WEBVTT - Wall Street Splits Over Inflation’s Path 0:00:01.360 --> 0:00:05.680 This is Bloomberg Business Wait inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business, finance and tech news. The Bloomberg Business Week 0:00:13.720 --> 0:00:18.640 Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:20.640 --> 0:00:22.960 So we talk a lot about inflation, Jess, We know that, right. 0:00:23.000 --> 0:00:25.279 It's kind of almost like a ping pong game, don't 0:00:25.280 --> 0:00:27.520 you feel like, because there's people who have some really 0:00:27.560 --> 0:00:30.440 strong thoughts about it and where it's going. 0:00:30.400 --> 0:00:32.479 Right, whether it's not going to come dramatically down to 0:00:32.520 --> 0:00:34.920 that two percent target for the Fed or the sticky 0:00:34.960 --> 0:00:37.600 word everybody likes to keep mentioning for stagflation. 0:00:37.720 --> 0:00:39.560 Darren say, all right, so let's get to it into 0:00:39.560 --> 0:00:41.880 a most read story in the Bloomberg A team of 0:00:41.880 --> 0:00:44.600 Bloomberg reporters covering how trillions of dollars are at stake 0:00:44.640 --> 0:00:48.120 as Wall Street is super split over the path of inflation. 0:00:48.520 --> 0:00:51.559 With us as Bloomberg News chief correspondent for Global Macro Markets, 0:00:51.600 --> 0:00:54.640 A favorite here at Bloomberg, Liz McCormick, she's with us 0:00:54.720 --> 0:00:57.160 via zoom in New York City. Hey Liz, so good 0:00:57.200 --> 0:00:59.640 to have you here with Jess and myself love this story. 0:00:59.720 --> 0:01:03.720 It is show a story of our times. It isn't unusual, though, 0:01:03.760 --> 0:01:07.240 I feel like that there's disagreement between economists or market 0:01:07.240 --> 0:01:10.600 strategists on Wall Street, and yet this is a pretty 0:01:10.600 --> 0:01:11.840 big one. Walk us through it. 0:01:13.160 --> 0:01:16.520 Yeah, true, we always kind of have a lot of disagreement. 0:01:16.560 --> 0:01:18.440 But what I think Carol gets to why this is 0:01:18.480 --> 0:01:21.200 even more important now? This like just says, is it sticky? 0:01:21.319 --> 0:01:24.319 Is inflation going to keep coming down? Is we're, you know, 0:01:24.480 --> 0:01:27.360 seemingly getting at a pivotal point with the Fed because 0:01:27.400 --> 0:01:30.320 supposedly they're getting close to done. Let's say, we can't 0:01:30.400 --> 0:01:33.480 call when, but maybe they hike next week, they might 0:01:33.560 --> 0:01:37.160 hike in June, but nonetheless they're close. So after that 0:01:37.200 --> 0:01:40.240 what happens And a lot of that depends on inflation, right, 0:01:40.360 --> 0:01:43.559 So I think what the divide is and the views 0:01:43.560 --> 0:01:46.040 on inflation is kind of even more important now because 0:01:46.040 --> 0:01:47.840 we're close to the end, and that means does the 0:01:47.880 --> 0:01:50.080 f stay there or do they ease? Like you know, 0:01:50.120 --> 0:01:52.640 you guys have talked the market is pricing that, so 0:01:52.720 --> 0:01:54.760 I think, you know, and like I said, there's lots 0:01:54.800 --> 0:01:56.960 of big investors here in this story. Like I said, 0:01:56.960 --> 0:01:59.560 there's a swath of US reporters, and they don't all agree, 0:01:59.880 --> 0:02:02.640 but I think it's kind of compelling. There's that strong 0:02:02.760 --> 0:02:05.520 views by several of them that say, you know, inflation's 0:02:05.560 --> 0:02:07.640 come down pretty fast, but it's going to be slow 0:02:07.680 --> 0:02:08.640 moving from here. 0:02:09.040 --> 0:02:10.600 The FED is not going to be able. 0:02:10.360 --> 0:02:13.400 To pivot to easing even if the economy falters a 0:02:13.480 --> 0:02:16.560 little bit, because they're just there, you know, enemy number 0:02:16.560 --> 0:02:19.760 one remains inflation, and there's the other side that just says, 0:02:19.800 --> 0:02:21.880 you know, hey, it's going to go on and the 0:02:21.919 --> 0:02:23.000 economy is going to creter. 0:02:23.160 --> 0:02:26.440 FED has to ease. So there you go in a nutshell. 0:02:27.000 --> 0:02:29.120 Hey, Liz, break it down as far as when it 0:02:29.160 --> 0:02:31.600 comes to these specific firms, because you have double Line 0:02:31.639 --> 0:02:33.600 thinking that inflation is still going to be sticky, but 0:02:33.639 --> 0:02:35.960 then you have Alliance, you have TCW in a different 0:02:36.000 --> 0:02:38.120 type of camp. Who's on which sort of team at 0:02:38.120 --> 0:02:39.080 this point? 0:02:39.720 --> 0:02:42.520 Yeah? Right, So like it's funny Like TCW. I spoke 0:02:42.560 --> 0:02:44.560 to Steve Kane and he was saying, you know. 0:02:44.639 --> 0:02:47.520 And it's funny because in Palells one of his pressers, 0:02:47.560 --> 0:02:49.720 someone was saying, how many times it said he said 0:02:49.760 --> 0:02:51.040 disinflation or whatever. 0:02:52.000 --> 0:02:57.960 Steve, it's the new drinking game should be anyway. 0:02:58.240 --> 0:03:00.359 Yeah, but Steve Gay was saying we're seeing a lot 0:03:00.360 --> 0:03:04.080 of disinflationary forces already and that that's going to carry 0:03:04.120 --> 0:03:06.960 momentum plus, like you know, bearing in mind that there 0:03:07.080 --> 0:03:09.760 is this sting still to come of all the FED 0:03:09.919 --> 0:03:12.840 tightening they've already done, which we know there's those long 0:03:12.840 --> 0:03:15.359 and variable lags we've started to see, like people say 0:03:15.400 --> 0:03:17.360 the FED started to break some things, like you were 0:03:17.360 --> 0:03:20.920 talking about what the issues in the regional banks and 0:03:21.000 --> 0:03:23.639 that they feel like this is just going to kind 0:03:23.639 --> 0:03:26.239 of keep coming in force that you know, I don't 0:03:26.280 --> 0:03:28.320 know if if you was just mentioning Carol that about 0:03:28.320 --> 0:03:30.919 the consumer, like when the consumer like people have had 0:03:30.919 --> 0:03:32.799 a job, so they're doing okay, But you see, I 0:03:32.919 --> 0:03:35.520 saw a consumer confidence go on when the consumer really 0:03:35.520 --> 0:03:38.520 says I'm not going to spend more and my prices 0:03:38.520 --> 0:03:41.760 aren't down that much, you know that maybe then the 0:03:41.800 --> 0:03:44.840 momentum on inflation keeps coming. And I think that's like 0:03:44.920 --> 0:03:46.840 TCW is saying, it's going to build. 0:03:46.920 --> 0:03:47.160 You know. 0:03:47.520 --> 0:03:49.880 So I do think about as as a consumer, if 0:03:49.880 --> 0:03:52.320 I look at prices still staying high, I'm going to 0:03:52.360 --> 0:03:54.280 start making choices about where I'm going to have to 0:03:54.400 --> 0:03:56.400 like in terms of where I spend my money my money. 0:03:56.480 --> 0:03:58.200 I want to go back for a second when it 0:03:58.240 --> 0:04:02.160 comes to FED policy, Liz, what is the lag? Officially? 0:04:02.280 --> 0:04:04.840 Is it a year? Like when do we really feel 0:04:04.840 --> 0:04:08.640 the punch from this past year of FED heightenings? You know, 0:04:08.680 --> 0:04:09.600 in raising of rates? 0:04:10.440 --> 0:04:12.680 Well, that's another one, and economists they all have their 0:04:12.720 --> 0:04:16.440 different particular views, but let's say they're saying usually it's 0:04:16.560 --> 0:04:17.200 twelve months. 0:04:17.279 --> 0:04:19.200 I remember in the beginning of the tightening there were. 0:04:19.120 --> 0:04:21.920 Some saying the lag would be less this time around, 0:04:22.440 --> 0:04:24.479 but I don't think it was. So. I mean, the 0:04:24.480 --> 0:04:28.120 FED started in March of twenty twenty two. That's last year, right, 0:04:28.200 --> 0:04:30.120 it was that we're about a little over a year 0:04:30.120 --> 0:04:33.000 from there, and they went faster than they've ever gone, 0:04:33.040 --> 0:04:35.599 at least in my era of watching FED. 0:04:36.520 --> 0:04:39.320 So I think you're going to start continuing. 0:04:38.880 --> 0:04:41.240 To feel it more. I think we've talked about this before. 0:04:41.360 --> 0:04:43.480 You know, you say, ah, dude, I want to fix 0:04:43.560 --> 0:04:46.320 my deck. Maybe not because my heelock is it's seven 0:04:46.360 --> 0:04:48.359 percent now, right, you know what I mean? So I 0:04:48.400 --> 0:04:50.799 think on the margin, people are going to start saying 0:04:50.839 --> 0:04:52.960 things like that more and more, Like you can choose. 0:04:53.520 --> 0:04:56.039 I don't really need this new thing, even though I 0:04:56.160 --> 0:04:57.640 want it, because it's more expensive. 0:04:57.680 --> 0:05:00.000 There's no like free money anymore, unfortunately. 0:05:00.240 --> 0:05:02.880 Right, Yeah, Liz, what is the bond market telling us? 0:05:02.920 --> 0:05:06.120 Because we did see a record short position when it 0:05:06.160 --> 0:05:08.720 came to hedge funds against the tenure treasury. So does 0:05:08.760 --> 0:05:11.960 that mean the bond market isn't positioned correctly for potential 0:05:12.000 --> 0:05:12.640 posites here. 0:05:13.720 --> 0:05:16.080 Well, that's a great question, Jess, because you know, my 0:05:16.480 --> 0:05:19.080 colleague Garfield Reynolds had written a story about that. And 0:05:19.400 --> 0:05:22.239 what's interesting is you have this kind of hot hedge 0:05:22.320 --> 0:05:26.120 fund money that's leaning very hard into being short. But 0:05:26.279 --> 0:05:28.400 you know, so that's in some of the CFTC data 0:05:28.440 --> 0:05:30.840 we can look at. They're like the leverage funds and 0:05:31.160 --> 0:05:33.320 then I'm I'm kind of like a little surprised because 0:05:33.320 --> 0:05:35.400 they got a big burned in March when the banking 0:05:35.440 --> 0:05:37.840 crisis broke and yields tumbled. 0:05:38.200 --> 0:05:40.080 But I think they have a strong conviction. 0:05:40.200 --> 0:05:41.599 But on the other side, because you can look at 0:05:41.600 --> 0:05:43.599 in the other parts of the data, there's some of 0:05:43.640 --> 0:05:46.839 the kind of call it asset managers, kind of regular money, 0:05:47.400 --> 0:05:50.400 they're still long. So there's a bit of a divide there. 0:05:50.480 --> 0:05:52.840 There's also some kind of arb trading you can do. 0:05:52.920 --> 0:05:56.279 But I do think the kind of the trend followers, 0:05:56.320 --> 0:05:59.040 the quants are still leaning too short, and that means, 0:05:59.080 --> 0:05:59.520 like you're. 0:05:59.440 --> 0:06:01.040 Right, it depends what happens. 0:06:01.080 --> 0:06:03.040 They kind of think inflation is going to stay around. 0:06:03.120 --> 0:06:05.360 Fed's going to stay, you know, at least high, even 0:06:05.360 --> 0:06:08.280 if they stop tightening. But if this stuff unravels, and 0:06:08.320 --> 0:06:10.680 there's so many uncertainties. I hate to even bring up 0:06:10.680 --> 0:06:13.240 the debt ceiling because it's the thing we all love 0:06:13.320 --> 0:06:13.839 to hate. 0:06:13.680 --> 0:06:16.680 To revisit every couple of years. But but it's fair, right, Yeah, 0:06:16.680 --> 0:06:19.840 we have to right that risk is looming. You know, 0:06:20.040 --> 0:06:22.480 Kevin McCarthy's supposed to have a vote tomorrow. 0:06:22.520 --> 0:06:25.080 They don't know the votes, and you know, Biden says 0:06:25.120 --> 0:06:27.719 I don't want anything with spending cuts. So we're a 0:06:27.760 --> 0:06:30.240 long way from a deal on the debt ceiling. And 0:06:30.320 --> 0:06:32.320 you know, treasury is are my thing. I'm not saying 0:06:32.320 --> 0:06:34.200 there's going to be a default, but I'm just saying 0:06:34.240 --> 0:06:37.080 it's going to slowly create more angst. And you have 0:06:37.160 --> 0:06:39.320 other things like we're watching the banking sector. 0:06:39.480 --> 0:06:41.560 Is it over? Is it the worst? So there's just 0:06:41.600 --> 0:06:42.840 so much unknown. 0:06:42.560 --> 0:06:44.080 Liz, I want to jump in. I'm thinking, you know, 0:06:44.279 --> 0:06:46.880 I feel like those who are trading on Wall Street 0:06:46.960 --> 0:06:48.480 or working at Wall Street for you know, in a 0:06:48.520 --> 0:06:50.520 lot of our audience, like they get why we are 0:06:50.520 --> 0:06:52.560 having this discussion. I think there's folks out there, like, 0:06:52.920 --> 0:06:54.520 you know, their eyes glaze over when it's the deat 0:06:54.520 --> 0:06:57.040 sailing conversations, or you know, whether or not we get 0:06:57.040 --> 0:06:59.280 to two percent versus you know, maybe a three or 0:06:59.320 --> 0:07:02.960 four percent you know target ultimately in terms of inflation 0:07:03.160 --> 0:07:07.400 by the FED. What's the significance of you know, whether 0:07:07.440 --> 0:07:09.479 we go back to normal and the FED gets it right, 0:07:09.520 --> 0:07:12.800 whether we end up higher on a FED rate, you know, 0:07:13.000 --> 0:07:15.200 and we don't go back to normal. What are the 0:07:15.280 --> 0:07:17.880 implications because it feels like if we end up at 0:07:17.920 --> 0:07:21.320 a higher rate environment right, we're talking about things costing more, 0:07:22.240 --> 0:07:26.720 maybe higher wages at companies, you know, rethink on you know, 0:07:26.840 --> 0:07:29.920 asset valuations. I mean there are implications right. 0:07:30.640 --> 0:07:31.400 Right exactly. 0:07:31.440 --> 0:07:34.080 I mean just think for like regular people who don't 0:07:34.080 --> 0:07:36.600 live and breathe this stuff. Luckily for them like us 0:07:36.600 --> 0:07:39.880 all day is that Number one is jobs. Like we've 0:07:39.920 --> 0:07:42.200 talked about, let's not get into my family, but young 0:07:42.320 --> 0:07:46.360 college students graduating there. You know, we've seen less job opening, 0:07:46.480 --> 0:07:48.400 so that, you know, if the economy slows, that's not 0:07:48.800 --> 0:07:51.160 good for any young person starting their career. If it's 0:07:51.200 --> 0:07:53.720 harder to find a job, or anyone working who's kind 0:07:53.720 --> 0:07:54.239 of saying. 0:07:54.080 --> 0:07:55.560 I want to make a change. 0:07:55.600 --> 0:07:58.160 If there's less job opportunities, that's never good for the 0:07:58.200 --> 0:08:01.360 regular person. I always come back to everyone in their 0:08:01.400 --> 0:08:03.680 retirement and their four to one k if they're being 0:08:03.720 --> 0:08:06.360 good and not you know, market timing and moving around, 0:08:06.680 --> 0:08:09.520 they do get worried and say, oh my goodness, if 0:08:09.560 --> 0:08:11.880 the value of my funds are down. It it's like, 0:08:12.080 --> 0:08:15.200 I guess it's I'm not consumer confidence, but personal confidence. 0:08:15.240 --> 0:08:17.320 How do I feel that wealth effect that you don't 0:08:17.360 --> 0:08:19.440 feel too good if the value of your stuff is down. 0:08:19.520 --> 0:08:21.520 And if the FED keeps going on, it has to 0:08:21.560 --> 0:08:22.679 go tighter and tighter. 0:08:23.280 --> 0:08:25.920 That's going to hurt financial assets and that's going to 0:08:25.960 --> 0:08:31.000 make people opening their quarterly retirement accounts saying oooh, what happened? 0:08:31.080 --> 0:08:31.320 You know? 0:08:31.720 --> 0:08:34.080 Yeah, and Liz, as you know, this is the blackout 0:08:34.080 --> 0:08:35.520 week for the FED, so we won't have any FED 0:08:35.559 --> 0:08:37.839 speakers on the calendar, but on Friday we do have 0:08:37.920 --> 0:08:40.240 the PCE, the feds preferred gauge for inflation, as well 0:08:40.280 --> 0:08:42.400 as the Employment Cost Index, which we all know Pale 0:08:42.480 --> 0:08:45.360 watches very closely for wages. How much of an impact 0:08:45.360 --> 0:08:48.080 does this inflation data actually have on the bond mark? 0:08:48.200 --> 0:08:50.800 Is it less so at this point than last year 0:08:50.920 --> 0:08:52.400 or do you expect there to be any sort of 0:08:52.440 --> 0:08:55.040 meaningful move so when it comes out. 0:08:55.120 --> 0:08:57.760 Yeah, well, I actually think it still really does matter 0:08:57.920 --> 0:09:01.600 because again we're getting at like we said, we've gone 0:09:01.600 --> 0:09:04.240 some decent ways of inflation falling, but are we're going 0:09:04.280 --> 0:09:06.600 to plateau? You know, I think those numbers are like 0:09:07.160 --> 0:09:09.840 four point one and four percent, whether it's you know, 0:09:09.920 --> 0:09:13.400 the deflator or the core number, and you know, if 0:09:13.400 --> 0:09:16.120 it's higher, then it's like then we might have some 0:09:16.200 --> 0:09:18.960 answers to are we going to have a bit more 0:09:19.000 --> 0:09:21.559 move from the Fed and a pause if it tumbles 0:09:21.600 --> 0:09:24.400 below a freak fore handle which is not forecast. I'm 0:09:24.440 --> 0:09:27.320 not predicting, but I think that will take notice. And 0:09:27.320 --> 0:09:30.720 with the bond market, it's been like insane volatility all year. 0:09:30.760 --> 0:09:33.520 We've had a bit of calm lately, but I would 0:09:33.559 --> 0:09:37.679 never underestimate that the market can't react in size, especially 0:09:37.800 --> 0:09:40.240 to the Fed's favorite inflation gauge. 0:09:40.280 --> 0:09:42.679 Hey, twenty thirty seconds left here. I mean we need 0:09:42.720 --> 0:09:45.080 to be fair to the Fed. That monetary policy not 0:09:45.160 --> 0:09:46.240 an exact science. 0:09:46.480 --> 0:09:50.360 Liz, absolutely, and you know they're doing the best they can. 0:09:51.240 --> 0:09:55.160 Clearly they don't want to implode the economy. Pal is 0:09:55.280 --> 0:09:58.840 always hopeful trying to have a soft landing if possible, 0:09:58.880 --> 0:10:01.560 but he knows that if if there's no price stability, 0:10:01.600 --> 0:10:03.560 as he always says, it's not good for anyone. So 0:10:03.600 --> 0:10:05.240 they're clearly trying their best. 0:10:05.320 --> 0:10:07.079 All right, So glad we could check in with you. 0:10:07.480 --> 0:10:09.080 As we said, folks, this is one of the most 0:10:09.080 --> 0:10:12.640 read stories on the Bloomberg And as Liz just detailed, 0:10:12.679 --> 0:10:15.480 you understand why Liz McCormick, she's chief correspondent for Global 0:10:15.480 --> 0:10:19.760 macro markets, really does have global macro market perspective here 0:10:19.760 --> 0:10:23.760 at Bloomberg News. Joining us via zoom from New York City, you're. 0:10:23.559 --> 0:10:27.160 Listening to the Bloomberg Business Week podcast. Catch us live 0:10:27.240 --> 0:10:30.840 weekday afternoons from three to six Eastern Listen on Bloomberg 0:10:30.880 --> 0:10:34.360 dot com, the iHeartRadio app, and the Bloomberg Business App, 0:10:34.640 --> 0:10:36.920 or watch us live on YouTube. 0:10:37.600 --> 0:10:39.800 All right, folks, So a few companies as you know, 0:10:39.880 --> 0:10:43.080 as we've been reporting, Charlie included companies reporting in the 0:10:43.080 --> 0:10:45.520 consumer space making the stuff we eat and buy or 0:10:45.679 --> 0:10:47.800 moving it around. They are out with earnings, so we're 0:10:47.800 --> 0:10:52.000 talking McDonald's, PepsiCo Ups also three am. So with our 0:10:52.080 --> 0:10:55.120 consumerie earnings round up, let's get to Bloomberg News anchor 0:10:55.160 --> 0:10:59.520 Markets correspondent Cretygupta and Bloomberg News reporter Simone Foxman, both 0:10:59.520 --> 0:11:02.280 in our Blue Interactive Broker studio. So great to have 0:11:02.320 --> 0:11:04.040 you guys here. We want to get into the pacifics, 0:11:04.080 --> 0:11:06.440 but I want to start big picture first if I could. 0:11:07.360 --> 0:11:09.720 Is there a theme or trend that we are seeing Cretty, 0:11:09.720 --> 0:11:11.600 and I want to start with you when in this 0:11:11.760 --> 0:11:12.679 kind of space, if you. 0:11:12.640 --> 0:11:14.600 Will, Yeah, it's it's pretty clear. And I think all 0:11:14.640 --> 0:11:18.640 four earnings stories are telling you the economic data slow down, 0:11:18.679 --> 0:11:21.760 that we're seeing that recession that we feared it is coming, 0:11:21.960 --> 0:11:23.439 So you are starting to see this show up in 0:11:23.480 --> 0:11:25.640 corporate earnings. I think the difference here is that a 0:11:25.720 --> 0:11:27.240 lot of these companies. 0:11:27.880 --> 0:11:30.000 Have weathered it quite well, and. 0:11:30.000 --> 0:11:32.880 I think that's a real testament to the management that's 0:11:32.880 --> 0:11:34.720 in some of these companies. The idea that they are 0:11:35.040 --> 0:11:39.160 tackling it through layoffs, through in some ways through cutting. 0:11:39.320 --> 0:11:42.199 Amazing how layoffs has become the thing, like we're on it, 0:11:42.280 --> 0:11:42.800 fos it. 0:11:42.720 --> 0:11:45.760 Is, and you know, it's also interesting how they're received differently. 0:11:45.800 --> 0:11:47.240 We can dive into the specifics of it, but the 0:11:47.240 --> 0:11:49.559 big picture takeaway is that slow down that we thought 0:11:49.640 --> 0:11:52.000 was coming, it's here. You're seeing it in the data. 0:11:52.440 --> 0:11:54.239 It's just not showing up in these earning. 0:11:54.000 --> 0:11:58.040 Speeds because companies are adapting, and they're adapting way faster. 0:11:58.040 --> 0:11:59.720 Than they have in the past, and in some cases 0:11:59.720 --> 0:12:01.920 past on those higher costs. Yeah, some of your thoughts 0:12:01.960 --> 0:12:02.880 on the big picture. 0:12:02.640 --> 0:12:03.240 Yeah, certainly. 0:12:03.440 --> 0:12:05.960 Well, you know, I think there's a difference between today 0:12:06.440 --> 0:12:08.640 and six months from now, and that's the same kind 0:12:08.720 --> 0:12:12.440 of detail that we got in the consumer confidence numbers 0:12:12.440 --> 0:12:14.839 from the Confidence Board today. You know, the half of 0:12:14.920 --> 0:12:18.080 consumers said jobs were plentiful right now, and only twelve 0:12:18.120 --> 0:12:20.360 point five percent expect more jobs than six months. 0:12:20.480 --> 0:12:21.600 That's the worst than seven years. 0:12:21.640 --> 0:12:23.840 But if we go back to twenty sixteen, twenty sixteen 0:12:24.240 --> 0:12:26.760 wasn't that bad, And maybe that's what's showing up in 0:12:26.800 --> 0:12:30.000 some of these earnings. You know, consumers not really changing 0:12:30.000 --> 0:12:33.439 their behavior so much at the moment and just concerned 0:12:33.440 --> 0:12:35.960 about what's to come. But I mean, and who can 0:12:36.000 --> 0:12:36.600 tell the future. 0:12:36.640 --> 0:12:38.160 You know, right now they still feel confident. 0:12:38.440 --> 0:12:40.560 I wanted to get your thoughts on the margin picture 0:12:40.559 --> 0:12:42.440 because that's been such a focus when it comes to 0:12:42.480 --> 0:12:45.040 these consumer type names. What are you seeing in some 0:12:45.120 --> 0:12:47.559 of these names and do you think that those indications 0:12:47.559 --> 0:12:49.360 there of some glimmers of hope because it seems like 0:12:49.400 --> 0:12:50.920 it's coming better than expected from guys. 0:12:51.240 --> 0:12:55.319 Mean you hear that, I'm going to start counting. 0:12:55.920 --> 0:12:56.319 I love it. 0:12:57.240 --> 0:12:59.000 I feel the way I feel right at home. 0:13:00.600 --> 0:13:00.920 Yeah. 0:13:00.960 --> 0:13:03.280 But to answer your question about the margin story, look, 0:13:03.320 --> 0:13:05.480 I think I mean, I'm going to go with PepsiCo 0:13:05.520 --> 0:13:08.000 as my favorite example of this because and you can 0:13:08.040 --> 0:13:09.560 see it in ups. You actually see it in all 0:13:09.559 --> 0:13:11.920 four earning stories. I mean these Pepsco as an example 0:13:11.960 --> 0:13:14.920 because look, food is expensive and it has been expensive. 0:13:14.920 --> 0:13:16.880 Commodities have been expensive, and it's something that a lot 0:13:16.920 --> 0:13:19.600 of these consumer companies have had to hedge. Coca Cola 0:13:19.640 --> 0:13:23.040 talked about it yesterday, PepsiCo has talked about it today 0:13:23.080 --> 0:13:25.959 on Bloomberg Television as well, And the way that they 0:13:26.400 --> 0:13:29.320 dealt with that is simply by increasing their prices, and 0:13:29.400 --> 0:13:31.400 they've done that for about a year now, and prices 0:13:31.440 --> 0:13:34.960 increased I think something like sixteen percent on lot beverages 0:13:35.040 --> 0:13:37.960 and chips, and nobody noticed. I mean, I certainly if 0:13:37.960 --> 0:13:41.080 I will go and grab a can of PEPSI I'm 0:13:41.120 --> 0:13:43.959 not checking the price to do that. And that has 0:13:44.000 --> 0:13:47.040 really worked in their favor. But it has also just 0:13:47.160 --> 0:13:50.199 kept those margins steady. It hasn't created this massive improvement, 0:13:50.240 --> 0:13:54.160 but at a time where margins a steady, okay, right exactly, so, 0:13:54.200 --> 0:13:56.480 at a time when margins are getting squeezed, steady is 0:13:56.480 --> 0:13:59.400 actually an accomplishment to your point, and I think PepsiCo 0:13:59.520 --> 0:14:02.000 is a great example of that because they were doing 0:14:02.000 --> 0:14:04.480 that by price hikes. The CFO was on Bloomberg TV 0:14:04.559 --> 0:14:07.560 earlier and also said productivity is also helping with the 0:14:07.600 --> 0:14:09.679 margin story a little bit. But when it comes to 0:14:09.679 --> 0:14:11.839 consumer goods, and we're going to hear this with I 0:14:11.880 --> 0:14:14.600 think you brought this up earlier, Procter and Gamble and 0:14:14.679 --> 0:14:17.760 Church and Dwight all reporting next week about them and 0:14:17.840 --> 0:14:19.240 whether they're going to do price hikes. 0:14:19.440 --> 0:14:19.600 Right. 0:14:19.680 --> 0:14:22.480 The labor part of this equation is really interesting, and 0:14:22.520 --> 0:14:25.320 we saw that come out in various threads today in 0:14:25.360 --> 0:14:29.440 these earnings ups, mind you, has to renegotiate its contract 0:14:29.560 --> 0:14:33.320 with its teamsters, some three hundred and thirty thousand unionized 0:14:33.360 --> 0:14:36.240 workers by the end of July. They are pushing for 0:14:36.560 --> 0:14:39.480 price hikes or sorry for wage hikes, and so that 0:14:39.600 --> 0:14:41.840 may end up featuring into this story. I mean we 0:14:41.880 --> 0:14:44.560 saw that to a degree. I mean maybe we didn't. 0:14:44.560 --> 0:14:46.800 We didn't see it with the market reaction to three 0:14:46.960 --> 0:14:48.640 m cutting six thousand jobs, you. 0:14:48.560 --> 0:14:51.400 Know, but there's a bigger story. Yeah, it's a restructuring 0:14:51.400 --> 0:14:55.280 where they keep brook Sutherland was out on TV earlier 0:14:55.320 --> 0:14:57.400 and just this whole idea of they keep throwing stuff 0:14:57.440 --> 0:14:59.400 out there, right, and it's supposed to be kind of 0:14:59.400 --> 0:15:02.600 improving more, but it hasn't quite happened yet. So I 0:15:02.640 --> 0:15:05.400 think the bet or the street is still kind of like, well, 0:15:05.440 --> 0:15:06.200 we're waiting to see. 0:15:06.320 --> 0:15:08.440 But I mean, if more and more companies have to 0:15:08.480 --> 0:15:12.880 start dealing with these wage increases, because I think all 0:15:13.000 --> 0:15:16.200 these executives were out there talking about how the labor 0:15:16.280 --> 0:15:20.280 market remains pretty tight for them, and you know, heck, 0:15:20.360 --> 0:15:23.880 we have some of the restaurant brands with Starbucks coming 0:15:23.920 --> 0:15:26.680 out next week. I mean, how much do they see 0:15:26.720 --> 0:15:29.240 these price increases. We heard about it from the airlines. 0:15:29.840 --> 0:15:31.680 Does is this a theme we start hearing more of 0:15:31.720 --> 0:15:32.800 as earning season. 0:15:32.600 --> 0:15:34.480 And Chipotle after the close? Can we talk attle bit 0:15:34.480 --> 0:15:36.360 more about UPS? It is down the most in more 0:15:36.360 --> 0:15:38.440 than eight years. We're talking about a nine percent drop, 0:15:38.480 --> 0:15:40.640 and I guess I just need some context. 0:15:40.720 --> 0:15:41.320 Is this just a. 0:15:41.280 --> 0:15:45.680 Case of still writing this ship from the pandemic? Or 0:15:45.720 --> 0:15:48.120 is it a case of folks, things are slowing down. 0:15:48.520 --> 0:15:50.720 This is a case of things are slowing down. And 0:15:50.760 --> 0:15:52.760 the reason is because the story of the comp sales, 0:15:52.800 --> 0:15:54.480 which is I think we're referring to the case of 0:15:54.480 --> 0:15:57.080 the pandemic when everyone was at home, everyone was getting 0:15:57.080 --> 0:15:59.120 these packages. That was the story of twenty twenty one, 0:15:59.200 --> 0:16:02.440 arguably twenty twenty to and UPS and FedEx took two 0:16:02.520 --> 0:16:05.240 very different approaches when it came to tackling those comps. 0:16:05.240 --> 0:16:07.600 FedEx said, We're going to hire a bunch of people. 0:16:07.600 --> 0:16:09.600 We're going to make sure our network and our delivery 0:16:09.640 --> 0:16:12.960 systems are just airtight, and we're going to do and 0:16:13.040 --> 0:16:14.600 that's how we're going to make sure that people we 0:16:14.640 --> 0:16:17.720 don't lose our consumer base. UPS took a very different strategy. 0:16:17.760 --> 0:16:20.640 They said, look, we know eventually the recession is going 0:16:20.680 --> 0:16:22.960 to come around the corner. Whenever that may be, we're 0:16:22.960 --> 0:16:25.120 going to take a different strategy. Instead of hiring a 0:16:25.160 --> 0:16:28.160 bunch because inflation is high, wages are high. As Simone 0:16:28.200 --> 0:16:30.440 just pointed out, we're going to target the small businesses. 0:16:30.640 --> 0:16:32.800 Here's the problem if there's a recession around the corner. 0:16:32.840 --> 0:16:34.880 Who were the first people who pull back on that 0:16:35.000 --> 0:16:39.200 medix into small businesses. So that strategy has completely kind 0:16:39.240 --> 0:16:42.600 of worked against them at a time when UPS actually 0:16:42.640 --> 0:16:45.560 was outperforming the market because people were saying FedEx spent 0:16:45.600 --> 0:16:48.440 so much on their employees, they're the ones taking the 0:16:48.480 --> 0:16:51.040 bigger cost. And then FedEx laid off a bunch of people, 0:16:51.080 --> 0:16:54.160 and the market is now changing their tune. So now 0:16:54.160 --> 0:16:57.080 we're worried a little bit more about the actual package decline. 0:16:57.160 --> 0:16:59.560 And that's where UPS is I think a really great 0:17:00.000 --> 0:17:03.600 example for the broader economy, which is economic activity is 0:17:03.600 --> 0:17:04.240 slowing down. 0:17:04.480 --> 0:17:06.560 I just feel like this is a tale of these 0:17:06.600 --> 0:17:09.360 companies because about six months ago is when FedEx had 0:17:09.440 --> 0:17:12.000 warned about their outlook, but then last month we saw 0:17:12.040 --> 0:17:14.640 them boost their outlook for this year. So you don't 0:17:14.640 --> 0:17:17.240 see them necessarily going in the same direction at this but. 0:17:17.160 --> 0:17:19.960 They're two different models. I remember that FedEx and FedEx 0:17:20.040 --> 0:17:23.560 is moving increasingly towards the UPS model. But UPS everything 0:17:23.600 --> 0:17:26.520 is in house. Everybody is a UPS driver. FedEx, that 0:17:26.600 --> 0:17:28.760 hasn't been the way, although they're starting to shift that. 0:17:28.840 --> 0:17:31.240 Yeah, FedEx has had that independent contractor. And I think 0:17:31.240 --> 0:17:33.320 to your point about that profit outlook, the reason they 0:17:33.320 --> 0:17:35.520 said that is they said they're again going to eliminate 0:17:35.520 --> 0:17:39.080 all those independent contractors because of that restructuring. And I 0:17:39.160 --> 0:17:40.560 want to get the most take on this in a second. 0:17:40.560 --> 0:17:42.359 But like one of the other things you have to 0:17:42.440 --> 0:17:44.720 keep in mind with a lot of these companies is 0:17:44.760 --> 0:17:47.800 that when you talk about price hikes, which seems to 0:17:47.840 --> 0:17:50.879 be the kind of method du jour of staying alive, 0:17:51.000 --> 0:17:54.040 Basically in this environment, prices are sticky. So if you 0:17:54.040 --> 0:17:55.720 have a price hike, you're not going to have a 0:17:55.760 --> 0:17:57.880 price cut on a can of pepsi or a price 0:17:57.960 --> 0:18:00.920 cut on a package. And that's from an economic perspective. 0:18:00.960 --> 0:18:03.240 What's scary for kind of carol? You always say, what's 0:18:03.240 --> 0:18:05.199 the so what? For our listeners? This is the so 0:18:05.320 --> 0:18:09.600 what one? Corporate America hops on the price hike train. Yeah, 0:18:09.640 --> 0:18:11.560 they don't come down and that's the problem. 0:18:11.600 --> 0:18:13.520 And the thing is, what I would say is things 0:18:13.560 --> 0:18:16.200 like a can of pepsi or some Friedo's, which I 0:18:16.240 --> 0:18:18.359 would consider a staple and must have. No but I 0:18:18.400 --> 0:18:21.600 mean there's small indulgences and you always hear, like economists 0:18:21.640 --> 0:18:23.119 or market watch er say these are the things that 0:18:23.200 --> 0:18:24.520 hold up smoke kamone. 0:18:24.600 --> 0:18:26.919 Yeah, but I mean, I think when we start hearing, 0:18:27.280 --> 0:18:31.639 you know, questions even asked about our consumers switching to 0:18:32.040 --> 0:18:34.919 cheaper products, and we did hear that today, both with 0:18:35.000 --> 0:18:38.399 McDonald's as well as with pepsi and you know pepsi. 0:18:38.440 --> 0:18:41.680 The message from the CFO was, you know, it's never 0:18:41.920 --> 0:18:43.479 that much of a hit to our business. 0:18:43.480 --> 0:18:44.960 These numbers stay pretty low. 0:18:45.080 --> 0:18:48.400 But I you know, McDonald's, it's not really it doesn't 0:18:48.440 --> 0:18:50.720 seem to be really showing up yet. But perhaps that's 0:18:50.760 --> 0:18:54.360 part of why we saw such a decent outlook from them, 0:18:54.359 --> 0:18:56.000 and decent you know moving forward. 0:18:56.040 --> 0:18:58.520 Although the stock was a little lower, right, yeah, but. 0:18:58.600 --> 0:18:59.960 You know, the market's down a little bit. 0:19:00.280 --> 0:19:03.359 But overall McDonald's stock is still around records. If you 0:19:03.359 --> 0:19:05.280 look at the fifty two week high list in the 0:19:05.359 --> 0:19:08.600 terminal underweb. I mean, these names you have McDonald's on there, 0:19:08.640 --> 0:19:10.639 you have Pepsi Co on there, You have Kimberly Clark 0:19:10.680 --> 0:19:13.000 that reported this morning on there as well. You have 0:19:13.280 --> 0:19:15.439 Starbucks on there, you have Mandoli's on there. There's are 0:19:15.480 --> 0:19:18.119 very consumer oriented type companies that are trading around these 0:19:18.119 --> 0:19:19.480 fifty two week high and don't forget. 0:19:19.320 --> 0:19:22.199 The dollar exposure on all of good points exactly do 0:19:22.280 --> 0:19:23.439 they hedge still? 0:19:23.920 --> 0:19:26.159 McDonald's I don't think they've hedged for a couple of 0:19:26.240 --> 0:19:29.960 years now, but PepsiCo hedges. They talked about that today. 0:19:30.320 --> 0:19:32.400 McDonald's, you know, still gets a lot of its business 0:19:32.480 --> 0:19:36.600 internationally hot. Strong earnings there too. I mean, you know 0:19:36.640 --> 0:19:39.720 whether that's consumer switching to a degree not everyone is 0:19:39.720 --> 0:19:42.720 seeing so much strength in their their foreign business. Three 0:19:42.720 --> 0:19:43.439 ams certainly not. 0:19:43.760 --> 0:19:46.199 Okay, good point, right, It's not all the same story, 0:19:46.280 --> 0:19:48.480 even if you're looking at companies in a certain category 0:19:48.600 --> 0:19:50.959 creating up DA anchored markets. Course me at Bloomberg News, 0:19:50.960 --> 0:19:53.440 Simone Foxman, reporter at Bloomberg News. Thank you so much. 0:19:54.320 --> 0:19:57.880 You're listening to the Bloomberg Business Week podcast. Catch us 0:19:57.920 --> 0:20:01.920 live weekday afternoons from three to Easter on Bloomberg Radio, 0:20:02.119 --> 0:20:05.399 the Bloomberg Business App and YouTube. You can also listen 0:20:05.520 --> 0:20:08.600 live on Amazon Alexa from our flagship New York station 0:20:09.040 --> 0:20:11.840 Just Say Alexa playing Bloomberg eleven thirty. 0:20:13.480 --> 0:20:17.560 Continuing to follow some of the earnings momentum. Having said that, 0:20:17.640 --> 0:20:20.080 you do wonder how it all factors into what's going 0:20:20.119 --> 0:20:22.919 on in terms of the venture capital world and where 0:20:23.359 --> 0:20:27.160 venture capitalists want to invest their money. And it's interesting 0:20:27.160 --> 0:20:30.800 on a day where we are definitely focusing on artificial intelligence, 0:20:30.840 --> 0:20:33.919 whether it was in Microsoft's report, whether it's what Google 0:20:33.960 --> 0:20:36.000 wants to do, and specifically we talked a little bit 0:20:36.040 --> 0:20:39.600 earlier about Apple planning an AI powered health coaching service 0:20:39.680 --> 0:20:41.840 and mood Tracker. So jess there's a lot going on. 0:20:42.080 --> 0:20:44.120 As our next guest sees it, twenty twenty three will 0:20:44.160 --> 0:20:46.800 be the year that AI truly breaks into the general 0:20:46.840 --> 0:20:51.200 population's awareness. In particular, he's focusing on healthcare. So let's 0:20:51.200 --> 0:20:54.480 get back to a guest that is joining us once again. 0:20:54.560 --> 0:20:58.080 Lonnie Jaffe is Managing director at Insight Partners via zoom 0:20:58.119 --> 0:21:00.880 from New York City. Lonnie, nice to have you back 0:21:00.880 --> 0:21:04.920 with us. AI this year a big one. Explain why 0:21:05.000 --> 0:21:06.200 you think that's the case. 0:21:07.800 --> 0:21:10.359 So it has been a wild year in AI. 0:21:10.160 --> 0:21:13.120 So far already. 0:21:11.880 --> 0:21:15.119 Already, and from what we're seeing, things will continue to 0:21:15.200 --> 0:21:18.600 accelerate for the rest of twenty twenty three, including in healthcare. 0:21:19.160 --> 0:21:20.920 I think the best way to get a sense of 0:21:20.960 --> 0:21:23.440 the pace of improvement of AI and healthcare is through 0:21:23.480 --> 0:21:26.920 some real world examples of health tech companies that are 0:21:27.359 --> 0:21:30.960 have AI products that are working so like one example 0:21:31.119 --> 0:21:34.560 our portfolio company, Iterative Health. So colon cancer is the 0:21:34.600 --> 0:21:37.760 second most common cancer cause of death in the United States, 0:21:38.080 --> 0:21:40.800 and they have this ability to use computer vision AI 0:21:40.960 --> 0:21:44.560 and their FDA cleared product called Scout, and it significantly 0:21:44.560 --> 0:21:48.359 reduces the number of cancer's pollups that a gasnerentrologists would miss, 0:21:48.760 --> 0:21:51.880 and this can decrease the risks of a bad outcome 0:21:51.920 --> 0:21:54.800 in all sorts of different ways. But then their technology 0:21:55.000 --> 0:21:57.400 can use some of the new generative tech that's come out, 0:21:57.800 --> 0:22:00.719 similar to something like chat GPT to handle the medical 0:22:00.760 --> 0:22:02.720 documentation work at the end of the day, sort of 0:22:02.720 --> 0:22:06.200 like a copilot for medical documentation, making suggestions and saving 0:22:06.200 --> 0:22:09.000 the doctor enormous amount of time and increasing the accuracy 0:22:09.040 --> 0:22:12.960 of the documentation. And then they can also identify patients 0:22:12.960 --> 0:22:15.680 who would be good candidates for clinical trials for promising 0:22:15.720 --> 0:22:17.479 biologics for diseases like IBD. 0:22:18.359 --> 0:22:21.160 So how specifically, because AI, as we've been talking about 0:22:21.200 --> 0:22:24.080 such a hot topic, now, how exactly does this end 0:22:24.160 --> 0:22:27.320 up reshaping healthcare in particular because you did mention some 0:22:27.359 --> 0:22:31.640 of the companies that are in your portfolio book more specifically, 0:22:31.720 --> 0:22:33.639 is this a way to really reshape all of that 0:22:33.680 --> 0:22:34.320 in that sector. 0:22:35.440 --> 0:22:38.600 Yeah. One healthcare AI area in which we've invested a lot, 0:22:38.640 --> 0:22:43.000 least recently is this applied computer vision AI capability. So 0:22:43.040 --> 0:22:45.520 this is a little different from the generative AI tech 0:22:45.560 --> 0:22:48.160 that's been getting a lot of attention since the release 0:22:48.160 --> 0:22:51.280 of CHATCHPT. But some of these computer vision systems may 0:22:51.359 --> 0:22:55.080 soon match or even exceed human expert physician performance across 0:22:55.119 --> 0:22:58.560 certain domains. And if an AI system starts to exceed 0:22:58.640 --> 0:23:01.560 human expert performance in healthcare, domean it's not just a 0:23:01.600 --> 0:23:04.359 minor efficiency improvement anymore. It can be more of a 0:23:04.400 --> 0:23:07.280 phase change, like ice turning to water, and it allows 0:23:07.280 --> 0:23:10.639 you to reimagine the way care is delivered. Vision is 0:23:10.680 --> 0:23:13.439 absolutely instrumental in healthcare. So a huge portion of healthcare 0:23:13.480 --> 0:23:15.160 data is made up of pictures and videos. 0:23:15.600 --> 0:23:17.000 You know, Well, I have to say I've been thinking 0:23:17.000 --> 0:23:19.320 about AI a lot lately and how it can help us. 0:23:19.359 --> 0:23:20.960 And I know there's been this fear of, oh my god, 0:23:20.960 --> 0:23:22.840 we're all going to be replaced. But I thought, even 0:23:22.880 --> 0:23:25.040 as a journalist, wouldn't it be great if I don't 0:23:25.040 --> 0:23:26.879 have to write introductions to my guests, as much as 0:23:26.920 --> 0:23:28.679 I love to do it, but if somebody else does it, 0:23:28.680 --> 0:23:31.480 I can spend more time just prepping and researching, you know, 0:23:31.520 --> 0:23:34.880 for the actual conversation. So I do wonder in terms 0:23:34.920 --> 0:23:36.760 of the smart way for all of us to be 0:23:36.840 --> 0:23:39.720 thinking putting our fear aside to some extent till we 0:23:39.800 --> 0:23:43.840 know more, but about how it can be AI particularly 0:23:43.920 --> 0:23:46.040 be an assist like you were talking about in healthcare, 0:23:46.160 --> 0:23:49.000 freeing doctors up to actually care for patients rather than 0:23:49.040 --> 0:23:51.800 doing all of the jotting and noting down and so 0:23:51.880 --> 0:23:52.680 on and so forth. 0:23:53.680 --> 0:23:56.800 That's really well put. And in healthcare, prices have been 0:23:56.840 --> 0:24:00.600 increasing much faster than inflation. I mean, all prices have 0:24:00.640 --> 0:24:04.680 been increasing faster than our inflation target. But one way 0:24:04.840 --> 0:24:07.879 we can help to address the problem of provider shortages 0:24:08.040 --> 0:24:10.879 or in some geographic areas, patients with needs are not 0:24:10.920 --> 0:24:13.160 close enough to the doctors who have the relevant skills 0:24:13.200 --> 0:24:16.159 and agent population. So one way we can help to 0:24:16.160 --> 0:24:21.119 address this price challenge is to dramatically improve healthcare productivity 0:24:21.119 --> 0:24:24.920 and quality, to pull forward investments in AI and automation 0:24:25.000 --> 0:24:27.000 that you would otherwise make many years into the future, 0:24:27.000 --> 0:24:28.280 and to do it now, sort of like what we 0:24:28.359 --> 0:24:31.240 did with collaboration technology during the pandemic. So it could 0:24:31.280 --> 0:24:33.679 be that healthcare AI is a little bit of the 0:24:33.800 --> 0:24:37.159 unsung hero of some of the recent inflation crisis that 0:24:37.160 --> 0:24:37.960 we've been dealing with. 0:24:38.080 --> 0:24:40.200 Do you think Apple is going to be someone who's 0:24:40.320 --> 0:24:42.760 very innovative in this space when it comes to healthcare 0:24:42.800 --> 0:24:45.560 and merging combining that with AI. 0:24:47.040 --> 0:24:49.560 One thing we've seen with some of the newer AI 0:24:49.680 --> 0:24:55.679 technologies is that there's been this big democratization effect of 0:24:55.760 --> 0:24:59.080 how much easier they are to use than prior generations 0:24:59.080 --> 0:25:01.000 of technology. It used to be that you needed to 0:25:01.040 --> 0:25:04.760 hire one hundred mL engineers and build out enormous data 0:25:04.760 --> 0:25:08.560 pipelines and systems like that, but now so much of 0:25:08.600 --> 0:25:13.080 the capability is being provided via as a service over 0:25:13.119 --> 0:25:15.800 the Internet via what are called APIs and can be 0:25:15.840 --> 0:25:19.080 incorporated into other technology. And so I think the vendors 0:25:19.119 --> 0:25:23.600 who have a real focus on privacy security, who understand 0:25:23.640 --> 0:25:26.639 the difference between correlation and causality. Who are able to 0:25:26.960 --> 0:25:31.520 make systems that are reliable and craft beautiful products will 0:25:31.560 --> 0:25:32.520 have a huge advantage. 0:25:32.720 --> 0:25:34.800 Hey, Lonnie, can you take a step back and explain 0:25:34.840 --> 0:25:38.240 to us exactly how the technology works, Say, because when 0:25:38.240 --> 0:25:40.320 it comes to some of these companies that you're working with, 0:25:40.400 --> 0:25:43.160 when it comes to screening for mammograms or breast cancer 0:25:43.320 --> 0:25:46.960 or detection in colonoscopies, how does that tech work? 0:25:48.200 --> 0:25:50.880 Yeah, So, like one example, we have a portfolio company Overjet, 0:25:50.920 --> 0:25:54.320 which is led by CEO Warda and our team, and 0:25:54.600 --> 0:25:57.199 they can use AI to analyze dental X rays to 0:25:57.359 --> 0:26:00.600 assist dentists and deciding whether two needs like a filling 0:26:00.720 --> 0:26:03.800 or a crown. So this improves patient outcomes. But then 0:26:03.960 --> 0:26:07.080 you can also use their AI platform as a dental 0:26:07.119 --> 0:26:11.120 insurer to detect fraud or speed up the claims adjudication process. 0:26:11.480 --> 0:26:13.640 And then by using the technology on both the dentist 0:26:13.720 --> 0:26:16.560 and the insurer side, you can re imagine the whole 0:26:16.640 --> 0:26:19.320 dental care process. For example, you can use the AI 0:26:19.520 --> 0:26:22.520 for instant insurance pre approvals, so the dentist can do 0:26:22.600 --> 0:26:24.920 an important procedure right away instead of having to send 0:26:24.920 --> 0:26:27.520 a patient home and then wait until an insurance approval 0:26:27.560 --> 0:26:29.760 comes in, like often happens today. 0:26:30.240 --> 0:26:33.240 Hey, Lonnie, Oh go ahead, go ahead, please got about 0:26:33.240 --> 0:26:34.679 thirty forty seconds left. 0:26:34.880 --> 0:26:37.720 Yeah. One other example is we have this company Profluent 0:26:37.840 --> 0:26:42.040 that has large language model like technology similar to chat chept, 0:26:42.280 --> 0:26:45.200 and it can suggest novel protein sequences that will fold 0:26:45.320 --> 0:26:48.320 into non structures. So it has a deep understanding of 0:26:48.400 --> 0:26:51.600 patterns and amino acid sequences. It's a little bit like 0:26:51.640 --> 0:26:54.000 words and a text generation AI, and so it opens 0:26:54.080 --> 0:26:56.480 up all sorts of new opportunities in drug discovery and 0:26:56.520 --> 0:26:57.320 protein engineering. 0:26:57.440 --> 0:27:00.479 Lonnie, fifteen seconds. You guys invest in some for how 0:27:00.560 --> 0:27:03.280 much of what you are doing is AI healthcare related? 0:27:03.320 --> 0:27:06.160 What percentage of your investing at this point? 0:27:06.200 --> 0:27:09.520 Just quickly, And we have dozens of investments that we've 0:27:09.520 --> 0:27:12.040 made just over the last couple of years, and that 0:27:12.080 --> 0:27:15.040 the piece of improvement has been increasing significantly. It's amazing 0:27:15.200 --> 0:27:17.199 what the big change in the technology is that it 0:27:17.240 --> 0:27:17.880 started to work. 0:27:17.920 --> 0:27:20.480 But the majority of your investing in startups and so on, 0:27:20.640 --> 0:27:22.240 is it healthcare ANDAI related? 0:27:22.359 --> 0:27:25.720 Just quickly. It's not a majority, but it's a significant portion, 0:27:25.840 --> 0:27:27.120 and it's been increasing over time. 0:27:27.160 --> 0:27:29.080 All right, So good to check in with you, especially 0:27:29.080 --> 0:27:31.200 on today when we continue to hear about AI from 0:27:31.240 --> 0:27:33.480 the big tech Lonnie Jaffy at Inside Partners. 0:27:34.760 --> 0:27:39.080 This is Bloomberg Business Wait Inside from the reporters and 0:27:39.280 --> 0:27:42.840 editors who bring you America's most trusted business magazine, plus 0:27:42.920 --> 0:27:47.080 global business, finance and tech news. The Bloomberg Business Week 0:27:47.119 --> 0:27:52.400 Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:27:53.600 --> 0:27:55.800 All right, we're gonna switch gears a little bit. Bitcoin 0:27:55.880 --> 0:27:59.240 continue to trade well above, well below, excuse me, thirty thousand, 0:27:59.240 --> 0:28:02.160 which it recently wet above. So we continue to see, right, 0:28:02.280 --> 0:28:04.840 you know, just a pushing up against that level definitely 0:28:05.080 --> 0:28:06.280 and backing off of it. 0:28:06.280 --> 0:28:09.000 It has and especially last month we were talking about 0:28:09.040 --> 0:28:11.639 this with with what was happening with the banks under pressure, 0:28:11.680 --> 0:28:14.679 but then you saw Bitcoin continuing to get closer and 0:28:14.680 --> 0:28:17.040 closer to that threshold and eventually eclipsing it. 0:28:17.080 --> 0:28:20.880 All right, so we're looking at the cryptocurrency world, and 0:28:21.000 --> 0:28:23.480 you know, you've got to remember that there's a lot 0:28:23.520 --> 0:28:25.720 when it comes to that world. It's not just about bitcoin. 0:28:26.440 --> 0:28:29.160 And this next story that is in the upcoming issue 0:28:29.200 --> 0:28:31.040 of Bloomberg Business Week, which is out later this week. 0:28:31.080 --> 0:28:34.000 On newstands already on the Bloomberg terminal and online at 0:28:34.000 --> 0:28:37.720 Bloomberg dot com. Slash BusinessWeek has to do with what's 0:28:37.760 --> 0:28:40.520 going on with some of those other areas of the 0:28:40.560 --> 0:28:42.920 crypto world. So let's get to it with Bloomberg News 0:28:42.920 --> 0:28:46.480 bankruptcy reporter Stephen Church. He joins us on Zoom from 0:28:46.600 --> 0:28:50.280 our Wilmington, Delaware bureau. Hey, Steve Stephen, it's great to 0:28:50.280 --> 0:28:52.720 have you here with us. The headline on your story 0:28:52.960 --> 0:28:56.000 is about crypto quest for freedom ends in bankruptcy bureaucracy. 0:28:56.200 --> 0:28:59.360 There are a lot of bankruptcy cases going on right now. 0:28:59.560 --> 0:29:02.480 Set this stage for us and tell us exactly what's 0:29:02.520 --> 0:29:02.880 going on. 0:29:03.760 --> 0:29:06.800 Well, we looked at some of the crypto investors, some 0:29:06.840 --> 0:29:09.240 of the customers, and it turns out that they have 0:29:09.360 --> 0:29:13.080 been way more active than your average creditor in a 0:29:13.080 --> 0:29:17.320 bankruptcy case. They've raised a lot of specific issues, they 0:29:17.400 --> 0:29:19.960 fought with the judges. One guy got thrown out of 0:29:21.440 --> 0:29:23.680 a Zoom hearing because most of the hearings for these 0:29:23.720 --> 0:29:26.520 bankruptcy cases are happening on Zoom nowadays. There's just been 0:29:26.560 --> 0:29:28.800 a lot of emotion, a lot of anger and frustration 0:29:29.000 --> 0:29:33.360 among the hundreds of thousands of creditors in these cases. 0:29:33.840 --> 0:29:36.120 So which ones are at the heart of the issue 0:29:36.160 --> 0:29:39.280 when we're talking about these digital asset makers. 0:29:40.480 --> 0:29:44.160 Well, there are three that I'm mostly following. One is Voyager, 0:29:44.480 --> 0:29:46.480 the other one is Celsius, and then the big one 0:29:46.520 --> 0:29:49.719 which hasn't yet exploded, is FTX. We've heard a lot 0:29:49.760 --> 0:29:53.520 about FTX before it went bankrupt, but there's been kind 0:29:53.520 --> 0:29:57.080 of quiet the last few months. The first two cases 0:29:57.120 --> 0:30:00.800 are the ones that are generating the most active in court. 0:30:01.400 --> 0:30:03.880 Interesting Well, and you know what I think is interesting too, 0:30:03.920 --> 0:30:05.720 And why don't you go into those cases that are 0:30:05.760 --> 0:30:08.640 generating the most interest and maybe engagement. Tell us a 0:30:08.640 --> 0:30:10.480 little bit of what's been going on. Especially I love 0:30:10.480 --> 0:30:12.120 the idea that's happening in Zoom. 0:30:13.600 --> 0:30:16.400 Yeah, well, that's that's a product of the pandemic. A 0:30:16.400 --> 0:30:19.120 lot of lawyers and judges got used to using Zoom. 0:30:19.120 --> 0:30:21.880 They've been doing it for the last few years. But 0:30:22.080 --> 0:30:25.520 it's perfect for these crypto investors. They're very tech savvy. 0:30:25.560 --> 0:30:29.000 They know how to cruise right on too zoom without 0:30:29.040 --> 0:30:35.200 any problems. But that opens up a world of difficulty 0:30:35.240 --> 0:30:37.000 for some of these judges and some of the lawyers. 0:30:37.040 --> 0:30:42.400 They're used to moving through using the bankruptcy jargon, talking 0:30:42.480 --> 0:30:45.240 in very shorthand with the legal lees, and then all 0:30:45.280 --> 0:30:48.040 of a sudden, you have sometimes hundreds of people on 0:30:48.080 --> 0:30:52.920 these cases asking very blunt, basic questions and being confused. 0:30:53.320 --> 0:30:55.600 The biggest confusion is about what are they going to 0:30:55.600 --> 0:30:57.160 get their back? What are they going to get back? 0:30:57.560 --> 0:31:00.240 Why can't they just get their coins back? Why do 0:31:00.280 --> 0:31:02.600 they have to wait? Why is this case going on 0:31:02.800 --> 0:31:05.280 and on? And why are the lawyers making so much money? 0:31:05.880 --> 0:31:08.800 What I find fascinating about your story is this whole 0:31:08.840 --> 0:31:13.680 idea of wait. Crypto in some cases, as are in 0:31:13.720 --> 0:31:16.760 some regards as these bankruptcy cases are showing that it's 0:31:16.800 --> 0:31:19.440 not that much different than bank deposits, and then in 0:31:19.480 --> 0:31:23.360 other regards, yeah, wait, it is really different than bank deposits. 0:31:23.360 --> 0:31:26.200 So it's it feels like it's got to be very 0:31:26.240 --> 0:31:30.400 frustrating for folks who bought some kind of cryptocurrencies on 0:31:30.440 --> 0:31:34.560 whatever platform and it was supposed to be kind of powerful. 0:31:34.600 --> 0:31:37.280 They owned it, there's no middlemen, this is mine, and 0:31:37.320 --> 0:31:40.120 then to see it play out this way exactly. 0:31:40.160 --> 0:31:42.720 There were two kinds of basic accounts that were that 0:31:42.760 --> 0:31:45.520 are at issue. What does a custodial account that's like 0:31:45.560 --> 0:31:48.920 a safety deposit box in a bank. You put your 0:31:48.920 --> 0:31:51.160 coins in it, and when you want them, you go 0:31:51.200 --> 0:31:53.400 in and you take them back out. There's less dispute 0:31:53.440 --> 0:31:56.920 about that. Then there's the kind of deposit where you 0:31:57.000 --> 0:32:02.360 gave your crypto to an institution Voyager or Celsius or FTX, 0:32:02.960 --> 0:32:06.200 and then you allowed that company to then lend it out. 0:32:06.440 --> 0:32:09.000 You made interest, great, you make a higher return than 0:32:09.040 --> 0:32:11.520 you could get anywhere else. But it turns out that 0:32:11.560 --> 0:32:14.240 in the fine print, you don't own that crypto anymore. 0:32:14.360 --> 0:32:17.280 It's like a bank deposit. You don't own the money 0:32:17.280 --> 0:32:20.040 that you give to the bank. You own the credit 0:32:20.200 --> 0:32:21.960 for that money, You own the right to get that 0:32:22.040 --> 0:32:23.800 money back whenever you ask for it. 0:32:23.880 --> 0:32:27.640 But then also it's not fdic assured, like when say 0:32:27.640 --> 0:32:29.840 you have money in a bank versus when it's crypto. 0:32:29.960 --> 0:32:31.680 And how many people do you think ended up making 0:32:31.720 --> 0:32:32.280 that mistake. 0:32:33.200 --> 0:32:36.960 I think hundreds of thousands made that mistake. We're waiting 0:32:37.120 --> 0:32:40.400 on the biggest problem to crop up, and that's nine 0:32:40.480 --> 0:32:46.120 point six million customers of FTX. FTX hasn't decided whether 0:32:46.160 --> 0:32:49.840 they're going to claim that all of those customers' deposits 0:32:50.080 --> 0:32:54.280 are actually owned by FTX, and therefore you can't get 0:32:54.320 --> 0:32:57.480 your specific coins back. You can only get a share 0:32:57.480 --> 0:33:01.600 of them whatever happens to be available. Fight if it happens, 0:33:01.720 --> 0:33:04.960 will make these other two cases look small and insignificant 0:33:04.960 --> 0:33:05.640 by comparison. 0:33:05.760 --> 0:33:07.280 Now, I know you know what you do as you 0:33:07.280 --> 0:33:09.760 follow the bankruptcy situations, but I do understand and like 0:33:09.840 --> 0:33:11.880 what comes out of this, the rulings and how it 0:33:11.920 --> 0:33:15.160 plays out, how that might ultimately shape what we get 0:33:15.160 --> 0:33:18.200 in terms of regulatory oversight, because there's just you know, 0:33:18.240 --> 0:33:20.160 trying to figure out exactly what it is. As part 0:33:20.160 --> 0:33:21.240 of the problem. 0:33:21.680 --> 0:33:23.880 Well, I think part of what will happen is less 0:33:24.000 --> 0:33:26.880 influence on the regulators. They're going to do something separate, 0:33:27.920 --> 0:33:32.520 but it might influence investors, especially professional investors, because now 0:33:32.560 --> 0:33:34.640 you're going to see what the courts will do in 0:33:34.720 --> 0:33:37.720 the worst case scenario if you put your money on 0:33:37.720 --> 0:33:40.320 one of these platforms. Now we know the judges will 0:33:40.360 --> 0:33:44.600 say in some cases for specific types of investments, it's 0:33:44.640 --> 0:33:47.000 like a bank. You don't own it, it's pooled with 0:33:47.080 --> 0:33:50.360 everyone else's assets, and you have to wait in line, 0:33:50.600 --> 0:33:54.320 just like any creditor, bond holder, supplier in any old 0:33:54.320 --> 0:33:55.440 fashioned bankruptcy case. 0:33:55.520 --> 0:33:58.000 Welcome to the new world of disruption. Not exactly. 0:33:58.240 --> 0:33:59.240 It's kind of crazy. 0:33:59.600 --> 0:34:01.600 What about all the marketing that went on And I 0:34:01.600 --> 0:34:04.080 feel like that's something too where really looking into when 0:34:04.160 --> 0:34:05.680 it comes to the crypto world. 0:34:06.880 --> 0:34:09.680 Yeah, it was sold to appeal to certain kinds of 0:34:09.719 --> 0:34:12.120 investors that investors were trying to get away from the 0:34:12.120 --> 0:34:17.479 traditional banking system. They promised that crypto for all would 0:34:17.480 --> 0:34:21.799 become a reality, or you can unbank yourself, was the 0:34:21.800 --> 0:34:24.759 way one company put it. In other words, they appealed 0:34:24.800 --> 0:34:27.200 to the idea that you wouldn't be part of the 0:34:27.200 --> 0:34:31.319 traditional system, so you might have some benefits there. It 0:34:31.320 --> 0:34:33.320 turns out when you're not part of the traditional system, 0:34:33.480 --> 0:34:36.239 you're not protected the way the traditional system is. 0:34:36.680 --> 0:34:39.600 Can you talk about the customer agreements that people were 0:34:39.600 --> 0:34:42.040 signing where they maybe they signed it and they assumed 0:34:42.040 --> 0:34:44.279 they could be able to have their money back leader 0:34:44.280 --> 0:34:46.560 if they were going to lose it, but then that's 0:34:46.560 --> 0:34:48.000 not exactly how things played out. 0:34:48.640 --> 0:34:51.000 Oh well, how many of us read the customer agreements 0:34:51.040 --> 0:34:53.040 where see when they pop up online, it's like. 0:34:52.960 --> 0:34:55.600 The its thousands of pages. 0:34:57.080 --> 0:35:02.240 Life and that fine print is a line that says 0:35:03.040 --> 0:35:06.120 you are if you are making interest and this is 0:35:06.160 --> 0:35:08.120 in one of the cases. If you're making interest on 0:35:08.160 --> 0:35:12.880 this deposit, we technically own the deposit. Therefore, if things 0:35:12.920 --> 0:35:16.560 go bust, you may not have access to it. 0:35:16.840 --> 0:35:21.440 So Stephen, as you follow this process and the bankruptcy proceedings, 0:35:21.560 --> 0:35:23.319 kind of what jumps out for you? I mean, not 0:35:23.400 --> 0:35:25.600 everybody is in it like you are, but I do 0:35:25.680 --> 0:35:27.680 think you know, we're all just looking back at the 0:35:27.760 --> 0:35:29.400 last two year or so of crypto and trying to 0:35:29.480 --> 0:35:32.840 understand the way forward. So as you watch this bankruptcy process, 0:35:33.080 --> 0:35:35.440 what jumps out for you when you think about maybe 0:35:35.440 --> 0:35:37.680 what happens next in the world of crypto? 0:35:38.320 --> 0:35:40.400 I think the I think the people who are running 0:35:40.400 --> 0:35:42.880 this system, because we're talking about two very different systems 0:35:42.880 --> 0:35:46.160 and two very different philosophies. The people in the courthouse, 0:35:46.320 --> 0:35:49.160 the judges and the traditional lawyers who are now in 0:35:49.280 --> 0:35:52.920 charge of these companies, especially FTX. They're grappling with how 0:35:52.920 --> 0:35:56.160 do you deal with millions of people who are not 0:35:56.239 --> 0:35:58.480 going to get all their money back and they're going 0:35:58.560 --> 0:36:02.560 to want to understand why and how do you explain 0:36:02.640 --> 0:36:05.080 that to them? And you also have to make sort 0:36:05.080 --> 0:36:07.120 of I don't mean make up rules but they have 0:36:07.200 --> 0:36:10.960 to create a whole new system of dealing with these 0:36:11.040 --> 0:36:15.120 crypto investments because it's very difficult. There's some perplexing questions. 0:36:15.160 --> 0:36:18.719 How do you value crypto today? You were talking about 0:36:18.719 --> 0:36:22.600 what the price of bitcoin is? Well, can you value 0:36:22.640 --> 0:36:26.399 my coins based on what they were when I deposited them? 0:36:26.760 --> 0:36:30.760 Or is it worth what it is today? Very different things. 0:36:30.920 --> 0:36:33.680 Lots of complications that have come up that have not 0:36:33.760 --> 0:36:36.560 been seen in the past. So the system is trying 0:36:36.600 --> 0:36:40.120 to respond and so far it's done an adequate job. 0:36:40.480 --> 0:36:41.680 But the real test is coming on. 0:36:41.880 --> 0:36:43.520 Hey, because we're lucky that we have you, and you 0:36:43.520 --> 0:36:46.640 had another story on the Bloomberg about Binance ending a 0:36:46.680 --> 0:36:49.839 deal to buy bankrupt crypto firm Voyager, right, which is 0:36:49.920 --> 0:36:52.440 in your story just real quickly forty seconds. What do 0:36:52.440 --> 0:36:53.279 we need to know about that? 0:36:55.040 --> 0:36:57.000 The Voyager customers are going to have to find a 0:36:57.000 --> 0:37:00.879 way to get their money out without transitioning to new platform. 0:37:01.360 --> 0:37:04.120 That means that Voyager is going to have to go 0:37:04.160 --> 0:37:06.400 before to judge and figure out how to get this 0:37:06.480 --> 0:37:09.719 money back in a more complicated way. Finance was an 0:37:09.719 --> 0:37:12.600 easy way for them to deliver the money, deliver what 0:37:13.239 --> 0:37:15.640 they could to customers. They've got to come up with 0:37:15.680 --> 0:37:16.160 something new. 0:37:16.440 --> 0:37:18.560 All right, Well, brilliant take on all of this and 0:37:18.600 --> 0:37:21.000 a great perspective, Stephen, Thank you so much. Glad you 0:37:21.040 --> 0:37:24.000 could take us there. Stephen Church. He's bankruptcy reporter at 0:37:24.000 --> 0:37:26.200 Bloomberg News. The story in the upcoming new issue at 0:37:26.239 --> 0:37:29.919 Bloomberg BusinessWeek, but already on the Bloomberg and online. You're 0:37:29.920 --> 0:37:31.800 listening and watching Bloomberg. 0:37:33.200 --> 0:37:37.280 Bromac a journal. 0:37:38.280 --> 0:37:39.279 No, how about you let me drive? 0:37:39.800 --> 0:37:41.520 No, no, no, no, who's going to drive? 0:37:42.640 --> 0:37:45.640 Honey? Please, I'll do the gravels. 0:37:45.440 --> 0:37:49.960 Let's I want to try it. It's a good question 0:37:50.440 --> 0:37:51.239 that drives us. 0:37:53.760 --> 0:37:56.719 This is the drive to the globe dot com for me. 0:37:56.880 --> 0:37:59.920 Think well by it on Bloomberg rat. 0:38:00.600 --> 0:38:03.160 All right, everybody, we've got just under eighteen minutes left 0:38:03.160 --> 0:38:06.640 in today's trading session. It is time for our drive 0:38:06.719 --> 0:38:08.760 to the close and back. With us is Alan Zaffron, 0:38:09.320 --> 0:38:12.239 founding partner and co CEO at IQ Capital. He joins 0:38:12.320 --> 0:38:15.279 us on zoom once again from Foster City, California. Allen, 0:38:15.360 --> 0:38:19.120 nice to have you here with Jess and myself. There's 0:38:19.160 --> 0:38:22.640 a lot going on. It's pretty dense. The environment earning 0:38:22.760 --> 0:38:25.280 so far are telling you what story. 0:38:26.480 --> 0:38:29.200 Jess and Carol, thanks for having me on your program again. 0:38:29.600 --> 0:38:32.640 Earnings are telling me that the economy is indeed going 0:38:32.680 --> 0:38:35.760 to slow over the course of the year. The economy 0:38:35.800 --> 0:38:38.279 probably doesn't bottom until late this year or the first 0:38:38.400 --> 0:38:42.080 quarter of next year, and inevitably all the rate hikes 0:38:42.400 --> 0:38:44.640 put a little bit of concerned consumers who are two 0:38:44.640 --> 0:38:46.800 thirds of the economy, and as result to get a 0:38:46.840 --> 0:38:49.680 little more cautious. We saw that with consumer confidence dropping 0:38:49.800 --> 0:38:54.000 again this month. Spending drops, revenues drop, earnings drop a bit, 0:38:54.120 --> 0:38:57.360 and stocks drop a bit as a result of that environment. 0:38:57.760 --> 0:39:00.920 It's not a doomsday scenario, but we are grinding into 0:39:01.000 --> 0:39:05.640 a slow, modest recession. Stocks don't do so well to 0:39:05.760 --> 0:39:07.960 the economy bottoms. That's what we're seeing and that's what 0:39:08.000 --> 0:39:09.080 the earnings are telling us. 0:39:09.480 --> 0:39:13.920 Alan So what exactly is missing from this turning into 0:39:14.160 --> 0:39:18.120 a bull market? At this point, there. 0:39:18.040 --> 0:39:20.279 Isn't a catalyst yet. So if you look over the 0:39:20.360 --> 0:39:25.120 last twelve recessions, stocks tend to bottom about three or 0:39:25.120 --> 0:39:29.080 four months before the actual bottom and economic activity. And 0:39:29.120 --> 0:39:32.759 given that on average the full impact economically from a 0:39:32.840 --> 0:39:35.520 rate hike takes about twelve months to work through the system. 0:39:35.920 --> 0:39:37.600 If you work in the math, it tells you the 0:39:37.640 --> 0:39:40.000 bottom of this economy is probably the first quarter the 0:39:40.040 --> 0:39:43.319 next year. That tells you that investors aren't going to 0:39:43.360 --> 0:39:46.400 be really looking forward to a change in FED policy 0:39:46.400 --> 0:39:49.080 and stocks moving back up until you get until very 0:39:49.160 --> 0:39:51.640 late this year, if not early next year. There's a 0:39:51.719 --> 0:39:53.880 lack of a catalyst right now, and in the absence 0:39:53.920 --> 0:39:56.279 of that, we're just going to be grinding here. Valuations 0:39:56.280 --> 0:39:59.919 are modestly above long term averages or trading right now 0:40:00.080 --> 0:40:03.880 at roughly eighteen and a half times consensus estimates for 0:40:03.960 --> 0:40:06.080 this year. If you believe them, and if you think 0:40:06.120 --> 0:40:09.040 earnings are a little too high, maybe stocks fall about 0:40:09.080 --> 0:40:11.359 ten percent to reflect earnings being cut a little bit 0:40:11.400 --> 0:40:14.279 and multiple stropping a little bit. But it's not catastrophic. 0:40:14.520 --> 0:40:17.240 It's not like a deep recession with a thirty percent declimb. 0:40:17.239 --> 0:40:19.240 We do not see that in the forecast. 0:40:19.560 --> 0:40:21.479 Do you think earnings estimates are too high? 0:40:21.480 --> 0:40:21.800 Still? 0:40:22.040 --> 0:40:25.239 We had we shared with our TV colleagues in our 0:40:25.360 --> 0:40:31.080 simulcaster cross platform Sarah Hunter, you know, and she at Alpines. 0:40:31.120 --> 0:40:34.080 She talked about that the markets haven't yet really priced 0:40:34.080 --> 0:40:35.399 in some of the earnings slow down. 0:40:36.160 --> 0:40:40.440 I concur completely with that. Our guess here is estimates 0:40:40.480 --> 0:40:43.279 still are somewhere between five to ten percent too high 0:40:43.320 --> 0:40:46.759 for this calendar year and arguably about the same magnitude 0:40:46.800 --> 0:40:50.239 for next year, which tells you that markets themselves are 0:40:50.280 --> 0:40:53.320 probably about five to ten percent overvalid if you're using 0:40:53.360 --> 0:40:56.680 long term historical averages as a gauge for where stocks 0:40:56.680 --> 0:40:59.680 should trade. But we're also looking for something like twelve 0:40:59.760 --> 0:41:02.880 percent and earnings growth in the subsequent year. So what 0:41:03.000 --> 0:41:04.920 goes down is going to come back up, and it's 0:41:04.920 --> 0:41:07.320 not enough to date. If you're a long term investor, 0:41:07.960 --> 0:41:10.960 it isn't enough to make a meaningful shift in allocation. 0:41:11.120 --> 0:41:13.600 We could be wrong. Timing markets is fraught with risk, 0:41:14.000 --> 0:41:16.680 and the magnitude here isn't big enough to problem make 0:41:16.719 --> 0:41:20.080 a lot of strategic changes. So we're just guiding people 0:41:20.120 --> 0:41:22.160 if you want to enter the market goes slower than 0:41:22.200 --> 0:41:25.440 average dollar cost average. If prices fall, it is the 0:41:25.440 --> 0:41:29.680 proverbial buying opportunity. Be patient. The economic impact hasn't been 0:41:29.680 --> 0:41:31.560 fully reflected in earnings estimates yet. 0:41:31.800 --> 0:41:33.200 I just want to mention. I just want to mention 0:41:33.280 --> 0:41:37.000 First Republic extending it's plunged to fifty percent in today's session. 0:41:37.400 --> 0:41:39.480 We know the trouble Bank out with it's led as 0:41:39.520 --> 0:41:43.440 results last night, but exploring maybe possibly selling some one 0:41:43.520 --> 0:41:45.479 hundred billion dollars in asset sales. So I just wanted 0:41:45.520 --> 0:41:46.719 to put that out for everybody. 0:41:47.040 --> 0:41:50.480 So, Alan, how are you positioning at this point when 0:41:50.480 --> 0:41:52.759 we were just talking about all these different backdrops with 0:41:52.800 --> 0:41:53.240 the macro. 0:41:54.280 --> 0:41:59.280 Well, from a starting standpoint, diversification is your greatest risk mitigant, 0:41:59.400 --> 0:42:02.760 So stay well, diversify though. 0:42:02.960 --> 0:42:05.759 We come on, I feel like everybody says that. 0:42:05.960 --> 0:42:09.239 Right exactly, like what specifically how do we diversify? 0:42:09.719 --> 0:42:13.520 Okay, So what that means is a broad set of equities. 0:42:13.560 --> 0:42:16.000 Don't put your eggs in one basket if you're not 0:42:16.560 --> 0:42:18.360 built to deal with the swings that go up and 0:42:18.360 --> 0:42:20.319 down the markets. Make sure of ample amounts of high 0:42:20.400 --> 0:42:24.239 quality bonds. And if specifically to your question right now, 0:42:24.239 --> 0:42:28.880 we're sitting in high quality bonds. When markets decline, credit 0:42:28.920 --> 0:42:32.560 spreads wideen, so corporate bond prices and especially high yield 0:42:32.600 --> 0:42:36.719 public bonds fall in value as stocks fall. Historically, so 0:42:36.840 --> 0:42:41.720 we are largely avoiding anything that looks like non investment 0:42:41.800 --> 0:42:45.040 grade bonds. We're sticking with treasuries and very high quality 0:42:45.080 --> 0:42:49.200 corporates to in the public markets, there are opportunities. Selectively, 0:42:49.320 --> 0:42:53.080 in non publicly traded areas, we think there are compelling opportunities, 0:42:53.080 --> 0:42:56.239 and things like high quality real estate. Apartments have such 0:42:56.239 --> 0:42:59.800 a long term secular trend that ownershouldn't have in ownership 0:42:59.840 --> 0:43:03.560 of income generating apartment units or warehouses. With e commerce's 0:43:03.600 --> 0:43:06.600 growth is a sustainable trend, so there are ways to 0:43:06.640 --> 0:43:09.239 play it if you're looking for income with a long 0:43:09.320 --> 0:43:10.239 term perspective. 0:43:10.640 --> 0:43:12.520 I'm glad you brought up real estate. That's what I 0:43:12.560 --> 0:43:14.399 was going to ask you about. So you talked about 0:43:14.440 --> 0:43:16.520 the apartment side of things and some other corners, but 0:43:16.560 --> 0:43:19.239 what about when it comes to offices, and are there 0:43:19.320 --> 0:43:22.600 particular corners in real estate you think are still too 0:43:22.680 --> 0:43:23.560 risky at this point. 0:43:24.719 --> 0:43:28.880 Yeah. We actually are not big fans of real estate 0:43:28.960 --> 0:43:33.759 assets that are either in a cyclical risk that tends 0:43:33.760 --> 0:43:36.319 to be things like hotels that when the economy slows through, 0:43:36.360 --> 0:43:39.480 when people show up at hotels and vacancies escalate, which 0:43:39.520 --> 0:43:42.319 is not good. And we like to avoid things that 0:43:42.360 --> 0:43:45.520 are in secular decline. And example is retail in general 0:43:45.560 --> 0:43:48.960 real estate, there's still far too many retail building buildings 0:43:49.040 --> 0:43:52.319 relative down much space retailers need. We would argue that 0:43:52.520 --> 0:43:56.480 many office buildings are in a secular decline, so on balance, 0:43:56.960 --> 0:44:00.800 we are avoiding office building exposure as well. We prefer 0:44:01.320 --> 0:44:05.120 areas that are more commonplace apartment buildings, single family homes 0:44:05.160 --> 0:44:09.600 for rent, self storage units, industrial warehouses. Those are the 0:44:09.719 --> 0:44:13.080 secular trends that are going to take you through this recession, 0:44:13.719 --> 0:44:16.600 generate attractive income, and get you to the next cycle. 0:44:16.760 --> 0:44:18.640 Do you think real estate is the next shoe to drop? 0:44:18.640 --> 0:44:18.799 Though? 0:44:18.800 --> 0:44:20.759 Maybe office? 0:44:21.120 --> 0:44:23.440 Yes, but selected airs. I don't think it's too You 0:44:23.480 --> 0:44:25.759 can't broad brush it. If you have a type A 0:44:25.880 --> 0:44:29.600 office building, even in a centralized business district, a class 0:44:29.640 --> 0:44:33.040 A office space, it's still in demand. You can't. Not 0:44:33.120 --> 0:44:35.759 everybody's going to be remote in this economy. But sure, 0:44:35.760 --> 0:44:40.200 if you're in a tertiary city with a old office building, 0:44:40.480 --> 0:44:42.440 you're in your land order. You're in a lot of 0:44:42.480 --> 0:44:43.200 pain right now. 0:44:43.719 --> 0:44:45.960 We only have about thirty seconds left. But what do 0:44:45.960 --> 0:44:48.280 you think credit spreads are telling us at this point? 0:44:49.560 --> 0:44:51.960 Credit spreads are telling us a recession is coming, but 0:44:52.000 --> 0:44:54.200 they haven't widened out enough yet. And that's why we're 0:44:54.239 --> 0:44:58.120 avoiding publicly traded non investment grade bonds. They're not yet 0:44:58.320 --> 0:45:01.000 wide enough. But the bond mark, the treasure market is 0:45:01.000 --> 0:45:03.799 telling you a weakening is coming. That's why six months 0:45:03.800 --> 0:45:06.120 he bills at five percent and at ten your treasure 0:45:06.160 --> 0:45:08.600 right now is at three point four percent. It tells 0:45:08.560 --> 0:45:09.560 you every recession's coming. 0:45:10.760 --> 0:45:12.960 All right, Well, there you have it, but it sounds 0:45:12.960 --> 0:45:15.360 like it's not going to be too difficult ultimately to 0:45:15.400 --> 0:45:18.000 get through it. We really appreciate Allan always checking in 0:45:18.040 --> 0:45:20.200 with you. Alan Zaffron, who's founding partner and co CEO 0:45:20.520 --> 0:45:24.320 of at IQ Kapital, joining us via zoom from Foster City, California. 0:45:24.360 --> 0:45:25.960 I feel like we hear that a lot, right that 0:45:26.200 --> 0:45:27.799 it's kind of almost a touch and go with a 0:45:27.840 --> 0:45:29.239 recession to some extent, and. 0:45:29.320 --> 0:45:32.640 You have other people arguing that maybe the worst has 0:45:32.680 --> 0:45:34.920 already parents does when we're looking at some other models. 0:45:35.000 --> 0:45:36.920 So look at the chart you had up about right 0:45:37.040 --> 0:45:38.280 earnings estimates, right. 0:45:38.200 --> 0:45:41.239 Right, So basically that recession with earnings started in the 0:45:41.239 --> 0:45:43.200 second quarter of last year when excluding energy. 0:45:44.400 --> 0:45:47.719 This is the Bloomberg Business Week Podcast, a little bit 0:45:47.760 --> 0:45:51.200 of Apple, Spotify and anywhere else you can get your podcast. 0:45:51.680 --> 0:45:55.239 Listen live weekday afternoons from three to six Eastern on 0:45:55.360 --> 0:45:58.719 Bloomberg dot com, the iHeartRadio app tune In, and the 0:45:58.719 --> 0:46:01.719 Bloomberg Business app. You can also watch us live every 0:46:01.719 --> 0:46:05.160 weekday on YouTube and always on the Bloomberg terminal