WEBVTT - Supply Chain, Fixed Income, CVS, and Private Credit (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.439 at Bloomberg dot com slash podcast. So you know, I 0:00:22.480 --> 0:00:24.840 got lead class cow here in the studio. He covers 0:00:24.840 --> 0:00:28.280 all the transportation, all the logistics, so he's the blame 0:00:28.360 --> 0:00:30.080 for all the supply chain stuff. But he does that 0:00:30.160 --> 0:00:32.159 for Bloomberg Intelligence. And I was just telling him, I 0:00:32.200 --> 0:00:35.840 just read this book book Everything, which is a book 0:00:36.159 --> 0:00:39.839 basically about the global container shipping business. And it was 0:00:39.880 --> 0:00:42.120 a summer beach read on the Jersey Shore because you 0:00:42.200 --> 0:00:43.760 look at these big ships off the coast of the 0:00:43.840 --> 0:00:45.519 Jersey Shore and you think about it, and it got 0:00:45.560 --> 0:00:47.760 me thinking, that's a tough business. Boy, I mean, that 0:00:47.920 --> 0:00:50.360 is a tough business. And I saw that Marsk, you know, 0:00:50.400 --> 0:00:52.479 one of the biggest container shipping companies. They reported some 0:00:52.560 --> 0:00:55.120 numbers today. Lee, talk to us about Marsk and then 0:00:55.480 --> 0:00:57.440 help us think about where we are in this global 0:00:57.440 --> 0:01:01.160 supply chain challenge that really is a global sure shures 0:01:01.160 --> 0:01:04.080 omarics because like the number one and number two global 0:01:04.120 --> 0:01:06.880 container liner depending on the day in the month. Um. 0:01:06.959 --> 0:01:09.360 But you know, they reported great earnings and a lot 0:01:09.360 --> 0:01:11.320 of that had to do with going on their ocean business, 0:01:11.400 --> 0:01:14.280 which is really cool to what they are, and that's 0:01:14.319 --> 0:01:17.600 been driven by really really strong contractual rates. Um. You know. 0:01:17.640 --> 0:01:19.760 What we have seen though, is that you know, we're 0:01:19.760 --> 0:01:22.399 probably at peak earnings for these kind of container liner 0:01:22.840 --> 0:01:25.480 companies and rates are gonna get a lot weaker. And 0:01:25.520 --> 0:01:27.920 the spot market rates are down around seventy eight percent 0:01:28.080 --> 0:01:30.399 year of a year, where at levels that we haven't 0:01:30.440 --> 0:01:32.800 seen since they move a lot, don't they do. It's 0:01:32.840 --> 0:01:35.240 it's and its because it's it's a really common I mean, 0:01:35.480 --> 0:01:37.880 the liners won't tell you this, but it's a commoditized business. 0:01:37.880 --> 0:01:39.560 You know. They they ship a box from point A 0:01:39.680 --> 0:01:42.959 to point b uh, and the lower price, the lowest price, 0:01:43.040 --> 0:01:45.560 that's the new price. And so it's it happens to 0:01:45.600 --> 0:01:47.560 be a very irrational market because a lot of the 0:01:47.600 --> 0:01:51.360 players are are subsidized if you will, by uh, you know, 0:01:51.600 --> 0:01:53.880 the country of origin of where they are. Because most 0:01:53.880 --> 0:01:56.720 of the players are the major players are based out 0:01:56.720 --> 0:01:59.000 of Asia. There's a couple of large European players that 0:01:59.040 --> 0:02:00.760 are a little more I would call them disciplined and 0:02:00.840 --> 0:02:03.160 rational when it comes to pricing. So you know, we 0:02:03.240 --> 0:02:07.520 expect like we're sailing past peak earnings. Uh, and you 0:02:07.520 --> 0:02:08.720 know next year is going to be a lot more 0:02:08.760 --> 0:02:13.400 challenging because of that irrational behavior. There's a great chart 0:02:13.680 --> 0:02:16.200 rolling around in the Bloomber terminal somewhere the shows these 0:02:16.240 --> 0:02:19.320 container freight rates just completely making a U turn and 0:02:19.360 --> 0:02:21.320 they're now back to I want to say, pre pandemic 0:02:21.400 --> 0:02:26.120 levels are almost there. Um what happened to where in 0:02:26.160 --> 0:02:29.680 a supply chain crisis Bush, by the way, has not 0:02:29.720 --> 0:02:31.840 been fixed yet as far as I as far as 0:02:31.840 --> 0:02:34.240 I understand, So why are these freight rates coming down 0:02:34.280 --> 0:02:39.280 if there's still this premium in theory to to bring 0:02:39.320 --> 0:02:41.720 things from abroad? Yeah, I mean it really has. It 0:02:41.800 --> 0:02:45.119 stems first and foremost from demand. So demand is off. 0:02:45.200 --> 0:02:47.760 So typically around now is what we call the peak 0:02:47.800 --> 0:02:50.440 season for freight as like retailers get ready for Christmas 0:02:50.880 --> 0:02:52.679 UH and the holidays, and as you know, a lot 0:02:52.680 --> 0:02:55.760 of like large big box retailers are complaining about their 0:02:55.760 --> 0:02:58.160 inventory is a little too high. Uh and then you 0:02:58.200 --> 0:03:01.280 have that you throw on top of that high inflation. Uh. 0:03:01.320 --> 0:03:04.600 So the you know, the consumer has been relatively uh resilient. 0:03:04.960 --> 0:03:07.080 But the reality is is this peak season is going 0:03:07.120 --> 0:03:09.680 to be very muted. There might be a little bit 0:03:09.680 --> 0:03:13.040 of of of a benefit not for the liner industry, 0:03:13.080 --> 0:03:16.160 but maybe for the trucking industry, um, you know in December. 0:03:16.680 --> 0:03:19.880 But you know, all expectations are is the peak is 0:03:19.880 --> 0:03:21.920 pretty much a wash this year. And some of that 0:03:21.960 --> 0:03:24.760 has to do with, um, you know, the demand trends 0:03:24.800 --> 0:03:26.480 that I talked about, but also a lot of it 0:03:26.480 --> 0:03:28.760 has to do with last year. The comparables were just 0:03:28.880 --> 0:03:32.080 off the chart. So all right, you covered not only 0:03:32.120 --> 0:03:35.320 you cover the whole transportation supply chain, if you will, 0:03:35.400 --> 0:03:39.600 the big uh ocean going ships that the railroads, the trucks, 0:03:39.640 --> 0:03:41.960 the whole thing. Let's talk about the railroads here. I 0:03:42.000 --> 0:03:46.280 get my container into a port, Um, are the rails 0:03:46.280 --> 0:03:48.200 prepared to get it to where it needs to go 0:03:48.280 --> 0:03:50.200 in a timely fashion and in a way that they 0:03:50.200 --> 0:03:53.240 can make money. Yeah? So the rails are you know, 0:03:53.280 --> 0:03:55.960 one of the one of the best businesses in my opinion, 0:03:56.360 --> 0:03:59.400 with freight transportation. You know, they have really high margin business. 0:03:59.760 --> 0:04:03.080 I've to see the barrier's entry are pretty high. No one, 0:04:03.440 --> 0:04:07.240 no one laying down track in North America. But what 0:04:07.320 --> 0:04:09.840 the Rails they're the problems that they were facing really 0:04:09.880 --> 0:04:12.480 has to do with labor. Uh. You know, a they 0:04:12.520 --> 0:04:16.760 had a tentative agreement that wasn't ratified by two unions 0:04:16.760 --> 0:04:19.200 and there's a true there's a real risk of of 0:04:19.200 --> 0:04:22.480 of a of a strike in mid November. We think 0:04:22.520 --> 0:04:25.599 that risk is pretty darn low. Um. And what the 0:04:25.680 --> 0:04:28.919 Rails have been doing over the last i'd say, since 0:04:29.000 --> 0:04:33.680 the depth of the pandemic, is trying to resource their 0:04:33.720 --> 0:04:36.920 networks through hiring and training new employees. And what they 0:04:36.920 --> 0:04:40.200 found is, you know, in in cycles passed, they would, uh, 0:04:40.200 --> 0:04:42.480 they would furlough their employees and they call them back 0:04:42.520 --> 0:04:44.159 up and the employees whould want to come back. But 0:04:44.240 --> 0:04:47.040 this time around, for some reason, the employers are like, yeah, 0:04:47.160 --> 0:04:49.560 I've had enough of being a railroader. I'm gonna go 0:04:49.640 --> 0:04:52.239 work in a warehouse, or I'm gonna go do something else, 0:04:52.600 --> 0:04:55.480 or maybe I'm gonna retire early. Who knows, because you know, 0:04:55.839 --> 0:04:58.120 you know, it is a hard job. It's outside, so 0:04:58.160 --> 0:05:02.520 you're in the hundred degree heat, the zero a degree cold, UM, 0:05:02.560 --> 0:05:05.839 but you know it is is a very well paid, unionized, 0:05:06.000 --> 0:05:11.680 unionized job. Thank you, Paul coming to my rescue with 0:05:11.680 --> 0:05:14.600 the mike. UM. Some of these issues that haven't been 0:05:14.600 --> 0:05:17.680 solved yet from from the rail strike perspective that UM 0:05:17.720 --> 0:05:19.920 that we were just talking about. I believe, correct me 0:05:19.960 --> 0:05:22.320 if I'm wrong. I think November nine, the next day 0:05:22.600 --> 0:05:25.839 that we're looking for. Um, if the kind of voting 0:05:25.880 --> 0:05:29.240 and negotiations don't fully go through, what are the ripple 0:05:29.279 --> 0:05:32.240 effects here? How bad could it get? I mean, you 0:05:32.279 --> 0:05:33.960 know the stats that I've seen, and I'm sure a 0:05:34.000 --> 0:05:35.760 lot of people have seen that are listening to this, 0:05:35.880 --> 0:05:38.599 it's it could cost the economy two billion dollars a day. 0:05:39.279 --> 0:05:41.320 So no one wants that. I mean, the unions don't 0:05:41.360 --> 0:05:44.560 want that, the railroads don't want that, our politicians don't 0:05:44.600 --> 0:05:47.120 want that. I don't want that. UM. You know, so 0:05:47.279 --> 0:05:50.120 it will really muck up supply Chaine, just at a 0:05:50.160 --> 0:05:54.320 time when supply chains are trying to normalize, UM, and 0:05:54.320 --> 0:05:57.120 the speed of that normalization is really being driven by 0:05:57.200 --> 0:06:00.360 labor availability. And you know that's why we're you know, uh, 0:06:00.560 --> 0:06:03.080 you know, Paul, we're talking off the air before like 0:06:03.120 --> 0:06:05.360 why We're not using the R word. It is because 0:06:05.440 --> 0:06:08.960 you know, the consumer is still pretty resilient. Um. You know, 0:06:09.440 --> 0:06:13.400 you might get a recession that is shallow uh and short, 0:06:13.880 --> 0:06:15.919 but the end of the day, you know, freight demand 0:06:16.080 --> 0:06:18.880 doesn't look terrible. Over the next twelve months, it may 0:06:18.920 --> 0:06:21.000 not be as great as it was last year, which 0:06:21.000 --> 0:06:24.479 again right reopening, it was a real, real tough comp Alright, Lee, 0:06:24.560 --> 0:06:26.560 great Stuff has always loved getting you here in our 0:06:26.600 --> 0:06:28.960 Bloomberg Interactor broken studio. Even better to get a gold 0:06:29.000 --> 0:06:32.160 star for that, Lee Glasgow, sector head senior annalys He 0:06:32.200 --> 0:06:36.320 comes all the freight transportation logistics, think freight containers, railroads, 0:06:36.400 --> 0:06:38.839 trucks and everything uh in between. He does that for 0:06:38.839 --> 0:06:41.680 Bloomberg Intelligence to be doing that on Wall Street four decades, 0:06:41.720 --> 0:06:47.520 so we appreciate getting his insights here. All right, this 0:06:47.560 --> 0:06:49.200 is what you do or this is what I do? 0:06:49.240 --> 0:06:51.480 What I want to talk fixed income? I go, I end, 0:06:51.640 --> 0:06:53.720 go on the Bloomberg terminal. That gets me the Bloomberg 0:06:53.720 --> 0:06:57.120 Index browser. I scrolled down to the Bloomberg u S 0:06:57.160 --> 0:07:02.880 Aggregate Total return Value unhedged index four bonds. It's a 0:07:03.040 --> 0:07:06.840 fifteen point five percent this year and fixed income nerves 0:07:06.880 --> 0:07:10.200 tell me that has never happened. So of course I 0:07:10.240 --> 0:07:12.280 feel like I got to jump in the deep end 0:07:12.280 --> 0:07:14.600 of the pool both feet and start buying. But let 0:07:14.600 --> 0:07:16.840 me check with the professional before I do that. Natalie 0:07:16.840 --> 0:07:19.640 treviorth I, head of investment grade credit Strategy of Paident 0:07:19.640 --> 0:07:22.880 and Regal, joins us. So, Natalie, it's got to be 0:07:22.920 --> 0:07:25.840 the mother of all times to buy fixed income today? 0:07:26.000 --> 0:07:29.200 Am my writer wrong on that one? I think you're 0:07:29.240 --> 0:07:32.360 absolutely right. It's never been more attractive. The only issue 0:07:32.400 --> 0:07:34.640 is that keeps getting more and more attractive every day, 0:07:34.760 --> 0:07:37.480 so you continue to see these negative returns roll in. 0:07:38.840 --> 0:07:41.400 So what's kind of just give us as we now 0:07:41.440 --> 0:07:44.720 have you know, nine ten months of hindsight here for 0:07:44.840 --> 0:07:47.120 the fixed income market. How did we get to this 0:07:47.200 --> 0:07:49.800 point here and how did it become like? Again, smart 0:07:49.800 --> 0:07:51.840 people like you tell me we've never seen this in 0:07:51.920 --> 0:07:55.680 fixed income before. Yeah, so we are priced for the 0:07:55.760 --> 0:07:58.200 perfection and credit at the end of two thousand and 0:07:58.240 --> 0:08:02.240 twenty one, weet very anemic credit spread, particularly in the 0:08:02.240 --> 0:08:04.000 front end of the curve. It was hard to even 0:08:04.040 --> 0:08:06.480 get half a percent and yield, and this forced some 0:08:06.520 --> 0:08:09.440 investors down the credit spectrum from investment grade down to 0:08:09.560 --> 0:08:12.920 high yield to clos. But what we see now is 0:08:12.960 --> 0:08:15.320 really a rate driven move by all of the said 0:08:15.360 --> 0:08:18.240 hikes so far that has driven these negative returns, and 0:08:18.280 --> 0:08:20.240 I think it's gone a lot further than people were 0:08:20.280 --> 0:08:23.080 anticipating at the beginning of the year. And as we 0:08:23.120 --> 0:08:25.720 get closer to the end of the hiking cycle, it 0:08:25.800 --> 0:08:28.440 feels like investors are getting a little bit more confident 0:08:28.480 --> 0:08:31.600 about wanting to redip their toes into the fixed income market. 0:08:31.640 --> 0:08:33.000 To know, the two year at four and a half 0:08:33.040 --> 0:08:36.040 to send is looking pretty attractive. Natalie, I love that 0:08:36.080 --> 0:08:38.440 you brought up the negative yielding debt because it really 0:08:38.480 --> 0:08:40.040 wasn't that long ago. Is only a year and year 0:08:40.040 --> 0:08:43.280 and a half ago. Now you can actually make money 0:08:43.280 --> 0:08:45.360 by having the privilege of lending to a lot of 0:08:45.360 --> 0:08:48.480 these sovereign at governments. But I have to ask, in 0:08:48.480 --> 0:08:50.240 this year and year and a half the amount of 0:08:50.280 --> 0:08:54.360 bond volatility, is that not discouraging in itself to hop 0:08:54.360 --> 0:08:59.480 into the bond market. Yeah, that bond volatility that we've 0:08:59.520 --> 0:09:02.680 seen in spreads has been a little bit discouraging, But 0:09:02.800 --> 0:09:05.480 you would think that as the absolute yield rise as 0:09:05.520 --> 0:09:08.720 an underlying treasury rates that investors should demand a higher 0:09:08.800 --> 0:09:13.679 risk premium for dipping down from treasuries into corporate. So 0:09:13.800 --> 0:09:16.800 I mean, I look at the two year here four 0:09:16.840 --> 0:09:20.840 point five. There's no real reason to take any extra 0:09:20.920 --> 0:09:24.319 risk by going out on the yield curve? Is there? Well, 0:09:24.360 --> 0:09:26.360 there is if you think things are going to get 0:09:26.360 --> 0:09:28.280 better and with the said is able to walk a 0:09:28.360 --> 0:09:30.840 straight of soft landing because you can get six percent 0:09:30.920 --> 0:09:34.160 by staying in pretty high quality front and investment, great corporate. 0:09:34.760 --> 0:09:36.800 So if we were to get a pause soon in 0:09:36.840 --> 0:09:39.640 the SuDS hiking cycle, and if credit spreads were to 0:09:40.000 --> 0:09:42.840 um tight and next year, you could actually get incremental 0:09:42.880 --> 0:09:46.040 positive return by taking that extra risk by moving into 0:09:46.120 --> 0:09:49.920 credit as opposed to treasuries alone. Well, Paul brings up 0:09:50.080 --> 0:09:51.640 the two year, and if actually look at the two 0:09:51.720 --> 0:09:53.400 year in the ten year and they kind of overlay 0:09:53.400 --> 0:09:57.160 it would say the terminal rates of what five percent, 0:09:57.240 --> 0:09:59.839 which is now being priced in peak in March three, 0:10:00.120 --> 0:10:02.280 it kind of seems like there's still a long way 0:10:02.360 --> 0:10:05.040 to go when it comes to the yield. How high 0:10:05.120 --> 0:10:08.920 can it go? Well, we think the curve can remain 0:10:09.120 --> 0:10:11.760 inverted for a while, so it wouldn't be too surprising 0:10:11.800 --> 0:10:13.520 to see the two year move up higher to that 0:10:13.600 --> 0:10:16.800 five percent, particularly, we think that that's gonna pause at 0:10:16.800 --> 0:10:19.920 this higher range. But we are seeing some investors who 0:10:19.960 --> 0:10:24.160 are anticipating cuts eventually, maybe not next year but the 0:10:24.200 --> 0:10:26.800 following year, and think locking in four percent on the 0:10:26.840 --> 0:10:28.960 ten year plus adding some credit spread on top of 0:10:28.960 --> 0:10:32.480 that is still attractive to locking longer term higher yields 0:10:32.600 --> 0:10:36.600 rather than before the reinvesting in a couple of years. Natalie, 0:10:36.640 --> 0:10:39.120 I started my career and as a credit research guy 0:10:39.160 --> 0:10:40.839 at the Chase Manhattan Bank. Do I have to break 0:10:40.880 --> 0:10:44.000 out some of my old credit models if I'm worried 0:10:44.000 --> 0:10:47.640 about a recession here and credit quality and all that stuff. Well, 0:10:47.640 --> 0:10:51.000 the good news is credit fundamentals are still actually pretty strong. 0:10:51.160 --> 0:10:53.480 Some of the negative news that we're seen in the 0:10:53.559 --> 0:10:56.559 equity market, such as dividend cuts are slowing down a 0:10:56.640 --> 0:11:00.920 share buybacks are actually positive for bondholders. Companies are really 0:11:00.960 --> 0:11:03.240 focused on managing their balance sheets and want to keep 0:11:03.360 --> 0:11:05.560 leverage and checked, so we don't think there's actually going 0:11:05.600 --> 0:11:08.600 to be a big downgrade wave here um as companies 0:11:08.679 --> 0:11:11.200 really want to make sure that they're maintaining their investment 0:11:11.240 --> 0:11:17.400 grade ratings. I thought we were done. We're not. Let 0:11:17.400 --> 0:11:20.480 me ask you about simply the high yield market here, 0:11:20.520 --> 0:11:23.200 there seems to be some divergence in terms of the 0:11:23.240 --> 0:11:29.199 commodity moves and commodity forecasts. If you are perhaps forecasting 0:11:29.200 --> 0:11:31.800 a recession, a lot of these oil prices and oil 0:11:31.840 --> 0:11:34.120 contracts were the first to fall, of the first to collapse. 0:11:34.440 --> 0:11:38.199 What does that do to high yield? Yeah, we think 0:11:38.240 --> 0:11:40.240 that could be a little bit challenging for high yield, 0:11:40.240 --> 0:11:42.520 but we are not forecasting the collapse. And the energy 0:11:42.559 --> 0:11:44.480 prices we think they stay kind of in this a 0:11:44.600 --> 0:11:47.000 D range or higher, and at this level of these 0:11:47.000 --> 0:11:49.800 companies are still are still throwing off quite a bit 0:11:49.840 --> 0:11:52.160 of free cash flow. We do think a lot of 0:11:52.320 --> 0:11:56.439 energy bonds of already priced in these um strong markets, 0:11:56.440 --> 0:11:58.360 So we think there could be some potential downside, but 0:11:58.360 --> 0:12:00.320 we don't think there's gonna be another wave of down 0:12:00.400 --> 0:12:04.480 grades like you saw immediately post the pandemic. All right, Natalie, 0:12:04.559 --> 0:12:07.960 great stuff. Really appreciate getting some of your time this morning, Natalie. 0:12:08.040 --> 0:12:13.040 Natalie Trevis, head of investment grade credit strategy at Paid 0:12:13.040 --> 0:12:19.240 and Regals. All right, let's talk technology here. You know, 0:12:19.240 --> 0:12:22.880 we had tech earnings over the last week. Broadly defined, 0:12:22.960 --> 0:12:26.640 they were disappointing particularly have any advertising exposure. And it 0:12:26.760 --> 0:12:28.160 kind of got me thinking, is there's gonna be a 0:12:28.200 --> 0:12:30.520 little bit of a reset in this market about how 0:12:30.520 --> 0:12:33.320 the market thinks about technology. So let's bring an Anora Rana. 0:12:33.520 --> 0:12:36.440 He's a senior software I T Services animlysts for Bloomberg Intelligence, 0:12:36.520 --> 0:12:39.240 joining us here in our Bloomberg Interactive Broker studio. So 0:12:39.760 --> 0:12:42.760 you know, I think really antorwag. Since the Great Financial Crisis, 0:12:43.240 --> 0:12:47.360 tech broadly defined has led this market higher. It's been 0:12:47.559 --> 0:12:51.480 the leader. It's had the premium valuation, the premium performance. 0:12:52.440 --> 0:12:54.960 Is that narrative? Is that changed in the last week 0:12:55.000 --> 0:12:58.080 to ten days. Yes, I think the biggest thing is 0:12:58.120 --> 0:13:01.600 way does it welcome from evaluation interview. We have seen 0:13:01.760 --> 0:13:04.880 massive spending in technology over the last five years. The 0:13:04.920 --> 0:13:08.640 pandemic spread it up, so companies were spending quite a 0:13:08.640 --> 0:13:11.400 bit on that. Then now when you see a recession 0:13:11.400 --> 0:13:14.199 on the horizon, you do pull back a little bit. 0:13:14.280 --> 0:13:16.840 Now you pull back, you sage, you put back hardware, 0:13:16.840 --> 0:13:20.600 equipment upgrades, you pull back software. All of those things happened. 0:13:21.160 --> 0:13:22.880 But you know, one of the things we would say 0:13:22.960 --> 0:13:25.320 is our biggest thing has been in the last six 0:13:25.320 --> 0:13:28.600 months we saw no revision estimates. That was our biggest 0:13:28.640 --> 0:13:31.559 complaint going in that we have not seen any revision 0:13:31.559 --> 0:13:33.960 of estimates. And one of the numbers I will highlight 0:13:34.080 --> 0:13:37.080 is in November of last year, when market was really 0:13:37.120 --> 0:13:40.360 at top, market was expecting let's say, for Microsoft, two 0:13:40.679 --> 0:13:44.319 thirty six billion dollars in revenue for calendar of three 0:13:44.880 --> 0:13:47.079 Tell about a month ago. Tell about I would say 0:13:47.120 --> 0:13:49.959 three weeks ago. They were still expecting that number too 0:13:50.200 --> 0:13:52.360 to be there. And I checked it last night. It's 0:13:52.360 --> 0:13:55.880 gone down to ten billion dollar reduction about a four. 0:13:56.400 --> 0:13:58.640 So so we are seeing numbers come down now. I 0:13:58.640 --> 0:14:00.520 think this is the time when side is going to 0:14:00.600 --> 0:14:02.760 take the numbers down, and I think that's what will 0:14:03.120 --> 0:14:06.360 drive the reset. Well, if you what does what does 0:14:06.360 --> 0:14:09.079 the reset look like? Then? I mean, are we looking 0:14:09.120 --> 0:14:13.760 at valuations that are coming back to I wanna perhaps 0:14:15.080 --> 0:14:17.559 even then we were thought that tech was borderline in 0:14:17.600 --> 0:14:19.760 a bubble. What does it look like? I would argue 0:14:19.800 --> 0:14:22.160 that now we are well below our pre pandemic levels 0:14:22.160 --> 0:14:25.280 at this point for all the technology stocks, including software, 0:14:25.560 --> 0:14:28.240 you know, Microsoft, Apple, all these companies. The thing that 0:14:28.280 --> 0:14:30.120 I do want to highlight is, let's say, for the 0:14:30.120 --> 0:14:32.560 sake of argument. For a company like Microsoft that has 0:14:32.600 --> 0:14:35.600 grown three to five years at about fifteen six in 0:14:35.600 --> 0:14:38.280 constant currency, they're still going to grow eight to ten 0:14:38.320 --> 0:14:41.480 percent over the next twelve months too, and then the 0:14:41.560 --> 0:14:43.800 year after that when it rebound comes back, it's going 0:14:43.840 --> 0:14:46.600 to come back actually stronger, because you just cannot live 0:14:46.640 --> 0:14:49.360 without upgrading some of this stuff. So it's a pause 0:14:49.400 --> 0:14:51.640 we're going to see for the next twelve months, but 0:14:52.120 --> 0:14:54.400 you know, I'll be a very optimistic about a bounce back. 0:14:55.280 --> 0:14:57.920 How about you know, I know the backbone of Bloomer 0:14:58.000 --> 0:15:01.400 Intelligence research is the data. We have the best data 0:15:01.440 --> 0:15:03.920 on Wall Street. We spend a lot of money for 0:15:04.040 --> 0:15:06.360 this data. And for you guys in the tech space, 0:15:06.640 --> 0:15:08.840 one of your sources, I knows I d C and 0:15:08.880 --> 0:15:10.960 they've got just kind of industry leading data as it 0:15:10.960 --> 0:15:14.960 relates to all amounts of spending across the technology stack. 0:15:15.000 --> 0:15:17.480 What are they saying over the next several years in 0:15:17.560 --> 0:15:19.760 terms of tech tech span given what we've just experienced 0:15:19.800 --> 0:15:21.920 over the last few years. So, I mean, I've built 0:15:21.960 --> 0:15:23.920 my own mental model which I can explain, and I 0:15:23.920 --> 0:15:26.320 think I DC is, you know, somewhere plus or minus 0:15:26.320 --> 0:15:28.160 two percent on that. The way I look at it. 0:15:28.240 --> 0:15:29.800 If the if the global world is going to grow 0:15:29.800 --> 0:15:32.520 at two to three, technology spending is going to be 0:15:32.520 --> 0:15:34.240 two to three times. So that so let's say four 0:15:34.280 --> 0:15:36.880 to nine pc um in that hardware is going to 0:15:36.920 --> 0:15:39.280 be low single digits. Software is going to be ten 0:15:39.320 --> 0:15:41.600 percent plus, and service is going to be around five 0:15:41.640 --> 0:15:45.040 to seven percent. So software is the key driver there 0:15:45.080 --> 0:15:47.160 in double digits. And and in fact, you could look 0:15:47.200 --> 0:15:50.360 at any company today's salesforce service now you will still 0:15:50.400 --> 0:15:55.040 see estimates above for this service now above, so we 0:15:55.120 --> 0:15:57.760 have a long way to go before we reach maturation 0:15:58.160 --> 0:16:02.320 in the software growth rates. What about kind of great 0:16:02.360 --> 0:16:05.520 sensitivity here? A lot of these big tech names were 0:16:05.880 --> 0:16:08.600 kind of the poster child of if the Fed hikes, 0:16:08.640 --> 0:16:11.080 these are the first names you sell. And and although 0:16:11.240 --> 0:16:13.960 that made sense when you have these massive balance sheets 0:16:13.960 --> 0:16:17.880 and all this cash and all this liquidity, what happens 0:16:17.960 --> 0:16:21.320 now some of that cash has been deployed and the 0:16:21.440 --> 0:16:24.160 rates market is kind of peeking and kind of stalling out. 0:16:24.240 --> 0:16:28.080 Doesn't that mean that tech should be now? I would 0:16:28.080 --> 0:16:31.080 say that the day we get this news that the 0:16:31.120 --> 0:16:33.800 pivot is there, we're gonna have one hell of a 0:16:33.880 --> 0:16:36.880 tech rally. Now, I don't know when that day. I mean, 0:16:37.000 --> 0:16:39.880 I don't know, I don't That's the thing I cannot predict. 0:16:39.920 --> 0:16:41.960 But um, that's gonna happen. I mean, it may not 0:16:42.040 --> 0:16:45.360 happen now, six months, twelve months, even longo, but that's 0:16:45.360 --> 0:16:48.560 the day we're going to have this conversation because all 0:16:48.640 --> 0:16:52.520 these companies are very resistant to any kind of a 0:16:52.560 --> 0:16:54.920 downtown and because of the work that they do. But 0:16:55.120 --> 0:16:57.840 we're already there. If you're looking at the market expectations, 0:16:57.840 --> 0:17:01.960 they're already stalling out at five in March. And there's 0:17:01.960 --> 0:17:03.760 an argument here that that's going to create some sort 0:17:03.760 --> 0:17:07.040 of floor for the equity market. But does that mean 0:17:07.040 --> 0:17:09.560 that tech leads that, Oh, it has to there is 0:17:09.600 --> 0:17:12.040 no no other way because that has the highest beta. 0:17:12.240 --> 0:17:14.280 Those are the ones that were killed more. That's where 0:17:14.320 --> 0:17:17.879 the discount rate really, you know, completely demolished the valuations 0:17:17.880 --> 0:17:20.719 of it. But I think, in in conjunction with what 0:17:20.760 --> 0:17:24.400 I said to Paul earlier, the revenue estimates and and 0:17:24.400 --> 0:17:27.240 and profit estimates needs to come down, and I think 0:17:27.240 --> 0:17:28.960 they started to come down. I think, you know, it 0:17:28.960 --> 0:17:31.000 could be another month or so when we see a 0:17:31.000 --> 0:17:33.359 bottom for that. I think that couple with the rates 0:17:33.440 --> 0:17:35.520 is what drives the market. Opted all right, let's talk 0:17:35.520 --> 0:17:39.840 about Microsoft um sat Natla Nadella, I think is one 0:17:39.840 --> 0:17:42.560 of the most under believe it or not, you know, 0:17:42.560 --> 0:17:45.760 the undervalued or under recognized folks out in silicon value 0:17:45.760 --> 0:17:47.840 what he's done with that company. But I'm looking at 0:17:47.840 --> 0:17:50.399 the f A function for Microsoft and a little bit 0:17:50.400 --> 0:17:52.240 of a slow down and growth in the twenty three 0:17:52.280 --> 0:17:55.520 consensu assessments eight and a half percent, presumably bacon in 0:17:55.560 --> 0:17:58.760 some type of recession. But then you look at six 0:17:58.880 --> 0:18:02.800 Wall Streets still predicting thirteen percent revenue growth. That's pretty 0:18:02.880 --> 0:18:05.960 darn good, is that. I would argue that it's going 0:18:06.000 --> 0:18:08.439 to be better than that, because it's going to be 0:18:08.520 --> 0:18:11.720 close to six. If I do not look at any 0:18:11.720 --> 0:18:14.240 effects headwinds at that point, we are assuming, you know, 0:18:14.320 --> 0:18:17.199 dollar cannot get stronger, you know, forever at that at 0:18:17.200 --> 0:18:19.399 that end. But even if I was to exclude this, 0:18:19.800 --> 0:18:21.800 because we saw this during the pandemic, if you were 0:18:21.840 --> 0:18:24.119 to go look at the data during the pandemic, and 0:18:24.119 --> 0:18:26.880 we published a note on this yesterday, that cloud growth 0:18:26.960 --> 0:18:29.560 rates dipped quite a bit in the four quarters since 0:18:29.600 --> 0:18:32.360 the pandemic started, and the year after that growth rates 0:18:32.400 --> 0:18:35.240 picked up. In that cloud business, which is very unusual 0:18:35.320 --> 0:18:37.639 because the size of that business is very large. So 0:18:37.720 --> 0:18:40.159 for growth rates to accelerate, and we think that's going 0:18:40.240 --> 0:18:43.960 the same thing is going to happen going into twenty four. Well, 0:18:44.359 --> 0:18:47.680 talking about cloud adoption here because I think, um, your 0:18:47.720 --> 0:18:51.040 colleague Man deep Thing actually talked about the fact that 0:18:51.080 --> 0:18:53.199 this is a market. I don't want to mess up 0:18:53.200 --> 0:18:55.000 the numbers here, but this is a market that has 0:18:55.160 --> 0:18:57.840 I want to like four or five, like a billion 0:18:57.960 --> 0:19:00.879 or trillion or some sort of big, big, big number, 0:19:01.080 --> 0:19:04.159 but that only a fraction of it has really been unlocked. 0:19:04.200 --> 0:19:05.800 But a lot of that is because a lot of 0:19:05.800 --> 0:19:08.920 these companies haven't actually adopted it fully. About thirty seconds here, 0:19:09.400 --> 0:19:11.640 how long is it gonna take to adopt fully? It's 0:19:11.760 --> 0:19:13.720 it's just going to be taken a lease to decade 0:19:13.880 --> 0:19:16.280 to get dinner. So we are looking at a decade 0:19:16.280 --> 0:19:19.480 of very strong cloud growth. The growth rates will be decelerate, 0:19:19.520 --> 0:19:21.200 but but it's going to take at least to decade. 0:19:21.400 --> 0:19:23.720 All right, I don't know great stuff, appreciate it always. 0:19:23.760 --> 0:19:26.480 We let to getting the overview of the text base 0:19:26.520 --> 0:19:29.560 and then digging down into some individual names. I guess 0:19:29.560 --> 0:19:31.600 the key issue for a lot of people, is will 0:19:31.800 --> 0:19:35.600 the tech sector continued to be a leading sector in 0:19:35.840 --> 0:19:38.679