WEBVTT - Investing In Space 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.840 at Bloomberg dot com slash podcast. All right, let's talk space. Now, 0:00:22.840 --> 0:00:25.120 we're talking outer space. Just in the last month we've 0:00:25.120 --> 0:00:29.520 seen Sir Richard Branson and Jeff Bezos rocket into space, 0:00:29.800 --> 0:00:33.520 continuing the commercialization, if you will, of outer space. Let's 0:00:33.960 --> 0:00:36.720 get a sense of where we're going for John Wensby, 0:00:37.040 --> 0:00:40.840 executive director of the Allen b Levan NSU Broward Center 0:00:40.920 --> 0:00:43.559 of Innovation, joins is John, give us a sense here. 0:00:43.560 --> 0:00:44.839 You know, when I was a kid, it was all 0:00:44.880 --> 0:00:49.400 about the Apollo UH program and NASA, and you know 0:00:49.479 --> 0:00:52.479 the US government talk to us about is the future 0:00:52.560 --> 0:00:56.040 space innovation? Is it no longer NASA? Is it with 0:00:56.400 --> 0:01:01.360 billionaire entrepreneurs? Well, ga Marine, and thanks for having me. 0:01:01.520 --> 0:01:04.280 I'm actually glad that you mentioned UH the Apollo program 0:01:04.319 --> 0:01:08.120 because we recently recruited Buzz Aldrin's son Andrew Aldrins, the 0:01:08.160 --> 0:01:11.400 director of our new space program called Level five Space 0:01:11.480 --> 0:01:15.440 dook to support these entrepreneurial opportunities. But to really answer 0:01:15.480 --> 0:01:18.039 your question, there's never been a more opportune time for 0:01:18.200 --> 0:01:21.040 entrepreneurs to launch and scale companies in the space sector. 0:01:21.120 --> 0:01:24.280 And it's not the old government model of doing anything. 0:01:24.319 --> 0:01:27.480 It's really moving into the privatization and the commercialization of 0:01:27.560 --> 0:01:31.840 space through public private partnerships and more private sector um support. 0:01:32.400 --> 0:01:34.480 And the barriers of entry are coming down, and the 0:01:34.520 --> 0:01:38.800 technological advances that are creating expectations for the future are 0:01:38.880 --> 0:01:41.600 much more cost effective than they've ever been. They're still high, 0:01:41.600 --> 0:01:44.640 but they're certainly coming down, which really leads to increased 0:01:44.680 --> 0:01:47.680 private investment by investors who are ran new to the 0:01:47.720 --> 0:01:50.960 space sector. And the recess successes as you mentioned with 0:01:51.000 --> 0:01:55.840 SpaceX and Version Galactic and Blue Origin are really great examples. 0:01:56.120 --> 0:01:58.400 But the point is it's not just about it's not 0:01:58.480 --> 0:02:01.440 just about billionaires, right, because we talked to so many people, 0:02:01.640 --> 0:02:06.880 some of them young, you know gen z startup people 0:02:07.160 --> 0:02:10.040 who are getting into the space business because not everybody 0:02:10.080 --> 0:02:14.679 has to do the launch, right, there's so many other aspects. Yeah, 0:02:14.720 --> 0:02:17.800 you're absolutely correct, and the future of space isn't the 0:02:17.800 --> 0:02:20.160 big names and brands that you know, it's it's the 0:02:20.200 --> 0:02:23.200 people that are behind it. So you're these early stage 0:02:23.800 --> 0:02:27.000 entrepreneurs that are focused on technology development, whether it's the 0:02:27.000 --> 0:02:30.680 hardware side or the software side, there are two evolving worlds. 0:02:30.720 --> 0:02:33.240 And the hardware we often refer to as the vehicle 0:02:33.919 --> 0:02:36.320 uh and the satellites as an example that on the 0:02:36.320 --> 0:02:39.040 hardware side, it's all around data and how you use 0:02:39.160 --> 0:02:41.440 data in space for the betterment of Earth or for 0:02:41.480 --> 0:02:45.840 inner and outer space applications. And it's really provided opportunities 0:02:45.840 --> 0:02:48.200 for anybody no matter what your economic status is. If 0:02:48.200 --> 0:02:50.680 you've got a great idea that serving a need for 0:02:50.720 --> 0:02:53.080 now in the future, this is the time to be 0:02:53.080 --> 0:02:57.240 able to be focusing on that. Is there is there 0:02:57.240 --> 0:03:00.280 a profit angle here at all? John? I mean, you know, 0:03:00.320 --> 0:03:03.519 I look at Sir Richard Branson and Jeff Bezos and 0:03:03.919 --> 0:03:06.680 I'm not sure they're really focused on making money here 0:03:06.800 --> 0:03:09.880 given their status. Is there a belief that there is 0:03:09.919 --> 0:03:16.800 a profit model in the commercialization of space? Well, I 0:03:16.800 --> 0:03:19.359 think when you're associating these these big names that are 0:03:19.440 --> 0:03:22.640 they're internationally known, they're making headlines, and what they're doing 0:03:22.760 --> 0:03:26.360 is they're bringing more awareness to the opportunities associated with space, 0:03:26.400 --> 0:03:28.600 and I would say that profit is not the number 0:03:28.600 --> 0:03:31.360 one objective. It's about breaking down the barriers so that 0:03:31.400 --> 0:03:35.320 we can get to that next level. The future of 0:03:35.400 --> 0:03:39.080 the entrepreneur, though, is about the profit, and these start 0:03:39.200 --> 0:03:43.880 these small companies that are creating concepts and inventions that 0:03:43.920 --> 0:03:45.920 support the space sector, whether it's in the private or 0:03:45.960 --> 0:03:48.440 public sector. Their goal at the end of the day 0:03:48.560 --> 0:03:51.120 is to be able to make money and scale these businesses, 0:03:51.120 --> 0:03:53.880 and there's more infrastructure that's now available to be able 0:03:53.920 --> 0:03:56.560 to do that than there's ever been before. But it's 0:03:56.600 --> 0:03:58.520 the it's the names that we're not aware of that 0:03:58.560 --> 0:04:01.080 are going to be successful. Are the ones that are 0:04:01.160 --> 0:04:03.960 profiting as they support these bigger initiatives. And I think 0:04:03.960 --> 0:04:06.320 it's really important to focus on the big names like 0:04:06.440 --> 0:04:08.480 the Nassas of the world and the Branson's and the 0:04:08.520 --> 0:04:12.200 Bezos as examples. But what's happening is the space agencies 0:04:12.240 --> 0:04:15.040 around the world are moving more to the private sector 0:04:15.120 --> 0:04:18.920 in terms of support, where they're establishing very defined verticals 0:04:19.080 --> 0:04:21.560 of need and then you market those needs and you 0:04:21.600 --> 0:04:24.760 find the smaller entrepreneur that can cater to the development 0:04:24.800 --> 0:04:27.720 of the inventions and technologies for those needs, and then 0:04:27.760 --> 0:04:31.840 they're co funded. Um in many cases will be acquired 0:04:31.880 --> 0:04:34.320 with into those space agencies, but they're they're generating a 0:04:34.440 --> 0:04:36.880 profit at the end of the day. It's also I mean, 0:04:36.920 --> 0:04:40.719 there's so many other angles besides the launch. And I 0:04:40.720 --> 0:04:43.280 said it already, but I think it's important to point out. Look, 0:04:43.320 --> 0:04:48.240 Netflix is producing a documentary um where SpaceX is going 0:04:48.320 --> 0:04:51.839 to put four civilians into orbit and that's next month. 0:04:52.279 --> 0:04:55.200 I mean, it just blows my mind. I know that 0:04:55.320 --> 0:04:57.280 media is not your wheelhouse. I bring it up because 0:04:57.279 --> 0:05:00.599 it is Paul's wheelhouse. But what are the other business 0:05:00.640 --> 0:05:06.400 lines you think, John that are going to be profitable soon? Well, 0:05:06.440 --> 0:05:08.279 I think when you break it back down into the 0:05:08.279 --> 0:05:10.200 hardware and the software side, the hardware is a little 0:05:10.200 --> 0:05:12.760 bit more difficult. That's the space vehicles and the satellites 0:05:12.800 --> 0:05:15.120 that are previously mentioned. That's very difficult because of the 0:05:15.200 --> 0:05:18.240 high cost of putting that together. The profitable side of 0:05:18.240 --> 0:05:20.320 the business is the low hanging fruit, as I'm calling 0:05:20.320 --> 0:05:22.360 it is to software is the data. It's a it's 0:05:22.360 --> 0:05:24.760 a uniquely feasible space product, and if you know how 0:05:24.760 --> 0:05:27.440 to collect it and analyze it and integrate it, and 0:05:27.480 --> 0:05:31.159 then distribute that into different forms of technologies. That's truly 0:05:31.600 --> 0:05:33.520 the future, and that can be done anywhere in the world. 0:05:33.560 --> 0:05:35.599 It hasn't doesn't have to be in a in a 0:05:35.680 --> 0:05:38.640 space environment, if you will. And there are multiple industries 0:05:38.640 --> 0:05:42.320 that are currently creating things that may not even recognize 0:05:42.320 --> 0:05:44.640 that they're directly supporting space or have the potential to 0:05:44.720 --> 0:05:48.240 directly support space. But when you think about evolving themes 0:05:48.279 --> 0:05:51.160 and this in this emerging world in which we live 0:05:51.200 --> 0:05:55.960 around acceleration and disruption, it's things like cybersecurity or agriculture, 0:05:56.320 --> 0:06:01.520 marine industries, telecommunications, um manufacturing and dance manufacturing, even smart 0:06:01.560 --> 0:06:04.360 city development and design for the future, as well as 0:06:04.400 --> 0:06:07.119 the creation of new space services that don't even exist today. 0:06:07.160 --> 0:06:08.960 So we have to create a whole world that supports 0:06:08.960 --> 0:06:12.200 everything that happens up in inner in outer space. So 0:06:12.240 --> 0:06:14.839 there really isn't an industry that can't connect to space 0:06:14.880 --> 0:06:17.960 in a direct or indirect way. All right, John, great 0:06:18.000 --> 0:06:23.239 having you. Um. John Bensfeen is I think internationally known 0:06:23.279 --> 0:06:27.520 expert on air transport. He wrote Air Transportation and Management 0:06:27.560 --> 0:06:31.440 Perspective and Wheels Up Airline Business Plan Development, So he 0:06:31.480 --> 0:06:33.880 really knows, you know, not only how these businesses work, 0:06:33.920 --> 0:06:36.000 but how they can turn a profit. John, thanks very 0:06:36.080 --> 0:06:42.239 much for joining us. Let's get back to the markets 0:06:42.320 --> 0:06:46.200 right now, and specifically to Disney earnings coming out after 0:06:46.200 --> 0:06:49.440 the bell today. Kevin Near joins US Equity Research associated 0:06:49.480 --> 0:06:53.719 Bloomberg Intelligence. He is live, Are you live in the studio? 0:06:52.960 --> 0:06:56.600 All right? Cool? So you're with I mean the two 0:06:56.640 --> 0:06:59.320 guys at the company who probably know more about Disney 0:06:59.320 --> 0:07:03.480 than anyone else save possibly David Weston because I think 0:07:03.480 --> 0:07:06.560 he used to work work there, work there. Um, what 0:07:06.600 --> 0:07:09.280 do we expect? We've been talking a lot about the parks, 0:07:09.440 --> 0:07:12.040 but there's also a lot going on in their media business. 0:07:12.320 --> 0:07:16.440 And you know, you've got the TV, You've got the sports? 0:07:16.480 --> 0:07:19.080 What what what the highlights? Definitely definitely thank you so 0:07:19.160 --> 0:07:21.520 much again for having me. Uh so for us for 0:07:21.560 --> 0:07:24.160 Disney earnings, you know, we're looking at three key things. 0:07:24.280 --> 0:07:28.000 One is the update on this on the streaming subscriber story, 0:07:28.280 --> 0:07:31.040 obviously Disney Plus being sort of the most important product 0:07:31.120 --> 0:07:34.440 on that side, but Hulu ESPN Plus also important. Uh. Next, 0:07:34.480 --> 0:07:36.920 we're gonna be looking for an update on the box 0:07:36.960 --> 0:07:40.240 office on their distribution side. Uh. You know, Disney has 0:07:40.280 --> 0:07:42.880 been really holding their cards close to their chest as 0:07:42.880 --> 0:07:46.280 opposed to some of the other studios. UM. And then lastly, 0:07:46.320 --> 0:07:47.720 as you as you mentioned, we're gonna be looking for 0:07:47.800 --> 0:07:51.360 commentary on the theme parks business. We're expecting that this 0:07:51.360 --> 0:07:54.040 this past quarter fiscal three Q will be their first 0:07:54.720 --> 0:07:57.760 profit in that business since last year, since obviously the 0:07:57.840 --> 0:08:00.560 virus shut down that side of the business. UM. But 0:08:00.640 --> 0:08:03.120 that said, you know rising delta cases, there's something that 0:08:03.160 --> 0:08:05.160 we're looking at very closely. And uh, and we're gonna 0:08:05.160 --> 0:08:07.960 be looking for commentary on their on their bookings going forward. 0:08:08.160 --> 0:08:10.080 So what do we know on the theme park business 0:08:10.120 --> 0:08:11.400 because it's you know, it's a business that a lot 0:08:11.440 --> 0:08:13.320 of people overlook because they look at the streaming business 0:08:13.320 --> 0:08:15.600 and they look at ESPN. But the parks and resorts 0:08:16.120 --> 0:08:18.680 quarter after quarter A it's a big business and be 0:08:18.880 --> 0:08:21.760 it grows double digit earnings every quarter. But I'm really 0:08:21.760 --> 0:08:23.960 concerned about this delta variant an impact you could have 0:08:24.120 --> 0:08:27.680 in Florida, in California and their international things. Have they 0:08:27.720 --> 0:08:31.679 given any indication to how things maybe trending? Yeah, absolutely absolutely, 0:08:31.720 --> 0:08:33.520 So that's exactly what we're gonna be looking for. And uh, 0:08:33.559 --> 0:08:35.920 and again you bring up with great points. Um. You know, 0:08:36.120 --> 0:08:38.520 as far as the international side, there's still a little 0:08:38.520 --> 0:08:41.680 bit further behind than obviously on the domestic side. Uh, 0:08:41.720 --> 0:08:45.040 they just had to reinstate obviously wearing masks in in 0:08:45.240 --> 0:08:48.720 both those parks, Disney World and in Disneyland, Um, which 0:08:48.760 --> 0:08:51.360 you know again you know that's that's that's writing on 0:08:51.400 --> 0:08:54.080 the wall. I think consumers really see that. Um. There's 0:08:54.080 --> 0:08:56.880 been no mention on you know, you know, vaccine mandates 0:08:56.880 --> 0:08:58.600 as far as that. We think it's unlikely that they 0:08:58.640 --> 0:09:03.280 will mandate vats nations considering just how they're how their 0:09:03.600 --> 0:09:06.800 clientele really excuse you know, much younger. Obviously the children 0:09:06.920 --> 0:09:10.040 under twelve haven't been approved yet. Um. But that said, 0:09:10.040 --> 0:09:13.040 you're exactly to your point now, and you'd be turning 0:09:13.040 --> 0:09:17.160 away so many people, so many Americans are vaccine hesitant, 0:09:17.160 --> 0:09:19.200 I guess is the politically correct way to put it now, 0:09:19.240 --> 0:09:21.800 but exactly anti vaxers, and you don't want to lose 0:09:21.840 --> 0:09:24.960 those dollars, do you exactly exactly so that that remains 0:09:25.000 --> 0:09:27.400 a threat, you know, near term. It's it's just very 0:09:27.440 --> 0:09:29.880 unclear at this point how how delta is going to 0:09:30.000 --> 0:09:32.079 shake out. You know, we're still waiting on that f 0:09:32.200 --> 0:09:34.760 t f D a mandate for for the vaccine, which 0:09:34.800 --> 0:09:37.680 should theoretically change things. I guess either way, the streaming 0:09:37.720 --> 0:09:39.960 business is good. I just wonder how you differentiate because 0:09:39.960 --> 0:09:44.640 you you mentioned they've got Disney Plus, Hulu, ESPN, and 0:09:44.720 --> 0:09:48.079 there's so many other offerings out there with um Netflix 0:09:48.160 --> 0:09:51.280 and Apple TV, and I mean, so I'm subscribed to 0:09:51.520 --> 0:09:56.080 p g A, I'm subscribed to MLB, Like the bills 0:09:56.440 --> 0:09:58.760 are higher than my cable box used to cost, right 0:09:58.880 --> 0:10:01.320 right now, that's that's the It's exactly right. And just 0:10:01.360 --> 0:10:03.640 to contextualize this a little bit, what we've seen so far, 0:10:03.720 --> 0:10:05.880 you know, this past quarter was really a mixed bag 0:10:05.880 --> 0:10:08.040 on the streaming side. You know, this is domestic. International 0:10:08.040 --> 0:10:10.760 again is a different story. But uh, you know, Netflix 0:10:10.800 --> 0:10:13.760 posted really really some some weak result. They actually posted 0:10:13.760 --> 0:10:16.560 a loss domestically in the US and Canada. On the 0:10:16.559 --> 0:10:20.280 subscriber side, Stars which is a premium spot service owned 0:10:20.720 --> 0:10:25.080 by lions Gate, they saw a similar trend losing subscribers domestically, 0:10:25.160 --> 0:10:28.360 and that's really all all based on weaker content slates. 0:10:28.360 --> 0:10:31.680 And meanwhile, exactly to your point, some of those newer services, 0:10:31.720 --> 0:10:35.480 Paramount Plus, HBO, Max Discovery Plus, they're posting gains you know, 0:10:35.520 --> 0:10:38.000 at or above expectations. And you know, part of that 0:10:38.080 --> 0:10:40.400 is is price promotions. Part of that is higher marketing 0:10:40.440 --> 0:10:44.160 spence for those those newer services. UM. But what we're 0:10:44.160 --> 0:10:45.760 really seeing now is that you know, what we like 0:10:45.800 --> 0:10:47.840 to say is is the streaming wars have really started. 0:10:47.880 --> 0:10:49.520 You know, they've really started now. We've been talking about 0:10:49.520 --> 0:10:52.360 the streaming wars for a while, UM, but it's it's 0:10:52.360 --> 0:10:54.880 has gotten real just this pass quarter. And the expectation 0:10:55.000 --> 0:10:57.240 is that you know, Netflix, obviously they're the big dog, 0:10:57.280 --> 0:10:59.839 but Disney has established itself as a solid number two. 0:10:59.840 --> 0:11:01.560 So of to we'll take a look at those earnings 0:11:01.600 --> 0:11:04.240 coming out after the close tonight. Kevin Near joins his 0:11:04.640 --> 0:11:07.360 is equity research associate at Bloomberg Intelligence, joining us here 0:11:07.360 --> 0:11:09.679 in the Bloomberg Interactive Broker studio. He works with the 0:11:09.880 --> 0:11:13.040 great ether rung Onohan, who is also media analysts and 0:11:13.120 --> 0:11:15.520 she covered some of the tech stuff as well. So 0:11:15.640 --> 0:11:19.280 another generation men of equity research covering the media sector 0:11:19.360 --> 0:11:22.360 coming up for Bloomberg Intelligence. Kevin, you're joining us here. 0:11:24.679 --> 0:11:28.080 I want to get over to Greg Hahn. He is 0:11:28.200 --> 0:11:32.080 the chief investment officer at Winthrop Capital Management and I 0:11:32.080 --> 0:11:34.520 want to kick it off with an inflation question. Question, 0:11:34.600 --> 0:11:38.000 Greg Jarrett was just talking about the price of oil. 0:11:38.160 --> 0:11:40.360 We know the President wants the price at the pumps 0:11:40.440 --> 0:11:43.200 to come down, even if the I e A. Says 0:11:43.240 --> 0:11:45.680 demand is going to get crimped. Are you a believer 0:11:45.880 --> 0:11:52.920 in UH continuous inflation or is it transitory? So right now, 0:11:53.000 --> 0:11:55.640 the way that monetary policy is working is we actually 0:11:55.640 --> 0:11:59.720 think that it's transitory whatever we define. However we define transitory, 0:12:00.280 --> 0:12:01.800 UH inflation is going to be here a little bit 0:12:01.880 --> 0:12:04.680 longer than what FED would want us to think, just 0:12:04.760 --> 0:12:08.600 because of the supply chain dislocations and just corporate incentives 0:12:08.640 --> 0:12:11.920 to keep prices up. Um. But as long as excess 0:12:11.960 --> 0:12:14.320 reserves are parked down, the balance shoes the FED. And 0:12:14.360 --> 0:12:17.480 that's not they're not leaking into the financial system. That 0:12:17.520 --> 0:12:19.480 I think the Fed's got a good shot at controlling 0:12:19.760 --> 0:12:23.880 the rate of inflation. Hey, Greg, you know, I look 0:12:23.920 --> 0:12:25.840 at the ten year here trading at one point three, 0:12:26.520 --> 0:12:29.080 and I gotta just step back and say, you know, 0:12:29.080 --> 0:12:31.040 I've been an equity guy in my entire career in 0:12:31.400 --> 0:12:33.480 thank goodness, because I have no idea if I were 0:12:33.480 --> 0:12:36.720 a fixing co investor where I would go today. For 0:12:36.800 --> 0:12:40.800 any yield or return. What are these people doing all day? 0:12:40.880 --> 0:12:43.120 I mean, how do you generate return with the tenure 0:12:43.120 --> 0:12:47.400 at one? Right? So it's it's pretty much known that 0:12:47.880 --> 0:12:50.199 bond investors can suck the fun out of the room 0:12:50.240 --> 0:12:54.360 faster than anybody. So the bond the bond world right now, 0:12:54.400 --> 0:12:57.240 if you're investing in public, publicly traded bonds, it's a 0:12:57.320 --> 0:13:01.600 very very difficult environment UM and institutional side. In the 0:13:01.640 --> 0:13:06.040 private credit space, there are more opportunities to earn yield, 0:13:06.600 --> 0:13:09.000 but those are coming down. Those would include clos and 0:13:09.520 --> 0:13:13.760 commercial mortgage loans. But there are ways for individual investors 0:13:13.760 --> 0:13:16.040 to capture the c l O investment or the bank 0:13:16.320 --> 0:13:20.120 through UM some mutual funds and EPF so those obviously 0:13:20.200 --> 0:13:22.720 have a higher risk associated with them different liquidity issues. 0:13:22.760 --> 0:13:25.200 But that is the one of the answers to where 0:13:25.200 --> 0:13:27.040 do you get where do you get yield? And the 0:13:27.040 --> 0:13:30.560 other is leverage and the closed and fund provides that. 0:13:32.000 --> 0:13:34.280 I mean, the other answer that Howard Marks gave us 0:13:34.320 --> 0:13:37.160 is that it's just tough. You know, it's not It's 0:13:37.160 --> 0:13:41.280 not easy, he said, um people are happy with three hundred. 0:13:41.360 --> 0:13:45.280 He's happy with three hundred basis points on high yield debt. 0:13:45.679 --> 0:13:49.600 That's that's enough. Um too, he thinks cover the costs 0:13:49.880 --> 0:13:52.200 are the risk of a default. And I thought that 0:13:52.280 --> 0:13:55.440 was amazingly told Eric Shasker that, Um, he said, people 0:13:55.480 --> 0:13:57.440 that need seven percent? He doesn't know what to do. 0:13:57.559 --> 0:14:02.840 Of course, he's a distress guy. Um what about in stocks? 0:14:03.520 --> 0:14:07.040 Every time I think that we can't possibly run any 0:14:07.120 --> 0:14:11.520 higher than this and valuations look pretty full, Um, we do, 0:14:11.760 --> 0:14:16.560 and how much further can we go? So here's so. 0:14:16.559 --> 0:14:19.280 So the general rule of thumb in our world, this 0:14:19.440 --> 0:14:21.680 is the Winthrop world, is that as long as we 0:14:21.760 --> 0:14:25.120 have aggressive monetary policy and we have aggressive fiscal policy, 0:14:25.160 --> 0:14:28.240 which we have both right now. Um, there's a safety 0:14:28.240 --> 0:14:33.720 net on on asset prices. So um, that's can be 0:14:33.760 --> 0:14:36.920 a catalyst for stocks to go higher. We are very, 0:14:37.000 --> 0:14:39.280 very concerned about the market right now, and the reason 0:14:39.400 --> 0:14:41.880 is there's a there's kind of a crossroads that are 0:14:41.920 --> 0:14:44.560 taking place. The Fed um is going to start to 0:14:44.560 --> 0:14:48.720 remove its stimulus, which means that the interest rates naturally 0:14:48.720 --> 0:14:52.240 will drift higher. And then the question becomes, how will 0:14:52.240 --> 0:14:55.880 the stock market handle that at a time when the 0:14:55.920 --> 0:14:59.000 earnings comparisons, earning comps year over year are going to 0:14:59.360 --> 0:15:01.560 We're not going to have disfavorable earnings comp coming out 0:15:01.600 --> 0:15:04.560 of the pandemic. They're gonna We're gonna see earnings growth 0:15:04.560 --> 0:15:07.080 start too slow. So it's going to be a challenge 0:15:07.080 --> 0:15:11.000 for equity investors going forward. And Greg's interesting. Earlier this week, 0:15:11.040 --> 0:15:14.080 Tom Keen and I had on Doug Cass from Seabree's 0:15:14.120 --> 0:15:17.480 Partners Legendary Investors, and he's at with a note, I 0:15:17.480 --> 0:15:22.400 think on Tuesday, basic and entitled sell stocks now, basically 0:15:22.400 --> 0:15:25.040 taking some of the concerns that you just highlighted and 0:15:25.080 --> 0:15:28.400 said they're more than concerns. They're coming and that's not 0:15:28.440 --> 0:15:31.880 good for equity markets. But that is very much the 0:15:31.920 --> 0:15:34.120 contrarian view out here as far as I can tell. 0:15:36.000 --> 0:15:38.840 It's it's it is tough. I mean, we're ones to 0:15:38.880 --> 0:15:41.600 stay invested, We're not ones to try to time the market. 0:15:41.680 --> 0:15:44.720 But the the underlying theme here that the challenge that 0:15:44.760 --> 0:15:46.760 we have is that we we in our world, we 0:15:46.840 --> 0:15:50.800 recognize the structure of the capital markets has changed. And 0:15:50.840 --> 0:15:53.040 you sort of touched on it with this idea on 0:15:53.080 --> 0:15:55.760 the fixed income side is where do investors go? The 0:15:55.840 --> 0:15:59.920 consequence of these said policies has been that US savers 0:16:00.200 --> 0:16:03.040 people that are looking at retirement or in retirement, it's 0:16:03.160 --> 0:16:07.600 very difficult to earn a an income stream in retirement 0:16:07.640 --> 0:16:09.680 to support our lifestyle. We have to look at capital 0:16:09.720 --> 0:16:13.280 games to do that. So it's it's a challenge that um, 0:16:13.320 --> 0:16:16.320 you know, it's just it's just a challenge. Thank goodness. 0:16:16.360 --> 0:16:20.280 We have social security right well, yeah and that. But 0:16:20.280 --> 0:16:23.640 but just being sarcastic, I don't know, sometimes my sarcasm 0:16:23.640 --> 0:16:28.240 doesn't read on radio. Yeah, but I meant like it's 0:16:28.280 --> 0:16:31.560 not enough. Yeah. But in the in the equity markets, 0:16:31.920 --> 0:16:34.480 we're not ones that there are there are places to go. 0:16:34.600 --> 0:16:37.160 And I'm one of those that that is seriously a 0:16:37.280 --> 0:16:40.280 China because of what's happened there is there's one. We 0:16:40.360 --> 0:16:43.240 think there's just a tremendous buy an opportunity. It is 0:16:43.280 --> 0:16:44.960 not a place to run from. It's a place to 0:16:45.080 --> 0:16:48.840 really study and look into that. Their form of capitalism 0:16:48.880 --> 0:16:53.080 competing alongside Western capitalism, is going to be a survivor 0:16:53.120 --> 0:16:56.200 over the next ten years. And there's some cheap stocks there. 0:16:56.400 --> 0:16:58.440 But you look there just for do you look for 0:16:58.440 --> 0:17:02.080 a capital appreciation or do you for returns? Yeah, well 0:17:02.080 --> 0:17:08.359 that's its capital appreciation. The income stream is not not competitive, Yeah, 0:17:08.840 --> 0:17:11.480 it's it's a little scary. As Bloomberg had a story 0:17:11.840 --> 0:17:16.840 I think yesterday, just highlighting how many millions of people 0:17:16.880 --> 0:17:19.480 in America are going to be a turning sixty five 0:17:20.000 --> 0:17:22.919 and you know, if you retire at sixty five. My 0:17:22.960 --> 0:17:26.520 parents are retiring their seventy and they're still gonna live 0:17:26.560 --> 0:17:29.600 another twenty or thirty years, which I'm happy about. But 0:17:29.680 --> 0:17:33.080 it's expensive, and especially if you get hit with something 0:17:33.080 --> 0:17:36.080 like Alzheimer's or you know, it's it's a horrible thing 0:17:36.080 --> 0:17:39.600 to think about, but it's just so expensive healthcare. Springing 0:17:39.600 --> 0:17:42.120 in a professionals or putting them in a home. It's 0:17:42.160 --> 0:17:45.200 just you've got to be prepared, and I think a 0:17:45.240 --> 0:17:47.520 lot of people are a little underprepared. Greg. Great having 0:17:47.520 --> 0:17:50.239 you on the program, Greg Han, chief investment officer at 0:17:50.240 --> 0:17:58.199 Winthrop Capital Management. Ernesta Ramo's chief investment officer for the 0:17:58.320 --> 0:18:01.120 U S for bmo A Global Asset Management. He joins 0:18:01.200 --> 0:18:04.080 us on the phone from Chicago. Ernesta, we're basically through 0:18:04.200 --> 0:18:06.879 this second quarter earning period. You've got Disney after the 0:18:06.880 --> 0:18:11.480 Clothes tonight, but really really impressive earnings growth. Was that 0:18:11.720 --> 0:18:15.159 enough for those who feel like this market is expensive? 0:18:15.600 --> 0:18:19.760 And that's a reason to maybe be cautious. Well, there's 0:18:19.760 --> 0:18:23.040 certainly been incredible earnings growth, as you point out, Uh, 0:18:23.600 --> 0:18:26.840 it's clearly all in the price as we speak. And 0:18:26.880 --> 0:18:29.280 the question is what's the earnings growth going to be 0:18:30.119 --> 0:18:33.439 look looking like going forward? And that's a that's a 0:18:33.480 --> 0:18:36.320 clear that's a question that doesn't have a clear answer. 0:18:36.800 --> 0:18:39.280 The only thing that we think it's clear is that 0:18:39.320 --> 0:18:41.400 it's not going to be as strong as it has been, 0:18:42.280 --> 0:18:45.440 uh for the last old months. I mean the earnings 0:18:45.720 --> 0:18:47.359 over the last all months for the smp F. I 0:18:47.359 --> 0:18:50.800 found it up. I don't think any analysts out there 0:18:50.840 --> 0:18:54.639 has that kind of number for for the for the 0:18:54.680 --> 0:18:58.760 next told months. So we think the market is a 0:18:58.800 --> 0:19:02.160 bit richly valued in might need to take a breather here, 0:19:03.119 --> 0:19:07.720 and that's why we favor higher quality stocks are not 0:19:08.200 --> 0:19:13.200 very very abriginally value top what we call quality value stocks. Yeah, 0:19:13.280 --> 0:19:16.240 I'm looking at UM on the Bloomberg an esto. You 0:19:16.280 --> 0:19:20.760 can type an index and then gego, which allows you 0:19:20.840 --> 0:19:23.080 to graph a number of things. But I put up, 0:19:23.119 --> 0:19:26.800 for example, trailing PE. Right now, we're at seven on 0:19:26.840 --> 0:19:30.120 the smp We were at the beginning of the year, 0:19:30.640 --> 0:19:34.560 UM up around thirty three so the earnings have done 0:19:34.600 --> 0:19:37.240 a lot to bring that down. But if you look 0:19:37.280 --> 0:19:42.119 at um the forward PE estimates, we're trading around twenty 0:19:42.200 --> 0:19:44.800 two and we had been at the high at the 0:19:44.920 --> 0:19:47.159 end of last year up around twenty seven. What do 0:19:47.160 --> 0:19:51.639 you think fair value is well with the with the 0:19:51.960 --> 0:19:55.080 kind of monetary policy of the interest rates where they are. 0:19:55.880 --> 0:20:00.560 I think the market can handle to you know, but 0:20:00.680 --> 0:20:04.920 it's gonna need earning scurowth to to get further ahead. 0:20:05.080 --> 0:20:09.360 And right now, if you look at about the consensus, 0:20:09.359 --> 0:20:14.200 they're pricing in about or they're looking for twenty earnings 0:20:14.200 --> 0:20:17.719 to come in and about plus nine percent for one 0:20:17.760 --> 0:20:21.280 will come in. And so I think the market doesn't 0:20:21.320 --> 0:20:23.399 have a lot of room to go with nine percent 0:20:23.400 --> 0:20:26.000 earning s growth maybe a couple of percent higher from 0:20:26.000 --> 0:20:29.000 where it is now. So it's it's gonna be interesting 0:20:29.040 --> 0:20:32.600 to see what what gives. But specifically, what we're looking 0:20:32.600 --> 0:20:35.280 to do in our portfolis is tilt a little bit 0:20:35.320 --> 0:20:40.639 away from from growth to value because we see the cycle, 0:20:40.880 --> 0:20:45.520 the economic cycle is really recovering strongly uh and uh 0:20:45.600 --> 0:20:49.439 and and and and also tilt a little bit towards 0:20:49.480 --> 0:20:53.480 smaller caps, so smaller cap value over large cap growth. 0:20:53.560 --> 0:20:56.280 But we're not dramatically, just just a little bit, just 0:20:56.359 --> 0:20:58.119 so that you get a little bit more exposure to 0:20:58.520 --> 0:21:03.160 two sectors that are more uh tied to the economic cycle. Here, 0:21:03.640 --> 0:21:06.119 I tell you of the many reasons I like working 0:21:06.160 --> 0:21:10.480 with Matt Miller is his knowledge of Bloomark functionality is amazing. 0:21:10.520 --> 0:21:12.439 That function I did not know it and I've been 0:21:12.480 --> 0:21:17.199 here twelve years. Thank you for that, Sernesto. You know, 0:21:17.440 --> 0:21:19.760 what are some of the sectors that you guys are 0:21:19.800 --> 0:21:22.120 working on these days? I mean again, we just came 0:21:22.119 --> 0:21:24.399 through earnings. We've got some more information about how companies 0:21:24.440 --> 0:21:27.560 are thinking about their businesses going forward. Are there some 0:21:27.600 --> 0:21:30.080 sectors that you guys are doing some extra work on 0:21:30.119 --> 0:21:33.800 these days? Well, we really are more focused on the 0:21:33.960 --> 0:21:37.840 companies at the at the bottom, up the level, so 0:21:38.119 --> 0:21:43.480 companies that AutoZone, companies like Carl Ruf. The AutoZone is 0:21:43.480 --> 0:21:47.240 is you know, celebrate care type shop where people that 0:21:47.680 --> 0:21:50.560