Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: Darkening the Door, I gotta describe here what's going on here?
Speaker 1: Pretty this is a little bit I'm thrown unnerving here.
Speaker 1: All right, let's start with anaag Rana. He walks from
Speaker 1: the door freshly shaven. Now, the reason this is important
Speaker 1: because he's had a scraggly beard. I'm calling it for
Speaker 1: a couple three years. I don't know if it was
Speaker 1: a pandemic thing, but I was petitioning from the shave
Speaker 1: it off since the first time I saw it. That's
Speaker 1: gone looks a thousand times younger. I would say, he
Speaker 1: looks him ten years younger.
Speaker 3: I gotta say, I saw him walking towards the radio
Speaker 3: studio and I see a double take.
Speaker 4: I didn't even recognize it.
Speaker 1: I know. Sorry, which we got that going for us? Yeah,
Speaker 1: and then we've got Dan ives he covers technology stuff
Speaker 1: for web Bush Security. So I think I'm scruff are you? Okay,
Speaker 1: it's just not it's not even a choice here with Ana.
Speaker 1: You gotta go. And then he's got the haircut. He's like,
Speaker 1: it's a whole new on ruck, all right. So dan
Speaker 1: Ives comes in with an summer outfit that is right
Speaker 1: on the edge of being summer cool chic.
Speaker 4: It's like fresh back from Bermuda. What's going on here?
Speaker 1: Or it's right on that line of being cool and
Speaker 1: being obscene. I don't know where we are.
Speaker 3: It's it's like a Picasso painting in a very strange way,
Speaker 3: like I can't even I don't even know what's saying.
Speaker 1: And you brought that look over to Asia because I
Speaker 1: saw your postings on social media Daan when you're over
Speaker 1: on your marketing trip to Asia. You weren't holding back,
Speaker 1: were you.
Speaker 5: No?
Speaker 6: I mean we brought it from from two to one
Speaker 6: two over to Asia.
Speaker 4: Oh that's where the color is coming from. Okay, this
Speaker 4: makes sense two one.
Speaker 6: Two color over to Asia, and I think, yeah, I
Speaker 6: think it worked well. It could be a media a trend.
Speaker 6: You've started seeing some tech investers throughout Asia. It's because
Speaker 6: I mean it could besides AI and some of the themes,
Speaker 6: you could have a all.
Speaker 1: Right, so let me here's all right, Let let me
Speaker 1: just go to anaack here, what does Nvidia do and
Speaker 1: why are they seemingly getting all these all this chip
Speaker 1: demand for AIS? Is this high bitch or is it real?
Speaker 7: Well, the high pot is will always be driven by
Speaker 7: you know, a little bit of valuation. But I think
Speaker 7: one of the things you have to think about when
Speaker 7: you run some of the very large workloads, even on
Speaker 7: the cloud, you need really fast computers and you really
Speaker 7: need faster chips. And Nvidia is the leader in those
Speaker 7: chips out there, and they really posted good numbers, which
Speaker 7: basically tells us that the world is investing a lot
Speaker 7: more in high powered computers right now because of all
Speaker 7: the AI frenzy.
Speaker 4: Before I go to.
Speaker 3: Dan, can I just point out that the reason an
Speaker 3: rag has haircut and fresh shave and all that because
Speaker 3: there's an event happening this evening, afternoon, afternoon, slush evening
Speaker 3: it is, I argue.
Speaker 7: Went to tell them, Yeah, there'll be a big semiconductory
Speaker 7: event we are having in the one twenty park about well,
Speaker 7: have Micron, Intel and Global founderies. They're talking about, you know,
Speaker 7: the the making of the chips in the US from
Speaker 7: an executive from Department of Commerce.
Speaker 1: Yeah, perfect suite of.
Speaker 4: Some of the Yeah, some of the some the biggest
Speaker 4: and some of the best. Very excited about that. Yeah,
Speaker 4: they are on top of it. Somean deep thing. Bloomberg
Speaker 4: Intelligence will be there on ROG of course leading the charge.
Speaker 1: Yeah.
Speaker 4: Good, good lineup, Dan, talk.
Speaker 3: To us a little bit about this trade here the
Speaker 3: idea that kind of AI is driving in video shares
Speaker 3: and video isn't a pure play on AI necessarily. So
Speaker 3: how quickly does this thirty percent move in the stock
Speaker 3: get walked back?
Speaker 6: Look, this is historic. I mean in covering tech stocks
Speaker 6: twenty two years, I've never seen anything in my career
Speaker 6: where you have a guidance raise sixty percent in the quarter.
Speaker 6: And I think the difference and why this is I
Speaker 6: think the ripple effects here in terms of this goal
Speaker 6: rushers happen in AI.
Speaker 1: It validates it.
Speaker 6: Demand is Eshian's real because ultimately, as that Aerog talks about,
Speaker 6: they're the ones that see at first. I believe, in
Speaker 6: my view.
Speaker 1: This is just a start.
Speaker 6: I think it's a revolution that's playing out and in
Speaker 6: my view, Microsoft, Google, across the board. It's just the
Speaker 6: start of what I view is probably the biggest transformational
Speaker 6: theme that I've ever seen.
Speaker 1: Cortentions, You've been.
Speaker 3: A techable for ages, so this is this is pretty
Speaker 3: This makes a lot of sense that you would say
Speaker 3: that what flips your view?
Speaker 4: What gets in the way of us?
Speaker 6: It's when I talked and I can tell you the
Speaker 6: last three weeks, like whether it's asier whether us when
Speaker 6: I talk to CIOs, when I talked to product managers,
Speaker 6: and now they're looking to spend for every one hundred
Speaker 6: dollars in cloud, spend thirty five to forty dollars incremental
Speaker 6: for AI. To me, that that's the game changing. That's
Speaker 6: why like, look those if your valuation centric and we've
Speaker 6: talked about this, you would have missed the Facebook's Netflix,
Speaker 6: has it? I feel like this is one where we're
Speaker 6: talking conservatively eight hundred billion over the next decade incremental
Speaker 6: spend and mebe aggressively in the trillions with the amount
Speaker 6: of names you count on two hands, all.
Speaker 1: Right, so Anurag explain to me, I mean every company
Speaker 1: in yester p. Five hundred and the last quarterly earnings
Speaker 1: mentioned AI Yeah, for the average company, average person, what
Speaker 1: is AI.
Speaker 7: So it's you get trying to get a lot more
Speaker 7: insights from what you're doing already and try to make
Speaker 7: better decisions either on the revenue side or the cost site.
Speaker 1: Because you have data, You have data, another way to analyze,
Speaker 1: organize and analyze data.
Speaker 7: So you know, it's much easier to do on the
Speaker 7: consumer front because it's you know, we have all the
Speaker 7: consumer data, you have the Internet, you can feed off that.
Speaker 7: It's a little bit harder on the enterprise side because
Speaker 7: your data is extremely disaggregated in multiple systems, so it's
Speaker 7: a little bit of a longer process. Means you have
Speaker 7: to buy the computers which we we're looking at, or
Speaker 7: the chips. Then you've got to figure out how to
Speaker 7: put the data in a common data platform where you're
Speaker 7: going to bring all the data together from let's say
Speaker 7: hundreds of systems. Then you got to analyze it, and
Speaker 7: then you put the algorithm on top of it to
Speaker 7: get you insights. So it's a little bit more longer
Speaker 7: term view when it comes to enterprises, but a lot
Speaker 7: faster when it's it's a consumer application.
Speaker 3: Well, explain to me, like put put some numbers on it.
Speaker 3: For us, if we're looking at what do you say
Speaker 3: in it was an eight.
Speaker 6: Hundred eight hundred billion or eight hundred billion an incremental
Speaker 6: spend that basically six months ago, wasn't there?
Speaker 3: Okay, eight hundred billion over the next decade. And Dan,
Speaker 3: I'm going to come to you next on this, but
Speaker 3: explain how the math works here, because if you're looking
Speaker 3: at Nvidia, I think that this data right or something
Speaker 3: was like the share price a loan or the market
Speaker 3: cap alone off this rally has risen like one am
Speaker 3: D or something like that.
Speaker 4: It's most direct competitor.
Speaker 3: How do you price in eight hundred million worth of
Speaker 3: market over the next ten years.
Speaker 7: So one of the things you have to see is
Speaker 7: you know what kind of applications are going to be created.
Speaker 7: Who's going to be the big beneficiary? Now we talked
Speaker 7: about a chip manufacturer. For our point of view, the
Speaker 7: cloud players are going to be the biggest beneficiary because
Speaker 7: you have to build this thing on a cloud. You
Speaker 7: can't really run it in your basement and come up
Speaker 7: with applications. These are things that require very fast computation
Speaker 7: and very large memory needs. So you need very very
Speaker 7: large you know, cloud hyperscale cloud wider, So that's one
Speaker 7: big beneficiary. We also think, you know areas where such
Speaker 7: as you have a lot of consulting companies are going
Speaker 7: to come out and help out to create these applications.
Speaker 7: So that's very downstream work. But it really starts with
Speaker 7: the chip and the hardware level. Then it trickles down
Speaker 7: to software, then it trickles down to services. Everybody in
Speaker 7: the ecosystem will get some piece of it. And we've
Speaker 7: seen every company service now just had their analysts day.
Speaker 7: They spent entires analysts day talking about, you know, how
Speaker 7: they're going to improve their product portfolio through it. Adobe
Speaker 7: did the same thing, you know, a few weeks ago.
Speaker 7: So everybody is spending crazy amount of money trying to
Speaker 7: make their products a lot more smarter for the users
Speaker 7: to use it.
Speaker 4: All right, Dan, your turn. What's your price target? By
Speaker 4: the way, on in.
Speaker 6: Video, Yes, well, I mean we think the video right here,
Speaker 6: I mean five hundred hours when you start to work
Speaker 6: at where this could be fat to six hundred hours
Speaker 6: could be fair value based on the income and opportunity,
Speaker 6: and then you even stream it to Microsoft Poe case.
Speaker 6: I mean you could have a start with a foreign
Speaker 6: front of it, because now all that incremental spend, it's
Speaker 6: going to Microsoft, it's going to Alphabet, it's going to
Speaker 6: potential to Amazon and others. In my view to your question,
Speaker 6: I view it that now, look execution is clearly there
Speaker 6: will be issues. Now there's gonna be losers. There's gonna
Speaker 6: be AI roadkill as well. Yeah, but this goes back
Speaker 6: to basically a late nineties type feel in terms of
Speaker 6: trying trying to identify the winners. There will be losers.
Speaker 6: From evaluation perspective, I think it's sort of the it's
Speaker 6: a goal rush because now it really changes the whole
Speaker 6: paradigm in terms of what the revenue opportunity Paul.
Speaker 3: For a radio audience, it's worth saying, he said, a
Speaker 3: four handle on Microsoft shares Microsoft shares are training at
Speaker 3: three twenty one right now, and a five handle on
Speaker 3: end Video training about three eighty a share.
Speaker 1: Here's what I see, having been in this market for
Speaker 1: more than thirty years, I see the average portfolio manager
Speaker 1: anywhere in the world saying I have to have exposure
Speaker 1: to AI, calls up as tech analyst. Tech anist comes
Speaker 1: back with the NVDA. That's what we're seeing here today.
Speaker 1: I don't see. I don't see a seven hundred and
Speaker 1: fifty billion dollar market cap stock up twenty five percent
Speaker 1: on anything more than just panic buying.
Speaker 6: Almost But to your point, I mean, you call it FOMA,
Speaker 6: but so many investadors that sit there in debt ceiling,
Speaker 6: macro evaluation, you're you missed these moves in the video
Speaker 6: in Microsoft and Alphabet in terms of institutional speaking, you're
Speaker 6: trying to figure out what fond to use on the
Speaker 6: resume this year. And I think that's that's sort of
Speaker 6: the issue. You could sit there, well, you could talk
Speaker 6: valuation till you're blue in the face. That in three
Speaker 6: bucks gets you. He is not a coffee don't get
Speaker 6: all right, So when.
Speaker 1: You're in Asia talking to clients and they say I
Speaker 1: want to get exposure to AI, what do you tell them?
Speaker 6: So on the China side, clearly there's there's bob about
Speaker 6: ten cent by do you know from a China perspective,
Speaker 6: But more and more they're looking for us, and I
Speaker 6: viewed as the basket. It's it's Microsoft, it's Alphabet. I
Speaker 6: view powervolunteers and name that's a play here Salesforce dot Com.
Speaker 6: You have the chip players navidian a MD and then
Speaker 6: you kind of go down stream data dog, Snowflake, Mango dB.
Speaker 6: I mean you're really now starting to look at baskets
Speaker 6: and that's why today it all changes. I mean, I
Speaker 6: view this as historic. If there was an earnings Hall
Speaker 6: of Fame, this would be historic in terms of what
Speaker 6: it means for broader tech.
Speaker 3: An a quick question here on the infrastructure investment dan
Speaker 3: Way and if you have any thoughts. One of the
Speaker 3: things that overnight, I promise they're connected, but overnight one
Speaker 3: of the things that was so shocking was kind of
Speaker 3: the DeSantis going on Twitter thing. Trust me this connects,
Speaker 3: but Twitter essentially crashed and a lot of people said, look,
Speaker 3: they were preparing for a bigger fallout without having the
Speaker 3: infrastructure to do it. Could a similar thought be applied
Speaker 3: to this kind of AI boom that everyone's ready for AI,
Speaker 3: but the infrastructure can't catch up.
Speaker 7: See that's why I'm saying the hyper schedus love provider
Speaker 7: us at the right place to be because you don't
Speaker 7: have a bigger computer than Amazon across the world.
Speaker 5: Yeah.
Speaker 7: Now Amazon doesn't having you know, partnerships with some of
Speaker 7: these leading AI. I'll goithm companies right now. But I
Speaker 7: can bet you in the next twelve months all of
Speaker 7: that changes. It is just going to happen. So you
Speaker 7: can't run this thing, you know, in somebody's back office.
Speaker 7: It just doesn't work that way. Now, we will over time,
Speaker 7: at any given time, we will see crashes in the
Speaker 7: cloud infrastructure, just because that's the nature of it. It's
Speaker 7: a bunch of computers connected together. You know, somebody somewhere
Speaker 7: it is going to do something stupid that will crash
Speaker 7: this thing.
Speaker 6: I'd also say it is Andy Jasey right now has
Speaker 6: a number of people in some room somewhere in Seattle,
Speaker 6: and they're looking at it like they see Microsoft, they
Speaker 6: see Alphabet. They got to figure out their AI strategy,
Speaker 6: and that right now, I think is probably the biggest
Speaker 6: person need there.
Speaker 1: All right, guys on ock ten seconds. What's your conference
Speaker 1: again today?
Speaker 7: Semigindert conference. You can see it on Life Go.
Speaker 1: Live, Go okay, And two of the best dressed tech
Speaker 1: analysts on Wall Street right here on a rag Rana
Speaker 1: from Bloomberg Intelligence, Dan Eyes from what Bush Securities joining
Speaker 1: us here to help us put in perspective kind of
Speaker 1: what we're seeing out there on as Dan was suggesting
Speaker 1: kind of a historic day here for tech, and you've
Speaker 1: got it. Seems like the markets is opening its eyes
Speaker 1: today to what AI could mean across the tech stack,
Speaker 1: and that's what we're seeing. So we thank those gentlemen
Speaker 1: coming in. This is Bloomberg.
Speaker 8: You're listening to the team. Ken's a our live program,
Speaker 8: Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com,
Speaker 8: the iHeartRadio app and the Bloomberg Business app, or listen
Speaker 8: on demand wherever you get your podcasts.
Speaker 1: Let's get off the Nvidia trail for just a second,
Speaker 1: go little macro here and we could do that with
Speaker 1: one of our all time faves here, Danielle di Martino, Booth,
Speaker 1: CEO and chief strategists at QI Research. She was also
Speaker 1: a former advisor at the Federal Reserve Bank of Dallas,
Speaker 1: so we always appreciate getting her thoughts and her insight there. Danielle,
Speaker 1: Let's just start with our good friends Dan in Washington,
Speaker 1: d C. Trying to figure out a way to pay
Speaker 1: the bills and everything. How does that hold I guess
Speaker 1: uncertainty factory and kind of to your outlook and your.
Speaker 5: Work, Well, it factors in pretty largely given I was
Speaker 5: around in twenty eleven, and you know now that we're
Speaker 5: talking about Fitch possibly downgrading the nation's credit it's kind
Speaker 5: of getting real. And you know, for all of the
Speaker 5: headlines that speak of progress, that's the one thing that
Speaker 5: doesn't seem to be getting made is progress. So you
Speaker 5: have to stuff in wonder right.
Speaker 3: Well, Danille, talk to us a little bit about the
Speaker 3: fundamental agreement here, because the formula for GDP is to
Speaker 3: econ one oh one. A big part of that is
Speaker 3: government spending. If you were looking at even the flatline
Speaker 3: offer from the Biden adminstiration, which is just to keep
Speaker 3: spending the same as it is right now, that's still
Speaker 3: got to take some sort of toll on economic growth.
Speaker 3: Why aren't we worried about that?
Speaker 5: Well, you have a really fundamental question, and we should
Speaker 5: be worried about that, because once you dig into the
Speaker 5: the guts of the GDP math, we haven't been getting
Speaker 5: a lot from the biggest traditional inputs of business investment
Speaker 5: and consumption. In fact, we've been seeing just the opposite.
Speaker 5: And if you look at Bank of America proprietary credit
Speaker 5: card debit card data, that's trending in the same way
Speaker 5: as well, so these are the times when your economy
Speaker 5: is slowing into recession that you need the offset of
Speaker 5: government spending the most exactly.
Speaker 1: So we had some a little bit of economic data today.
Speaker 1: We're gonna get some more tomorrow with the PC deflator data,
Speaker 1: which is obviously real key with the Fed. But just
Speaker 1: on the job was front. I mean, I don't know
Speaker 1: how you want to look at I know we had
Speaker 1: some squirmy numbers coming out of Massachusetts, kind of stuff
Speaker 1: I usually expect to see in New Jersey. But anyway,
Speaker 1: jobs claims came in a little bit better and expected
Speaker 1: at the labor market still looks pretty solid. How do
Speaker 1: you think about it?
Speaker 5: So I don't look at the labor market in absolute
Speaker 5: numbers I research, we haven't for some time. What we
Speaker 5: look at is the number of states that we have
Speaker 5: with rising claims, and that really does take all the
Speaker 5: Massachusetts noise out of the mass and we've had at
Speaker 5: least two thirds of the states with rising initial and
Speaker 5: continuing claims here for a persistent period of time. And
Speaker 5: that tells you that while off, it is off a
Speaker 5: small base, a low base historically speaking, as it would
Speaker 5: be coming out of a pandemic that re employed people
Speaker 5: who wanted to be re employed and left people on
Speaker 5: the sidelines who were making enough from the government for
Speaker 5: a good long time. Think of how long the government
Speaker 5: was paying household rent and still is in states like California.
Speaker 5: But given the breath of states be R, E. A.
Speaker 5: D H that are seeing rising initial and continuing jobless claims,
Speaker 5: we are at or passed recessionary levels.
Speaker 3: Danille, Is there a way here to still get that
Speaker 3: shall recession or is the hard landing still the growing
Speaker 3: base case?
Speaker 5: Well, I think it grows with every day that the
Speaker 5: media tells us there's been quote unquote progress on the
Speaker 5: debt ceiling front, and we up at the end of
Speaker 5: the day without that progress. So once we can take
Speaker 5: the air quotes off progress and we actually see a
Speaker 5: deal done. And even in that case, the Terminal had
Speaker 5: a story out a few days ago that said that
Speaker 5: that Wells Fargo figured that if the debt ceiling was
Speaker 5: resolved by Labor Day, call it, which seems like a
Speaker 5: we're not even a Memorial day, so Labor Day seems
Speaker 5: a long ways away. But Wells Fargo said that even
Speaker 5: if the debt ceiling was resolved by a memorial day
Speaker 5: that the Treasury Department would have to sell somewhere around
Speaker 5: one point five trillion dollars in treasuries between then and
Speaker 5: the end of the first quarter twenty twenty four. That's
Speaker 5: a lot of liquidity to pull out of a system
Speaker 5: that's already contending with US households pulling money out of
Speaker 5: banks and putting them into investments that pay five percent
Speaker 5: or more.
Speaker 1: Hey, Danielle. When I when I type into FED go
Speaker 1: function into the Bloomberg terminal FAD, I get a lot
Speaker 1: of information about the FED and what's going on there.
Speaker 1: One of the easiest piece of data is I got
Speaker 1: another appointment on June fourteenth, which is not only Flag Day,
Speaker 1: but it's going to be a big day for the markets.
Speaker 1: I'm guessing the Fed's going to know something about this
Speaker 1: whole debt ceiling by June fourteenth. One would think, how
Speaker 1: do you think the Fed's looking at this news every day?
Speaker 1: Are they hanging on every word like we are, or
Speaker 1: are they just maybe working under the assumption that things
Speaker 1: will be okay.
Speaker 5: So, given I used to work at the FED, I
Speaker 5: kind of know who's who. And let's just say that
Speaker 5: Christopher Waller is as close to if you can't get Waller,
Speaker 5: if you can't get Powell at a microphone, then you
Speaker 5: can substitute in Christopher Waller. He's about palace closest confidant.
Speaker 5: And yesterday he said he didn't like the position that
Speaker 5: the US government had put FED policymakers in, but that
Speaker 5: that was not formulating into his calculus. I think that's
Speaker 5: a lot of the reason that we're being the probability
Speaker 5: of a June fourteenth rate hike the highest since it's
Speaker 5: been Now we're north of forty percent there for June fourteenth.
Speaker 5: Yesterday we were talking about, oh, will we get twenty
Speaker 5: five basis points by July. At this point, we're getting
Speaker 5: really close to a toss up on June, and we've
Speaker 5: got some critical data between now and that meeting, And
Speaker 5: again Waller's saying, we are data dependent. So as we
Speaker 5: get into their hot employment report in who knows, who
Speaker 5: knows that they don't go right then on June fourteenth
Speaker 5: and raise the flag.
Speaker 3: Danielle connect those dots for us though, how does the
Speaker 3: debt ceiling affect FED policy? How much of it is inflationary?
Speaker 5: It's not inflationary, and well back in twenty eleven, the
Speaker 5: tenure bond. The benchmark tenure yield came down quite dramatically.
Speaker 5: It was a massive rally in the bond market, and
Speaker 5: immediately the stock market shaved seventeen percentage point. It's not
Speaker 5: a small move. So in that sense, it makes the
Speaker 5: Fed's job easier, But it is the disruptive effect of
Speaker 5: the financial markets that plays into how policymakers approach FED policy,
Speaker 5: and if there's something that's highly disruptive, very difficult, and
Speaker 5: again we forget that. It's like the stock market does
Speaker 5: yoga before every FED meeting and financial conditions ease. Things
Speaker 5: always seem to be nicer, more complacent. But again that's
Speaker 5: just how it always seems to be. Right at the
Speaker 5: cusp of FED meetings. If there's a massive disruption in
Speaker 5: the financial markets because of this debt ceiling stand up,
Speaker 5: makes it much more difficult for the FED to go.
Speaker 1: Danielle, you know, I've got Eco go on my terminal,
Speaker 1: But that's basically all I have for economic indicators, and
Speaker 1: it's pretty high, high level market stuff. I always know
Speaker 1: you always quote these really obscure things that for you
Speaker 1: are really important, and you think that really tell it
Speaker 1: maybe a deeper story, what are you looking at now
Speaker 1: these days? And kind of what's it telling you?
Speaker 5: So two things this week, in particular, because it's been
Speaker 5: a pretty quiet economic data docket, we did see purchase
Speaker 5: applications for homes did right back down to kind of
Speaker 5: that thirty year low. And at the same time, I've
Speaker 5: put what my trader buddies on Wall Street se there,
Speaker 5: like Danielle, We've got teflation up on our screens, watched
Speaker 5: tru True inflation since it's like checking a billion prices
Speaker 5: in real time. And again, it was kind of a moment.
Speaker 5: It was a threshold. It was a rubicon that was
Speaker 5: crossed in yesterday's trading that it traded south of the
Speaker 5: three percent mark. So in the real world, I understand
Speaker 5: the beautiful models that come out of agencies and the
Speaker 5: Census Bureau and the BA and the BLS and all
Speaker 5: of those happy acronyms in the statistical agencies. But in
Speaker 5: the real world, inflation is breaking below three percent, which
Speaker 5: is pretty close to the FEDS two percent targets. So
Speaker 5: and I'm seeing it. My grocery circular is thicker than
Speaker 5: it used to be. There are more things on sale,
Speaker 5: and I'm sure as Heck, don't see any help wanted
Speaker 5: signs where I am. These are the telltale signs.
Speaker 1: Okay, Danielle DeMartino Booth, thank you so much for joining
Speaker 1: us on this Thursday before Memorial Day weekend. We appreciated
Speaker 1: Danielle de Martino Booth. She's the CEO and chief strategistic
Speaker 1: QI Research, and she a former advisor at the Federal
Speaker 1: Reserve Bank of Dallas, so really has a unique view
Speaker 1: into the FED and we always appreciate getting some of
Speaker 1: her time. And again, one of the many reasons we
Speaker 1: like talking to Danielle is because she looks at the
Speaker 1: economic data sets that I didn't even know existed, but
Speaker 1: they do. And she looks at the data and she's
Speaker 1: able to put that data into context for us and
Speaker 1: tell us why it's important and why we should focus
Speaker 1: on it.
Speaker 8: You're listening to the tape. Ken's are Live program Bloomberg
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Speaker 1: Let's step back a little bit shit gears and talk geopolitics.
Speaker 1: Let's head over to Europe. A lot of news coming
Speaker 1: out out of Europe, of course, and where you want
Speaker 1: to get the latest on the war in Ukraine and
Speaker 1: some other topics over there. Let's go to Maria today. Oh,
Speaker 1: she's a European correspondent for Bloomberg News. She is based
Speaker 1: in our Brussels office over there, but she's all over
Speaker 1: Europe covering the big stories over there. So Maria, thank
Speaker 1: you so much for taking some time out of your
Speaker 1: busy afternoon and evening. Let's start with Ukraine here, the counteroffensive.
Speaker 1: I kind of thought we might have seen it start
Speaker 1: by Now, what's the feeling in Europe about when this
Speaker 1: may start, what it may mean, and how we should
Speaker 1: think about it?
Speaker 9: Yes, and it's a free, good question. And today I
Speaker 9: happen to speak with one of the senior advisors to
Speaker 9: presidents and I key on this matter. Now, what the
Speaker 9: Ukrainians will say, and you hear two sides of the story.
Speaker 9: They say, we're still waiting for more weapons and the
Speaker 9: counter offensive will be successful, but obviously they do not
Speaker 9: want to put a date on it. And then on
Speaker 9: the other hand, you also have other officials also from
Speaker 9: the Ukrainian government who say, when you launch a counter offensive,
Speaker 9: this is not going to be like d D when
Speaker 9: it all happens on one day and this is a
Speaker 9: make or break. This will be a serious of events
Speaker 9: that will happen. So it's very difficult and obviously for
Speaker 9: them too, it's not something that they would do to
Speaker 9: publicize a date or to say it has started already.
Speaker 9: But what I can't say, specially when you look to
Speaker 9: European officials, is that this counter offensive will be key.
Speaker 9: There's so much going on for Ukraine in terms of
Speaker 9: the momentum for the war, in terms of whether or
Speaker 9: not they can make significant gains, and the West has
Speaker 9: provided money, they have provided weapons.
Speaker 10: Obviously it's the.
Speaker 9: Ukrainian people that suffer the war. Is the Ukraine army
Speaker 9: that fights the war and ultimately also dies in battle.
Speaker 9: I mean, that's the grim reality of this. But there
Speaker 9: is a sense that a lot is going on with
Speaker 9: its kind of friends. It means a lot. If it
Speaker 9: doesn't go well, it could remove some of the momentum.
Speaker 9: This idea that Ukraine can win if they are successful
Speaker 9: and they're able to claim some of the land back,
Speaker 9: it could change a lot of things in terms of
Speaker 9: what the future piece may look like.
Speaker 3: So let's go from the war in Ukraine Maria to
Speaker 3: the economics of Europe broadly Germany and during its first recession.
Speaker 3: Talk us through the numbers here and essentially how the
Speaker 3: biggest economy in Europe is really being interpreted by its
Speaker 3: peers right now.
Speaker 9: Well, Germany we always care about for two reasons. Obviously,
Speaker 9: just the biggest economy in the euro area. So obviously
Speaker 9: the cloud and the just kind of say they have
Speaker 9: in talks and negotiations when it comes to anything that
Speaker 9: gets done in Europe is tremendous. Obviously, this is a
Speaker 9: country that has the biggest pockets, also a big industrial
Speaker 9: power for Europe too, on their husband's idea that we
Speaker 9: have to rebuild the European industry and that Germany will
Speaker 9: be key because of the well just simply the fact
Speaker 9: that they know how to make things and they make
Speaker 9: them very well and also export them very well. When
Speaker 9: you look at the number today the recession, it is
Speaker 9: significant in some ways if you look at the political
Speaker 9: narrative all of Schultz, the Chancellor had repeated many times.
Speaker 9: Remember he did an interview with our editor in chief
Speaker 9: about two months ago, and he said, We're not going
Speaker 9: to have this recession. We're going to escape this recession
Speaker 9: that we're trying to flip the momentum of it. Today
Speaker 9: we see the economic reality is different. Having said that,
Speaker 9: are we shocked surprise? Well, no, because the PMIS had
Speaker 9: been painting a bad picture for Germany. We knew that
Speaker 9: manufacturing was already in contraction. We knew that some of
Speaker 9: the implications of the energy crisis. This was not the
Speaker 9: winter from Hell that we were expecting. This was not
Speaker 9: the terrible winter that would break Europe, but obviously lasting
Speaker 9: effects on the industry, and now we see them play
Speaker 9: out and beyond Germany. To answer your question a bigger picture,
Speaker 9: I think it also reflects some of the fears that
Speaker 9: I hear and see in every panel that I do,
Speaker 9: in every conference that I've done over the past months,
Speaker 9: this idea that Europe is losing attractiveness when it comes
Speaker 9: to the industry. And there was this survey just very briefly,
Speaker 9: but I think this is so key that came out
Speaker 9: this week from a very influential European saying tank that
Speaker 9: said fifty two percent of CEOs would consider changing investments
Speaker 9: and operations and moving them to North America. That is
Speaker 9: terrible means for main in Germany. But beyond that, and
Speaker 9: here's another stat and this is terrible, eighty percent of
Speaker 9: the CEOs that were surveyed they said that they believe, yes,
Speaker 9: Europe is losing competitiveness when it comes to the industry.
Speaker 9: So eighty percent of respond that number is really it
Speaker 9: is worrying, it is, it is.
Speaker 1: And in Germany, just following up there in Germany, you know,
Speaker 1: when I think of Germany, I think some of these
Speaker 1: great industrial companies Semens and so on, and I think
Speaker 1: about them making big, big stuff and exporting it to China.
Speaker 1: So they must have a very difficult political and economic,
Speaker 1: you know, tightrope to walk in terms of the relationships,
Speaker 1: the relationship with China. How do they phrase it? How
Speaker 1: does the German government phrase it?
Speaker 9: Yes, for sure, and it's not just the big companies
Speaker 9: in Germany that we all know of, and obviously they
Speaker 9: make things that are very well and then very well
Speaker 9: done and that they sell, but it's also the atames. Remember,
Speaker 9: Germany is a country that is built on small to
Speaker 9: medium companies too, that that are interconnected.
Speaker 11: With the big ones.
Speaker 9: But it doesn't stop there because Germany is also a
Speaker 9: country that buys components and parts to countries like Italy,
Speaker 9: So a recession in Germany has trickled down effects on
Speaker 9: countries like Italy. So overall this is a very heavily
Speaker 9: connected economy when you look at China. Look, this is
Speaker 9: a difficult question for Germany, but also the European Union overall.
Speaker 9: When you see the G seven statement and all of
Speaker 9: Scheltz obviously participates representing Germany, they all agree in the
Speaker 9: communication that they have to de risk the economy, not decouple,
Speaker 9: and they mentioned China in that statement twenty times. I
Speaker 9: have never seen that in the GET statement, So that
Speaker 9: shows the political jitters are obviously playing out. They have
Speaker 9: been accelerated by the war in Ukraine. But for Germany
Speaker 9: this is a very very difficult question because on the
Speaker 9: one hand, the relationship with Russia on the energy is
Speaker 9: over the North Triam blew up. But also a major
Speaker 9: recipient of your experts. You're now having to rethink is
Speaker 9: this country a partner, is there a revival? Is it
Speaker 9: a challenge? And now what do you do after years
Speaker 9: in which China was a huge market for Germany and
Speaker 9: continues to be Maria.
Speaker 3: In the absence of, let's say, some sort of transition
Speaker 3: or diversification away from China, who's the benefactor from Germany's perspective.
Speaker 9: From Germany's I look again, it's a good question because
Speaker 9: and it goes back to the initial point that I
Speaker 9: made on European CEOs being gloomy. What they feel is like,
Speaker 9: if we lose business with China, if we also have
Speaker 9: a lot of the regulation that kicks in, especially when
Speaker 9: it comes to the greening the economy, there's all these
Speaker 9: transitions that are going on, and we don't have the
Speaker 9: money and the type of subsidies that perhaps a transformation
Speaker 9: like this would entail. Then one of the big beneficiaries
Speaker 9: is obviously the United States, and we know that for
Speaker 9: the Europeans there have been a lot of concerns now
Speaker 9: for the Inflatient Reduction Act. What they mean when obviously
Speaker 9: they see a survey, we're one in two CEOs essentially
Speaker 9: say I would consider relocated to North America.
Speaker 5: That is problematic.
Speaker 9: But at the same time, you find yourself in a
Speaker 9: situation where again politically and diplomatically, the United States and
Speaker 9: the European Union are very close now because of the
Speaker 9: war in Ukraine.
Speaker 1: Maria, thank you so much for joining us. I really
Speaker 1: appreciate getting your perspective about all things Europe. Lots to
Speaker 1: think about there. Maria Today, European correspondent for Bloomberg News.
Speaker 1: She does fantastic reporting from all of the hotspots around Europe,
Speaker 1: including Ukraine. So again some great color there from Maria
Speaker 1: today on the ground in Europe.
Speaker 8: You're listening to the Team Ken's are Live program Bloomberg
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Speaker 1: Next guest, this is kind of stuff right in my wheelhouse.
Speaker 1: We're talking leverage finance, you know, putting loan. I had
Speaker 1: the first when I was at Chaseman, a bank. We
Speaker 1: lent to a company called god I can't remember it
Speaker 1: became next Star, became oh, it's fleet Call. I was
Speaker 1: asking for a two hundred fifty million dollar loan on
Speaker 1: no assets, wow, no cash flow. We were lending against
Speaker 1: air and we got the loan. Our committee we finally
Speaker 1: took us like three weeks of meetings, but we finally
Speaker 1: convinced her and it turned out to be fleet call.
Speaker 1: We made a ga jillion dollars on the warrants. Ted Swimmer,
Speaker 1: he knows what I'm talking about. He's head of Capital
Speaker 1: Markets and Citizens Financial. Ted. You guys at Citizens Financial
Speaker 1: kind of mid market upper mid market financing deals getting
Speaker 1: deals done. Tell us about that part of the market today,
Speaker 1: because here's sman and I we just sit around and
Speaker 1: we talk about the debt ceiling and the FED and
Speaker 1: stuff like that. You're on the ground helping companies raise
Speaker 1: capital to grow and to buy stuff and build stuff.
Speaker 1: What do you see?
Speaker 11: You know, it feels a lot better out there than
Speaker 11: it has in about a year year and a half.
Speaker 11: You know, a year ago, we saw M and A
Speaker 11: kind of cease, a lot of people concerned about how
Speaker 11: high rates we're going to go, People uncomfortable with trying
Speaker 11: to raise debt in the public markets and the private markets.
Speaker 11: And we saw a real pause in M and A
Speaker 11: and in debt financing. If you've just looked the last
Speaker 11: two months, a fair amount of transactions that started to
Speaker 11: be announced, underwritten by banks, underwritten by debt direct lenders.
Speaker 11: We're starting to see the market unfreeze a little bit,
Speaker 11: and we're starting to see, especially for really good companies,
Speaker 11: a very very active m and a market, so things
Speaker 11: feel a heck of a lot better than they did.
Speaker 12: That kind of sounds surprising to me because at the
Speaker 12: same time, you know, the Fed's talking about tightening lending conditions.
Speaker 12: You know, that's what we're hearing from money managers as well.
Speaker 12: And you're in this upper middle market space. Shouldn't this
Speaker 12: regional banking stress kind of take away from some of
Speaker 12: these things have the opposite effect.
Speaker 11: Perhaps, Well, there's there's a lot of different parts in
Speaker 11: the lending market. There's a leverage finance market which is
Speaker 11: funded a lot by colos and things of that nature,
Speaker 11: and by direct lenders, and you know, as banks sell
Speaker 11: a fair amount of these exposures off the markets to do,
Speaker 11: those have unfrozen. You've seen the secondary levels trade up,
Speaker 11: both on the bank and the bond side, which are
Speaker 11: giving and banks a lot more comfort in underwriting the
Speaker 11: transactions which they didn't have this time last year. I mean,
Speaker 11: you saw how the bank the bank index kind of
Speaker 11: went down about ten points, bond index trading in the
Speaker 11: low eighties. That's all reversed and if we're still not
Speaker 11: back to where we were twenty twenty one, but it
Speaker 11: feels a heck a lot better than it did recently.
Speaker 11: But let's go ahead.
Speaker 1: You know, I just want to ask you about one
Speaker 1: of the big topics that I like here, and it
Speaker 1: seems like a real growth business on Wall Street over
Speaker 1: the several years has been private credit, not private equity,
Speaker 1: private credit, and coming down the Great Financial Crisis, a
Speaker 1: lot of the banks really were curtailed in their ability
Speaker 1: to take to type of lending they could do, with
Speaker 1: the risks they could take on. And I kind of
Speaker 1: created this private credit business and it seems like they're
Speaker 1: raising money hand over fist. How do you deal with
Speaker 1: how do you view private credit in the marketplace as
Speaker 1: a competitor to you guys.
Speaker 11: It's a competitor, and it's also it's also somebody we
Speaker 11: work with, so as we underwrite transactions, sometimes we'll move
Speaker 11: it over to the CLO market more of a public
Speaker 11: not public, but more diversified market, and sometimes we'll work
Speaker 11: directly with private credit to help place deals. If you
Speaker 11: look at a lot of the deals that are coming out,
Speaker 11: some of the larger deals, you'll see a combination of
Speaker 11: bank underwriting and private credit both underwriting the transaction together now,
Speaker 11: so you're starting to see these markets I think, start
Speaker 11: to merge a little bit more. And it's not just
Speaker 11: private credit or bank you're seeing a combination of both.
Speaker 11: Blackstone did a deal last year where you saw them
Speaker 11: both use the bank market and the private credit market
Speaker 11: to get something done. So you've seen a combination of
Speaker 11: those markets come together.
Speaker 12: Well, we talked about this enthusiasm for private credit. I mean,
Speaker 12: has I feel like that's the only thing we read
Speaker 12: about on top on the Bloomberg terminal? Has this gotten
Speaker 12: over as skis? Has too much money been raised? Or
Speaker 12: how does this How does this money enter the economy
Speaker 12: over the next couple of years.
Speaker 11: Well, it enters the economy with an increase in M
Speaker 11: and A flow. I mean a lot of the deals
Speaker 11: that are being h that are that are being a
Speaker 11: lot of the financing is going into these new M
Speaker 11: and A transactions. And I think you've seen a period
Speaker 11: of time over the last year where there hasn't been
Speaker 11: a lot of M and A and you've seen the
Speaker 11: private credit funds build up capacity. So there's a lot
Speaker 11: of unused capacity which I think will help fund as
Speaker 11: people get more and more comfortable with valuations and whatever,
Speaker 11: this new rate environment looks like you'll see an avenue
Speaker 11: for both private credit and for colo credit put to
Speaker 11: work in order to finance these transactions.
Speaker 1: So you guys at Citizens hosted a conference in Atlanta recently,
Speaker 1: and presumably that's where you bring companies together, sponsors together,
Speaker 1: and you guys try to generate some conversations and hopefully
Speaker 1: some some trades down the line. What was kind of
Speaker 1: the conversation when he brought these folks together.
Speaker 11: Sounds like you were there, Paul, you described I described
Speaker 11: many of them. Yeah, you know, it was a very
Speaker 11: optimistic group. We've we've had we've hosted this conference in
Speaker 11: the last four or five years, and we saw more optimism.
Speaker 11: We we had a record amount of attendance, a market
Speaker 11: amount of sponsors, financial at private equity firms, and a
Speaker 11: record amount of companies looking to try to transact.
Speaker 6: Now.
Speaker 11: I think what we're what we're hearing is for really
Speaker 11: solid companies, there's a very very active market and an
Speaker 11: aggressive market to get those transactions done. For a little
Speaker 11: bit more storied credits. We're still seeing it'll be a
Speaker 11: little slow, but our pipelines right now at a record amount,
Speaker 11: and it's just a question of can we get a
Speaker 11: buyer and a seller together.
Speaker 1: To how about you? You bring it? Host this conference,
Speaker 1: you get you get some conversations going boom, you think
Speaker 1: you got a deal, you get them together, you go
Speaker 1: to your credit committee, or you go to whoever. Can
Speaker 1: you get deals done? Leverage deals or with a little
Speaker 1: hair on them? What's it like going to try to
Speaker 1: get some some of these deals done right now?
Speaker 11: It's not easy ran Obviously, banks are thinking about a
Speaker 11: lot of different things right now as they're putting capital
Speaker 11: to work. But again, a lot of these deals are
Speaker 11: distributed to markets where we can, which is very active
Speaker 11: and very liquid right now. I mean, to Simon's point earlier,
Speaker 11: you've seen a ton of private credit raised, there's a
Speaker 11: lot of there's a lot of desire to put money
Speaker 11: to work. You've seen very little loan issuance over the
Speaker 11: last year, so there's a really pent up demand on
Speaker 11: the COLO side. So although banks are not necessarily desirous
Speaker 11: to hold big capital commitments right now, there are other
Speaker 11: avenues of investors that are and our ability to put
Speaker 11: the buyer and the seller together take some distribution risk
Speaker 11: has never I wouldn't say never been as good, but
Speaker 11: it is certainly improving over the last twenty for twelve months.
Speaker 12: When you look down to I guess lower middle kind
Speaker 12: of credits, is that somewhere you see a little bit
Speaker 12: more anxiety.
Speaker 11: Yes, absolutely, the lower And just to clarify what we're
Speaker 11: talking about, I would say upper middle market is epita
Speaker 11: sizes of the fifty million dollars or greater, so enterprise
Speaker 11: value somewhere between four hundred and a billion dollars type things.
Speaker 11: When you start looking at lower that's become a market
Speaker 11: that has been more dominated by direct lenders as they've
Speaker 11: been able to do things that are banks would have
Speaker 11: a tough time during the due to a regulatory environment
Speaker 11: to get done, but the direct lenders can certainly do
Speaker 11: as they're not obviously regulated by the bank. So we're
Speaker 11: seeing a lot of appetite from that for those type
Speaker 11: transactions getting done with direct lenders.
Speaker 12: Because it was really interesting, the CEO of Citizens Financial
Speaker 12: was on Bloomberg Markets yesterday and he was talking about
Speaker 12: how restricting reining in credit by two to three percent
Speaker 12: was going to essentially help the FED do its job,
Speaker 12: but it does seem to really disadvantage smaller businesses.
Speaker 11: It's a great point. I think a lot of that
Speaker 11: was done prior right after, as Paul mentioned that the
Speaker 11: Great Recession, when the regulatory environment became harder, we really
Speaker 11: saw direct lenders pick up some of the slack. But
Speaker 11: I think as you get to more corporate driven transactions
Speaker 11: that don't necessarily have tradition relied on the bank, I
Speaker 11: think that's where you're going to see some issues if
Speaker 11: things get tighter from a lending perspective, because banks are
Speaker 11: used to holding very large dollar amounts of those and
Speaker 11: obviously that's going to become more expensive as capital becomes
Speaker 11: more precious.
Speaker 1: What are some of the sectors you guys like right here?
Speaker 1: Some sectors you like investing in and business with right now.
Speaker 11: So we're doing a fair amount with data Center's. Digital
Speaker 11: infrastructure is a great space for us right now. We're
Speaker 11: seeing We just purchased an m and a firm called
Speaker 11: DH Capital that specializes in that, and we've had a
Speaker 11: great run in that business and we see that as
Speaker 11: a real growth engine over the next couple of years.
Speaker 11: A lot of business technology, business outsourcing, things of that nature.
Speaker 11: We've been showing a commercial industrial industrial flows stuff for
Speaker 11: doing a fair amount in there. So those areas have
Speaker 11: really grown and seem to be somewhat especially the digital infrastructure,
Speaker 11: somewhat immune to concern around the overall economy that seems
Speaker 11: to be a never ending need for the capital and
Speaker 11: now business.
Speaker 1: So all right, Ted, thanks so much for coming in.
Speaker 1: Appreciate it as always, Ted Swimmer, you set of capital
Speaker 1: markets at Citizens Financial, joining us live in our Bloomberg
Speaker 1: Interactive Brokers Studio. None of this phony and in garbage
Speaker 1: coming in live to the Bloomberg Term studio.
Speaker 8: You're listening to the tape Cancher Line program. I'm Bloomberg
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 8: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 8: You can also listen live on Amazon Alexa from our
Speaker 8: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Speaker 1: Marie Driscoll. She's a luxury retail analyst for Core Site Research.
Speaker 1: Got lots of experience in the retail space, and let's
Speaker 1: start with with the luxury space here. I'm just looking
Speaker 1: at LVMH. That's kind of one of the names I
Speaker 1: kind of know, and it's big. It's four hundred billion
Speaker 1: market cap. I'm looking at the French shares that trade
Speaker 1: in France up twenty percent year to date of fifty
Speaker 1: percent on a troilling twelve month basis. Talk to us
Speaker 1: about retail space. What are you seeing out there these days?
Speaker 10: So if we're talking about luxury in LVNH, you know
Speaker 10: there's still pockets of money. The aspirational shopper is definitely
Speaker 10: more purposeful and making the purchases, you know, with thought.
Speaker 10: And we heard that from the likes of Walmart.
Speaker 13: On up.
Speaker 10: But for a company like LVMH that has seventy five
Speaker 10: brands in the luxury space, and brands that are powerfully
Speaker 10: supported throughout various economic cycles, these brands hold a lore
Speaker 10: and they never, they really rarely marked down. Their key
Speaker 10: brands like a Christian Dior or the Louis Duitan. They're
Speaker 10: not marked down, and because of that, many consumers look
Speaker 10: at them as like storage value, like you know that
Speaker 10: when you buy it, you're not making a mistake. It
Speaker 10: won't be marked down next week. Luxury shoppers are still shopping.
Speaker 10: People are being more purposeful, and you do see a
Speaker 10: bifurcated market. The people that have are spending, and they're
Speaker 10: not spending flagrantly, but they're still buying luxury products. Has
Speaker 10: also benefited from price increases for the last few years.
Speaker 10: China is coming back, so we expect to see a
Speaker 10: slow down in US consumption of luxury as the US
Speaker 10: consumer deals with the impacts of inflation and also reverts
Speaker 10: back to a pre COVID lifestyle of increased experiences. Experiences
Speaker 10: are where the consumer is encountering severe inflation. You know,
Speaker 10: twenty to forty percent increases in the price of going
Speaker 10: out to eat or staying in a hotel airfare, and
Speaker 10: yet consumers want that. There's pent up demand for that,
Speaker 10: and so as consumers spend on those experiences in America,
Speaker 10: they're less likely to be spending on another expensive handbag.
Speaker 10: Though the handbag is the handbag that remains of choice
Speaker 10: and they'll spend on it when they when they decide
Speaker 10: to do so. But this year luxury will see the
Speaker 10: benefits of the Chinese returning to the market with the
Speaker 10: opening of China again, and other UAE will be strong.
Speaker 10: And also you have gen Z supporting you know, a
Speaker 10: younger a younger luxury shopper that is supporting luxury.
Speaker 12: All right, Well, you know we have been hearing from
Speaker 12: CEOs across the consumer space about this softening of US demand.
Speaker 12: Take me through the details of that. Which demographics are
Speaker 12: feeling the pinch most, and that who are the recipients
Speaker 12: or of this potential cynicism and you know, inflation tightening
Speaker 12: of belts from consumers.
Speaker 10: Yeah, so you see like people are tightening their belts.
Speaker 10: Like if you just listen to the Walmart Paul, people
Speaker 10: are purposeful, they're looking for bargains Walmart. During COVID, Walmart
Speaker 10: attracted many consumers earning one hundred thousand a year or more,
Speaker 10: and of course they're trying to retain them as customers
Speaker 10: this year. This year, you know, higher end consumers. Everybody
Speaker 10: feels inflation. And you know, except for the one percent,
Speaker 10: most people feel inflation. They feel it in their growth
Speaker 10: rey bills, they feel it in going out to eat,
Speaker 10: and in their travel and it's and various services and
Speaker 10: experience it and so there while there's demands for selected
Speaker 10: items like if you recently cold, which is very Middle
Speaker 10: America reported, and where did they see strength? They saw
Speaker 10: incredible strength and beauty so people are still saying, I'm
Speaker 10: going to buy I'm going to have this cheap taste
Speaker 10: of luxury and with a fragrance or a lipstick. And
Speaker 10: guess what, you can use ellipstick every day. So it's
Speaker 10: got efficacy which is similar to using luxury hand you know,
Speaker 10: so you can there's room for that. So the last
Speaker 10: few years, we've spent a lot on casual attire calls,
Speaker 10: a big increase in both men's and women's more occasion
Speaker 10: the attire or address the.
Speaker 12: Attire right, you know, with calls though, I mean, you
Speaker 12: saw shares pop up seven and a half percent, but
Speaker 12: I think you know during the day that was quite
Speaker 12: a bit higher. Is it enough for these companies to
Speaker 12: just sort of like beat the estimates that their executives
Speaker 12: put out. Is that what we're seeing in the market
Speaker 12: reaction or are we seeing some fundamental sense from investors
Speaker 12: that the consumer is a little bit better off than
Speaker 12: they had anticipated going into earning season.
Speaker 10: So you know, you know, reading enough and listening to
Speaker 10: enough call during the last week or two, A few
Speaker 10: of the big takeaways are that while sales may not
Speaker 10: be meeting ejectives, and the consumer is more purposeful and
Speaker 10: there's winners and there's losers. Here I'm going to quote
Speaker 10: what the Dick Hayne's urban outfitter said. The hostile operating
Speaker 10: environment of the last few years has finally abated. Freight
Speaker 10: rates are have normalized, Supply chain speed and reliability have returned.
Speaker 10: Our initial merchandise markup. Improvement initiatives have begun to bear fruit,
Speaker 10: and total inventories are down and we're once again growing
Speaker 10: inventories that have slower rates themselves. That kind of the
Speaker 10: way he characterized his business is what I was seeing
Speaker 10: across many businesses. While the top line isn't there. The
Speaker 10: erratic business operating environment we've dealt with in the last
Speaker 10: three years with peaks of this man not enough, not
Speaker 10: enough supply, then the rush of supply and too much
Speaker 10: and not enough demand is abating, and we're entering a
Speaker 10: time when now the costs of getting your products to
Speaker 10: the store are less. You're seeing a return to stores.
Speaker 10: Digital is strolling down, people are in the stores.
Speaker 12: So the fundamental post pandemic improvements, you know, that's what
Speaker 12: we're seeing rather than yeah, I think consumer.
Speaker 10: And if we can get through a quarter or two
Speaker 10: of you know, like the consume, like these are the
Speaker 10: summer is the week quarter. The summer is when the
Speaker 10: US consumer is out traveling. If we can get through that,
Speaker 10: the second half of the year should be a better time.
Speaker 10: And I think investors should be looking at that.
Speaker 1: Hey, Marie, China reopening. As I walk through Midtown and
Speaker 1: down Fifth Avenue and Madison Avenue, I see tons of
Speaker 1: European shoppers. I don't see Chinese. When are they coming back?
Speaker 10: Yeah, so, you know, of course that is very close
Speaker 10: to the Chinese consumer. We have offices there, we have
Speaker 10: analysts on the ground, and we've been following them for
Speaker 10: probably eight years and more, and but we're you know,
Speaker 10: it's going to take six to twelve months for them
Speaker 10: to come back. They just opened up in February, basically,
Speaker 10: and it takes a while to get your travel plants
Speaker 10: in order. We don't really see it coming end of
Speaker 10: this year, next year, but the Europeans are here, and
Speaker 10: the Chinese are starting to travel domestically within within the
Speaker 10: Asia region, and so many American brands will benefit from that,
Speaker 10: you know, the European brand.
Speaker 1: Yeah, absolutely, absolutely well, they're welcome on Fifth Avenue, the
Speaker 1: walkome on Madison Avenue. I'm sure I speak for all
Speaker 1: the retailers there, because when you talk luxury retail, a big,
Speaker 1: big component, a big driver is the Chinese Chinese consumer.
Speaker 1: Marie Driscoll, luxury retail analysts at Corsite Research, joining us
Speaker 1: here to talk to us all things retail. Despite some
Speaker 1: of the tough headwinds out there in terms of inflation
Speaker 1: and economic concern NEI, there are certain pockets of some
Speaker 1: retail strength, and we're seeing other areas where some consumers
Speaker 1: are trading down a little bit.
Speaker 8: You're listening to the tape. Can's are live program Bloomberg
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 8: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 8: You can also listen live on Amazon Alexa from our
Speaker 8: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 1: I think one of my favorite stories coming out of
Speaker 1: Bloomberg News this week was won by John Gittelson about
Speaker 1: Downtown LA's office distress. So's the pain coming for cities A.
Speaker 1: This is an incredibly well sourced and reported story, and
Speaker 1: it's got just killer graphics by Kyle Kim, and it
Speaker 1: really brings home some of the problems we're going to
Speaker 1: see in some of these big US cities that you
Speaker 1: wouldn't necessarily think but like LA, go figure. So anyway,
Speaker 1: us on. He's a reporter, real estate reporter for Bloomberg News. John,
Speaker 1: thanks so much for joining us here. I said to
Speaker 1: our producer Eric, we got to get John on here
Speaker 1: because this is a great story. Here. Talk to us
Speaker 1: about LA and some of the primo building's iconic been
Speaker 1: in buildings in LA. They're in a lot of trouble,
Speaker 1: aren't they.
Speaker 14: Yeah, they really are. I mean, downtown LA has not
Speaker 14: really been a magnet for office workers for quite a while,
Speaker 14: but the pandemic really gave it this punch to the stomach.
Speaker 14: And so the biggest landlord, Brookfield, is defaulted on three
Speaker 14: buildings and it's got more troubled dead out there. So
Speaker 14: one point one billion dollars worth of loans it's not
Speaker 14: been paying and uh more trouble on the way trying
Speaker 14: to refinance those buildings.
Speaker 12: Yeah, talk to me about what happens exactly to those buildings.
Speaker 12: I'm sure some of it we don't know. So Brookfield
Speaker 12: in some cases has said we'll step away from this
Speaker 12: building completely. I believe based on the story, but it's
Speaker 12: not necessarily true for all of them.
Speaker 14: Take me through the process, that's right, Well, I mean
Speaker 14: there's a lot of options. Basically, though, these buildings are underwater,
Speaker 14: so that means their debt is bigger than the value
Speaker 14: of the buildings themselves. So what can happen is the
Speaker 14: lenders can say, Okay, well take a haircut and you
Speaker 14: can keep running the building. You can keep managing it.
Speaker 14: Or the owner can walk away and somebody else could
Speaker 14: take over the building could sell for a loss to
Speaker 14: a new owner. Theoretically, down the road, maybe some of
Speaker 14: these buildings could be converted to another use, like an
Speaker 14: apartment building. But a lot of these are kind of
Speaker 14: like nineteen eighties nineteen nineties office towers that would be
Speaker 14: very hard to convert to apartments.
Speaker 1: The eighties were very good for me, John.
Speaker 14: Well, they weren't necessarily good buildings in today's world. You're
Speaker 14: in your prime, so.
Speaker 1: So it's interesting, John, like I noticed, you know what
Speaker 1: my experience with downtown la is. I would go see
Speaker 1: Capital Research Group and the Trust Company of the West,
Speaker 1: and that was kind of it. Every all the other
Speaker 1: asset managers and financial firms were kind of scattered throughout
Speaker 1: the Greater LA area. Who is in downtown before, Well,
Speaker 1: that's a good point.
Speaker 14: Yeah, I mean there's a lot of law firms. There's
Speaker 14: a lot of accounting firms. One of the two of
Speaker 14: the towers actually that Brookfield owns at the top of
Speaker 14: the building once says ey Plaza, which is Ernest and Young.
Speaker 14: The other one is Deloitte, another accounting firm. A lot
Speaker 14: of law firms. Those businesses are classic like we don't
Speaker 14: need all this office space because our workers maybe work
Speaker 14: in somebody else's office, or they can work remotely so
Speaker 14: they don't necessarily need to go downtown. Then there's a
Speaker 14: lot of government workers downtown. About a third of the
Speaker 14: employment based downtown is like city, county, state, federal court
Speaker 14: type of government workers, many of whom continue to work remotely.
Speaker 12: You mentioned potentially converting these buildings into you know, perhaps
Speaker 12: apartments or something like that. Kyle bass Back, I believe
Speaker 12: last month was talking about how, you know, maybe these
Speaker 12: buildings are just going to have to come down wholesale
Speaker 12: because they're not necessarily built for people to live in.
Speaker 12: I think he was speaking specifically about warehouses and that
Speaker 12: sort of office space at least in you know, smaller cities,
Speaker 12: but in LA is that a realistic thing that could
Speaker 12: happen these buildings get converted into residential real estate.
Speaker 14: Well, I think the sort of trophy office buildings that
Speaker 14: you see in the skyline photos of downtown LA, those
Speaker 14: ones would be very hard to convert. But actually, there
Speaker 14: are dozens of older buildings built in early nineteen twenties
Speaker 14: scattered around that are now already converted to apartments, lofts, condos,
Speaker 14: and they were before the pandemic, very attractive places to live.
Speaker 14: Downtown LA is relatively affordable and has a lot of
Speaker 14: new multifamily offerings compared to like the West Side or
Speaker 14: other parts of LA where there's it's very expensive to
Speaker 14: live and it's also kind of difficult to build new products.
Speaker 14: So there is a possibility that people will move into
Speaker 14: some of these buildings. The glass and steel late twentieth
Speaker 14: century ones are going to have a very hard path forward, though.
Speaker 1: Hey, John, just about I don't know, thirty two minutes,
Speaker 1: I'm going to begin my walk from Bloomberg at fifty
Speaker 1: eight and Lex to Penn Station at thirty fourth and
Speaker 1: let's call it seventh Avenue, So right through the heart
Speaker 1: of midtown Manhattan, and I'm going to see a lot
Speaker 1: of empty buildings, a lot of dark floors. But it's
Speaker 1: bad here. But it's a lot worse than other big
Speaker 1: cities like Houston and Los Angeles that your reporting brings out.
Speaker 1: So what are those cities thinking about?
Speaker 14: Yeah, well, I mean part of the problem with cities
Speaker 14: like Houston, La, Atlanta, Denver, Dallas, they're car centric. So
Speaker 14: people have a lot of opportunities to go outside of
Speaker 14: the city to offices to they have big houses that
Speaker 14: they can work from. Commuting to downtown is very hard.
Speaker 14: So yeah, those cities have a problem. They're facing falling revenue,
Speaker 14: They're facing retailers who are not making street life very attractive.
Speaker 14: So urban planners are really kind of trying to figure
Speaker 14: out what to do with all of this real estate.
Speaker 14: Downtown could be potentially a great place to live in
Speaker 14: La for example, there's great transportation downtown. It's a good
Speaker 14: place to leave, not necessarily just a good place to
Speaker 14: go into nine to five during the day, so people
Speaker 14: who live downtown can get to a lot of other
Speaker 14: parts of this metro area and jobs. For example, in
Speaker 14: the entertainment industry, you may work in Hollywood one six
Speaker 14: month period, and then you're going out to Burbank for
Speaker 14: a job for another six month period. So living downtown
Speaker 14: can be very central and easy to commute from.
Speaker 1: Hey, John, One of the things that I you know,
Speaker 1: maybe the next shoe to drop in this whole commercial
Speaker 1: real estate, office building real estate story is we start
Speaker 1: seeing some transactions, some sales of buildings, and I think
Speaker 1: the write down that we'll see in some of these
Speaker 1: is going to be shocking to a lot of people.
Speaker 1: Have we seen anything change hands in Los Angeles to
Speaker 1: give us a sense of how far down that market's fallen.
Speaker 14: Well, yeah, in LA they're Union Bank building sold in
Speaker 14: March for one hundred and four million dollars. It lasts
Speaker 14: sold in twenty ten for two hundred and eight million dollars.
Speaker 14: So there's an exam there. Yeah, fifty percent price drop.
Speaker 14: There was a motivated seller, and there was a little
Speaker 14: bit of timing. If you did the deal before March thirty, first,
Speaker 14: you didn't have to pay a five and a half
Speaker 14: percent transfer tax. That's a new kind of disincentive to
Speaker 14: real estate investors in LA. So anyway, there are multiple
Speaker 14: which hauld I say, factors at play here. But basically,
Speaker 14: you know, it's going to have to get a lot
Speaker 14: worse before it gets better for offices here in LA.
Speaker 12: Now, does this have a ripple effect on the residential
Speaker 12: space in LA that downtown is suffering? How does this
Speaker 12: emanate from that central area?
Speaker 14: Yeah, well, if the offices are vacant, if people aren't
Speaker 14: on the streets. What's happened in LA is the sort
Speaker 14: of ratio between homeless and you know, housed normal people
Speaker 14: has fallen out of whack. So there are fewer people
Speaker 14: going to offices, there are fewer commuters, and it seems
Speaker 14: like the population of people who are unhoused, who are
Speaker 14: not necessarily very how to state this anyway, they can
Speaker 14: be scary, and so it's a deterrent to people, you
Speaker 14: know there, it's a deterrent to businesses. There's just a
Speaker 14: lot of factors at play. Safety is a key issue
Speaker 14: being downtown that has really come to the forefront as
Speaker 14: office vacancies have risen.
Speaker 1: Yeah, it's a challenge for LA, as you're reporting indicates,
Speaker 1: but lots of other cities around the country be very
Speaker 1: interesting to see how this plays out over the coming years.
Speaker 1: Is probably how it's going to play out.
Speaker 14: Again, it's going to be a slow melting ice cube.
Speaker 1: Yeah, I think you're right, John. So that's John ghettos On.
Speaker 1: He is the Bloomberg News real estate reporter. He's got
Speaker 1: this great story out. Check it out Bloomberg dot Com.
Speaker 1: Check it out. Downtown LA's office distress shows the pains
Speaker 1: coming for cities. I also want to call out the
Speaker 1: graphics because I like pictures. They me understand things. So
Speaker 1: the graphics here by Kyle Kim were outstanding, really blended
Speaker 1: really well into this story, and it just gives you
Speaker 1: a sense of how tough things are out there in
Speaker 1: the commercial real estate business.
Speaker 12: Yeah, making real these numbers.
Speaker 1: Exactly exactly, and what it means for the lenders, you know.
Speaker 1: I mean, that's that's the next wave that a lot
Speaker 1: of people are concerned about. Are we gonna start seeing
Speaker 1: banks take some big write downs on commercial real estate?
Speaker 1: So good story.
Speaker 8: You're listening to the tape Cansur Live program Bloomberg Markets
Speaker 8: weekdays at ten am Eastern on Bloomberg Radio, the tune
Speaker 8: in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 8: You can also listen live on Amazon Alexa from our
Speaker 8: flagship New York station just say Alexa playing Bloomberg eleven thirty.
Speaker 1: Small Foxman Paul Sweety here in the Bloomberg Interactive Brokers studio.
Speaker 1: Seems like for months all we've been talking about is AI,
Speaker 1: and then of course in the last twenty four hours
Speaker 1: with uh in Nvidia even more to the front and center.
Speaker 1: Let's bring AI to investing. People are doing that. Our
Speaker 1: next guest is part of that whole wave frame O.
Speaker 1: He is the APEX CEO and head of AI E
Speaker 1: t FS and the firm's name is Craft Technologies APAC
Speaker 1: with a Q, Craft with a Q. Francis you know
Speaker 1: we're applying AI, or at least people believe we're applying
Speaker 1: AI to just about everything we do in life. I
Speaker 1: think it feels overdone to me. But what do I know?
Speaker 1: How about for in the business of investing? How can
Speaker 1: artificial intelligence help individual investors just kind of navigate the
Speaker 1: whole investment process?
Speaker 8: Right?
Speaker 13: First of all, thanks for having me here. It's great
Speaker 13: to speak more about how the Craft Technologies applying the
Speaker 13: AI into the investment practices we have been developing our
Speaker 13: AM all since twenty sixteen. Two different area one is
Speaker 13: stock selection based AI. The out one is the sl
Speaker 13: location tope of model because.
Speaker 1: We want to stock selection. Two important things you've got
Speaker 1: to get right.
Speaker 13: As yes, okay, yes exactly. And the technology we are
Speaker 13: using you see something similar to the chechipt as well.
Speaker 13: CHAPT is the the core AI engine is a transformer
Speaker 13: engine and the transform engine is combination of attention layer.
Speaker 13: Attention is a difficult tom but attention layer yourself. What
Speaker 13: it does is the trying to analyze the relationship between
Speaker 13: the input data. So when we type something, the CHPTPT
Speaker 13: is trying to analyzing the wordings or the sentences or
Speaker 13: paragraph to analyzing relationship, trying to get the context what
Speaker 13: we are asking to them so they delivered answer back
Speaker 13: to us. Where we are applying that attention layer to
Speaker 13: our Stacks election model is trying to analyze input data,
Speaker 13: price data, fundamental data and macro data and relationship of
Speaker 13: that to the future expected return of the stack within
Speaker 13: the universe. So we've been using that for since twenty nineteen.
Speaker 13: That for our Stacks election model. But yesterday we launched
Speaker 13: our AI t B a power that's a location ATS.
Speaker 1: So it check us AIDB for yes okayes.
Speaker 13: But that is thes a location type of btfs. It
Speaker 13: first lunch in here.
Speaker 12: Well, congratulations on the launch.
Speaker 1: I've been looking back. They rang the opening bell today.
Speaker 13: In your Yeah, it was so owner.
Speaker 12: Yes, you know, look, I'm looking back at the performance
Speaker 12: of some of the ETFs that you have out there.
Speaker 12: Pretty spectacular twenty twenty thirty seven point six percent for
Speaker 12: the US large capt Yeah. But you know what's clear
Speaker 12: is it's not always the market beating, at least against
Speaker 12: the S and P total return. When does AI perform better?
Speaker 12: When do AI generated investment decisions perform better than the
Speaker 12: overall picture? Is there any sort of common threads that
Speaker 12: go into this?
Speaker 13: Okay, show is very the cancussion, yes to we lalid
Speaker 13: a lot to Don twenty. First, it start to decrease
Speaker 13: your bit. Remember the moment of the Alpha Go when
Speaker 13: the Alpha Go was a batting the professional good players.
Speaker 13: It beat the human most of the time, but only
Speaker 13: the one game it was losing the game as well,
Speaker 13: there was unexpected the play was happened by the uh,
Speaker 13: the professional goal player, and it could be similar to
Speaker 13: our AM model as well. Something unexpected happened for you,
Speaker 13: like or the very sharp the regime reversion or regime changes.
Speaker 13: It could be make our AM model or confused on
Speaker 13: the stock selection, but that could be also happening for
Speaker 13: the human perform manager. And the main difference is or
Speaker 13: the possible a distinctive advantage. You see, AM model at
Speaker 13: least has doesn't have ego like or the big perform manager.
Speaker 13: It didn't attach it to the previous investment decison making
Speaker 13: to the next one.
Speaker 12: So I mean does that make moments like game stop
Speaker 12: and the meme crazes. Does that make it a little
Speaker 12: bit easier for you guys to capture that?
Speaker 13: Uh, there was the moment, Yes, but we are are
Speaker 13: using atfs are mostly the last v. It didn't get
Speaker 13: to have a chance for the GM or the other
Speaker 13: memes that yeah, project could be Yes.
Speaker 1: So to what extent, Francis, are retail investors or retail advisors,
Speaker 1: retail investors, institution investors. To what extent are they using
Speaker 1: AI today? Is it happening? Is the typical broker out
Speaker 1: there or fund manager using artificial intelligence?
Speaker 13: It's started to start boling in the market right now.
Speaker 13: So we are having so we are the B to
Speaker 13: B solution provider and then lucky enough get the size
Speaker 13: of funding from sub bank group beginning of the laws
Speaker 13: one hundred for six million. So we currently providing we
Speaker 13: have our AA t ETF, but at the same time
Speaker 13: providing our solution to twenty different financial institutions for PUFLO
Speaker 13: signals or trading execution mode less TRU. And right now,
Speaker 13: the big agenda I keep hearing from our potential patnus
Speaker 13: is the how to leveraging AI to deliver a personalized
Speaker 13: investment solution or advice back to the clients the like
Speaker 13: a freeom like a banking or the lost managers. The
Speaker 13: top tier of the clients is covered by the human
Speaker 13: private bankers, but those who are under are still uh
Speaker 13: and the dead areas could be probably lossouped by the AI.
Speaker 12: As a market participant that uses a lot of the
Speaker 12: AI technology. And we're looking at you know, this massive
Speaker 12: gain and Nvidia on the verge of maybe, I mean
Speaker 12: maybe it's surpassed at this point a trillion dollar company.
Speaker 12: How do you see some of this demand for chips
Speaker 12: for these various different components because you're putting together these
Speaker 12: models that use that stuff, right.
Speaker 13: Yes, we use a lot of chips from them video, Yes,
Speaker 13: we spent a lot of money.
Speaker 4: Well, I guess is this is this over Is this overplayed?
Speaker 13: Yes, it's true, but at the same time I believe
Speaker 13: the watch it is literally changing the game for the
Speaker 13: AI in the public space or the private market. Is
Speaker 13: the It gives A the two A the experiences and
Speaker 13: stop to building up the trust of the This is
Speaker 13: the level of the AI can deliver back to the
Speaker 13: the client solution services rust. So there will be more
Speaker 13: and more demand. And one funny thing for the not
Speaker 13: funny thing, one interesting for the m VIDA is the
Speaker 13: beginning of dismay. The one of our A A t
Speaker 13: F A M O m us last momentum MEDIAF is
Speaker 13: dumbed the Apple and then pick the Nvidia as the things.
Speaker 13: So you're seeing the huge gain. Uh today, I'm excited
Speaker 13: about it.
Speaker 1: How about your just thirty seconds left the demand for
Speaker 1: your ETFs? What are you seeing out there? Who's who's
Speaker 1: interested in your A t FS?
Speaker 13: Yes, mostly from these who have the savvy understanding of
Speaker 13: the tech background or who wants to feel is lee
Speaker 13: that I want to experience the new adoption of the
Speaker 13: AI could be helpful. What I want to envision into
Speaker 13: five to ten years later is the if one of
Speaker 13: our goal is trying to deliver a sustainable alpha generative
Speaker 13: solution by the AI. And if that is happening, I
Speaker 13: believe there will be a moment that AI power investment
Speaker 13: solution become in the new bat you baykind the market.
Speaker 1: Great stuff, exciting stuff. Francis Oh, I'm glad there's somebody
Speaker 1: doing this stuff. Francis Oh APAX CEO and head of
Speaker 1: AI ETFs, Man Technology Changes Everything, Craft Technologies APAC. That's
Speaker 1: the name of the firm. They've got some ETFs out
Speaker 1: they're really using to integrate artificial intelligence into the investment process.
Speaker 1: And why not. You're using AI for just about everything
Speaker 1: else in life. So we've learned just maybe in the
Speaker 1: last six months, it seems to have been front and center.
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
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Speaker 1: I'm Matt Miller.
Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three.
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