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Speaker 2: what a movement in these markets over the past forty
Speaker 2: eight hours. Big, big sell off yesterday, even a little
Speaker 2: bit of a panic in the morning, it felt like,
Speaker 2: but then turning it around here on Tuesday. Peter Cheer,
Speaker 2: head of macro strategy at Academy Securities, He joins us
Speaker 2: live here in a Bloomberg Interactive Broker studio. Peter, you've
Speaker 2: got some experience, You've been around the block once or twice.
Speaker 2: What do you make of kind of the last several
Speaker 2: days of trading?
Speaker 3: You know, I think we're starting to see a little
Speaker 3: bit of a we saw a little bit of fear.
Speaker 3: I think whether it's the carry trade or not, it
Speaker 3: kind of pushed us in. There's a lot of leverage
Speaker 3: in the system. A lot of people have been selling volatility,
Speaker 3: a lot of people bought you know, full in on
Speaker 3: the AI story. I think those are fading a little bit.
Speaker 3: And yeah, we're getting a little bounce today. I think
Speaker 3: we're gonna see more.
Speaker 4: Selling though exactly that that was what I was worried about, Like.
Speaker 2: It bounced, which I was shocked. We had to explain
Speaker 2: that to somebody.
Speaker 5: But anyway, whatever, why why.
Speaker 4: Do you think it is to be more selling? Because
Speaker 4: that was looking at the systemic funds and worried they're
Speaker 4: the gamma hedging, the carried trade not being done. What
Speaker 4: do you see that tells you more selling?
Speaker 3: Yeah, I think a lot of those And even on
Speaker 3: a simple level, you just look at QQQ it took
Speaker 3: in inflows, SPY took in inflows, and even more esoteric TQQQ,
Speaker 3: which is a leverage act took in inflows yesterday.
Speaker 2: And that's my leveraged s and P five hundred.
Speaker 3: Leverage okay, and then my favorite one I think is MVDL,
Speaker 3: which is a leverage in VideA ETF and that had
Speaker 3: inflows yesterday, So I would like to see outflows there
Speaker 3: to really believe we've had some capitulation.
Speaker 4: So what did that tell you? Though? It just tells
Speaker 4: you that it's still a by the dep mentality inside.
Speaker 3: I think it's still a by them mentality. But I think,
Speaker 3: you know, yesterday everyone was so calm, Hey, don't worry
Speaker 3: about this, It's all fine. People reacted. I think there's
Speaker 3: more going on, the economy slowing, we have stretched valuations.
Speaker 3: The FED is not going to be super supportive of markets.
Speaker 3: They've got their own agenda, which is to kind of
Speaker 3: make sure we don't get inflation again. So I think
Speaker 3: we're very ripe for selling on any sort of earnings
Speaker 3: weakness or economic data weakness.
Speaker 2: What have you thought about the earnings? Let's get back
Speaker 2: to something that presumably still matters in the markets. What
Speaker 2: are you making of earnings.
Speaker 3: That we finally have a higher standard for what's going
Speaker 3: on with AI? You know, six months ago, certainly if
Speaker 3: you just raised your hand and said we have an
Speaker 3: AI strategy, you were rewarded. The chip companies were all
Speaker 3: rewarded almost no matter what. And it feels like people
Speaker 3: are putting a little bit of scrutiny on this saying
Speaker 3: where valuations are, and unfortunately, I think so many of
Speaker 3: these stocks got heavily piled into that they're a little
Speaker 3: bit overbought. And the other part that we've been talking
Speaker 3: a lot more about is the concept of passive right passive.
Speaker 3: So whether you put your money into the S and
Speaker 3: P five hundred or Nasdaq one hundred, about fifty cents
Speaker 3: in the dollar are going to just a handful of stocks.
Speaker 3: So that fed the momentum on the way up, and
Speaker 3: I think it's going to fuel the momentum unfortunately on
Speaker 3: the way down.
Speaker 4: Right, So it can go up in a straight line
Speaker 4: and then it can also go down in a straight line,
Speaker 4: doesn't have to go down differently. Do you think the
Speaker 4: Fed should cut fifty bases points in September?
Speaker 3: I don't think so yet. I think, well one, I
Speaker 3: think they should have actually cut in July, and I
Speaker 3: would have done fifty in July just to get this
Speaker 3: out of the way.
Speaker 4: You done fifty in July, Why fifty in July.
Speaker 3: You've seen a nice slowdown and everything on the inflation front.
Speaker 3: The only thing that's holding up CPI is the owner's
Speaker 3: equivalent rent and Gosh only knows why we still use
Speaker 3: something like that, anything that's you know, a contemporaneous measure
Speaker 3: of inflation or sorry rent, whether it's Zillo is showing
Speaker 3: rents of decline. The other thing that's kept CPI up
Speaker 3: was auto insurance. We're not seeing that come through, so
Speaker 3: I think they could react to that. I think the
Speaker 3: job number have been overstated. I don't like what's going
Speaker 3: on in the private The Jewelts even had a big
Speaker 3: reduction in private jobs available. Get ahead of this. Plus,
Speaker 3: I really am scared of fifty BIPs cut in September,
Speaker 3: right in the heat of the election. I think it's
Speaker 3: just going to become a political nightmare and people are
Speaker 3: going to be screaming at the Fed. It's going to
Speaker 3: detract from the Fed's mission, I think, which I think
Speaker 3: they are very good at. I would have cut now,
Speaker 3: see where it goes, and let.
Speaker 1: It play out.
Speaker 2: Once the FED does begin cutting, it's been such a
Speaker 2: long time for at least in my mind, how do
Speaker 2: they do it? Did they kind of go twenty five
Speaker 2: basis points every meeting? Did they skip meetings? How did
Speaker 2: they do it?
Speaker 3: You know, that's kind of what my view would I
Speaker 3: would have liked to see a fifty on the first
Speaker 3: one and then wait two or three months. I think
Speaker 3: in September, unless the data comes in so weak, they
Speaker 3: do twenty five and then push the next one off
Speaker 3: to la after the election. I think a fifty in
Speaker 3: September if it really sparks a big equity rally or
Speaker 3: something will be troublesome. They want to not reignite inflation,
Speaker 3: so to me, we get twenty five and then they
Speaker 3: wait a month or two, and it's really going to
Speaker 3: be dependent on the data. I think the data is
Speaker 3: going to turn out weak and justify more cuts, but
Speaker 3: it might not.
Speaker 4: What do you think of the corporate credit market. I
Speaker 4: was looking at at high yield spreads yesterday and I
Speaker 4: know that they rose, and I get that, but compared
Speaker 4: to other events, it's still so calm.
Speaker 3: Yeah, I think, you know, credit really isn't the valuation story,
Speaker 3: particular investment grade credit. Right The companies are great across
Speaker 3: the board, there's still cashual, the economy is still growing
Speaker 3: to some degree, so it makes sense to me that spread.
Speaker 3: It's widened a little bit in sympathy. I am starting
Speaker 3: to watch though, if the Russell two thousand rolls over,
Speaker 3: because that, to me is a good proxy for what's
Speaker 3: going on in high yield. What really did encourage me
Speaker 3: yesterday we had some selling pressure on high yield, but
Speaker 3: the ETFs behaved very well. What I don't like is
Speaker 3: when you see the ETFs start trading at a big
Speaker 3: discount to NAV. That to me tells me there's an
Speaker 3: overwhelming amount of selling pressure. We didn't see that yesterday.
Speaker 3: Clearly're not seeing it today as the market does well.
Speaker 3: That's my one trigger to watch is how the ets
Speaker 3: behave relative to NAV. And if they do well, that's
Speaker 3: healthy and we will get a small correction credit spreads.
Speaker 3: You have to with equities down here, but there is
Speaker 3: no credit problem this time around.
Speaker 2: What are you seeing ETF flows? Let's get your attention.
Speaker 3: These days again, just this continued buying into the kind
Speaker 3: of riskier end of equities. You know, no one's giving
Speaker 3: up on the tech trade, no one's really giving up
Speaker 3: on the AI trade. And so every time I look
Speaker 3: and we see these selloffs, I'm thinking, Okay, maybe we
Speaker 3: got de risking. And what I think we've been doing
Speaker 3: is getting degrossing, which to me is people taking off
Speaker 3: longs and shorts so that sometimes shows up as rotation,
Speaker 3: and I think people are taking off some of these
Speaker 3: more lever trades, the selling of options, et cetera. But
Speaker 3: we really haven't seen anyone say I want out of
Speaker 3: this market. There's this real belief I've got to hang in,
Speaker 3: and that's what I'm waiting for. Something that changes there.
Speaker 3: The only thing that I thought was neat. I'm starting
Speaker 3: to watch the Chinese stock market again. I actually kind
Speaker 3: of like FXI for the first time in a while.
Speaker 4: In the ETF front, Well, what's your level of confidence
Speaker 4: that we get that kind of event, that capitulation, I
Speaker 4: mean event.
Speaker 3: I think it's reasonably high. It's you know, and part
Speaker 3: of it like last Wednesday, right, we were up five
Speaker 3: hundred on the Nasdaq last Wednesday as the FED was speaking,
Speaker 3: I didn't see what justified that, So there was very
Speaker 3: little liquidity that sucked people in. I think it helped
Speaker 3: set up for the Thursday, Friday, Monday trade. And here
Speaker 3: again and we're kind of rallying. Everyone seems too excited.
Speaker 3: There's no real fear, and the odds are again. I
Speaker 3: think people are much more cautious on the earnings front, right,
Speaker 3: and people aren't getting the free pass that something comes
Speaker 3: on that and I really am very nervous that we've
Speaker 3: been overstating the economic growth and we're going to see
Speaker 3: some weak data. So that's I guess my bed is
Speaker 3: we get a data and earning sprint that triggers another
Speaker 3: round of selling pressure and people are too long ones Again.
Speaker 2: I said, you're looking at China. How about the nie
Speaker 2: K index? Our friends in JAPANO crazy couple of days?
Speaker 3: Yeah, man, yeah, And I do think that's when. One
Speaker 3: problem we've been talking about for ages is this full liquidity.
Speaker 3: I've been trying to term it, and these markets seem
Speaker 3: liquid because the screens are all priced, but it's all
Speaker 3: very algo driven. There's no real support at any given time,
Speaker 3: and you can have these big moves. It's you know
Speaker 3: now that summer, if you go snork me or something,
Speaker 3: you see a school of fish and you put your
Speaker 3: hand near the fish, they disappear. They immediately recongregate. And
Speaker 3: this reminds me of the sort of pattern that we
Speaker 3: saw in around the financial crisis, these air pockets where
Speaker 3: something's trading normally moves five percent, that starts trading normally
Speaker 3: like WHOA, what happened to move five percent, and that
Speaker 3: to me shapes us up more for a downside than
Speaker 3: an upside.
Speaker 4: So for the carry trade. So speaking of is that
Speaker 4: how that winds up playing out, Like eventually there's even
Speaker 4: more upside pressure on the end and then it just
Speaker 4: blows out other positions.
Speaker 3: Yeah, so you know, the carry trade defined the carry trade.
Speaker 3: So in theory, I think people say you borrow in yen,
Speaker 3: you keep it in yen, and you buy us.
Speaker 2: Assets a catch.
Speaker 3: I think to me, it's just more there was leverage
Speaker 3: in the system, right, the carry trade. More traditionally you
Speaker 3: would buy you fund yourself in yen and buy US treasuries.
Speaker 3: Treasuries rally yesterday. I think there's a little bit of
Speaker 3: a boogeyman sort of you know thing going on where
Speaker 3: the carry trade is just a small part of this.
Speaker 3: I think what it really is is people got over levered.
Speaker 3: They went to full positions, they went aggressive end of stocks,
Speaker 3: they bought leverage gtfs, they did all these ball selling strategies.
Speaker 3: So I think it's leverage in the system, not a
Speaker 3: specific yen carry trade.
Speaker 4: So it's not like I just borrowed an end to
Speaker 4: bind Nvidia.
Speaker 3: No, and you know there's the thing. What's the six
Speaker 3: degrees of Kevin Bacon?
Speaker 6: You?
Speaker 3: So, I don't know about you, right, but I know
Speaker 3: all sorts of people in this market. I can't find
Speaker 3: anyone who admits to having the carry trade on before
Speaker 3: this all started. So I think some of that's overstated.
Speaker 3: I think this is really just good old fashioned leverage
Speaker 3: and people borrowing and putting too much risk into the market.
Speaker 2: All right, Peter, great stuff. Really appreciate you coming in.
Speaker 2: Peter Cheer, head of macro strategy at Academy Securities, joining
Speaker 2: us live here in our Bloomberg Interactive Broker's studio.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: If we had some political news today, Vice President Harris
Speaker 2: taps Minnesota Governor mister Walls to be her vice presidential
Speaker 2: candidate on that ticket. Lord Davison joined this Bloomberg Politics editor. So, Laura,
Speaker 2: what's the feeling within DC about the selection by VP Harris.
Speaker 6: This is a little bit of a surprise pick. You know,
Speaker 6: we've heard Wall's name come up, you know, as these
Speaker 6: discussions had gone on over the past couple of weeks.
Speaker 6: But Walls is someone who was relatively unknown just prior
Speaker 6: to really Harris emerging as the Democratic standard bearer following
Speaker 6: Biden's departure from the race. So, you know, he's a
Speaker 6: very popular governor, you know in Minnesota, but not someone
Speaker 6: who's been on the national stage as much. But he
Speaker 6: really emerged because he was sort of able to capture
Speaker 6: on the zeitgeist to the moment he you know, kind
Speaker 6: of coined the phrase weird now that that to sort
Speaker 6: of as an insult to Republicans and their policies that
Speaker 6: Harris and others have started using. And so he was
Speaker 6: sort of able to be seen as someone who could
Speaker 6: go on the attack but also you know, sort of
Speaker 6: be relatable and likable to blue collar workers.
Speaker 4: What does that mean then about how Kamala Harris feels
Speaker 4: about Pennsylvania.
Speaker 6: So it's clear from this from this decision, you know,
Speaker 6: sort of the main other person she was looking at
Speaker 6: was Pennsylvania Governor Josh Shapiro. He's also very popular in
Speaker 6: his state and would have been sort of the best
Speaker 6: choice if she wants to make sure she wins Pennsylvania.
Speaker 6: So either, you know, the kind of a couple of
Speaker 6: takeaways here, she feels confident about her chances outside of Pennsylvania,
Speaker 6: that there's you know, multiple ways to win the win
Speaker 6: the race. But also Shapiro had some negatives. You know,
Speaker 6: he was very staunchly pro Israel, something that you know
Speaker 6: is a divisive issue among Democrats and one of the
Speaker 6: things that sort of her allies pointed out, you know,
Speaker 6: after this decision was made that it was Walls she
Speaker 6: had more of a personal rapport with, so that was
Speaker 6: something that she was looking at very closely. Plus he
Speaker 6: also had a record in Minnesota that had more middle
Speaker 6: class wins, so things like free lunches for school children,
Speaker 6: expanding paid leave. Shapiro has less experience as a governor,
Speaker 6: he's only been in office for two years, has a
Speaker 6: little bit more of a mixed record, you know, for
Speaker 6: for Democrats. For Walls here kind of helps her shore
Speaker 6: up the agressive base.
Speaker 2: Does this pick say anything about how Kamala Harris wants
Speaker 2: to run this campaign in terms of being more of
Speaker 2: a centrist versus appealing maybe more to the liberal part
Speaker 2: of the Democratic Party. What do you think, Yeah, so.
Speaker 6: Walls is someone who does appeal on a policy level
Speaker 6: two progressives. You know, he has, you know, someone who
Speaker 6: comes from rural Minnesota. You know, the district that he
Speaker 6: represented when he was in the House is now representative
Speaker 6: represented by a Republican. But his values and sort of
Speaker 6: the issues that he champions are much more sort of
Speaker 6: the progressive wing, you know, things like paid family leave
Speaker 6: and uh you know, you know, expanding you know, uh,
Speaker 6: student loans and student loan forgiveness. Rather, Shapiro is much
Speaker 6: more moderate, much more business friendly. Uh so this is
Speaker 6: sort of you know, an interesting uh you know mix here.
Speaker 6: But because he does have those Midwestern roots, he is
Speaker 6: from a rural area. He is a someone who you know,
Speaker 6: has been a gun owner that has become much more
Speaker 6: a vocal about you know, gun control in recent years.
Speaker 6: He has the sort of mix of he's able to
Speaker 6: you know, not alien enate either the moderate side or
Speaker 6: the progressive side of the party.
Speaker 4: Terry Haynes a Pangaea said this was Harris's first negative.
Speaker 4: He didn't like it. He was basically saying like this
Speaker 4: was a safe pick. It showed that she's really worried
Speaker 4: about the campaign. Is anyone in the in the zeitgeis
Speaker 4: that you're talking to sort of saying that, yes.
Speaker 6: I mean there is sort of a different schools of
Speaker 6: thought here, but that you know that Walls was someone
Speaker 6: that wasn't going to offend anybody, and so therefore he's safe.
Speaker 6: But he may also not have the same upside potential
Speaker 6: that you know, someone like Shapiro. Had you know, Shapiro
Speaker 6: on the ticket, the chances of winning Pennsylvania and therefore
Speaker 6: potentially the whole race went up, But he also has
Speaker 6: more negatives here. So this is she was sort of
Speaker 6: taking the path of these resistance on this pick versus
Speaker 6: someone you know like Shapiro or even Mark Kelly, who
Speaker 6: you know had some clashes with labor unions in the past,
Speaker 6: so that it was sort of another issue why his
Speaker 6: name didn't write.
Speaker 4: All right, well, thank you so much, we appreciate it.
Speaker 4: It's definitely a crazy time. And also, you know, you
Speaker 4: have such a short amount of time with that Lord
Speaker 4: Davison Bloomberg Politics editor joining us, but you know, so
Speaker 4: truncated and.
Speaker 2: Now they hit the road like immediately, I mean, I
Speaker 2: think seven swing states in five days or something along
Speaker 2: the line. So they're gonna be hitting the road. And
Speaker 2: obviously former President Trump and Jadie Vans are out there
Speaker 2: as well, so it's be relatively short period of time
Speaker 2: till we get to election day.
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Speaker 4: So to get a big perspective on the market, if
Speaker 4: you're a long term investor, what do you do over
Speaker 4: the last you know, forty eight hours in the market.
Speaker 4: This is when I get like my financial guy sending
Speaker 4: me the email of like, just so you know, this
Speaker 4: is what happened, this is what we can expect. So
Speaker 4: how do you do that? Well. Margie Patetel is senior
Speaker 4: portfolio manager at all Spring's Global Investments and she joins
Speaker 4: us now on Zoom from Boston. Massachusetts. Margie, what do
Speaker 4: you make of the last twenty four hours? Is this
Speaker 4: our forty eight? Is this a regime shift, a real
Speaker 4: paradigm shift, or is it still stay on message, stay
Speaker 4: on trend.
Speaker 5: I think it's still the saying things.
Speaker 7: Large cap stocks are still going to be the place
Speaker 7: to be for the best to be here.
Speaker 5: I think what happened is after.
Speaker 7: A few quarters where the meg seven or the dozen
Speaker 7: largest stocks reported better than expected, earning a second the
Speaker 7: market of real boosting confidence, and this time we had
Speaker 7: really sort of mixed results where some of the companies
Speaker 7: reported results that were frankly disappointing, and that took away
Speaker 7: market conference. At a time when you have stock prices
Speaker 7: at their peak, you have concerned about what the FED
Speaker 7: is going to do. Data says the economy slowing down.
Speaker 7: So I think that's what we had. It's just a
Speaker 7: real short term stay down s andp down nine percentage,
Speaker 7: nastack down twelve thirteen ish, and really just a short
Speaker 7: term correction that's almost played out. We'll probably have a
Speaker 7: little bit more and I think we'll go up for
Speaker 7: the rest of the year.
Speaker 2: So Margie, to the extent that we do go up
Speaker 2: for the rest of the year. Is tech going to
Speaker 2: continue to lead this market or if we've seen some
Speaker 2: kind of rotation that is of note.
Speaker 7: I don't think we'll see much of our rotation because
Speaker 7: when you look at the economic growth level, what you
Speaker 7: think the econome will grow at for the next few quarters,
Speaker 7: I think it'll be rather low, you know, a percent
Speaker 7: and a half something like that. So that says you
Speaker 7: still have to stick with those sectors and have above
Speaker 7: average growth, which again would be check in particular some
Speaker 7: other sectors, but primarily check. Especially when a lot of
Speaker 7: these stalks have had such a big correction, they're really
Speaker 7: priced more or less in the middle of their value range.
Speaker 5: So if the armies go up, we think that these
Speaker 5: stalks can go up too.
Speaker 4: So I guess this is a by the dip kind
Speaker 4: of setup for you, Yes.
Speaker 7: Sort of, especially some of those names have had big corrections.
Speaker 7: But it's interesting when you although people talk about the correction,
Speaker 7: when you look at the indexes standard for his nasdak
Speaker 7: Dal Jones, those indexes are all still up very attractively
Speaker 7: year to date, mid to high single digit for a
Speaker 7: little and halfway through the year, So that says that's
Speaker 7: really on track to be an above average long term
Speaker 7: rate of return for stocks.
Speaker 5: Certainly not a disaster.
Speaker 7: And even if you look at something like in Nvidio,
Speaker 7: which I think is down forty percent of its peak,
Speaker 7: it's still one hundred percent year to date, So it
Speaker 7: isn't as if we're having a real unwinding, you know,
Speaker 7: two thousand type Internet bubble meltdown, a permanent impairmid I
Speaker 7: think this is just a short term correction typical in summer,
Speaker 7: and then we'll see the market move ahead and the
Speaker 7: rest of the year.
Speaker 2: Okay, marg How about the fixed income market. I'm looking
Speaker 2: here my in go function, the Bloomberg Index browsers of
Speaker 2: course US fixed income. I'm seeing, you know, three four
Speaker 2: percent type total returns. That's about as good as I've
Speaker 2: seen in a long time. What do you think about
Speaker 2: opportunities in the fixing come space?
Speaker 7: Yes, it is because actually many sectors of fixed and
Speaker 7: coome market have been negative.
Speaker 5: As the rates have gone up. Prices are sensitive to
Speaker 5: that and.
Speaker 7: They've gone down, and really high yield has been about
Speaker 7: the best performing sector. But it's still you're looking at
Speaker 7: three four percent your to date returns really pretty modest.
Speaker 5: But I think what you're seeing, though, is the yield
Speaker 5: spreads still.
Speaker 7: To me, you're telegraphing that the economy is okay, the
Speaker 7: fixed income market is okay. You've had spreads widen out
Speaker 7: the say forty to fifty basis points for most high
Speaker 7: yield bonds. However, most of that spread widening has been
Speaker 7: because treasury yields have dropped so much from say their
Speaker 7: peak peak yield in April, where the ten year was
Speaker 7: around the four sixty to say in three eighty. Now
Speaker 7: that's an eighty basis point correction, and high has not
Speaker 7: caught up for that. So I think it's not shown
Speaker 7: any distress and high yield that spreads of widen down
Speaker 7: a little bit. I think it's just as huge movie
Speaker 7: Crasieries has changed that relationship. But the fundamentals are still there,
Speaker 7: still pretty good for fixed income.
Speaker 4: Yeah, when I looked at the spreads yesterday, I was like,
Speaker 4: oh my god, they're still so low. Like I understand
Speaker 4: they went on. But so I guess my question, MARKIE,
Speaker 4: is what would a regime change or regime shift really
Speaker 4: look like?
Speaker 5: Then Well, frankly, I really can't see it.
Speaker 7: I think we had a kind of a little play
Speaker 7: in value stocks that's sort of petered out. We've had
Speaker 7: a play in small cap stocks, which looks as if
Speaker 7: it's petered out, and so I think we're still back
Speaker 7: to the same themes is where do you want to
Speaker 7: invest in a slow gross economy, which is what I
Speaker 7: think we're really looking at over the next certainly in
Speaker 7: the next few quarters, no matter what the FED does.
Speaker 7: We're hoping, of course that the FED will see the
Speaker 7: light like the market and start to cut rates. But
Speaker 7: I think the economy is just going to trouble all
Speaker 7: it modest one percentage type growth. So where you investor
Speaker 7: that you look good companies that are in the highest sectors. Again,
Speaker 7: check certain parts of industrials, a certain very few selected healthcare,
Speaker 7: maybe some materials. But in other words, it's still a
Speaker 7: very selective market. So we don't look for broadening out either,
Speaker 7: as much as we all like to see it, but
Speaker 7: we just don't see.
Speaker 2: That happening, Margy, For better or worse, this is an
Speaker 2: election year, Margy, how does that factor into your calculus
Speaker 2: if at all?
Speaker 7: Well, historically, and there aren't many historic things you can
Speaker 7: rely on, it always seems that in an election year,
Speaker 7: no matter who gets elected, that we have a pretty
Speaker 7: good rally after the election.
Speaker 5: Into the end of the year.
Speaker 7: So I'm thinking we willful around here because of varyings
Speaker 7: and uncertainty of the election, no matter who is elected,
Speaker 7: we have certainty, and I always expect the market to
Speaker 7: have a strong finish in any case, and by that
Speaker 7: I mean a strong I'm modest finish. I'm not looking
Speaker 7: for a state of doubling another eight to ten percent
Speaker 7: over the rest of the year, but you know, three
Speaker 7: five percent something like that to finish off the year.
Speaker 4: Marguie, do you still you mentioned slow growth, but we
Speaker 4: do have an election where it looks like both parties
Speaker 4: are going to be spending boatloads of money. The hyperscalers
Speaker 4: are spending boat loads of money. When do you think
Speaker 4: that that really filters through and sort of helps stabilize
Speaker 4: that growth.
Speaker 7: Well, it's true you have a lot of capital investment
Speaker 7: going into certain sectors. Again, mainly the technology sector is
Speaker 7: the biggest spender and the biggest beneficiary, and so we
Speaker 7: think that trend is going to stay. And as far
Speaker 7: as fiscal spending, we already sort of blew the doors
Speaker 7: off for the last few years, either with COVID expenditures
Speaker 7: or inflation or infrastructure expenditures. So really it's really difficult
Speaker 7: to see another big blast of fiscal expenditures.
Speaker 5: Helping to push up the market of economy.
Speaker 2: Short term market. Bettel, thank you so much. We appreciate that,
Speaker 2: as always appreciate the perspective market Bettel, Senior portfolio manager,
Speaker 2: all Spring Global Investments. Joining us from Boston, mass via zoom.
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Speaker 2: Speaking of Uber, let's go to man Deep sing Stuet.
Speaker 2: He knows what's going on with these companies Man Deep
Speaker 2: seing technology channels for Bloomberg Intelligence. He's all over these
Speaker 2: ride sharing companies, you know Uber. I think Man deeps
Speaker 2: can be joined us in studio. I mean we just
Speaker 2: picked them. On is literally running in our studio. So
Speaker 2: he covers all these ride sharing things. And I don't know,
Speaker 2: he's the one that got pitched me on this whole
Speaker 2: Uber thing and I'm on it. I'm on it.
Speaker 4: I think he was right.
Speaker 2: It's the greatest thing in the world. Uber talk to
Speaker 2: us about the quarter.
Speaker 8: What did you see, good print, solid top line growth.
Speaker 8: I think the fact that we're talking about a business
Speaker 8: that's generating forty billion dollar run rate in a year.
Speaker 8: I mean, clearly they have the scale. The question for
Speaker 8: me when it comes to Uber five years down the line,
Speaker 8: you know, long term play, how disrupted their business model
Speaker 8: is going to be from the rollout of autonomous vehicles
Speaker 8: and robo taxis. And I know, you know it's not
Speaker 8: the right time to talk about it, but when you
Speaker 8: look at Wemo and how successful they've been in the
Speaker 8: three cities that they have launched. I mean, the part
Speaker 8: of the call was about how Uber is integrating Wemo
Speaker 8: inside their app. Wemo is Google's autonomous driving unit. I mean,
Speaker 8: they have about three hundred cars in San Francisco, similarly
Speaker 8: in a couple of other cities Arizona, and what they
Speaker 8: have shown is their technology is ready for prime time.
Speaker 8: They have to get regulatory approvals to do it at scale,
Speaker 8: but that changes the unit economics completely. Right now, we
Speaker 8: are talking about a business model where cost per mile
Speaker 8: is like five to seven dollars. Vemo can at scale,
Speaker 8: they can do it three or four times cheaper. So
Speaker 8: suddenly the take rate model gets disrupted. Now again it's
Speaker 8: not hit primetime, but that's what Tesla is striving for,
Speaker 8: and the risk for Uber and Lyft is they will
Speaker 8: get disintermediated.
Speaker 4: So okay, So it's not the fact that Uber would
Speaker 4: just go get a bunch of robotaxis and use them
Speaker 4: and eventually the payoff over time because they're not paying drivers.
Speaker 4: It's not that scenario.
Speaker 8: It's not that scenario because both these companies want to
Speaker 8: roll out the robotaxis themselves as opposed to using an
Speaker 8: Uber and even if Uber was to get involved, their
Speaker 8: take rates would be way lower than thirty percent. Right now,
Speaker 8: they are getting thirty percent of every ride. Let's say
Speaker 8: it's a fifty dollars ride. Uber makes at least thirty percent.
Speaker 8: That's a pretty healthy take rate with the you know,
Speaker 8: autonomous driving equation. First, Tesla wants to go solo. They
Speaker 8: don't want to partner with any of the right sharing guys.
Speaker 8: That's one risk Vemo is on Uber. But my senses,
Speaker 8: they also want to kind of broaden out their reach
Speaker 8: and they will deploy their technology themselves. And in fact,
Speaker 8: Alphabet allocated five billion dollars in capex this quarter on
Speaker 8: Vemo's rollout.
Speaker 2: So all right, I mean, all right, it's bad enough
Speaker 2: that I get in the car with somebody I've never
Speaker 2: met a total stranger. That's crazy enough to think about.
Speaker 2: Am I getting in a car that's a robo taxi?
Speaker 2: Is that really going to be a thing?
Speaker 8: And so when I mean, these vehicles are monitored.
Speaker 2: So by the way, I have a vest with scooter
Speaker 2: by the way, so I don't necessarily need them for
Speaker 2: the shore.
Speaker 8: But go ahead, but just go to San Francisco right now.
Speaker 8: You can order a Veimo ride. You can, you can
Speaker 8: and just get that experience. I think every consumer who
Speaker 8: has taken a Vemo ride loves that experience. Uber talked
Speaker 8: about they acknowledged there on their call. But they also
Speaker 8: think the rollout will be slow, and they are positioning
Speaker 8: themselves by seeking all these partnerships they're partnering with byd
Speaker 8: FO one hundred thousand vehicles, that was big news last week.
Speaker 4: Well, then why would it be exclusionary, Like if Tesla
Speaker 4: rolls it out themselves, why is it that it just
Speaker 4: means more competition, It doesn't mean it's exclusionary like with Lyft.
Speaker 4: Like you guys price compare with Lift, there's room for
Speaker 4: more than just one.
Speaker 8: There is, but then it goes back to being the
Speaker 8: scale player and having that thirty percent take rates. The
Speaker 8: reason why Uber has done much better than Lyft is
Speaker 8: because it's a scale player and it can charge that
Speaker 8: thirty percent take rate because it has the liquidity in
Speaker 8: its marketplace, the supply demand matching, the best ETAs the
Speaker 8: most options that it can offer to its riders. So
Speaker 8: like marketplaces are all about scale, the moment you have
Speaker 8: more than three or four competitors right now, it's a duopoly.
Speaker 8: And still we see how badly Lyft is doing relative
Speaker 8: to Uber. If you have more competition, that's not news.
Speaker 8: But again this is for the route. This quarter was solid.
Speaker 8: Nothing goes wrong for Uber until this robotaxi rollout plays out.
Speaker 8: So we're talking a few quarters out scenario.
Speaker 2: Market cap for Uber one hundred and thirty two billion,
Speaker 2: market cap for Lyft four billion.
Speaker 8: What happened well, I mean Uber clearly has the scale
Speaker 8: and door Nash has done similarly very well on their
Speaker 8: food delivery side. So You've got two scale players when
Speaker 8: it comes to ride sharing and food delivery, and they
Speaker 8: have the most supply. I mean, one challenge with this
Speaker 8: business model is gross margins can never be as attractive
Speaker 8: as your software companies. And that's what we keep finding
Speaker 8: with Uber. It's like, there's still a forty percent gross
Speaker 8: margin business at an aggregate level. So what where do
Speaker 8: you for him?
Speaker 2: That's terrible. I mean for most of the world, I'm like,
Speaker 2: but for Mandy, if he doesn't see like eighty percent
Speaker 2: gross margin, he doesn't pay attention to it. Man deep Sinc.
Speaker 2: Thank you so much, Men deep Sink. He leads her
Speaker 2: tech Covers. Along with that fellow on Oragrana lead our
Speaker 2: global team Technology Research, one of the best on the street.
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Speaker 4: Thirty, Malex Steel alongside Paul Sweeney, This and Bloomberg Intelligence Radio,
Speaker 4: we bring you all the top news and business economics
Speaker 4: and finance through our lens of our Bloomberg Intelligence folks.
Speaker 4: They cover two thousand companies and one hundred and thirty
Speaker 4: industries all around the world. And one of our favorites
Speaker 4: is Jennifer Ree. She is Boomberg Intelligence senior litigation analyst.
Speaker 4: There's literally no one better internally or externally at Bloomberg
Speaker 4: who knows this antitrust world better than she does.
Speaker 2: Like I wouldn't call a Paul weiss Er scatting or
Speaker 2: any of those firms. I just call go to this
Speaker 2: four floor Bloomberg, talk.
Speaker 4: To genred percent and this this headline crossed yesterday right
Speaker 4: was out going to go on TV at around three
Speaker 4: that a judge rulled Monday that Google illegally monopolized the
Speaker 4: search market through exclusive deals, so it basically pays to
Speaker 4: get their search function on your phone. I'm just gonna
Speaker 4: done that down for a second. This could be huge,
Speaker 4: not only for Google, but it could also be huge
Speaker 4: in terms of like Apple, they could lose billions potentially
Speaker 4: in revenue from this. So we wanted to bring in
Speaker 4: Jen to break it down. Jen, can you just explain
Speaker 4: to me in more detail kind of what the accusation
Speaker 4: is here?
Speaker 9: Sure? Of course, and thanks for all of your comments.
Speaker 9: So Google basically was found to be a monopolist in
Speaker 9: general search services, and I think that's probably no surprise,
Speaker 9: right we all use Google. I think they have eighty
Speaker 9: or ninety percent of the search querieson market share. But specifically,
Speaker 9: what was found to be illegal was Google paying many
Speaker 9: other third parties including Apple, Mozilla, Samsung, other OEMs to
Speaker 9: set Google Search as the default search engine had all
Speaker 9: the access points that you know, where you need to
Speaker 9: access the Internet, so for instance, behind a browser, behind
Speaker 9: Mozilla Firefox, or behind Apple Safari. And so what the
Speaker 9: judge said is well, by placing Google as the default,
Speaker 9: this really blocks out all the other competitors, the search
Speaker 9: engine competitors. And at the end of the day, they
Speaker 9: can't get better if they can't get to customers, because
Speaker 9: search engines get better based on the number of searches done,
Speaker 9: and Google's got all those searches locked up. And that
Speaker 9: was anti competitive because it was exclusionary and probably hindered innovation,
Speaker 9: might have hindered choice and you know, possibly hindered equality.
Speaker 2: However, the stock is unchanged on the news here today,
Speaker 2: so suggesting that the market doesn't really care. Should the
Speaker 2: market care care?
Speaker 4: Here?
Speaker 2: Are there some remedies that might be really owners on Google?
Speaker 8: You know?
Speaker 9: I think there could be. I think part of the
Speaker 9: reason the market's not really reacting is because this was
Speaker 9: just a liability phase. So the remedies have yet to
Speaker 9: be hashed out, and you know, that process could take
Speaker 9: six months, It could take even another year before we
Speaker 9: know what they are, and then Google will likely appeal
Speaker 9: and can seek to stay any remedy pending the appeal.
Speaker 9: And if that happens, you're looking at several years before
Speaker 9: there's any impact at all. But at the end of
Speaker 9: the day, the remedies could be onerous. First of all,
Speaker 9: the DOJ will seek structural change. I don't think they
Speaker 9: could win it here, but one of the requests they
Speaker 9: might have of the judge is to break apart parts
Speaker 9: of Google's business. Again, I think that's a long shot here.
Speaker 9: I don't think it'll happen. I think it's more likely
Speaker 9: that what the judge will say is Google, you can't
Speaker 9: pay anymore to have that default position. And maybe the
Speaker 9: judge will say, Google, you have to share some of
Speaker 9: your data with some of these other search engines or
Speaker 9: maybe some other new nascent search engine that comes into
Speaker 9: being after this remedy phase is finished.
Speaker 4: Okay, So if that's the case, I wonder does this
Speaker 4: change if President Trump wins the White House or is
Speaker 4: this kind of like locked in?
Speaker 9: You know, it's such an interesting issue right now, Alex,
Speaker 9: because one might have said if an administration changes from
Speaker 9: Democratic to Republican, it could change and there might be
Speaker 9: more of a likelihood of a settlement.
Speaker 4: But you have JD.
Speaker 9: Vance as president former President Trump's vice presidential pick, and
Speaker 9: he actually is is aligned with the idea of breaking
Speaker 9: up Google. He's pretty anti big tech. I don't know
Speaker 9: how much he would influence the policy decisions of a
Speaker 9: Trump DOJ or FTC, but if he did, he would
Speaker 9: be all in on continuing to go after Google. So
Speaker 9: I think that possibility of some kind of a settlement
Speaker 9: that's easier on Google happening down the road is low.
Speaker 4: Jen.
Speaker 2: I think if you stopped any person on the street,
Speaker 2: they would say, I got no problem with Google. They're actually,
Speaker 2: it's great, It's changed my life for the better. Is
Speaker 2: this one of those issues where there it's a solution
Speaker 2: in search of a problem here, and does that factor
Speaker 2: into remedies?
Speaker 9: You know, it's exactly you're thinking like a lawyer now
Speaker 9: because that hurts. There's a lot of commentary when this
Speaker 9: case was brought that the DOJ brought the case but
Speaker 9: they really don't have a solution, and they brought it
Speaker 9: before they knew what the solution would be. We're going
Speaker 9: to get into what they're going to suggest the solution.
Speaker 9: But Paul, exactly why you said, you know, people love Google,
Speaker 9: and this is exactly why I think the judge wouldn't
Speaker 9: do something structural because he's not going to want to
Speaker 9: mess that up. People like Google. Google's essentially a free product,
Speaker 9: at least for people, not for advertisers, and it functions
Speaker 9: very well. And despite having a monopoly position, the judge
Speaker 9: did acknowledge that Google continues to innovate in the search area.
Speaker 9: So I think because of the desirability for consumers of
Speaker 9: the Google Search engine, we're not going to see something structural.
Speaker 9: But I do think obviously the judge is going to
Speaker 9: have to impose some remedy because he found that the
Speaker 9: company's acting anti competitively.
Speaker 4: This is a weirdly unfair question to ask you, is
Speaker 4: big tech too big? Like do we have a big
Speaker 4: tech problem?
Speaker 9: Well, I think that's what the current administration thinks. Yes,
Speaker 9: But you know, there's a disalignment here with our Supreme Court,
Speaker 9: because our Supreme Court has ruled over and over that
Speaker 9: it's not illegal in the United States to have a monopoly,
Speaker 9: and in fact, that's what we want all companies to
Speaker 9: work toward, because that's what will cause them to innovate
Speaker 9: and try to gain market share by lowering their prices.
Speaker 9: So at the end of the day, just being big,
Speaker 9: at least today isn't illegal. The problem is the conduct
Speaker 9: of a company that's really big, and that's really what
Speaker 9: the DOJ and FTC are going after right now.
Speaker 2: How about other tech companies, what does this mean for them?
Speaker 9: You know, I think it's atmospherics because there are different facts,
Speaker 9: different issues, different markets, and different market positions. You know,
Speaker 9: the case against Amazon against Meta, they're more case against Apple,
Speaker 9: they're quite different, and these cases rest on the facts
Speaker 9: and the specifics. But what this does do, at least
Speaker 9: for Google, we have one more case coming up, a
Speaker 9: big one against its ad tech stack that's going to
Speaker 9: trial this September. And now Google's been found to have
Speaker 9: monopolized two different parts of its business, play Store, and
Speaker 9: now search, so psychologically, you know, it could influence a
Speaker 9: judge to think, well, they've been found to engage anti
Speaker 9: competitively in two areas, why not in a third as well?
Speaker 4: You know, Paul, this goes to your era too. I
Speaker 4: was reading a piece today that big tech's AI problem
Speaker 4: is just going to buy smaller to companies and getting
Speaker 4: their talent right, and I wonder if that has to
Speaker 4: kind of go away now, because if you have this
Speaker 4: kind of DOJ.
Speaker 2: Yeah, it's interesting. I mean, I think what I understand
Speaker 2: from people like Jen is that some of these big
Speaker 2: tech companies that their hands are really tied in terms
Speaker 2: of big deals at least.
Speaker 9: Yeah, Jen, do you think, oh, absolutely, their hands have
Speaker 9: been tied for the last three years. Things could change
Speaker 9: a little bit with the new administration. I think there
Speaker 9: is no doubt no matter who's elected, there will be
Speaker 9: some change in the leadership positions the decision makers at
Speaker 9: the Department of Justice and Federal Trade Commission, and that
Speaker 9: could change things. But I do think big tech is
Speaker 9: still going to have a lot of trouble going forward
Speaker 9: trying to do any kind of a big deal.
Speaker 4: All right, Jim, thanks a lot. We really appreciate it awesome,
Speaker 4: one of the best in the business. It's the best,
Speaker 4: if not. Jennifer Rea Bloomberg Intelligence, a senior litigation analyst,
Speaker 4: joining us on Google being accused of monopolizing search and
Speaker 4: sort of the ramifications of that as well. It is
Speaker 4: interesting though that markets are super taking this and stride.
Speaker 4: Like yesterday when the news broke, the stock was down
Speaker 4: like a couple percent and didn't really move at all
Speaker 4: from that.
Speaker 2: I mean second, investors have been used to this from
Speaker 2: the Microsoft days back in the eighties, nineties and two thousands,
Speaker 2: and even they looked to Big Tobacco and they say,
Speaker 2: look at and Big Tobaccos is powered break through all
Speaker 2: that litigation risk here. So you get to these companies
Speaker 2: to get to such a size and such a strength
Speaker 2: that it really doesn't matter. The horse is kind of
Speaker 2: out of the barn here, so we'll keep an eye
Speaker 2: on that.
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