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Speaker 2: Bloomberg Intelligence with Alex Steel and Paul'sweeny on Bloomberg Radio.
Speaker 3: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 3: business stories impacting Wall Street and the global markets. Each
Speaker 3: and every week we provide in depth research and data
Speaker 3: on some of the two thousand companies in one hundred
Speaker 3: and thirty industries our analysts cover worldwide. Today will take
Speaker 3: a look at the federal reserves rate path for twenty
Speaker 3: twenty five and how the income Trump administration could affect
Speaker 3: the economy. Plus we'll take a look at some of
Speaker 3: the companies our analysts are keeping an eye on in
Speaker 3: the new year. But first we dive into the health
Speaker 3: of the retail industry in a price sensitive climate. I
Speaker 3: guess host Caroline Hyde and I sat down with Bloomberg
Speaker 3: Intelligence senior retail analyst Jennifer Partashis for a look ahead
Speaker 3: at the retail space heading into the new year. Here's
Speaker 3: a portion of our conversation.
Speaker 5: One of the things that we're looking at is really
Speaker 5: the consumer is doing well, but it's about where is
Speaker 5: their focus. And the focus is on value. And so
Speaker 5: what we're seeing is across the entire industry a lot
Speaker 5: of retailers trying to re orient them their operations in
Speaker 5: a way that presents a value. However that might mean
Speaker 5: to their core consumer. So for Nord's dream, you may
Speaker 5: see that pivoting in terms of the way they do
Speaker 5: their assortment. But for retailers like Walmart and Target, it's
Speaker 5: about price and it's about selection.
Speaker 3: And there's a great story on that general in the
Speaker 3: Bloomberg terminal, Leslie Patton and Jay Won Kang have this story.
Speaker 3: The headline is just a great headline Kirkland for Christmas shoppers,
Speaker 3: itch logos for store brands. That kind of goes to
Speaker 3: your value argument. How do you see that with the
Speaker 3: stores you cover?
Speaker 5: Yeah, value is as I said, it's of utmost importance.
Speaker 5: But private label had a great year in twenty twenty four,
Speaker 5: and we actually see that momentum just continuing in twenty
Speaker 5: twenty five. So Kirkland is Costco's own brand. It is
Speaker 5: over thirty percent, almost thirty five percent of their sales,
Speaker 5: and it is just a trusted brand to the point
Speaker 5: where consumers no longer think of it as a private
Speaker 5: label alternative to national brands. They just see it as
Speaker 5: a brand in and of itself. Walmart, Target, Kroger, Albertson's,
Speaker 5: these companies have all invested in private label in the
Speaker 5: last year couple like the last several years, and it's
Speaker 5: really starting to pay dividends because it's value, it's novelty,
Speaker 5: and it's something that consumers are really resonating with.
Speaker 6: To get that data to understand that it's resonating with
Speaker 6: a consumer, they're having to be leaning into all the
Speaker 6: data points, largely through digital invest I'm sure, and through
Speaker 6: aultificial intelligence. How is that something that they're not just
Speaker 6: plowing money in by getting the realwards back.
Speaker 5: Yeah, the rise of retail media is really the answer
Speaker 5: to that question. And when we look at the industry,
Speaker 5: actually last year we made a prediction that retail media
Speaker 5: would be up by over twenty percent the revenue associated
Speaker 5: with it for twenty twenty four, and it looks like
Speaker 5: we're going to exceed that and it's on pace to
Speaker 5: continue that kind of momentum into twenty twenty five. So
Speaker 5: retail media is really advertising, and it's the selling of
Speaker 5: ad space, it's the selling of search results, and it's
Speaker 5: the digital products such as you see online as well
Speaker 5: as digital screens that you see in stores. And so
Speaker 5: retailers have really been unlocking the value of that and
Speaker 5: are finding that it's a way to bring a high margin,
Speaker 5: very low overhead business into their mainstream core.
Speaker 3: You know, Jen, that's a business for better or worse,
Speaker 3: I have experienced with Back in my banking days. We
Speaker 3: tried to finance a bunch of those companies because we
Speaker 3: felt like, you know, just like you said, they're captured customers,
Speaker 3: they're at the point of buying. What a great time
Speaker 3: for video to be introduced there in terms of advertising.
Speaker 3: What does it mean for the big retailers? What are
Speaker 3: the economics to the big retailers for this media.
Speaker 5: So this media carries a margin of eighty percent and
Speaker 5: when you think about when you think about retail staples,
Speaker 5: you're talking about operating margins in the three to five
Speaker 5: percent range, right, You're talking about gross margins in the
Speaker 5: high teens, low twenties. So the ability to have a
Speaker 5: revenue stream with such a high margin is very appealing
Speaker 5: to these companies. And they have the data. They have
Speaker 5: all this first party data that they can monetize, and
Speaker 5: so it really is a very effective partnering. And one
Speaker 5: of the interesting things that we're finding is that there's
Speaker 5: always been historically investment from say, packaged food companies into
Speaker 5: retailers for placement on shelves and things like that, but
Speaker 5: we're finding that retail media is actually incremental spend that's
Speaker 5: actually an even bigger tailwind for these retailers as they
Speaker 5: get deeper into this new revenue stream.
Speaker 6: In many ways, everyone takes a leaf out of Amazon's book.
Speaker 6: In the end, I'm interested in Jan a little bit
Speaker 6: more about the pure data side of it and the
Speaker 6: forecasting side of it. We go to you to help
Speaker 6: us full cost, what the retail looks like. How are
Speaker 6: the companies themselves full casting in twenty twenty five.
Speaker 5: Well, it's been interesting because what we've really seen were
Speaker 5: in twenty twenty three and twenty twenty four, we saw
Speaker 5: some initial pilot cases of the use of AI, for example,
Speaker 5: to help with demand forecasting. And we're seeing that those
Speaker 5: pilot programs have been successful and are being more widely
Speaker 5: rolled out across organizations at places like Kroger and Walmart
Speaker 5: and Target.
Speaker 1: And you know what that really.
Speaker 5: Means is that they're getting more efficient and smarter about
Speaker 5: understanding when they need product and where they need product.
Speaker 5: That then goes all the way back up to supply
Speaker 5: chain and makes them more efficient as an organization. And so,
Speaker 5: you know, the kind of cost cutting initiative is good
Speaker 5: from a operational perspective, but it's also good for customers
Speaker 5: because that means that what they want will be in
Speaker 5: the stores or online available at the time they want it.
Speaker 3: Our thanks to Jennifer bartashis Bloomberg Intelligence Senior retail analyst.
Speaker 3: She spoke with me and Guess host Caroline Hyde. Now
Speaker 3: we pivot to how mortgage rates will impact the health
Speaker 3: of the housing market. Alex Steel and I spoke with
Speaker 3: your reading Bloomberg Intelligence US home building analysts starting with
Speaker 3: his prediction for the housing market in twenty twenty five.
Speaker 7: Yeah, so as you can imagine, the direction of mortgage
Speaker 7: rates obviously is going to be key in determining how
Speaker 7: the spring selling season unfolds and how housing ultimately fares
Speaker 7: in twenty twenty five. I mean, if we go back
Speaker 7: to September, we were looking at a rate at around
Speaker 7: six point one percent. There was a lot of optimism
Speaker 7: heading into next year, you know, but that quickly unwound.
Speaker 7: We're now looking at rates at about seven zero point
Speaker 7: one percent, So monthly payments are that much higher for
Speaker 7: buyers out there. So we think it's going to be
Speaker 7: hard to build a lot of momentum with the affordability
Speaker 7: challenges that are still out there in the market. That
Speaker 7: being said, we think that the broader housing space can
Speaker 7: still grind higher in twenty twenty five, you know, with
Speaker 7: the existing market returning to growth maybe in the low
Speaker 7: to mid single digit range, often extremely depressed base. Remember
Speaker 7: we're coming off back to back years at around a
Speaker 7: four million annualized rate, which is the lowest in more
Speaker 7: than a decade, So off of a low base for sure.
Speaker 7: In the new home market, we think you'll see similar growth,
Speaker 7: but we think the backdrop will continue to favor the large,
Speaker 7: well capitalized, publicly traded builders who have access to financing,
Speaker 7: access to land, access to the trades, compared to their
Speaker 7: smaller private peers who tend to rely on that regional
Speaker 7: and local banking for financing. So they've really struggled struggled
Speaker 7: with the cost and availability of that capital. So we
Speaker 7: think you'll see a bifurcation growth continue to play out.
Speaker 3: Drew, I'm going to ask you a thirty thousand foot
Speaker 3: question about housing market here in the United States. We're
Speaker 3: told that there's a housing shortage. A. Is that true? B?
Speaker 3: How did we get there? And what are your building
Speaker 3: companies going to do about it?
Speaker 7: Yeah? So, I think the issue right now is that
Speaker 7: there's a shortage of homes on the market. A lot
Speaker 7: of that has to do with the fact that people
Speaker 7: are locked into a much lower mortgage rate, so they're
Speaker 7: disincentivized to put their house on the market and trade
Speaker 7: up to a new home and take on a much
Speaker 7: higher rate. At the same time, you have to remember
Speaker 7: back in twenty twenty, twenty twenty one, when money was cheap,
Speaker 7: you had a lot of people going out buying second
Speaker 7: and third homes. You saw the boom in the airbnb market.
Speaker 7: So I think, you know, the housing stock has been
Speaker 7: allocated in a different way than we've seen historically, which
Speaker 7: is contributing to that shortage. Now in terms of what
Speaker 7: the builders are doing, you know, it's going to be
Speaker 7: hard for them to put a lot of new supply
Speaker 7: onto the market, particularly as supplying the resale market starts
Speaker 7: to heat up. So we think you'll see new home
Speaker 7: production maybe increase in the load to mid single digit
Speaker 7: range kind of corresponds to what they're seeing from the
Speaker 7: demand side. But you know, we don't. We don't see
Speaker 7: the issue with housing being solved anytime soon.
Speaker 8: I love how we talked about low rates, thanks a lot,
Speaker 8: this is my moment where this is your moment.
Speaker 4: Two seventy five thirty or fix and then Paul complains
Speaker 4: about not being able to refine, and then all those
Speaker 4: the really cool conversations. So then we can, you know,
Speaker 4: move forward on that convo. The problem is with your builders,
Speaker 4: as Paul calls them, is that they wind up building,
Speaker 4: but it's still too expensive for people to buy it,
Speaker 4: and then they wind up having to give incentives, and
Speaker 4: then that winds up hurting their profitability. How long does
Speaker 4: that's part of the cycle last for.
Speaker 7: That's a great point, Alex. That's actually one of the
Speaker 7: key themes for twenty twenty five. Well, we think that
Speaker 7: volumes will continue to rebound, it's going to come at
Speaker 7: a cost for the builders. The use of sales incentives
Speaker 7: is at a multi year high. You know, a couple
Speaker 7: months ago, when we were looking out to twenty twenty
Speaker 7: five and we had mortgage rates coming down to the
Speaker 7: six percent range, I think there's a lot of optimism
Speaker 7: that builders were going to be able to pool back
Speaker 7: on that use of incentives, which would support margins into
Speaker 7: next year. But it's been exactly the opposite. So you know,
Speaker 7: we think sales incentives are going to remain elevate it
Speaker 7: we think margins will come under pressure next year. And
Speaker 7: it's not just incentives. I mean, you have higher cost
Speaker 7: land running through the P and L, and you have
Speaker 7: the potential for Paris and some immigration policy to add
Speaker 7: to the to the margin pressures that these guys are
Speaker 7: going to face next year.
Speaker 3: All Right, So a home was just constructed right next
Speaker 3: to me down at the Jersey Shore. It's being constructed
Speaker 3: as we speak, and I'm guessing swarming with workers there.
Speaker 3: I'm guessing some percentage of them are illegal immigrants.
Speaker 1: What are the what are.
Speaker 3: The builders telling you guys about a tighter immigration policy
Speaker 3: might mean on the ability to actually get these things built.
Speaker 7: Yeah, there's some estimates out there that immigrants comprise about
Speaker 7: thirty percent of the entire US construction force, and as
Speaker 7: you mentioned, a large portion of those are undocumented. So
Speaker 7: in the event that they that we do get some
Speaker 7: policy coming through next year that puts a strain on
Speaker 7: that labor force. I think what you're going to see
Speaker 7: is a pullback in production. I think builders closings could
Speaker 7: be impacted because you're going to see cycle times, which is,
Speaker 7: you know, the amount of time from start to completion.
Speaker 7: You'll see them start to elongate, and I could pressure closings.
Speaker 7: At the same time, you know, builders are going to
Speaker 7: have to start to fight more to attract that labor.
Speaker 7: So you're going to see cost strives as well.
Speaker 4: Right, So that says a profitability squeeze. It feels like
Speaker 4: on lots of different ends, which companies in your coverage
Speaker 4: universe do you feel like are best equipped to manage that.
Speaker 7: So there's a couple of things that we're looking at.
Speaker 7: One from a geographic perspective, we think that's going to
Speaker 7: become increasingly important in twenty twenty five. Some of the
Speaker 7: markets that are struggling a little bit, think of Texas
Speaker 7: and Florida, where you're seeing a lot more competitive supply.
Speaker 7: We think builders in those markets are maybe going to
Speaker 7: have to adjust prices or continue with the elevated incentives.
Speaker 7: So we think from a geographic perspective, you're likely to
Speaker 7: see relative strength in the Midwest, in the Northeast, and
Speaker 7: maybe park Its pockets of California. From a product perspective,
Speaker 7: you know, with rates rising, you have to think about
Speaker 7: who's most impacted by that, and as you would expect,
Speaker 7: it's the lower end of the entry level home buyer.
Speaker 7: So we think that they could remain under pressure into
Speaker 7: twenty twenty five with relative strength and that move up
Speaker 7: and luxury segment. So some builders that come to mind
Speaker 7: would be a Toll Brothers or a Teller Morrison.
Speaker 3: Our thanks to you're reading Bloomberg Intelligence US home Building Analyst.
Speaker 3: Coming up, we turned to the fed's rate path for
Speaker 3: twenty twenty five. You're listening to Bloomberg Intelligence on Bloomberg Radio,
Speaker 3: providing in depth research and data on two thousand companies
Speaker 3: and one hundred and thirty industries. You can access Bloomberg
Speaker 3: Intelligence via bi Go on the terminal for my colleague
Speaker 3: Alex Steele. I'm Paul Sweeney. This is Bloomberg.
Speaker 2: This is Bloomberg Intelligence with Alex Steele and Paul Sweeney
Speaker 2: on Bloomberg Radio.
Speaker 3: We look next at the macro environment. After the Fed
Speaker 3: lowerd it's benchmark policy rate by a quarter percentage point
Speaker 3: earlier this month and signaled just two reductions for twenty
Speaker 3: twenty five, San Francisco FED President Mary Daly said she
Speaker 3: was very comfortable with two rate cuts in twenty twenty five.
Speaker 3: She spoke about the Fed's rate path on Bloomberg recently
Speaker 3: with hosts Jonathan Farrell, Lisa Bromwitz, and Michael mckeeth. There's
Speaker 3: a little bit of their conversation.
Speaker 9: We have to remain agile.
Speaker 10: I mean, you know, the thing that's got us here
Speaker 10: is being resolute to achieve our dual mandate goals. Price
Speaker 10: stability was our focus when inflation was very high. The
Speaker 10: employment has come into the frame so that we're focused
Speaker 10: on both.
Speaker 9: But then we also have to be agile.
Speaker 10: You know the world is uncertain, so we pencil into
Speaker 10: and you know, as that estimate or that projection gets
Speaker 10: further from when we made it, the accuracy of it
Speaker 10: probably falls. And so we're just going to continually take
Speaker 10: in more information consumer and every meeting your listeners should
Speaker 10: think about this. Every meeting is live from the standpoint
Speaker 10: that you're debating, you're discussing, you're thinking what's the right
Speaker 10: level of policy. But my projection is that it will
Speaker 10: take many fewer rate cuts next year than we thought.
Speaker 10: But I'll watch the economy and see if that works out.
Speaker 11: When we went into the cutting cycle, you were out
Speaker 11: front and saying you were concerned about the labor market
Speaker 11: and that we needed to make sure that we didn't
Speaker 11: lose the gains that we had. Now, at least coming
Speaker 11: out of Chairman Powell's press conference, it sounds like the
Speaker 11: focus has shifted to inflation again. Are you comfortable with
Speaker 11: that as this new phase that he's talking about.
Speaker 10: Well, I think of it as a new phase as well,
Speaker 10: and I characterize it slightly differently. I would say that
Speaker 10: for a long time, a persistent amount of time protracted,
Speaker 10: we were focused almost entirely on inflation. That's because the
Speaker 10: labor market was quite robust and inflation was seven six ' five.
Speaker 10: That was the right way to focus. Then the labor
Speaker 10: market came into the frame. That didn't mean we turned
Speaker 10: our focus totally to it. It just meant that after
Speaker 10: a long period of focusing only on inflation, we were
Speaker 10: now focused on both.
Speaker 9: I think that is still the case.
Speaker 3: That's Mary Daily, president of the San Francisco FED, talking
Speaker 3: with Jonathan Ferrell, Lisa Bromwoos, and Michael McKee for more
Speaker 3: on the Fed's path forward and how the new Trump
Speaker 3: administration might impact the economy. Caroline Hyde and I spoke
Speaker 3: with Macro Perspectives founder and president and Julia Coronado. Here's
Speaker 3: a portion of our conversation, starting on her thoughts on
Speaker 3: the messaging at the December meeting.
Speaker 12: Their messaging that we got at the December meeting was
Speaker 12: a lot sterner than expected, with only two cuts and
Speaker 12: just a general tone of concern about inflation. And I think,
Speaker 12: you know, when we look at the data that's come in,
Speaker 12: it's fair for President Daily to say that, you know,
Speaker 12: it's the data have been disappointing on the inflation front.
Speaker 12: But this wouldn't have really happened if it weren't for
Speaker 12: the risks to inflation in the outlook, and they can't
Speaker 12: really pinpoint them or put two find a point on
Speaker 12: what's likely to happen. But every major policy prong of
Speaker 12: the incoming Trump administration could potentially be inflationary. So you
Speaker 12: can see they released their assessment of risks to inflation
Speaker 12: and unemployment, and the change in upside risks to inflation
Speaker 12: really moved at the December meeting. So we don't know
Speaker 12: the specifics on policy. Yes, we have to wait and
Speaker 12: see what materializes and how that feeds into the data.
Speaker 8: But there's a direction of travel here that's of concern
Speaker 8: to the f MC.
Speaker 12: Broadly speaking, this was a big move across a lot
Speaker 12: of participants and so you know they want us to
Speaker 12: be on watch for that.
Speaker 6: Have you been running the numbers and with the best case,
Speaker 6: worst case scenario. Yes, we don't know the direction exactly
Speaker 6: of where policy will go.
Speaker 9: But we've been on this rodeo.
Speaker 6: Before, and there's been tough talk about taris in the past.
Speaker 12: Yes, and we got tariffs in the past and we
Speaker 12: did see them flow through into goods prices. The difference
Speaker 12: was that we were in an environment in the Trump
Speaker 12: the first Trump administration where inflation was running low and
Speaker 12: in fact below the Fed's target, so they could be
Speaker 12: very sanguine and patient and sort of accommodate the increase
Speaker 12: in goods prices that came with the trade war. This
Speaker 12: time around, we're in a different environment. They've just re
Speaker 12: established credibility, They've just brought inflation back down, not even
Speaker 12: to their target yet, and so you know, the threat
Speaker 12: of a round of tariffs and an impulse into goods
Speaker 12: prices is more meaningful now.
Speaker 8: The thing that they're going to have to.
Speaker 12: Grapple with, and we saw that also in last trade
Speaker 12: war is trade wars also destroyed demand. That spike in
Speaker 12: prices isn't good for consumer purchasing power, and it's unlikely
Speaker 12: to be accommodated like it was during the pandemic with
Speaker 12: a lot of fiscal support to households directly to households,
Speaker 12: which helped the economy whether the inflationary shock during the
Speaker 12: pandemic and sort of stay on track. In the first
Speaker 12: Strump administration, we actually saw the trade war damp and
Speaker 12: economic activity put the global manufacturing sector into a recession,
Speaker 12: and the FED actually ended up cutting rates in twenty
Speaker 12: nineteen to take out some insurance against that manufacturing recession
Speaker 12: broadening into the service sector. So you know, very different circumstances.
Speaker 12: This could weaken the economy, it could cause inflation, It
Speaker 12: could do both, and then the Fed's mandates go in
Speaker 12: different directions and they have to make.
Speaker 3: A judgment, Julia. So you know, tariffs are clearly an issue.
Speaker 3: What I've heard from a lot of folks is restrictive
Speaker 3: immigration policies, perhaps forced deportations that impact on the labor
Speaker 3: market that might even be even more inflationary going forward.
Speaker 1: How do you view that risk?
Speaker 12: Yeah, no, absolutely, and I think that is definitely something
Speaker 12: we are likely to see. That is one of the
Speaker 12: main promises of the campaign, and we can already see
Speaker 12: the appointees and the plans being put in place to
Speaker 12: implement this policy. And let's not forget that immigration, that
Speaker 12: plentiful flow of immigration. While it became a political hot
Speaker 12: potato during the election, it's unambiguously positive from a macroeconomic standpoint.
Speaker 12: We had abundant labor supply, it helped growth, it helped demand.
Speaker 8: So immigration is good for the economy.
Speaker 12: And to even just turn off the spigot, let alone
Speaker 12: turn around and cast a shadow over the labor market
Speaker 12: and deport some workers.
Speaker 8: It's going to change the macro environment.
Speaker 12: And yes, in areas where the most targeted population, the
Speaker 12: undocumented workers are employed, food services, construction. I have conversations
Speaker 12: with people here in Texas, people in the real estate
Speaker 12: industry that are pretty worried about the availability of workers
Speaker 12: as as early as next year, as early as the
Speaker 12: spring building season. So this could be very material. It
Speaker 12: could bring higher prices. It could also just slow down
Speaker 12: building activity because you just don't have the people that
Speaker 12: you need. Similarly, for food, availability of certain crops and
Speaker 12: the prices of those would likely spike. So leisure and
Speaker 12: hospitality another industry that relies heavily on an immigrant workforce.
Speaker 12: So yeah, we could see that ripple across numerous sectors
Speaker 12: in the economy, and it could be you know, by
Speaker 12: mid year, we're seeing some material constraints and some price
Speaker 12: increases on the back of that.
Speaker 3: You know, and Julie, it kind of goes to that
Speaker 3: consumer confidence number we got today came in, you know,
Speaker 3: weaker than expected, and the expectations looking forward were weaker
Speaker 3: than expected. That actually surprised me because I've been talking
Speaker 3: to a lot of our guests since the election about
Speaker 3: a palpable sense of optimism in this country since the election,
Speaker 3: particularly as it relates to economic outlook, reduced taxes and
Speaker 3: so on and so forth. How do you think about
Speaker 3: the consumer consumer confidence? And that data surprise you today.
Speaker 12: So I was just digging through those details. And of
Speaker 12: course the optimism depends on who you ask. So you're
Speaker 12: probably talking to a lot of market participants who have
Speaker 12: experienced the rally and are looking forward to maybe reduced
Speaker 12: regulation in the finance industry, maybe some corporate tax cuts.
Speaker 8: But when you look at.
Speaker 12: Consumers, well, there's a lot of uncertainty as to how
Speaker 12: this mix of tariffs and immigration and is going to
Speaker 12: affect more the average consumer. And when I looked at
Speaker 12: actually what was interesting you could see a little bit
Speaker 12: of a political footprint here when you look at it
Speaker 12: by region.
Speaker 8: The Conference Board doesn't.
Speaker 12: Have the breakdown by political party like the Michigan sent
Speaker 12: to measure does, but you can clearly see sort of
Speaker 12: the South confidence going up, but in the West and
Speaker 12: the Northeast the confidence going down.
Speaker 8: So you know, we are a fifty to fifty country.
Speaker 8: We always have been.
Speaker 12: Some people are feeling better, some people are feeling a
Speaker 12: lot worse.
Speaker 8: And it really depends on who you ask.
Speaker 6: What about stockholders, because boy, twenty twenty four should have
Speaker 6: been the year that made everyone feel pretty good. It's
Speaker 6: if you've been long AI, if you've been long S
Speaker 6: and p as that bigger benchmarks, and then it just
Speaker 6: tails off in the last couple of weeks. So how
Speaker 6: does sentiment around being an asset holder right now feel?
Speaker 12: Yeah, yeah, well that's what was interesting about the numbers,
Speaker 12: right it was the expectations component, not the present situation.
Speaker 12: We have been on quite a tear in the stock market,
Speaker 12: and of course you all know that it's been very,
Speaker 12: very concentrated in a handful of names that are related
Speaker 12: to the AI, you know, sort of euphoria. But you know,
Speaker 12: now we're moving into the the expectations meets reality phase
Speaker 12: of change in administration.
Speaker 8: So by the end of January, we're going to know a.
Speaker 12: Lot more about this mix of policies and yeah, some
Speaker 12: are growth positive and some are growth negative, and so
Speaker 12: different industries are going to experience that differently.
Speaker 8: The tax cuts.
Speaker 12: I think one of the things that we just saw
Speaker 12: with the budget dog fight is that it's a lot
Speaker 12: easier to talk about tax cuts on a campaign trail,
Speaker 12: the implement them in a very closely divided Congress, and
Speaker 12: even within the Republican Party. While they hold majorities in
Speaker 12: both houses, there's a lot of different views on the
Speaker 12: right the correct direction of fiscal policy. So we sort
Speaker 12: of imagine it's going to take most of the year
Speaker 12: to legislate anything meaningful on the fiscal front. They want
Speaker 12: to push forward a border a package early.
Speaker 8: We'll see how that plays out. I'm sure.
Speaker 12: I assume they're going to be able to get a
Speaker 12: lot done. But remember, like again, very different from last time.
Speaker 12: Budget wise, the US fiscal position is a lot worse
Speaker 12: than last time, and so that room for maneuvering is
Speaker 12: a little tighter, and their ability to enact something that's
Speaker 12: really going to change the backdrop is more limited.
Speaker 3: Enjoy about a minute left. How do you put in
Speaker 3: Elon Musk into your calculus here?
Speaker 8: Elon Musk is going to.
Speaker 12: Be a noise generator at a minimum, and certainly will
Speaker 12: be as we saw with his budget fight, fighting for
Speaker 12: things that are good for his companies. But I think
Speaker 12: what we also saw in the last week is that
Speaker 12: he's not going to just get his way. He's going
Speaker 12: to talk a lot. Do I think he's actually going
Speaker 12: to be successful eliminating the VA health care system? No,
Speaker 12: I do not, So you know he's going to run
Speaker 12: into constraints. He's not an elected official. He actually doesn't
Speaker 12: have any sort of direct lever that he can pull.
Speaker 12: And these elected officials have a lot of views about
Speaker 12: the programs that they want to protect and their constituents
Speaker 12: that they want to serve. So I think it's going
Speaker 12: to be messy and loud and harder to extract the
Speaker 12: signal from the noise.
Speaker 3: That's Juia CORNATDO She's president and founder of Macro Perspectives,
Speaker 3: speaking with me and guest host Caroline Hyde. Coming up
Speaker 3: next on the program, we look at the company's analysts
Speaker 3: at Bloomberg Intelligence expect to do well in the new year.
Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 3: depth research and data on two thousand companies and one
Speaker 3: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 3: b Igo on the terminal. I'm Paul Sweeney, and this
Speaker 3: is Bloomberg.
Speaker 2: This is Bloomberg Intelligence with Alex Steele and Paul Sweeney
Speaker 2: on Bloomberg Radio.
Speaker 3: As we wrap up twenty twenty four and look ahead
Speaker 3: to twenty two twenty five, we wanted to bring in
Speaker 3: Bloomberg Intelligence Research Director for Content, Tim Craighead. His latest
Speaker 3: piece covers the fifty companies to watch this coming year
Speaker 3: using analysis from Bloomberg Intelligence. Let's dive into our conversation
Speaker 3: with Tim, starting with how he and his team started
Speaker 3: work on picking companies and sectors they think will do
Speaker 3: well in the new year.
Speaker 1: Across our team, we are thinking both on a bottom
Speaker 1: up and a top down perspective about this topic. On
Speaker 1: a bottom up perspective, we encourage all of our analysts
Speaker 1: to step up with their high conviction ideas where they
Speaker 1: feel like they've got something that's out of consensus, are
Speaker 1: different from what the market's thinking, and make a focus idea.
Speaker 1: And we have a list of focus ideas. There are
Speaker 1: about ninety of them right now that are these high
Speaker 1: conviction differentiated ideas where we see catalyst ahead that can
Speaker 1: bring the market around to our point of view from
Speaker 1: a top down perspective looking across those those groups of companies, Yeah,
Speaker 1: you can think about it, is that US or European
Speaker 1: or Asian oriented and actually this year it's pretty well balanced.
Speaker 1: From the standpoint of yes, you'd think the US is
Speaker 1: close to fifty percent, and then Europe and Asia are
Speaker 1: roughly about the same. And you think about where the
Speaker 1: ideas that are positive versus negative, and you know this
Speaker 1: is roughly eighty percent positive, twenty percent negative to coalesce
Speaker 1: into fifty that are really driven towards twenty twenty five
Speaker 1: as we see catalysts play out. And you have to say,
Speaker 1: it's really interesting because you compare versus last year, where
Speaker 1: there were there were big AI ideas and there was
Speaker 1: a lot of focus on negative China, especially with the
Speaker 1: property market. This year there's much more orientation towards ideas
Speaker 1: about cyclical recovery with a change in interest rates and
Speaker 1: sort of clarity on elections, and the China side of
Speaker 1: things is also more much more recovery orient and not
Speaker 1: so much worried about the property crisis. So we still
Speaker 1: get into some of the details, but that's a backdrop.
Speaker 4: So we still have AI is still a thing, China, recovery, cycle, goal, recovery.
Speaker 4: What are some other buckets or themes that were reflected
Speaker 4: throughout the picks.
Speaker 1: Now, it's interesting thinking about it this way. There is,
Speaker 1: there's definitely an innovation, new product flavor that we should
Speaker 1: talk about and get into. There's four new CEOs, but
Speaker 1: with those we see a couple that are positive, a
Speaker 1: couple that we've got some concerns about, not the CEO themselves,
Speaker 1: but the situation of the company that they're in that
Speaker 1: you know, maybe there's more work to be done than
Speaker 1: the market's thinking about. And you know there there's energy
Speaker 1: transition related ideas as well that I cross the globe
Speaker 1: not with and policies and whatnot coming from new governments.
Speaker 1: So yeah, those are some of the bigger buckets. So
Speaker 1: what's the call here on the energy transition? It feels
Speaker 1: like here in the States team it's kind of losing
Speaker 1: a little bit of a steam, but I know it's
Speaker 1: still going strong in other parts of the world. How
Speaker 1: do you guys kind of think about that? So a
Speaker 1: couple of things here. Number one, AIH we talk about
Speaker 1: this too, because we have a little different take this
Speaker 1: year than last. But AI is driving energy demand and
Speaker 1: there is simply no way that we can we can
Speaker 1: fulfill the demand that is going to be required or
Speaker 1: even is required today with good old fashioned carbon based energy.
Speaker 1: And so If you look at RWE, it's a European utility,
Speaker 1: but they've bought Constellation in the US and a lot
Speaker 1: of that is oriented towards clean energy growth and demand
Speaker 1: that's AI driven. The same thing is true with SUBC seven,
Speaker 1: which you know they do. They do construction on offshore
Speaker 1: energy projects and instead of good old fashioned drilling for oil,
Speaker 1: a lot of the stuff now is oriented towards all
Speaker 1: shore wind and even some solar. In TEPCO, Tokyo Electric
Speaker 1: Power is a nuclear story where Japan is now turning
Speaker 1: nuclear back on and that's going to drive earnings.
Speaker 3: Hey, Tim, a lot of great names, and here a
Speaker 3: lot of great themes that you guys have held out.
Speaker 3: I think one of the stocks that's getting investors' attentions
Speaker 3: is Broadcommon. They're calling out their AI exposure. How do
Speaker 3: you guys at Bloomberg Intelligence think about AI? What companies
Speaker 3: are you highlighting for Bloomberg clients as relates to AI.
Speaker 1: AI has five names on our list of fifty, so
Speaker 1: you think about it, it's ten percent of the list.
Speaker 1: That's a pretty big deal. And it's also interesting in
Speaker 1: that it's a different set of names than what we
Speaker 1: had last year, where we also had a good bit
Speaker 1: of exposure that was bigger sort of core AI names
Speaker 1: that you think about with large language models and whatnot,
Speaker 1: and some software companies. This year it's much more about
Speaker 1: some of the enabling technologies, and primarily in the world
Speaker 1: of Simiti inductors, and that's exactly where Broadcom sets. I've
Speaker 1: heard you talk to Kunjin a few minutes ago, a
Speaker 1: really interesting combination of semi and software in that company
Speaker 1: that is providing you know, enabling chips. But Cadence Design
Speaker 1: is the software company behind the design of SIMA inductors.
Speaker 1: Kla makes test and measurement tools that you can't do
Speaker 1: this high end sinitat inductor stuff without Micron is making
Speaker 1: high bandwidth memory chips, which again you have to have
Speaker 1: to make AI work. And then there's the odd one
Speaker 1: out is a company called Vat Group. They make vacuums
Speaker 1: and it's like super high end vacuums that create the
Speaker 1: vacuum in which you make semic conductors. So lots of
Speaker 1: interesting different kinds of plays.
Speaker 4: I did not know that either. What about the innovation parts,
Speaker 4: So I appreciate that AI dovetails with innovation, But aside
Speaker 4: from AI, what are some companies that can really fit
Speaker 4: that bucket.
Speaker 1: Well, i' tell you there are some really interesting wins there.
Speaker 1: You know, we can't talk about innovation without talking about
Speaker 1: something in biopharma. You know, last year we had Lily
Speaker 1: and we had Noble Anortis. This year we've put Astrozenica forward.
Speaker 1: They got a host of new data sets coming out
Speaker 1: in cancer and in respiratory REZI disease. You can tell
Speaker 1: I've been here in London so long. I say respiratory
Speaker 1: as host or respiratory, Yeah, exactly. There's another healthcare win, Insulent.
Speaker 1: They have what's becoming the standard of care and wearable
Speaker 1: insulin patches, the Omnipod five, And you know that's a
Speaker 1: pretty cool story that's growing gangbusters. You got a couple
Speaker 1: of car companies and it's because of new products. Call
Speaker 1: it innovation because it is. Tesla is going to launch
Speaker 1: their low price car at some point in the first
Speaker 1: half of the year that we think makes sense. And
Speaker 1: Orsia has five cars that are in process, a couple
Speaker 1: have been announced, a couple are coming, but importantly they're
Speaker 1: hybrid nine to eleven and you know those are gonna
Speaker 1: pardon upon drive really important revenue growth, and folks, just
Speaker 1: one last thing I would throw out to you. Guys.
Speaker 1: We were talking about the business yesterday, the banking businesses
Speaker 1: and now the other imax. We all like movies. This
Speaker 1: is the theater that you're gonna go and actually see
Speaker 1: a real movie at because you've got the monster screens
Speaker 1: and there's more American theaters installing them. But they're also
Speaker 1: going abroad and talking about dating ourselves in yesterday's conversation.
Speaker 1: Actually worked on that back at Goldman in a ninety
Speaker 1: four I think when we took them public. So you
Speaker 1: know it's been around a while, but there's accelerating story.
Speaker 4: So let's start with the cycle gold recovery, because if
Speaker 4: I look at the list that you guys have, that's
Speaker 4: really the bucket where you're seeing a lot of the
Speaker 4: stocks highlighted. Give me an example of what kind of
Speaker 4: company would work in this theme of cycle gold recovery.
Speaker 1: There's a broad view here of elections are over in
Speaker 1: the US and in Europe. There's some clarity central banks
Speaker 1: are cutting interest rates at least a little bit for
Speaker 1: a while. We'll see how long it lasts. And all
Speaker 1: of that should provide some better backdrop in terms of sentiment,
Speaker 1: and with that you could see labor markets improve a
Speaker 1: bit which plays into Workday which is a human resources
Speaker 1: software provider, and a Deco which is one of the
Speaker 1: larger placement recruiting companies. So that's an example. There's also
Speaker 1: home building that plays into this. So one of the
Speaker 1: big UK homebuilders is a company called per Simon. And
Speaker 1: then you've got you know, retail and other consumer product
Speaker 1: related companies, Saint Tapestry. You know, Tapestry makes coach, you know,
Speaker 1: the the great you know, handbag and and other clothes.
Speaker 1: And they've also got Kate Spade. And if we start
Speaker 1: to see some improvement in the consumer space, then that
Speaker 1: plays into you know, a cyclical story in addition to
Speaker 1: what Tapestry is doing specifically, so things like that.
Speaker 3: Hey Tim, you know, as you well know during your
Speaker 3: long career on Wall Street, a lot of what investors
Speaker 3: and traders do is try to figure out where the
Speaker 3: consensus is and do I have a different view to
Speaker 3: than consensus. If I do, then I'll buy the stock
Speaker 3: or sell the stock short and so on and so forth.
Speaker 3: You've identified some of companies where you think there might
Speaker 3: be risk to that consensus. Give us a name or
Speaker 3: two there.
Speaker 1: Yeah, so this this plays across regions, that plays across sectors.
Speaker 1: You know, we just talked about some consumer ideas that
Speaker 1: we think can can do better. You've got You've got
Speaker 1: estae Lauder, however, that we think is still misfiring in
Speaker 1: some of its core brands. So that's on the cautionary front. Nintendo.
Speaker 1: You know, I think pretty much everybody knows who they are.
Speaker 1: They're supposed to be in the midst of an upgrade
Speaker 1: cycle with a new console, the switch to that's been
Speaker 1: long delayed. We think the delays continue, and we think
Speaker 1: you've got earnings disappointments there that will happen. You know,
Speaker 1: there's a lot of AI hype and expectations are huge,
Speaker 1: and you know clearly we have AI related names on
Speaker 1: this list, but allan Teer is one of those that's
Speaker 1: smaller in scale. When it comes to larger language models
Speaker 1: and really high expectations. We think the company is very
Speaker 1: well placed, but we think expectations are probably too aggressive,
Speaker 1: and so we've actually got concerns on that sort of
Speaker 1: consensus front. As you rightfully point out, Paul, those are
Speaker 1: a couple that come to mind. It's interesting we've got
Speaker 1: a lot of China stimulus ideas going on here, and
Speaker 1: this might be a little far fetched for some of
Speaker 1: the US listeners, but we also have a negative view
Speaker 1: on Shanghai airport traffic is coming back. There is a
Speaker 1: lot of traffic, but a lot of their earnings actually
Speaker 1: come from the duty free sales that happen in the
Speaker 1: airports and the rent that they get off of that.
Speaker 1: And people just aren't buying as much when they travel
Speaker 1: as they used to, especially Chinese. They're buying it online
Speaker 1: or they're going to stores, not necessarily in the airports.
Speaker 1: So there's a lot of different ways to think about this.
Speaker 3: Our thanks to Bloomberg Intelligence Research Director for Content Tim
Speaker 3: Craikid for joining us. Find his latest work, Fifty Companies
Speaker 3: to Watch in twenty twenty five online at Bloomberg dot
Speaker 3: com and on the terminal. That's this week's edition of
Speaker 3: Bloomberg Intelligence on Bloomberg Radio, providing in depth research and
Speaker 3: data on two thousand companies and one hundred and thirty industries.
Speaker 3: And remember you can access Bloomberg Intelligence via Bigo on
Speaker 3: the terminal. From my colleague Alex Steele, I'm Paul Sweeney.
Speaker 3: Stay with us today's top stories and global business headlines
Speaker 3: are coming up right now.