: and trending to negotiate salaries.

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Speaker 4: And especially given what we were talking about earlier, GM

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Speaker 4: beating a third quarter estimates despite losing two hundred million

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Speaker 4: dollars from the walkout during that quarterly period. But then

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Speaker 4: also what it means for when it comes to a

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Speaker 4: automaker like that that has been rethinking its growth plans

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Speaker 4: for EV sales because those sales have plug in have

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Speaker 4: been actually slower than anticipated. So a lot of different

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Speaker 4: moving pieces there.

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Speaker 1: All right, let's go back to Kevin Tyne and we

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Speaker 1: got them back, We got the audio back. So Kevin,

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Speaker 1: my question was, just, when we do get an agreement,

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Speaker 1: is it going to apply to all three automakers just

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Speaker 1: kind of automatically?

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Speaker 3: Yeah, Well, typically what would happen. Historically you'd have negotiation

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Speaker 3: between the union and one manufacturer, usually the most financially sound,

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Speaker 3: and then the other deals fall into place. This has

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Speaker 3: been unique in that the union has been negotiating with

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Speaker 3: all three at the same time. So yeah, this one

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Speaker 3: would probably happen amongst all three and one shot, and

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Speaker 3: then it'll just be a matter of catching up on

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Speaker 3: production over the subsequent quarters going into twenty twenty four.

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Speaker 6: Yeah, as far as looking ahead and what could all

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Speaker 6: this play out, what exactly do you think would be

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Speaker 6: the remaining timetable for how long this actually.

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Speaker 4: Could continue on for?

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Speaker 3: Yeah, I think it's close, you know, I think people

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Speaker 3: look at it like this is a lot of pressure

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Speaker 3: on the manufacturers, and it certainly is, but it's also

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Speaker 3: pressure on the union as well. You know, you have

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Speaker 3: a lot of people that aren't earning what they're used

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Speaker 3: to earning, and they're in the strike fund, and everybody,

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Speaker 3: I think wants to move forward. So I would say

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Speaker 3: we're probably closer. And this is based on nothing than

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Speaker 3: just what we're hearing in the rhetoric is that it's

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Speaker 3: probably closer than it isn't, And I think it's the

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Speaker 3: wage number is probably there, and then it's just some

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Speaker 3: of these other secondary issues that just need to be

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Speaker 3: hammered out in terms of details, because manufacturers, again, they

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Speaker 3: want that flexibility to say, what this industry looks like

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Speaker 3: in three four years from now may not be what

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Speaker 3: it is today, and we need the flexibility to rationalize

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Speaker 3: cost if that's the case.

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Speaker 1: Hey, Kevin, A big picture. I just replaced the twenty

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Speaker 1: fourteen BMW with the stick shift, and I got the

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Speaker 1: twenty twenty four BMW X three, extraordinarily happy. Didn't even

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Speaker 1: think about getting ev because it was such the premium price.

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Speaker 1: So is the world rethinking, Are you guys as industry

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Speaker 1: rethinking what the ultimate end market is for evs, I mean,

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Speaker 1: it seems like it's not as strong as I maybe

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Speaker 1: once thought.

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Speaker 3: Yeah, I think so. And that's playing out in a

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Speaker 3: lot of different ways. You know, dealers were you know,

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Speaker 3: the manufacturers are going to the dealers and saying, look,

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Speaker 3: you need to fit your outfit your stores for this,

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Speaker 3: and now they're kind of holding back a little bit,

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Speaker 3: and the dealers are waiting it out and not being

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Speaker 3: the first ones to move. But I think if the

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Speaker 3: demand and profitability profile of EV doesn't improve significantly through

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Speaker 3: twenty twenty four, and we've already seen it, right, Ford

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Speaker 3: pushed out its building its battery plan, General Motors put

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Speaker 3: another year on the timeline. I think if not by

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Speaker 3: the end of next year, there will be some of

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Speaker 3: those one hundred percent by twenty thirty five, and the

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Speaker 3: longer term goals are going to start to be walked

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Speaker 3: back because the addressable market might not be what it

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Speaker 3: seemed to be when it was first going. And ultimately,

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Speaker 3: when you look at it, you know, on the one hand,

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Speaker 3: you have everybody saying how Tesla dominates an EV, but

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Speaker 3: if demand goes away, you know, then you're questioning really

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Speaker 3: everybody else, Right, If there's no demand for Tesla. What

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Speaker 3: is the demand for a forty V or GMEV, which

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Speaker 3: don't even exist yet in any kind of volume.

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Speaker 1: Yep, very interesting. It seems like the market's changing a

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Speaker 1: little bit. And again I went internal combustion engine in

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Speaker 1: old school. Kevin Tony, thanks so much for joining us.

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Speaker 1: Kevin is the senior automotive analysts for Bloomberg Intelligence. He's

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Speaker 1: a sconce down in our Princeton, New Jersey headquarters. Down there,

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Speaker 1: great lunches down there by the way.

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Speaker 7: Ooh, you're listening to the team. Ken's are live program

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Speaker 7: Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com,

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Speaker 7: the iHeartRadio app, and the Bloomberg Business app, or listen

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Speaker 7: on demand wherever you get your podcasts.

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Speaker 1: I want to continue talking about these markets here because

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Speaker 1: again we are right in the middle of earnings. We've

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Speaker 1: got yields moving all over the place, kind of, as

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Speaker 1: Gina said, kind of dictating the market to a certain degree.

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Speaker 1: Let's bringing Liz Young, she's head of investment strategy at

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Speaker 1: so Far and Liz, thanks so much for joining us.

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Speaker 1: I know you cut your teeth on small caps. And

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Speaker 1: Gina Martin Adams and Bloomberg Intelligence was just talk about

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Speaker 1: kind of the tough headwinds they face. How do you

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Speaker 1: think about the small cap space right here?

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Speaker 8: Yeah, Hi, thanks for having me.

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Speaker 9: So I did cut my teeth as a small cap analyst,

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Speaker 9: and I have a soft spot in my heart for them,

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Speaker 9: and it does pain me at a time like this

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Speaker 9: to say, I just don't think that.

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Speaker 8: They're a goodbye yet.

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Speaker 9: And you look at where we are in the economic

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Speaker 9: cycle and where yields are. Many small cap companies, because

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Speaker 9: they're new and because they're growing, need financing in order

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Speaker 9: to produce that growth. So as yield rise, as borrowing

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Speaker 9: costs rise, and capital is constricted, small cap companies feel

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Speaker 9: that much more than large cap companies do, who can

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Speaker 9: usually find announce their growth internally. So small caps are

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Speaker 9: probably feeling the pain of capital constriction much more. Also,

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Speaker 9: just where you are in the economic cycle, I still

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Speaker 9: think there are many many signals telling us that we

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Speaker 9: are late cycle. Small caps tend to outperform in early cycle,

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Speaker 9: so we would need to finish late cycle, get through

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Speaker 9: probably a bit of a slowdown, and then restart the

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Speaker 9: early part of the cycle, which I just do not

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Speaker 9: think is where we are today.

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Speaker 4: What are small cap stocks in the technology sector telling

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Speaker 4: us at this point, because typically if they're holding up better,

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Speaker 4: that couldn't mean brighter times ahead for small caps or

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Speaker 4: we see any indication of that right now.

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Speaker 9: Well, I think sectors as a whole. As you move

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Speaker 9: down the market cap spectrum, the makeup is very different.

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Speaker 8: So technology is one of those.

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Speaker 9: Obviously you're not seeing big tech stocks, and the behavior

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Speaker 9: that we're seeing in big tech stocks, you're not going

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Speaker 9: to see that in the small cap space. Generally speaking,

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Speaker 9: in small cap tech, you're seeing things that are down

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Speaker 9: the supply chain, so they're making components or maybe they're

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Speaker 9: early software companies, so they're still going to be quite

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Speaker 9: sensitive to moves in the market and probably quite sensitive

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Speaker 9: to yields as well. Small cap is actually quite dominated

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Speaker 9: by things like healthcare, and the differences in industry makeup

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Speaker 9: of healthcare can affect the performance of small caps tremendously.

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Speaker 9: As you move down the market cap spectrum, beta in

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Speaker 9: general is increased, so I would be careful in a

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Speaker 9: rising rate environment, I would be careful with really growthy names,

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Speaker 9: particularly in the small cap space, and generally speaking, even

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Speaker 9: when you do enter that early cycle behavior, and small

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Speaker 9: caps tend to outperform. What usually tends to outperform is

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Speaker 9: small cap value because a lot of those are dominated

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Speaker 9: by the financial space. So it really does make a

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Speaker 9: difference when you look at the sector makeup of different

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Speaker 9: size categories, and investors should keep that in mind as

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Speaker 9: we move through these different parts of the business cycle.

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Speaker 1: Hey, Lis, I wonder just kind of stepping back here,

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Speaker 1: you know, in a world where you've got you know

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Speaker 1: that the ten year at four point eight seven to

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Speaker 1: thirty year, boy, it's at five percent. Haven't seen that

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Speaker 1: in a while, and of course a two year at

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Speaker 1: five point one percent and that kind of world, can

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Speaker 1: equities perform?

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Speaker 8: Well, so far they've done okay.

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Speaker 9: I mean we've seen we've seen yields be pretty volatile

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Speaker 9: all year since the end of July, so that local

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Speaker 9: equities top in July July thirty first. Obviously we saw

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Speaker 9: quite a swift rise in the ten year since that point,

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Speaker 9: and equity saw a down draft. That's logically and rationally

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Speaker 9: how I think it should work. You should see some

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Speaker 9: pressure on valuations as yields rise. So I think that

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Speaker 9: that's actually been a pretty rational change in tone in

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Speaker 9: the market, and it's been quite orderly, I mean the drawdown,

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Speaker 9: although it feels like it's been prolonged because we were

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Speaker 9: used to such a strong up up movement in the

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Speaker 9: beginning of the year. It feels long, but it really

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Speaker 9: has not been that.

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Speaker 8: Long, nor has it been that terrible.

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Speaker 9: I mean, it hit maybe seven and a half percent

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Speaker 9: down on the SMP at worst, so not even in

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Speaker 9: correction territory. Now, as yields stay high, I think that's

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Speaker 9: where valuations really come into question. And as we go

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Speaker 9: through Q three earning season, obviously looking out into Q

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Speaker 9: four and into twenty twenty four, expectations are really high,

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Speaker 9: and I think the market is priced for those expectations

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Speaker 9: to come true. So as we get more information from

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Speaker 9: CEO th than guidance, if we find out that those

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Speaker 9: earnings are not realistic to achieve, we're probably going to

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Speaker 9: see more pressure on valuations, and yields are not necessarily

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Speaker 9: helping that story. So I don't think that stocks can

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Speaker 9: maintain these valuations if we keep yields this high for

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Speaker 9: a very very long period of time. But it's not

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Speaker 9: going to happen in a broad swath across the market.

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Speaker 9: You're going to see probably discerning choices in each sector

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Speaker 9: of companies that are less sensitive to rates doing better.

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Speaker 4: What's the make or break lef in the ten year

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Speaker 4: treasury yield to where there would be a potentially bigger

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Speaker 4: calibration in the broader US stock market.

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Speaker 9: I don't know that there's necessarily a level that's going

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Speaker 9: to send it all one direction or another. Five percent

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Speaker 9: was clearly a very mental threshold for people.

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Speaker 8: I still think that that's probably the case.

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Speaker 9: There's still people out there calling for six percent and

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Speaker 9: maybe even seven percent and higher. So I think when

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Speaker 9: you look at it from the investor standpoint, you have

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Speaker 9: individual investors or retail investors who are going to be

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Speaker 9: more sensitive to hearing about mortgage rates going up. So

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Speaker 9: as mortgage rates crept towards eight percent, I think that

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Speaker 9: gave people a lot of pause about whether or not

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Speaker 9: they wanted to be throwing all their money at risk assets.

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Speaker 9: And then you've got institutional investors and money managers who

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Speaker 9: are watching yields and the inversion much more closely, and

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Speaker 9: they're watching the cost of capital much more closely. So

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Speaker 9: the ten year treasury at five percent or above gives

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Speaker 9: them a little bit more consternation. So I don't think

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Speaker 9: that there's a magic number that you know, oh my gosh,

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Speaker 9: if we get to that, everything changes. But as it

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Speaker 9: gets higher, it does get more difficult to sustain.

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Speaker 8: And as you have corporate debt coming due next year.

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Speaker 9: In the year after, many corporations have to renew their debt,

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Speaker 9: and those corporations took that debt out when rates.

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Speaker 8: Were much lower.

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Speaker 9: So I think we're slowly going to hear about things

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Speaker 9: being unsustainable at this level of rates. I'm not entirely

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Speaker 9: sold that we're going to be able to stay this

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Speaker 9: high for very, very long, because I just don't think

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Speaker 9: the economy can withstand it.

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Speaker 1: Hey, Liz, Tech is going to take center stage here

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Speaker 1: after the close today with Microsoft and Alphabet. How do

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Speaker 1: you guys think about tech right here?

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Speaker 9: Tech is definitely going to take center stage this week,

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Speaker 9: and I think everybody's going to be watching and listening.

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Speaker 8: I would say this tech has.

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Speaker 9: Been the darling this year, and almost as if it

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Speaker 9: can do well in any environment. If rates are going up,

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Speaker 9: it's suppose to do well. If they're going down, it's

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Speaker 9: supposed to do well. Sideways, up, down. Everything has been

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Speaker 9: true at certain points that's not typically how an asset

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Speaker 9: class will work. So I think we're going to start

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Speaker 9: seeing separation, especially among big tech and we talk about them,

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Speaker 9: whether you want to call them the Magnificent seven or

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Speaker 9: just big tech stocks in general. We talk about them

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Speaker 9: as a homogeneous asset class, but they're really not, and

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Speaker 9: many of them are dependent on different parts of the consumer,

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Speaker 9: on different parts of the economy, and I think we're

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Speaker 9: going to start seeing some divergence in performance among those

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Speaker 9: names where it's not just okay, you win because you're

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Speaker 9: in that big tech basket. So this week, I think

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Speaker 9: is really important, not just for the results, because interestingly,

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Speaker 9: as earnings have come in so far, we're seeing even

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Speaker 9: companies that have beat still be punished.

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Speaker 8: So it's not just about the results.

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Speaker 9: It's about the sentiment and the commentary that comes out

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Speaker 9: of those companies, because that's what we'll send the market

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Speaker 9: in a different direction.

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Speaker 1: Thank you so much for joining us. We really appreciate

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Speaker 1: getting some of your time. Liz Young. She's head of

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Speaker 1: investment strategy at SOFI.

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Speaker 7: You're listening to the tape. Cat's are Live program Bloomberg

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Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

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Speaker 7: flagship New York station, Just say Alexa play Bloomberg eleven thirty.

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Speaker 1: Sony Challa joins us. She is a portfolio manager partner

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Speaker 1: at times Square Capital Management located guess where Jess, Time Square.

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Speaker 1: How about that go figure some good naming rights there,

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Speaker 1: So no, thanks so much for joining us. You're live

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Speaker 1: here in on our Bloomberg Interactive Broker studio, so we

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Speaker 1: appreciate you making the time here. What you call on

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Speaker 1: technology here, boy, I hear some big, big numbers in

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Speaker 1: terms of Capex the cloud, and then the kids are

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Speaker 1: talking about this thing, AI. How do you put that

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Speaker 1: all together and have a tech call?

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Speaker 10: Yeah?

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Speaker 11: Sure, I would say the investor sentiment positioning is broadly

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Speaker 11: cautious as we head into Q three earning season, as

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Speaker 11: there's angst building around twenty twenty four outlooks and whether

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Speaker 11: we will get a Q four budget flush. If we

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Speaker 11: look at channel checks and alternative data providers, they're painting

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Speaker 11: a conflicting message on the health of IT spending environment.

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Speaker 5: And I would.

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Speaker 11: Describe the visibility as clear as mud at this point.

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Speaker 11: And what I would say is that today's tonight's earnings

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Speaker 11: calls from the megacaps like Google and Microsoft will give

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Speaker 11: us a better understanding of whether the public cloud consumption

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Speaker 11: headwinds or abating or not, and the trajectory of the

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Speaker 11: hyperscale or capex into twenty twenty four. You know, the

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Speaker 11: thing is that if you rewind to the start of

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Speaker 11: twenty twenty three, as cost of capital has risen, you know,

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Speaker 11: all these companies went on an endeavor to become financially fit.

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Speaker 5: So we've seen.

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Speaker 11: Significant positive earnings and free cash revisions upwards. Margin expansions

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Speaker 11: have taken place, but what has been pressured is the

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Speaker 11: net revenue retention rates as expansions have slowed as customers

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Speaker 11: have cut back on spending and optimized their budgets with these.

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Speaker 5: Big megacaps and other software providers.

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Speaker 11: So the question is going forward into twenty twenty four

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Speaker 11: with genai products from all these software companies ramping, whether

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Speaker 11: that will serve as an incremental monetization driver into twenty

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Speaker 11: four to drive you know, better revenue growth, especially given

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Speaker 11: that the macro environment continues to be broadly stable and

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Speaker 11: the comps are going to be easier into twenty twenty four.

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Speaker 11: Point I would highlight on this front is that we

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Speaker 11: should not overlook the lapping of the precipitous decline in

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Speaker 11: ventor capital funding that started in two Q of last year.

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Speaker 11: If you look at the trailing twelvemonth VC funding, it

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Speaker 11: is sitting at two hundred and sixty two billion, which

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Speaker 11: is down a little over fifty percent year of a

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Speaker 11: year from five hundred and thirty.

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Speaker 5: Eight billion last year.

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Speaker 11: And the biggest negative step step down occurred between Q

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Speaker 11: two and Q three.

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Speaker 5: Of last year.

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Speaker 11: And you know, assuming a certain percentage of these VC

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Speaker 11: funds end up as public cloud revenues, the drag from

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Speaker 11: that collapse in VC funding exactly a year ago, by

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Speaker 11: our estimate, is, you know, is a drag of about

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Speaker 11: ten percent of public cloud revenues.

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Speaker 5: So I think the.

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Speaker 11: Comps are are easing into into the back half. So

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Speaker 11: that's the backdrop, and you know, we're very interested to

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Speaker 11: see how the revenues flow are reported tonight.

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Speaker 4: Something I'm keeping a close eye on is buybacks because

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Speaker 4: we know that technology companies in particular have been a

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Speaker 4: key pillar of support when you think about the broader

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Speaker 4: stock market in last year with those buybacks being at

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Speaker 4: a record, but they did slow in the first half

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Speaker 4: of the year. As technology companies, obviously we're going through

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Speaker 4: a lot of cost cutting efforts. What are you expecting

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Speaker 4: to hear on that front from some of these big

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Speaker 4: tech companies.

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Speaker 11: Yeah, we expect capital allocation to be an important top

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Speaker 11: and going forward, given the cost of capital is higher,

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Speaker 11: and so I think expect a similar strategy going forward

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Speaker 11: in terms of buybacks as.

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Speaker 5: Free cash flows have ramped up.

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Speaker 11: I do expect, I do expect a balance between investments

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Speaker 11: and buybacks, and I don't expect any major surprises on

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Speaker 11: that front going forward.

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Speaker 1: So now, for the first half of the year, we

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Speaker 1: all learned a new term AI, and every company that

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Speaker 1: reported earnings for two or three quarters, whether they may

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Speaker 1: dog food or where they may, you know, missiles talked

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Speaker 1: about how AI is transforming their business in the supercharge

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Speaker 1: at Kroger Croker when they's McDonald's. What is AI to

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Speaker 1: you and is it incremental to spending?

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Speaker 5: Yes, it's an interesting uh.

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Speaker 11: You know initially when uh, if you look at the

440
00:23:32,560 --> 00:23:36,040
Speaker 11: equity performance between me and July, we got we were

441
00:23:36,080 --> 00:23:40,639
Speaker 11: in the hype cycle of AI, and in general, I

442
00:23:40,680 --> 00:23:45,840
Speaker 11: would say investors generally overestimate the impact of new technologies

443
00:23:45,960 --> 00:23:49,440
Speaker 11: like jen ai and the near term, but under estimate

444
00:23:49,560 --> 00:23:53,719
Speaker 11: the longer term impact. So what is jen A I definitely,

445
00:23:53,800 --> 00:23:56,840
Speaker 11: I think, you know, we've been, as part of our

446
00:23:56,880 --> 00:23:59,800
Speaker 11: ongoing due diligence, talk to a lot of customers. We've

447
00:24:00,000 --> 00:24:07,040
Speaker 11: spoken to leaders of IT departments at big financial institutions, industrials,

448
00:24:07,080 --> 00:24:13,399
Speaker 11: and healthcare companies, and there is definitely a view internally

449
00:24:13,520 --> 00:24:19,520
Speaker 11: that GENI could be a meaningful productivity enhancer, and all

450
00:24:19,600 --> 00:24:26,560
Speaker 11: these companies are exploring different GENI use cases within their organizations.

451
00:24:26,560 --> 00:24:32,040
Speaker 11: Our senses that the first use cases for GENI are

452
00:24:32,080 --> 00:24:37,640
Speaker 11: probably going to be internal use cases to improve productivity improvement,

453
00:24:39,160 --> 00:24:44,760
Speaker 11: be it in a call center agent, for a marketing professional,

454
00:24:44,880 --> 00:24:49,119
Speaker 11: for a software developer. These tools, anecdotally, what we've heard,

455
00:24:49,920 --> 00:24:53,320
Speaker 11: increased productivity by twenty five to thirty percent, so they're

456
00:24:53,359 --> 00:24:58,280
Speaker 11: definitely pretty impactful. There's a lot of interest within organizations,

457
00:24:58,600 --> 00:25:04,160
Speaker 11: but they're also mindful and want to understand the data

458
00:25:04,240 --> 00:25:11,159
Speaker 11: privacy issues around GENI, security issues around GENI, and the cost,

459
00:25:12,320 --> 00:25:15,639
Speaker 11: you know, the cost of implementing JENI. So they're moving

460
00:25:15,800 --> 00:25:19,919
Speaker 11: thoughtfully and conservatively. That's why I said we overestimate the

461
00:25:19,960 --> 00:25:23,840
Speaker 11: impact of the near term but underestimate the longer term impact.

462
00:25:24,200 --> 00:25:29,800
Speaker 11: So as GENI products from software vendorors become generally, you know,

463
00:25:29,840 --> 00:25:33,840
Speaker 11: more generally available. Microsoft's is coming out on November first,

464
00:25:33,880 --> 00:25:37,040
Speaker 11: for example, a lot of these tools will be rolled out.

465
00:25:38,160 --> 00:25:42,080
Speaker 11: Then the enterprises will, you know, decide whether it makes

466
00:25:42,119 --> 00:25:45,560
Speaker 11: sense for them at the cost at the price points.

467
00:25:45,440 --> 00:25:46,520
Speaker 5: That they're being delivered.

468
00:25:47,240 --> 00:25:51,119
Speaker 11: But from our vantage point, it's more of twenty twenty

469
00:25:51,160 --> 00:25:53,640
Speaker 11: four twenty twenty five revenue growth.

470
00:25:53,440 --> 00:25:56,600
Speaker 4: Through did we only have about a minute left. But

471
00:25:56,840 --> 00:25:59,080
Speaker 4: if you are able to join the earnings call for

472
00:25:59,400 --> 00:26:03,400
Speaker 4: Microsoft or Alphabet, what question would you ask for each company?

473
00:26:03,920 --> 00:26:09,400
Speaker 11: Yeah, the number one question is what is happening on

474
00:26:09,560 --> 00:26:17,160
Speaker 11: the consumption optimized optimization? Have customers optimize the spend or

475
00:26:17,240 --> 00:26:19,600
Speaker 11: is there more to go on that front? And the

476
00:26:19,680 --> 00:26:24,560
Speaker 11: second is the trajectory of the capex spending. You know,

477
00:26:25,040 --> 00:26:28,600
Speaker 11: that's an important tell for future demand that may be

478
00:26:28,600 --> 00:26:30,600
Speaker 11: coming on the GENI front.

479
00:26:30,600 --> 00:26:32,520
Speaker 1: Because the expect I mean the understanding or a least

480
00:26:32,520 --> 00:26:37,320
Speaker 1: my understanding is jen Ai is incremental to existing budgets.

481
00:26:37,440 --> 00:26:39,040
Speaker 1: Is that true in your mind?

482
00:26:39,480 --> 00:26:44,959
Speaker 11: So there will be definitely repurposing off budgets, So savings

483
00:26:45,040 --> 00:26:48,400
Speaker 11: in some parts of the budget will be repurposed to JENNI.

484
00:26:49,680 --> 00:26:52,600
Speaker 5: But you know, I do believe that.

485
00:26:53,440 --> 00:26:57,400
Speaker 11: You know, our conversations are suggesting that the IT budgets

486
00:26:57,400 --> 00:27:00,840
Speaker 11: are looking to go up mid to high single percentage

487
00:27:00,880 --> 00:27:04,760
Speaker 11: points in twenty twenty four. So and part of that

488
00:27:04,960 --> 00:27:08,840
Speaker 11: is Jenny I related. And that view is that budget

489
00:27:08,840 --> 00:27:11,040
Speaker 11: outlook is slightly better than what we've seen in twenty

490
00:27:11,080 --> 00:27:11,560
Speaker 11: twenty three.

491
00:27:11,720 --> 00:27:14,919
Speaker 1: Okay, very good. We'll certainly be paying attention to the

492
00:27:15,280 --> 00:27:18,760
Speaker 1: Microsoft and to the Google numbers after the closed tonight.

493
00:27:18,840 --> 00:27:23,600
Speaker 1: So neutrala partner and portfolio manager at Times Square Capital Management,

494
00:27:24,480 --> 00:27:26,960
Speaker 1: timely discussion here as we get ready to kick off

495
00:27:26,960 --> 00:27:28,560
Speaker 1: some big, big tech earnings.

496
00:27:29,520 --> 00:27:33,360
Speaker 7: You're listening to the Team Ken's live program Bloomberg Markets

497
00:27:33,400 --> 00:27:36,480
Speaker 7: weekdays at ten am Eastern on Bloomberg dot com, the

498
00:27:36,560 --> 00:27:39,720
Speaker 7: iHeartRadio app, and the Bloomberg Business app, or listen on

499
00:27:39,760 --> 00:27:41,879
Speaker 7: demand wherever you get your podcasts.

500
00:27:44,200 --> 00:27:48,560
Speaker 1: Ank Rate dot Com US homeworkers thirty year fixed seven

501
00:27:48,600 --> 00:27:52,200
Speaker 1: point ninety eight percent. Just extraordinary. That is the high

502
00:27:52,280 --> 00:27:54,280
Speaker 1: since March of two thousand.

503
00:27:54,440 --> 00:27:54,720
Speaker 5: Wow.

504
00:27:54,960 --> 00:27:58,080
Speaker 1: Makes me feel less dumb for my six percent mortgage

505
00:27:58,119 --> 00:28:00,320
Speaker 1: I got back in March of this year. I did

506
00:28:00,320 --> 00:28:02,959
Speaker 1: feel a little like a knucklehead back then. Six percent,

507
00:28:03,040 --> 00:28:05,600
Speaker 1: but not too bad. But that can't be good for

508
00:28:05,800 --> 00:28:07,879
Speaker 1: like the housing market overall. Let's check in with somebody

509
00:28:07,880 --> 00:28:12,320
Speaker 1: who knows this stuff, Brad Dilman, Chief Economists, RPM Living

510
00:28:12,560 --> 00:28:14,479
Speaker 1: is the firm. Hey, Brad, we got a mortgage RDE

511
00:28:14,520 --> 00:28:17,760
Speaker 1: up there at eight percent on the thirty year fixed man,

512
00:28:17,800 --> 00:28:19,840
Speaker 1: what's that mean for the residential real estate market?

513
00:28:21,000 --> 00:28:22,479
Speaker 12: Well, I think we can see that in the existing

514
00:28:22,520 --> 00:28:23,000
Speaker 12: home sales.

515
00:28:23,080 --> 00:28:26,760
Speaker 13: Right If that number is now at four million seasonally annualized,

516
00:28:26,760 --> 00:28:28,879
Speaker 13: that's pretty ugly that we got to go back to

517
00:28:28,920 --> 00:28:30,760
Speaker 13: the Great Recession to see a figure that bad.

518
00:28:30,840 --> 00:28:33,280
Speaker 12: So it translates into low volume, that's for sure.

519
00:28:33,760 --> 00:28:36,080
Speaker 4: And we're going to get a batch of housing data

520
00:28:36,160 --> 00:28:39,360
Speaker 4: throughout this week, so starting tomorrow will have us new

521
00:28:39,440 --> 00:28:43,040
Speaker 4: home sales for the month of September. When we did

522
00:28:43,040 --> 00:28:45,960
Speaker 4: get August data, it did fall to a five month low.

523
00:28:46,320 --> 00:28:49,040
Speaker 4: What are you thinking that we'll end up seeing from

524
00:28:49,080 --> 00:28:50,240
Speaker 4: this data tomorrow?

525
00:28:51,640 --> 00:28:53,680
Speaker 13: I think the the consensus figure I had in front

526
00:28:53,680 --> 00:28:54,840
Speaker 13: of me was six eighty six.

527
00:28:55,080 --> 00:28:56,320
Speaker 12: I think we may actually beat that.

528
00:28:56,320 --> 00:28:59,240
Speaker 13: AT's say, six hundred eighty six thousand seasonally, just at annualized,

529
00:28:59,240 --> 00:29:00,840
Speaker 13: I think it will come in seven hundred, but I

530
00:29:00,880 --> 00:29:02,480
Speaker 13: think it'll have a little bit more strength to it.

531
00:29:03,120 --> 00:29:05,360
Speaker 13: New home sales obviously came down from their peak, but

532
00:29:05,400 --> 00:29:07,920
Speaker 13: you know, if you compare them to pre COVID era,

533
00:29:08,160 --> 00:29:09,280
Speaker 13: they're still pretty strong.

534
00:29:10,120 --> 00:29:13,560
Speaker 4: Also, though, another data point that will get later this week,

535
00:29:13,600 --> 00:29:15,760
Speaker 4: which is important to look at the future direction when

536
00:29:15,800 --> 00:29:17,560
Speaker 4: it comes to the housing market is also when you're

537
00:29:17,560 --> 00:29:20,280
Speaker 4: looking at housing starts and building permits, and when you're

538
00:29:20,320 --> 00:29:23,040
Speaker 4: looking at pending home sales. Obviously a leading indicator of

539
00:29:23,080 --> 00:29:25,800
Speaker 4: existing home sales, given typically they're going to go under

540
00:29:25,880 --> 00:29:28,720
Speaker 4: contract a month or two before they're end up being sold.

541
00:29:29,000 --> 00:29:31,400
Speaker 4: What are you seeing on that end, and is that

542
00:29:31,520 --> 00:29:34,320
Speaker 4: showing any sort of promising signs? More broadly for the

543
00:29:34,320 --> 00:29:36,120
Speaker 4: housing market, You know, I.

544
00:29:36,080 --> 00:29:38,120
Speaker 13: Really look at the builders when I think about this,

545
00:29:38,200 --> 00:29:39,840
Speaker 13: and what I saw with them was really in the

546
00:29:39,880 --> 00:29:42,720
Speaker 13: last ninety days or so, the reporting of a material

547
00:29:42,760 --> 00:29:45,960
Speaker 13: slowdown in community traffic that's very clearly tied to the

548
00:29:46,000 --> 00:29:48,360
Speaker 13: recent move in the ten year treasury rate. I think

549
00:29:48,480 --> 00:29:50,320
Speaker 13: when we look at the existing home sales side and

550
00:29:50,360 --> 00:29:52,440
Speaker 13: pending home sales and how that may move. We really

551
00:29:52,520 --> 00:29:54,600
Speaker 13: end up with a question of geography here, and it

552
00:29:54,600 --> 00:29:56,400
Speaker 13: translates to what we see on the rental market too.

553
00:29:56,480 --> 00:29:57,800
Speaker 12: The areas that are really strong thing.

554
00:29:57,960 --> 00:30:03,240
Speaker 13: It's Madison, Wisconsin, Maha, Nebraska, Urbana, Champagne, Illinois. It's markets

555
00:30:03,280 --> 00:30:05,160
Speaker 13: that really haven't been in the spotlight in terms of

556
00:30:05,160 --> 00:30:07,360
Speaker 13: housing in quite some time. And these may be the

557
00:30:07,440 --> 00:30:10,040
Speaker 13: kinds of areas that actually lead even in this high

558
00:30:10,080 --> 00:30:11,000
Speaker 13: interest rate environment.

559
00:30:11,720 --> 00:30:15,240
Speaker 1: So, Bret, I've heard, I've heard from real estate folks

560
00:30:15,240 --> 00:30:17,800
Speaker 1: like yourselves that there's just not enough housing in the

561
00:30:17,920 --> 00:30:21,240
Speaker 1: United States And A Tory, how did that happen? If

562
00:30:21,240 --> 00:30:24,880
Speaker 1: that's even true? And I mean, b how do you

563
00:30:24,920 --> 00:30:25,320
Speaker 1: fix it?

564
00:30:26,520 --> 00:30:28,240
Speaker 12: So A, Yeah, I think it is true.

565
00:30:28,600 --> 00:30:30,800
Speaker 13: My own analysis shows that we're under built by about

566
00:30:30,800 --> 00:30:33,280
Speaker 13: six hundred and fifty thousand units right now. How that

567
00:30:33,360 --> 00:30:35,280
Speaker 13: happened really goes all the way back to the Great

568
00:30:35,320 --> 00:30:38,080
Speaker 13: Recession and really our efforts to stimulate home prices for

569
00:30:38,120 --> 00:30:40,160
Speaker 13: about five years by.

570
00:30:39,960 --> 00:30:42,400
Speaker 12: Increasing affordability on the margin.

571
00:30:42,480 --> 00:30:45,280
Speaker 13: Back then, it resulted in less affordability and subsequent time

572
00:30:45,320 --> 00:30:48,840
Speaker 13: periods and therefore lower construction volume, particularly in single family

573
00:30:48,840 --> 00:30:52,440
Speaker 13: where it took more savings and migration to affordability for

574
00:30:52,520 --> 00:30:55,600
Speaker 13: people to own. Now we are closing this gap. The

575
00:30:55,640 --> 00:30:57,840
Speaker 13: degree to which we're underbuilt has been made up four

576
00:30:57,840 --> 00:31:00,400
Speaker 13: in two parts. One has been that we have seen

577
00:31:00,440 --> 00:31:03,080
Speaker 13: a de facto housing supply stimulus in terms of COVID

578
00:31:03,080 --> 00:31:06,280
Speaker 13: era response. We saw fiction moratoria translates to high rank

579
00:31:06,280 --> 00:31:08,760
Speaker 13: growth and that into high multifamily starts. And then of

580
00:31:08,760 --> 00:31:10,720
Speaker 13: course the really low interest rates that we had back

581
00:31:10,720 --> 00:31:13,440
Speaker 13: then in terms of mortgages translating to home price appreciation,

582
00:31:13,800 --> 00:31:16,560
Speaker 13: which translated into a lot of single family starts. We're

583
00:31:16,560 --> 00:31:18,400
Speaker 13: closing this gap. I think we're under built by six

584
00:31:18,440 --> 00:31:21,520
Speaker 13: hundred and fifty thousand units today. Let's put that in context.

585
00:31:21,600 --> 00:31:24,240
Speaker 13: There's nearly one point seven million housing units under construction

586
00:31:24,480 --> 00:31:27,400
Speaker 13: right now, so that means we've just by today's figures. Yeah,

587
00:31:27,440 --> 00:31:29,479
Speaker 13: you've got to figure in obsolescence and such. But if

588
00:31:29,520 --> 00:31:32,400
Speaker 13: we finished everything that's under construction right now, we'd be

589
00:31:32,440 --> 00:31:33,600
Speaker 13: overbuilt by a million units.

590
00:31:34,280 --> 00:31:37,240
Speaker 4: What about when it comes to particular home builders, because

591
00:31:37,320 --> 00:31:40,480
Speaker 4: dear Horton Lenard, they have a particular demographic when it

592
00:31:40,520 --> 00:31:43,520
Speaker 4: comes to that, But when it comes to housing affordability

593
00:31:43,880 --> 00:31:47,320
Speaker 4: for lower income demographics, what builders do you think are

594
00:31:47,360 --> 00:31:50,760
Speaker 4: out there that could help this particular segment of the population.

595
00:31:51,800 --> 00:31:53,480
Speaker 13: I just think it's going to be smaller builders, some

596
00:31:53,480 --> 00:31:55,479
Speaker 13: of which may not even be publicly traded, right These

597
00:31:55,520 --> 00:31:56,960
Speaker 13: are going to be folks who are in these much

598
00:31:56,960 --> 00:31:59,080
Speaker 13: smaller markets that actually have a pretty.

599
00:31:58,800 --> 00:31:59,720
Speaker 12: Good land basis.

600
00:32:00,040 --> 00:32:01,920
Speaker 13: If we look at the big builders that focus on

601
00:32:01,960 --> 00:32:03,760
Speaker 13: that move up buyer, that's really where a lot of

602
00:32:03,800 --> 00:32:06,480
Speaker 13: the pain is right now. These people can't sell their

603
00:32:06,480 --> 00:32:09,080
Speaker 13: existing home at an attractive enough price really because of

604
00:32:09,120 --> 00:32:11,239
Speaker 13: mortgage rates, and then they can't turn around and get

605
00:32:11,280 --> 00:32:13,400
Speaker 13: the discounts that they'd really need into the home that

606
00:32:13,400 --> 00:32:14,240
Speaker 13: they would move into.

607
00:32:14,440 --> 00:32:15,840
Speaker 12: So the move up buyers really hurt.

608
00:32:15,880 --> 00:32:17,960
Speaker 13: Right now, we're seeing a little bit of a shift

609
00:32:17,960 --> 00:32:20,520
Speaker 13: i'd say to you know, call it C locations, not

610
00:32:20,560 --> 00:32:22,880
Speaker 13: so much in the D locations anymore, but a shift

611
00:32:22,920 --> 00:32:25,720
Speaker 13: back in to see a focus on kind of smaller

612
00:32:25,720 --> 00:32:29,160
Speaker 13: and higher quality product that really might kind of reflect

613
00:32:29,360 --> 00:32:31,959
Speaker 13: a bumping down effect when it comes to ownership. We

614
00:32:32,000 --> 00:32:34,080
Speaker 13: can flip that to the rental side, where it looks

615
00:32:34,160 --> 00:32:37,560
Speaker 13: like supply, you know, is siphoning demand from Class B

616
00:32:37,920 --> 00:32:40,440
Speaker 13: and providing a lot of alternatives now for renters who

617
00:32:40,520 --> 00:32:42,960
Speaker 13: look to more affordable but still quality options.

618
00:32:43,440 --> 00:32:45,720
Speaker 1: Are you? Are you down in Atlanta, Bread?

619
00:32:46,920 --> 00:32:48,400
Speaker 12: No, I'm in Clintonville, Wisconsin.

620
00:32:48,520 --> 00:32:48,920
Speaker 1: Clinton.

621
00:32:49,640 --> 00:32:50,200
Speaker 12: I'm remote.

622
00:32:50,240 --> 00:32:52,280
Speaker 13: I work for a company that's based out of Austin,

623
00:32:52,320 --> 00:32:54,560
Speaker 13: and I spend time there, but I'm in rural Wisconsin,

624
00:32:54,600 --> 00:32:55,760
Speaker 13: which is where the wife is from.

625
00:32:56,080 --> 00:32:57,760
Speaker 1: Clinton. Where's Clinton, Wisconsin?

626
00:32:58,680 --> 00:33:01,240
Speaker 12: Clintonville is about forty five five minutes west of Green Bay.

627
00:33:01,800 --> 00:33:03,040
Speaker 12: They make fire trucks out here.

628
00:33:03,400 --> 00:33:04,800
Speaker 1: So how's the winter treating you so far?

629
00:33:05,680 --> 00:33:07,040
Speaker 12: It's not too bad. Yeah, I got a little bit

630
00:33:07,040 --> 00:33:08,080
Speaker 12: of a storm right now, but.

631
00:33:07,960 --> 00:33:09,400
Speaker 8: It's actually a beautiful fall.

632
00:33:09,920 --> 00:33:11,480
Speaker 13: But may we talk in a few months when it's

633
00:33:11,480 --> 00:33:12,840
Speaker 13: you know, dark at four o'clock contea?

634
00:33:13,040 --> 00:33:13,120
Speaker 4: Right?

635
00:33:13,160 --> 00:33:13,440
Speaker 10: All right?

636
00:33:13,440 --> 00:33:15,000
Speaker 1: If I want so, if I want to buy a

637
00:33:15,040 --> 00:33:19,800
Speaker 1: four bedroom fairly new construction, Clintonville, Wisconsin, what's that going

638
00:33:19,800 --> 00:33:20,200
Speaker 1: to run me?

639
00:33:21,200 --> 00:33:22,840
Speaker 12: Well, there's not too much supply out here, I'll tell

640
00:33:22,840 --> 00:33:23,120
Speaker 12: you that.

641
00:33:23,720 --> 00:33:25,640
Speaker 13: But you know, we I think we can say that,

642
00:33:25,760 --> 00:33:28,040
Speaker 13: you know, on the on the new home side, prices

643
00:33:28,080 --> 00:33:29,160
Speaker 13: are down from their peak.

644
00:33:29,440 --> 00:33:31,080
Speaker 12: I would think if you wanted to build.

645
00:33:30,800 --> 00:33:32,720
Speaker 13: In rural America, if you wanted to go build, and

646
00:33:33,080 --> 00:33:35,440
Speaker 13: you know Urbana Champaign, which is is rural enough for

647
00:33:35,440 --> 00:33:37,640
Speaker 13: anybody who's sitting in New York or a major metropolitan

648
00:33:37,640 --> 00:33:40,400
Speaker 13: area and you want your four bedroom house.

649
00:33:40,160 --> 00:33:42,360
Speaker 12: That's really nice. You've been looking anywhere from three fifty

650
00:33:42,440 --> 00:33:43,360
Speaker 12: to four to fifty.

651
00:33:43,800 --> 00:33:46,360
Speaker 4: Do you talk to brokers often and if so, what

652
00:33:46,400 --> 00:33:49,000
Speaker 4: are they telling you about what they're hearing anecdotally from

653
00:33:49,000 --> 00:33:49,920
Speaker 4: potential buyers.

654
00:33:51,000 --> 00:33:53,280
Speaker 13: You know, I don't talk to brokers personally. I'm a

655
00:33:53,360 --> 00:33:55,400
Speaker 13: data guy, right, so I see through this in data

656
00:33:55,440 --> 00:33:56,240
Speaker 13: and reading reports.

657
00:33:56,440 --> 00:33:58,440
Speaker 12: But what I am hearing from the home builders.

658
00:33:58,200 --> 00:34:00,840
Speaker 13: Has been this really this decline in community trap that

659
00:34:00,880 --> 00:34:03,000
Speaker 13: you know, the builders have been buying down rate for people.

660
00:34:03,000 --> 00:34:05,760
Speaker 12: They're really getting to the end of that. They're not

661
00:34:05,800 --> 00:34:08,279
Speaker 12: wanting to cut their asking price yet, and so they're

662
00:34:08,320 --> 00:34:08,839
Speaker 12: turning around.

663
00:34:08,840 --> 00:34:11,560
Speaker 13: They're trying to make up margin by basically going after

664
00:34:11,600 --> 00:34:13,719
Speaker 13: the trade so labor and materials cost and trying to

665
00:34:13,719 --> 00:34:15,000
Speaker 13: get concessions on that front.

666
00:34:16,040 --> 00:34:18,680
Speaker 1: Dude, you're not kidding, man. I just popped up Clintonville

667
00:34:18,719 --> 00:34:22,120
Speaker 1: on the Google Maps. You are west of Green Bay,

668
00:34:23,400 --> 00:34:27,720
Speaker 1: northwest of Appleton. That, dude, you are like the center

669
00:34:27,760 --> 00:34:30,440
Speaker 1: of American No, no question, right, what's it? How's life

670
00:34:30,480 --> 00:34:31,000
Speaker 1: out there?

671
00:34:31,840 --> 00:34:31,960
Speaker 13: Oh?

672
00:34:32,000 --> 00:34:33,400
Speaker 12: I've only been out here for about a month and

673
00:34:33,440 --> 00:34:35,640
Speaker 12: a half in California.

674
00:34:35,760 --> 00:34:38,080
Speaker 13: I was in Seattle, I was in Boston, I was

675
00:34:38,120 --> 00:34:39,919
Speaker 13: in London, and then I was in Atlanta.

676
00:34:40,040 --> 00:34:42,040
Speaker 12: All for me, it's the holy region of the country,

677
00:34:42,080 --> 00:34:42,480
Speaker 12: and it's.

678
00:34:42,320 --> 00:34:45,160
Speaker 4: Still neat all right, look at less about like the economy, Like,

679
00:34:45,200 --> 00:34:46,160
Speaker 4: what are you seeing out there?

680
00:34:47,600 --> 00:34:50,080
Speaker 12: Some growth? Right, you know, an area like this. HA

681
00:34:50,200 --> 00:34:51,640
Speaker 12: had a tough time coming out.

682
00:34:51,560 --> 00:34:53,719
Speaker 13: Of the Great Recession for quite a long time, and

683
00:34:53,719 --> 00:34:56,239
Speaker 13: I'd say really around twenty eighteen twenty or nineteen or

684
00:34:56,239 --> 00:34:58,440
Speaker 13: so things started to pick up awesome, and then of

685
00:34:58,440 --> 00:35:01,200
Speaker 13: course the pandemic led to enough remote work and then

686
00:35:01,280 --> 00:35:03,440
Speaker 13: some continued growth out here. You know, out here though

687
00:35:03,440 --> 00:35:05,800
Speaker 13: it's a lot of farming, it's manufacturing, right, We build

688
00:35:05,800 --> 00:35:07,759
Speaker 13: fire trucks and a little.

689
00:35:07,480 --> 00:35:09,640
Speaker 12: Bit in terms of wind turbines and things like this.

690
00:35:09,880 --> 00:35:13,000
Speaker 1: Awesome, all right, Brad, Great chatting with you. Great getting

691
00:35:13,000 --> 00:35:16,560
Speaker 1: the local color from Clintonville, Wisconsin. Bradilman, he's the chief

692
00:35:16,560 --> 00:35:18,440
Speaker 1: economist RPM Living.

693
00:35:18,760 --> 00:35:21,800
Speaker 7: You're listening to the tape Cat's are live program Bloomberg

694
00:35:21,920 --> 00:35:25,520
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

695
00:35:25,560 --> 00:35:28,799
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business app.

696
00:35:28,840 --> 00:35:31,640
Speaker 7: You can also listen live on Amazon Alexa from our

697
00:35:31,680 --> 00:35:36,040
Speaker 7: flagship New York station, Just Say Alexa, play Bloomberg eleven.

698
00:35:35,760 --> 00:35:39,680
Speaker 1: Thirty, Coley Smith plus twenty live here in our Bloomberg

699
00:35:39,719 --> 00:35:42,200
Speaker 1: Interactor Broker Studio Earnings Here, we're all been focusing on

700
00:35:42,200 --> 00:35:44,440
Speaker 1: the tech earnings coming out after the close. We had

701
00:35:44,480 --> 00:35:48,480
Speaker 1: some good industrial earnings out three M and Gee Boast

702
00:35:48,480 --> 00:35:50,680
Speaker 1: had some pretty good numbers, boosted the profit outlook. The

703
00:35:50,680 --> 00:35:52,600
Speaker 1: stocks are up five or six percent. We said we

704
00:35:52,680 --> 00:35:54,640
Speaker 1: got to get Brook Sutherland in here. She is the

705
00:35:54,680 --> 00:35:59,720
Speaker 1: Bloomberg opinion person who covers industrial America like no one else. Hey, Brook,

706
00:36:00,120 --> 00:36:02,720
Speaker 1: I don't know, it seems like industrial America is doing Okay,

707
00:36:02,760 --> 00:36:05,200
Speaker 1: what are your takeaways from three M? Do you know

708
00:36:05,239 --> 00:36:10,759
Speaker 1: what THREEM stands for? This is an awkward mining and

709
00:36:10,800 --> 00:36:12,399
Speaker 1: manufacturing three M? And GE?

710
00:36:12,600 --> 00:36:14,880
Speaker 14: What G stands for General Alegen?

711
00:36:15,320 --> 00:36:17,880
Speaker 1: There you go, got one of us exactly what your

712
00:36:17,920 --> 00:36:19,600
Speaker 1: takeaway brooks from some of these companies here.

713
00:36:19,840 --> 00:36:23,680
Speaker 15: Sure, So there's unique stories happening at both GE and

714
00:36:23,840 --> 00:36:26,560
Speaker 15: three M, and so you know at GE it's really

715
00:36:26,560 --> 00:36:29,759
Speaker 15: a story of just the aerospace market is continuing to

716
00:36:29,840 --> 00:36:33,319
Speaker 15: boom and there is a supply problem there rather than

717
00:36:33,360 --> 00:36:36,600
Speaker 15: a demand problem that the airlines of the world air

718
00:36:36,680 --> 00:36:40,040
Speaker 15: lessers want more aircraft, more jet engines than these companies

719
00:36:40,080 --> 00:36:43,640
Speaker 15: can produce, and demand is really fair to robust still.

720
00:36:43,840 --> 00:36:46,720
Speaker 1: So GE, do you not have the supply chain product

721
00:36:47,160 --> 00:36:49,759
Speaker 1: in I guess the stuff to make them, or you're

722
00:36:49,800 --> 00:36:51,160
Speaker 1: just a capacity.

723
00:36:51,400 --> 00:36:53,360
Speaker 15: It's a little bit of both. And so what was

724
00:36:53,400 --> 00:36:56,800
Speaker 15: interesting in the US is that while we extended payroll

725
00:36:56,840 --> 00:36:59,360
Speaker 15: aid to the airlines during the pandemic, we did not

726
00:36:59,560 --> 00:37:02,279
Speaker 15: do that the aircraft manufacturers, and so all of these

727
00:37:02,280 --> 00:37:07,200
Speaker 15: companies slashed their workforces very aggressively, and then when they

728
00:37:07,480 --> 00:37:10,200
Speaker 15: tried to rehire them, they found that that was more

729
00:37:10,440 --> 00:37:12,279
Speaker 15: difficult than they thought it was going to be. That

730
00:37:12,320 --> 00:37:14,640
Speaker 15: a number of people had sort of retired. There was

731
00:37:14,640 --> 00:37:17,480
Speaker 15: obviously a lot of competition for skilled labor. That is

732
00:37:17,520 --> 00:37:22,280
Speaker 15: particularly true this labor shortage issue at the smaller supplier.

733
00:37:22,360 --> 00:37:25,080
Speaker 15: So if you're a company like GE, your ability to

734
00:37:25,120 --> 00:37:28,120
Speaker 15: compete for top talent is better than somebody further down

735
00:37:28,160 --> 00:37:31,160
Speaker 15: the line. But of course GE depends on these smaller

736
00:37:31,400 --> 00:37:33,400
Speaker 15: suppliers to be able to churn out jet engines. I

737
00:37:33,400 --> 00:37:36,480
Speaker 15: talked with Larry Cole this morning actually, and the CEO

738
00:37:36,520 --> 00:37:39,320
Speaker 15: of GE and talked about how they're still seeing supply

739
00:37:39,440 --> 00:37:42,880
Speaker 15: chain constraints and the delinquent trees were up in the

740
00:37:42,920 --> 00:37:45,439
Speaker 15: third quarter relative to the second quarter. They're working hand

741
00:37:45,480 --> 00:37:47,399
Speaker 15: in hand with their supply chain to try to really

742
00:37:47,520 --> 00:37:49,840
Speaker 15: ramp up output, but it is it's challenging.

743
00:37:50,480 --> 00:37:54,680
Speaker 14: How much has a story of materials versus labor issues.

744
00:37:55,200 --> 00:37:58,200
Speaker 15: I think it's more on the labor front at this point.

745
00:37:58,280 --> 00:37:59,960
Speaker 15: That's really where the constraints are.

746
00:38:00,520 --> 00:38:03,319
Speaker 1: All right, So three M what's the story there? Three

747
00:38:03,360 --> 00:38:05,359
Speaker 1: at the Saint Palm, Minnesota, great town by the way,

748
00:38:05,360 --> 00:38:05,640
Speaker 1: if you.

749
00:38:05,560 --> 00:38:10,240
Speaker 15: Haven't been, it is it is not a demand story.

750
00:38:10,280 --> 00:38:11,920
Speaker 15: At three AM to the same extent as what we're

751
00:38:11,920 --> 00:38:15,680
Speaker 15: seeing in GE, they actually cut their organic sales growth

752
00:38:15,760 --> 00:38:18,319
Speaker 15: outlook for the year. They're continuing to see a lot

753
00:38:18,360 --> 00:38:22,919
Speaker 15: of weakness and consumer markets, electronics, some spottiness in industrials

754
00:38:22,920 --> 00:38:25,520
Speaker 15: amid a slow down in Europe, and you know, less

755
00:38:26,000 --> 00:38:28,160
Speaker 15: robust performance in China than I think a lot of

756
00:38:28,239 --> 00:38:29,960
Speaker 15: companies were hoping for. As we came out of the

757
00:38:29,960 --> 00:38:33,359
Speaker 15: other end of the COVID lockdowns there, they did raise

758
00:38:33,400 --> 00:38:36,640
Speaker 15: their profit guidance and that reflects very aggressive cost cutting

759
00:38:36,640 --> 00:38:38,880
Speaker 15: actions that they're taking. Now, this is not the first

760
00:38:39,239 --> 00:38:42,800
Speaker 15: restructuring effort by three AM under any stress of the imagination,

761
00:38:42,880 --> 00:38:45,600
Speaker 15: but this one does appeal appear, excuse me, to have

762
00:38:45,640 --> 00:38:48,279
Speaker 15: a little bit more heft to it where it is

763
00:38:48,320 --> 00:38:50,440
Speaker 15: actually showing up on the bottom line. One of the

764
00:38:50,560 --> 00:38:53,239
Speaker 15: long standing complaints that analysts have had about three M

765
00:38:53,400 --> 00:38:55,719
Speaker 15: is that it announces is restructuring programs and then we

766
00:38:55,840 --> 00:38:59,840
Speaker 15: just never really see any kind of impact. That it

767
00:39:00,000 --> 00:39:02,000
Speaker 15: appears to be different this time around, and I think

768
00:39:02,000 --> 00:39:04,200
Speaker 15: that's why you're seeing some enthusiasm around the stuff today.

769
00:39:04,280 --> 00:39:07,040
Speaker 14: Well, tell us a little bit about the restructuring efforts

770
00:39:07,040 --> 00:39:09,640
Speaker 14: that three M has made. I got a little loss

771
00:39:09,680 --> 00:39:11,960
Speaker 14: trying to get ready for this to see just how

772
00:39:11,960 --> 00:39:14,520
Speaker 14: many job cuts they've made and what kinds of different

773
00:39:14,719 --> 00:39:16,480
Speaker 14: stages it's come in. So if you could give us

774
00:39:16,480 --> 00:39:19,200
Speaker 14: a little bit of the backstory there, sure, it's been.

775
00:39:19,080 --> 00:39:21,960
Speaker 15: Going on for a few years now. I mean, the

776
00:39:22,000 --> 00:39:25,800
Speaker 15: bigger issue with three M, apart from arguably a bloated

777
00:39:25,800 --> 00:39:29,040
Speaker 15: cost structure, is that they have these legacy liabilities hanging

778
00:39:29,040 --> 00:39:33,000
Speaker 15: over their head that involve Forever Chemicals or pfas and

779
00:39:33,600 --> 00:39:36,320
Speaker 15: also ear plugs that they sold to the military that

780
00:39:36,440 --> 00:39:40,319
Speaker 15: veterans have alleged contributed to hearing loss. So those have

781
00:39:40,400 --> 00:39:43,600
Speaker 15: really been weighing on the company because they were somewhat

782
00:39:43,640 --> 00:39:45,799
Speaker 15: open ended. It was not really clear what was going

783
00:39:45,840 --> 00:39:49,080
Speaker 15: to happen. Now three M does have a settlement for

784
00:39:49,239 --> 00:39:52,719
Speaker 15: the public water claims related to PFAS that which is

785
00:39:52,760 --> 00:39:54,480
Speaker 15: working its way through the court, and it also has

786
00:39:54,520 --> 00:39:57,960
Speaker 15: a settlement for the combat arms the ear plugs issue,

787
00:39:57,960 --> 00:39:59,960
Speaker 15: which is also going to work its way through the system.

788
00:40:00,120 --> 00:40:02,839
Speaker 15: So they've made progress in certain terms of clearing out

789
00:40:02,840 --> 00:40:05,279
Speaker 15: some of these legacy issues, but there are still some

790
00:40:05,400 --> 00:40:08,560
Speaker 15: p fast items outstanding that I think will continue to

791
00:40:08,560 --> 00:40:11,879
Speaker 15: make this a tricky stock to own for investors because

792
00:40:11,880 --> 00:40:14,320
Speaker 15: you're not really just betting on industrial markets or costcut.

793
00:40:14,360 --> 00:40:15,719
Speaker 1: That's what I was just going to ask you about,

794
00:40:15,719 --> 00:40:17,600
Speaker 1: because I'm looking at the stock price performance in three

795
00:40:17,680 --> 00:40:19,360
Speaker 1: M is down about twenty five percent year today, but

796
00:40:19,440 --> 00:40:22,799
Speaker 1: GE is up about seventy five percent year to date.

797
00:40:22,880 --> 00:40:24,840
Speaker 1: So when I think of GE, I'm back. I go

798
00:40:24,920 --> 00:40:27,640
Speaker 1: back to the day's when it was everything it was

799
00:40:27,760 --> 00:40:31,520
Speaker 1: GE was the economy, including the financial system. Obviously, they've

800
00:40:31,560 --> 00:40:34,800
Speaker 1: paired it down dramatically over the last ten fifteen years.

801
00:40:35,680 --> 00:40:37,799
Speaker 1: Is Larry Colp to see are they done. Do we

802
00:40:37,880 --> 00:40:41,080
Speaker 1: have the new ge ors. There's still stuff to sell

803
00:40:41,160 --> 00:40:41,720
Speaker 1: or spend offers.

804
00:40:41,880 --> 00:40:44,439
Speaker 15: So their plan is to spin off ge Vernova, which

805
00:40:44,480 --> 00:40:47,280
Speaker 15: will be the energy businesses, so that's their gas turbines,

806
00:40:47,280 --> 00:40:50,839
Speaker 15: but also the renewable energy the wind turbine businesses. They

807
00:40:50,960 --> 00:40:53,120
Speaker 15: said today that that is going to happen in the

808
00:40:53,120 --> 00:40:55,640
Speaker 15: second quarter of twenty twenty four, which is around the

809
00:40:56,040 --> 00:40:58,320
Speaker 15: sort of general timefirme that they've given before, but a

810
00:40:58,400 --> 00:41:02,520
Speaker 15: little bit more specific in detail. And then once that happens,

811
00:41:03,760 --> 00:41:07,799
Speaker 15: you're mostly done as far as the streamlining process. It's

812
00:41:07,800 --> 00:41:11,759
Speaker 15: an aerospace and defense company with some legacy insurance liabilities

813
00:41:11,800 --> 00:41:14,520
Speaker 15: that they likely will want to sort out sooner rather

814
00:41:14,600 --> 00:41:17,239
Speaker 15: than later, just to really clean up the story. And

815
00:41:17,280 --> 00:41:19,640
Speaker 15: then I think the conversation really shifts to do you

816
00:41:19,680 --> 00:41:23,200
Speaker 15: start looking at acquisitions really, which is crazy to think

817
00:41:23,239 --> 00:41:26,120
Speaker 15: about after you know, the dark days of ge and

818
00:41:26,280 --> 00:41:28,040
Speaker 15: cash flow burn and all of that. But the balance

819
00:41:28,080 --> 00:41:29,400
Speaker 15: sheet is in a much better place.

820
00:41:29,200 --> 00:41:31,080
Speaker 1: And I'm just I was just going to point that out.

821
00:41:31,080 --> 00:41:32,640
Speaker 1: You talk about the balance sheet, I'm looking for on

822
00:41:32,680 --> 00:41:34,759
Speaker 1: my FA function and back in twenty nineteen they had

823
00:41:34,800 --> 00:41:36,840
Speaker 1: ninety four billion of debt. That's down to like twenty

824
00:41:36,880 --> 00:41:38,359
Speaker 1: three twenty four billion of debt.

825
00:41:38,400 --> 00:41:40,759
Speaker 15: That's pretty good, right, because they've sold off all these

826
00:41:40,760 --> 00:41:42,800
Speaker 15: businesses and so they've been able to bring in money

827
00:41:42,800 --> 00:41:45,360
Speaker 15: and really ship away at that debt load, and that

828
00:41:45,480 --> 00:41:47,640
Speaker 15: puts the company in position where we can't have these

829
00:41:47,640 --> 00:41:50,800
Speaker 15: conversations about you know, what kinds of acquisitions might make sense.

830
00:41:51,120 --> 00:41:54,360
Speaker 15: You know, GE will be once they've spun off the

831
00:41:54,440 --> 00:41:56,480
Speaker 15: energy business. It will be somewhat unique in that the

832
00:41:56,600 --> 00:42:01,000
Speaker 15: aerospace business will be highly focused on engines. You don't

833
00:42:01,040 --> 00:42:05,600
Speaker 15: really have a comparable raytheon of course produces the GTF

834
00:42:05,600 --> 00:42:07,120
Speaker 15: out of its Pratt and Whitney unit, but they have

835
00:42:07,160 --> 00:42:10,279
Speaker 15: a much more robust defense business. So that raises a

836
00:42:10,360 --> 00:42:12,200
Speaker 15: question of would g you want to get, you know,

837
00:42:12,280 --> 00:42:14,840
Speaker 15: deeper into defense or are there other parts of aerospace

838
00:42:14,880 --> 00:42:17,719
Speaker 15: that might be appealing to the company, whether that's avionics

839
00:42:17,800 --> 00:42:19,640
Speaker 15: or other types of aircraft parts.

840
00:42:19,920 --> 00:42:23,040
Speaker 14: This is all really impressive for Larry Culp, you'd think, right,

841
00:42:23,120 --> 00:42:27,040
Speaker 14: I mean, look at like the story that he's inherited. Obviously,

842
00:42:27,080 --> 00:42:29,040
Speaker 14: like there's been a bit of turnover at the top,

843
00:42:29,080 --> 00:42:31,640
Speaker 14: but he's been really you know, the man of the

844
00:42:31,640 --> 00:42:34,080
Speaker 14: past couple of years here at the top of the

845
00:42:34,120 --> 00:42:36,640
Speaker 14: GE ladder. I mean, what kind of legacies that mean

846
00:42:36,719 --> 00:42:38,520
Speaker 14: for him? And like all that he has done to

847
00:42:38,560 --> 00:42:41,040
Speaker 14: turn this company around. I mean I used to cover

848
00:42:41,120 --> 00:42:43,680
Speaker 14: it back when the bonds were not trading so well.

849
00:42:43,719 --> 00:42:45,200
Speaker 14: I mean, this is like you were saying now, the

850
00:42:45,280 --> 00:42:48,160
Speaker 14: deleveraging story has been incredible, but it's got to be

851
00:42:48,320 --> 00:42:50,000
Speaker 14: like I mean, he's got to be like CEO of

852
00:42:50,000 --> 00:42:50,560
Speaker 14: the century.

853
00:42:51,560 --> 00:42:53,680
Speaker 15: Sure, he's certainly being paid a lot of money to

854
00:42:53,760 --> 00:42:57,600
Speaker 15: do this, but he really has accomplished a lot at GE,

855
00:42:57,640 --> 00:43:01,120
Speaker 15: and it's really been impressive to see. It's been a

856
00:43:01,120 --> 00:43:04,319
Speaker 15: long process with some stops and starts, but to make

857
00:43:04,400 --> 00:43:06,920
Speaker 15: this kind of progress on the debt load particularly gives

858
00:43:06,960 --> 00:43:09,560
Speaker 15: GE a future that really just was not, you know,

859
00:43:09,680 --> 00:43:11,799
Speaker 15: conceivable a few years ago. And I think that's really

860
00:43:11,880 --> 00:43:12,720
Speaker 15: to Larry's credit.

861
00:43:12,840 --> 00:43:14,919
Speaker 1: Yeah, and to even have the discussion, which I can't

862
00:43:14,920 --> 00:43:17,440
Speaker 1: remember the last time we didn't with G about growing.

863
00:43:17,880 --> 00:43:19,960
Speaker 1: I mean it's been almost twenty years. I mean, I

864
00:43:20,000 --> 00:43:24,799
Speaker 1: think since Jack Welch left it's been at a The

865
00:43:24,840 --> 00:43:26,000
Speaker 1: conversation has been.

866
00:43:25,960 --> 00:43:28,759
Speaker 15: Folks, and well, they did some acquisitions in the in

867
00:43:28,800 --> 00:43:31,279
Speaker 15: the era that didn't work out so much kind of

868
00:43:31,719 --> 00:43:32,960
Speaker 15: but yes, correct.

869
00:43:32,719 --> 00:43:34,600
Speaker 1: All right, brook thanks so much for joining us. Brooks Souther.

870
00:43:34,719 --> 00:43:37,040
Speaker 1: Then she's a columnist for Bloomberg Opinion, covering all the

871
00:43:37,080 --> 00:43:40,320
Speaker 1: industrial America, some great companies, some great industries. She covers

872
00:43:40,360 --> 00:43:41,960
Speaker 1: the deal. She kind of does it. Also, we appreciate

873
00:43:41,960 --> 00:43:43,960
Speaker 1: getting a few minutes of Brooks time here in our

874
00:43:43,960 --> 00:43:45,520
Speaker 1: Bloomberg Interactive Broker Studio.

875
00:43:45,760 --> 00:43:48,880
Speaker 7: You're listening to the tape Cat's are live program Bloomberg

876
00:43:48,960 --> 00:43:52,520
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

877
00:43:52,600 --> 00:43:55,799
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

878
00:43:55,840 --> 00:43:58,680
Speaker 7: You can also listen live on Amazon Alexa from our

879
00:43:58,680 --> 00:44:03,720
Speaker 7: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.

880
00:44:04,680 --> 00:44:07,799
Speaker 1: Right now, people want to talk big, big media. We're

881
00:44:07,880 --> 00:44:10,040
Speaker 1: talking music, can talk Hollywood and all that kind of stuff.

882
00:44:10,040 --> 00:44:11,960
Speaker 1: There's lots to talk about, and we go to our

883
00:44:12,000 --> 00:44:15,000
Speaker 1: go to analyst, Keitha Ranganathan. She is the media analyst

884
00:44:15,040 --> 00:44:19,480
Speaker 1: for Bloomberg Intelligence, joining us via zoom from the headquarters

885
00:44:19,520 --> 00:44:22,760
Speaker 1: of BIATDN in Princeton, New Jersey. Keitha, let's start with Spotify.

886
00:44:22,880 --> 00:44:25,319
Speaker 1: Good story, some good numbers. Tell us what we got

887
00:44:25,320 --> 00:44:26,600
Speaker 1: from our friends at Spotify.

888
00:44:27,320 --> 00:44:30,759
Speaker 10: Yeah, excellent story. Paul at Spotify when they reported their

889
00:44:30,800 --> 00:44:33,880
Speaker 10: three Q today, so they beat on almost every metric

890
00:44:33,920 --> 00:44:36,960
Speaker 10: that we were looking at. User numbers came in really strong,

891
00:44:37,080 --> 00:44:41,000
Speaker 10: premium subscriber momentum will continue into four Q. They said

892
00:44:41,040 --> 00:44:43,480
Speaker 10: that they expect their monthly active users to reach the

893
00:44:43,560 --> 00:44:46,040
Speaker 10: six hundred million mark by the end of this year.

894
00:44:46,280 --> 00:44:49,319
Speaker 10: They're targeting about a billion in the next three to

895
00:44:49,320 --> 00:44:52,040
Speaker 10: four years time. But I think most important for this

896
00:44:52,160 --> 00:44:55,680
Speaker 10: story was really the inflection in the profitability metric. I mean,

897
00:44:55,719 --> 00:44:58,560
Speaker 10: this is this is a streaming company that has plenty

898
00:44:58,600 --> 00:45:01,359
Speaker 10: of subscribers. Before, for some reason, they haven't been really

899
00:45:01,400 --> 00:45:05,160
Speaker 10: able to generate profits and that really kind of goes

900
00:45:05,200 --> 00:45:07,600
Speaker 10: to their business model. But for the first time in

901
00:45:07,640 --> 00:45:11,959
Speaker 10: two years, they actually generated a nice surprise profit, which

902
00:45:11,960 --> 00:45:13,520
Speaker 10: is I think what is really driving most of that

903
00:45:13,560 --> 00:45:14,920
Speaker 10: stock reaction today and.

904
00:45:14,920 --> 00:45:19,360
Speaker 14: Tell us, Githa, is that profitability because Spotify was raising

905
00:45:19,440 --> 00:45:22,880
Speaker 14: prices in the period or like more to the strength

906
00:45:22,920 --> 00:45:24,560
Speaker 14: of the business that you're talking about.

907
00:45:25,600 --> 00:45:28,319
Speaker 10: That's a great point. Yes, they did raise prices, and

908
00:45:28,360 --> 00:45:30,520
Speaker 10: I think what it tells us in terms of their

909
00:45:31,640 --> 00:45:35,080
Speaker 10: you know, not just their the operating income number, but

910
00:45:35,200 --> 00:45:37,239
Speaker 10: the fact that they were able to gain subscribers even

911
00:45:37,239 --> 00:45:38,960
Speaker 10: as they increased prices, it just tells us that they

912
00:45:38,960 --> 00:45:41,120
Speaker 10: have a lot of pricing power. There's obviously a lot

913
00:45:41,120 --> 00:45:43,640
Speaker 10: of stickiness for the product. But in terms of the

914
00:45:43,680 --> 00:45:47,200
Speaker 10: margin story itself, they have really been looking at cost

915
00:45:47,280 --> 00:45:50,560
Speaker 10: discipline very very carefully, and so they have been able

916
00:45:50,600 --> 00:45:53,160
Speaker 10: to finally cut down on their marketing spend. They've been

917
00:45:53,160 --> 00:45:55,680
Speaker 10: able to cut down on personnel costs, which is what

918
00:45:55,800 --> 00:46:00,000
Speaker 10: drove that operating profit as well as a slight mode

919
00:46:00,040 --> 00:46:00,960
Speaker 10: margin expansion.

920
00:46:01,760 --> 00:46:05,799
Speaker 1: All right, Githa, you cover everything. We can go many

921
00:46:05,800 --> 00:46:07,680
Speaker 1: different directions. Right now, we're going to switch gears and

922
00:46:07,719 --> 00:46:11,360
Speaker 1: go to Hollywood. The actors. What's going on? They're still

923
00:46:11,360 --> 00:46:12,920
Speaker 1: on strike, don't they know? They don't live in the

924
00:46:13,000 --> 00:46:15,359
Speaker 1: real world. What's going on with the actors?

925
00:46:15,840 --> 00:46:18,040
Speaker 10: Yeah, I mean, you know, a few days ago, actually

926
00:46:18,080 --> 00:46:20,200
Speaker 10: maybe a couple of weeks ago, you know that they

927
00:46:20,239 --> 00:46:21,759
Speaker 10: you know, they had been talking to the studios, but

928
00:46:21,800 --> 00:46:24,759
Speaker 10: then everything kind of hit a stalemate again when they

929
00:46:24,760 --> 00:46:28,520
Speaker 10: basically said that they wanted a viewership bonus. I think

930
00:46:28,560 --> 00:46:30,920
Speaker 10: they said the industry basically said it would cost them

931
00:46:30,960 --> 00:46:32,880
Speaker 10: something like about a billion dollars and I think that

932
00:46:33,000 --> 00:46:35,719
Speaker 10: was kind of a no go. We had, you know,

933
00:46:35,719 --> 00:46:37,480
Speaker 10: the Netflix CEO kind of talk about it at the

934
00:46:37,480 --> 00:46:40,560
Speaker 10: Bloomberg screen Time conference, and that's where kind of things

935
00:46:40,719 --> 00:46:44,200
Speaker 10: have have been left out so that it's supposed to restart,

936
00:46:44,280 --> 00:46:46,200
Speaker 10: I think today, but we'll see where it goes. In

937
00:46:46,239 --> 00:46:50,520
Speaker 10: the meantime, studios are really kind of facing a difficult situation.

938
00:46:50,560 --> 00:46:52,520
Speaker 10: There's a lot of uncertainty in terms of the twenty

939
00:46:52,560 --> 00:46:54,960
Speaker 10: twenty four content slate. We just saw that Paramount pushed

940
00:46:55,000 --> 00:46:58,520
Speaker 10: out Mission Impossible eight by a whole year now to

941
00:46:58,600 --> 00:47:01,319
Speaker 10: twenty twenty five. You know, we know Disney pushed out

942
00:47:01,320 --> 00:47:04,400
Speaker 10: Dead Poultry. So yeah, the film slate, especially for twenty

943
00:47:04,440 --> 00:47:06,800
Speaker 10: twenty four looks really really shaky.

944
00:47:06,840 --> 00:47:07,080
Speaker 13: Paul.

945
00:47:07,520 --> 00:47:11,560
Speaker 14: Can you tell us either what the studios and the

946
00:47:11,600 --> 00:47:15,719
Speaker 14: actors want that is maybe if it's different, or how

947
00:47:15,719 --> 00:47:19,560
Speaker 14: does it compare to the writer's strike that has already resolved.

948
00:47:20,680 --> 00:47:22,640
Speaker 10: Yeah, so, you know, with the writer's strike, of course,

949
00:47:22,680 --> 00:47:24,719
Speaker 10: a lot of it was in terms of remuneration. A

950
00:47:24,719 --> 00:47:27,080
Speaker 10: lot of it was in terms of transparency in terms

951
00:47:27,080 --> 00:47:30,360
Speaker 10: of viewership metrics, and I think the studios have promised

952
00:47:30,400 --> 00:47:33,239
Speaker 10: to do better both in terms of paying them as

953
00:47:33,239 --> 00:47:36,000
Speaker 10: far as residuals are concerned, as far as releasing you know,

954
00:47:36,040 --> 00:47:38,040
Speaker 10: some of the viewership numbers, as well as some more

955
00:47:38,080 --> 00:47:41,960
Speaker 10: guardrails around kind of the use of AI. I think

956
00:47:42,000 --> 00:47:43,799
Speaker 10: what the with the actors, it's a little bit of

957
00:47:43,840 --> 00:47:46,239
Speaker 10: a different situation though. First of all, there are four

958
00:47:46,239 --> 00:47:48,480
Speaker 10: times the number of actors that there are writers, and

959
00:47:48,520 --> 00:47:52,000
Speaker 10: so the whole calculus kind of changes from an economics perspective,

960
00:47:52,440 --> 00:47:55,080
Speaker 10: and it's going to be pretty onerous for the studios

961
00:47:55,080 --> 00:47:57,600
Speaker 10: to kind of accept all of the actors' conditions. And

962
00:47:58,239 --> 00:48:01,319
Speaker 10: so that's where I think there is you know, a

963
00:48:01,360 --> 00:48:04,279
Speaker 10: lot of you know, the differences of opinion kind of

964
00:48:04,320 --> 00:48:06,480
Speaker 10: creeping up on top of that. I think the actors

965
00:48:06,520 --> 00:48:10,200
Speaker 10: are getting I don't know if greedy is the right

966
00:48:10,239 --> 00:48:12,719
Speaker 10: word to use, but they definitely want a lot more

967
00:48:12,840 --> 00:48:16,560
Speaker 10: so for shows that are being viewed, probably more often

968
00:48:16,600 --> 00:48:19,600
Speaker 10: they want, you know, what the studios are calling this

969
00:48:19,719 --> 00:48:22,520
Speaker 10: viewership bonus kind of a payment is almost like a

970
00:48:22,520 --> 00:48:24,839
Speaker 10: little bit of a tax. That's how you know, death

971
00:48:24,880 --> 00:48:28,040
Speaker 10: Serrando's kind of called it. So they're not happy with that.

972
00:48:28,160 --> 00:48:30,120
Speaker 10: So we'll have to see, I mean, somebody has to

973
00:48:30,400 --> 00:48:32,600
Speaker 10: cave there has to be some compromise.

974
00:48:32,719 --> 00:48:37,160
Speaker 1: All right, pivot yet again, Disney they're looking to kind

975
00:48:37,200 --> 00:48:40,080
Speaker 1: of I don't know restructures are right word, but certainly

976
00:48:40,080 --> 00:48:42,160
Speaker 1: looking at all their assets. And one of the big

977
00:48:42,200 --> 00:48:46,799
Speaker 1: assets is their satellite business in India, which I think

978
00:48:46,840 --> 00:48:49,480
Speaker 1: they got from the Fox acquisition. I'm not sure talk

979
00:48:49,520 --> 00:48:51,000
Speaker 1: to us about what's going on there that there's a

980
00:48:51,040 --> 00:48:53,200
Speaker 1: story that they may be looking to sell some or

981
00:48:53,200 --> 00:48:53,640
Speaker 1: all of it.

982
00:48:54,560 --> 00:48:56,520
Speaker 10: You know, you're absolutely right. So when they paid the

983
00:48:56,560 --> 00:48:58,640
Speaker 10: seventy one billion dollars for a huge chunk of the

984
00:48:58,680 --> 00:49:01,120
Speaker 10: Fox assets, a big part of that actually Star India

985
00:49:01,760 --> 00:49:04,200
Speaker 10: and Star India is really a collection of plenty of

986
00:49:04,280 --> 00:49:08,080
Speaker 10: local TV networks, about sixty TV channels and a very

987
00:49:08,200 --> 00:49:11,239
Speaker 10: very robust streaming service which was called hot Star. And

988
00:49:11,320 --> 00:49:13,480
Speaker 10: this was really one of the crown jewels that Disney

989
00:49:13,520 --> 00:49:16,120
Speaker 10: thought they got when they kind of acquired when they

990
00:49:16,120 --> 00:49:19,520
Speaker 10: made that acquisition, because Hotstar really had a lot of

991
00:49:19,719 --> 00:49:23,200
Speaker 10: users on its streaming platform, over about one hundred hundred

992
00:49:23,200 --> 00:49:25,319
Speaker 10: and fifty million, and so it kind of really helped

993
00:49:25,360 --> 00:49:27,960
Speaker 10: them juice that Disney plus subscriber number because they were

994
00:49:27,960 --> 00:49:31,400
Speaker 10: selling it as Disney plus Hotstar. And so when subscriber

995
00:49:31,560 --> 00:49:33,799
Speaker 10: numbers were the main metric of success. I mean, this

996
00:49:33,960 --> 00:49:36,600
Speaker 10: was this was the huge story for them. Of course,

997
00:49:36,640 --> 00:49:40,000
Speaker 10: all of that changed because the main problem with hot

998
00:49:40,000 --> 00:49:43,640
Speaker 10: Star was, yes, subscriber growth was good, but the revenue

999
00:49:43,640 --> 00:49:47,479
Speaker 10: that a hot Star user brought in was very, very

1000
00:49:47,520 --> 00:49:49,919
Speaker 10: low compared to a US subscriber, but only about one

1001
00:49:50,000 --> 00:49:52,640
Speaker 10: tenth the revenue that a US Disney Plus subscriber would

1002
00:49:52,640 --> 00:49:54,800
Speaker 10: bring in, so it obviously was kind of really hurting

1003
00:49:54,880 --> 00:49:58,200
Speaker 10: the bottom line. There was this additional issue with you know,

1004
00:49:58,320 --> 00:50:01,680
Speaker 10: sports rights and you know, the rights of cricket, which

1005
00:50:01,719 --> 00:50:04,720
Speaker 10: is really important in a country like India, but Disney

1006
00:50:04,719 --> 00:50:07,000
Speaker 10: didn't want to pay up and so they started losing

1007
00:50:07,080 --> 00:50:10,759
Speaker 10: subscribers and eventually Disney kind of came to a point

1008
00:50:10,760 --> 00:50:12,840
Speaker 10: where they decided that the best thing to do in

1009
00:50:12,920 --> 00:50:16,200
Speaker 10: terms of, you know, the business and the overall strategy

1010
00:50:16,200 --> 00:50:18,960
Speaker 10: would be to kind of get rid of the whole

1011
00:50:19,000 --> 00:50:21,480
Speaker 10: Star India operation. And so right now they're looking to

1012
00:50:21,520 --> 00:50:25,760
Speaker 10: talk with one of the biggest telecom operators in India,

1013
00:50:25,800 --> 00:50:29,799
Speaker 10: which is Reliance. I think the sticking point right now

1014
00:50:29,840 --> 00:50:32,600
Speaker 10: is really the price. It ranges anywhere from about seven

1015
00:50:32,640 --> 00:50:34,680
Speaker 10: billion to ten billion. I think Disney wants ten billion,

1016
00:50:34,800 --> 00:50:37,240
Speaker 10: Reliance probably wants to pay closer to seven to eight billion,

1017
00:50:37,480 --> 00:50:39,920
Speaker 10: so they're looking to probably not sell the whole thing

1018
00:50:39,960 --> 00:50:42,880
Speaker 10: to still kind of keep some kind of steak. But

1019
00:50:42,960 --> 00:50:46,879
Speaker 10: definitely any progress there and any influx of cash would

1020
00:50:46,880 --> 00:50:48,879
Speaker 10: I think be great for Disney, which has a lot

1021
00:50:48,920 --> 00:50:51,840
Speaker 10: more strategic kind of decisions to make, especially with the

1022
00:50:51,880 --> 00:50:54,600
Speaker 10: purchase of Hulu. They still have to buy out Comcast

1023
00:50:54,719 --> 00:50:57,080
Speaker 10: thirty three percent stake, so that's hanging in the balance

1024
00:50:57,120 --> 00:50:59,239
Speaker 10: along with all the other things in terms of their

1025
00:50:59,239 --> 00:51:01,040
Speaker 10: linear TV network as well as ESPN.

1026
00:51:01,239 --> 00:51:03,359
Speaker 1: All Right, Gith, I think we kind of got through

1027
00:51:03,400 --> 00:51:06,320
Speaker 1: everything in which we can do with you. Keith Ranganathan.

1028
00:51:06,360 --> 00:51:09,840
Speaker 1: She is the media analyst for Bloomberg Intelligence breaking it

1029
00:51:09,880 --> 00:51:13,239
Speaker 1: all down. We've got Spotify, good numbers, Hollywood actors in

1030
00:51:13,280 --> 00:51:16,560
Speaker 1: the studios, still at an impasse and dizzy thinking about

1031
00:51:16,600 --> 00:51:17,520
Speaker 1: what to do with her assets.

1032
00:51:17,520 --> 00:51:21,440
Speaker 2: And thanks for listening to the Bloomberg Markets podcasts. You

1033
00:51:21,440 --> 00:51:24,799
Speaker 2: can subscribe and listen to interviews at Apple Podcasts or

1034
00:51:25,040 --> 00:51:28,759
Speaker 2: whatever podcast platform you prefer. I'm Matt Miller. I'm on

1035
00:51:28,800 --> 00:51:31,600
Speaker 2: Twitter at Matt Miller nineteen seventy three.

1036
00:51:31,800 --> 00:51:34,240
Speaker 1: And I'm fall Sweeney I'm on Twitter at pt Sweeney

1037
00:51:34,280 --> 00:51:36,960
Speaker 1: Before the podcast. You can always catch us worldwide at

1038
00:51:37,000 --> 00:51:38,719
Speaker 1: Bloomberg Radio