Speaker 1: This is Bloomberg business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg business Week
Speaker 1: Podcast with Carol Masser and Tim Stinebec from Bloomberg Radio
Speaker 1: as we mentioned yesterday, and the new double issue of
Speaker 1: Bloomberg Business Week, several stories on the destruction in Eastern Europe,
Speaker 1: including one on the new arms race that has to
Speaker 1: do with supplies and Russia and Ukraine having enough ammunition.
Speaker 1: Who knew there were ammo shortages? And so crazy to
Speaker 1: think that it's been a year since that Russian invasion
Speaker 1: of Ukraine. Absolutely, and as you said, who knew that
Speaker 1: there were AMMO shortages? Our business team, business Week team
Speaker 1: definitely knew. The new issue, by the way, online at
Speaker 1: Bloomberg dot com slash business Week, also on the Bloomberg terminal,
Speaker 1: of course on newsstands. Let's get to it with Natalia Drosdac.
Speaker 1: She's Bloomberg News reporter covering EU government. She's on the
Speaker 1: phone from Brussels, along with the Bloomberg Business Week editor
Speaker 1: Jill Weber, of course, editor of the magazine. He's here
Speaker 1: in our Bloomberg Interactive Broker Studio. I have to say, Joe, Uh,
Speaker 1: the to all the coverage really important and as Maddie said,
Speaker 1: hard to believe that we're already one year in or
Speaker 1: almost one year in on this. Yes, so to mark
Speaker 1: that we wanted to create a package of stories and
Speaker 1: um In in the ongoing effort to show how important
Speaker 1: return to office is. Natalia, who happened to be in
Speaker 1: New York from Brussels, floated as I bumped into every
Speaker 1: one day, Uh, this idea that you know, the world
Speaker 1: happens to actually be running short on on AMMO, And
Speaker 1: I said, well that has some serious implications when um,
Speaker 1: you know Putin has decided to wage war in Europe, right,
Speaker 1: and and that is a coverage area that I just
Speaker 1: think is going to become even more interesting as the
Speaker 1: conflict reaches on. But Natalia, bring us up to speed
Speaker 1: on on your reporting and which you found. Yeah, I
Speaker 1: think one of the features of this war in Ukraine
Speaker 1: that we've seen is um the incredibly high attrition rates
Speaker 1: of ammunition that is taking place every day. Both sides
Speaker 1: are burning through as much as thirty thousand, one five
Speaker 1: five millimeter ammunition UM, which is artillery ammunition basically, and
Speaker 1: I think that has really um that has really taken
Speaker 1: the West by surprise. I mean so much so that
Speaker 1: their stockpiles have also been depleted as a result of
Speaker 1: supporting Ukraine in its fight against Russia. And we know
Speaker 1: that Russia is also facing that pressure. I mean that
Speaker 1: just in terms of the staggering amount of ammunition that
Speaker 1: they're they're going to going through. That means that there's been,
Speaker 1: um basically this urgent need to to boost production on
Speaker 1: on all fronts, on all sides, um in Ukraine and
Speaker 1: Russia in the West. And so there's this expense from
Speaker 1: the officials in recent weeks that the war is really
Speaker 1: becoming a battle of factories and production as much as
Speaker 1: it is a battle of troops and weapons. And so
Speaker 1: there's this real race to to to produce as much
Speaker 1: ammunition in particular to get that to the front, especially
Speaker 1: right now with both Russia and Ukraine launching new offenses
Speaker 1: in the coming weeks and months. So this is an
Speaker 1: urgent issue. Okay, so you might have been tired of
Speaker 1: hearing about supply chains, but it turns out wars have
Speaker 1: supply chains to Let's actually just focus on on the
Speaker 1: europe side, and and what's going into Ukraine to support
Speaker 1: the Ukrainian side. Where where is that stuff coming from
Speaker 1: and what sort of what do the numbers look like?
Speaker 1: As that machine has rapped back up, well, so Europe UM.
Speaker 1: So both Europe and the US have had to boost production.
Speaker 1: I think it's fair to say that the US has
Speaker 1: and quicker to do it. UM. They were producing around
Speaker 1: fourteen thousand UM shells per month before the war, and
Speaker 1: now they're planning to get up to as much as
Speaker 1: nineties thousands per months as soon as the next year. UM.
Speaker 1: But but Europe does seem to be lagging behind UM.
Speaker 1: And you know, we have we have some examples of
Speaker 1: of companies in Germany and Slovakia who are who are
Speaker 1: really trying to dose production. But the problem is that
Speaker 1: Europe comes from this context of years of really limited
Speaker 1: defense spending, which I'm sure you will remember from the
Speaker 1: Trump days because that was something that he was really
Speaker 1: UM pushing the Europeans to do more of, to spend
Speaker 1: more in defense UM. And as it happens, because Europe
Speaker 1: was spending UM in a limited amount of defense on
Speaker 1: the basis of the assumption that there wouldn't be a
Speaker 1: major war this content that meant that production and industry
Speaker 1: has also kind of uh scaled back in a big
Speaker 1: way as a result. Hey, to tell you, I'm so
Speaker 1: sorry to jump in. I just wonder. I know you're
Speaker 1: talking about the europe impact, but we've been talking all
Speaker 1: week about how the US has also been limiting investment
Speaker 1: in defense. I wonder to what extent some of the
Speaker 1: sources that you spoke with in your fantastic reporting on
Speaker 1: this would be concerned about that as well, the US
Speaker 1: potentially pulling back on investment in production of something like AMMO. Well,
Speaker 1: I think I mean the context right now, that would
Speaker 1: be really hard to justify, um, because I think this
Speaker 1: there's just such an urgent need not just to support Ukraine,
Speaker 1: but also to to replenish the Allies stockpiles, and NATO
Speaker 1: Allies just just in the recent weeks UM and months
Speaker 1: has agreed to to raise stockpiling guidelines as a result
Speaker 1: of that. So this is like a clear, uh concrete
Speaker 1: um takeaway that they're they're they're yet that they're making
Speaker 1: from from the war and learning lessons from what they're
Speaker 1: seeing in Kraid to tell you, I feel like there's
Speaker 1: a reality of and you make a great reference to
Speaker 1: World War One, um when it comes to ammunition. But
Speaker 1: the reality is, you know, ultimately who is able to
Speaker 1: kind of bring in and build up their stockpiles could
Speaker 1: have a large um impact on ultimately who maybe wins
Speaker 1: this war. So is there a net net who has
Speaker 1: the advantage right now? Russia or Ukraine? I think it's
Speaker 1: it's a really tight race. Um. You know, when you
Speaker 1: talk to NATO officials, they're really confident about their position. Um.
Speaker 1: They know that Okay, Ukraine's using less, but they're more
Speaker 1: efficient about the ammunition that they're using because they've gotten
Speaker 1: very um modern weapons from from NATO allies, and those
Speaker 1: modern weapons are more precise at targeting UM targeting, making
Speaker 1: those hits UM. And Russia's under sanctions, it's a Ukraine
Speaker 1: also has the backing of the entire West Western production
Speaker 1: capacity potential capacity. But on the Russian side, they've really
Speaker 1: they've really um, I mean they've they've switched into wartime economy.
Speaker 1: So that means that the sense has become a number
Speaker 1: one priority. So there it's us the forefront, and we
Speaker 1: we don't have concrete numbers about their current production of ammunition,
Speaker 1: but we know that before the war they were producing
Speaker 1: one point seven million, one five two, which is the
Speaker 1: Soviet UH standard for ammunition. I'm gonna jump in here.
Speaker 1: I highly recommend everybody check out the series of stories,
Speaker 1: the photo essay, your story there with all the numbers.
Speaker 1: Um just talking about here. We are almost one year
Speaker 1: in u Natalia Josiac Bluemberg News and of course the
Speaker 1: editor of Blueberg business Week. Check out this is the
Speaker 1: cover a special jeep dive into the war in Bloomberg
Speaker 1: business Week. You're listening to the Bloomberg Business Week podcast.
Speaker 1: Catch us live weekdays from two to five pm Easter
Speaker 1: on Bloomberg Radio, the Bloomberg Business app band you too.
Speaker 1: You can also listen live to our flagship New York station,
Speaker 1: Just Say Alexa play Bloomberg e Love and Dirty. Ain't
Speaker 1: calls on trucks, but if it runs, dear matter, thanks much.
Speaker 1: Tract sex all right, we're gonna talk about tractors. Yeah,
Speaker 1: I guess they could be sexy. I don't know. Down
Speaker 1: on the farm. Everybody, alright, cheers of deer. They are
Speaker 1: roommate and I and the team we were just talking
Speaker 1: about this deer jumping today. Certainly one of I think
Speaker 1: it's the number one gainer in the SNP five reported
Speaker 1: first quarter results be the expectations. They raised their forecast.
Speaker 1: Let's get into what is going on at the company,
Speaker 1: maybe what it says more broadly about the farm economy
Speaker 1: and the world at large. With us is Bloomberg News
Speaker 1: ag reporter Elizabeth Elkin. She's joining us via zoom in
Speaker 1: New York City, and we've got Bloomberg Opinion, Deals and
Speaker 1: Industrials columnist Brook Sutherland right here in our Bloomberg Interactive
Speaker 1: Broker studio. Hey, Elizabeth, I want to start with you
Speaker 1: break down the quarter for us. Yeah. Absolutely. Um, So,
Speaker 1: like you said, we had a really really really strong
Speaker 1: day for deer today. Um, you can kind of see
Speaker 1: how well farmers are doing based on how well deer
Speaker 1: is doing. Right, So, farmers are making a lot of money,
Speaker 1: which means that they're buying a lot of tractors, and
Speaker 1: so then you get deer making a lot of money
Speaker 1: off that. Right. There are a lot of farmers who
Speaker 1: are going in and they're upgrading their fleets. You know,
Speaker 1: they need they need new equipment just like anyone else does.
Speaker 1: And uh yeah, they're they're upgrading and they're spending a
Speaker 1: lot of money and and Deer is making money off that.
Speaker 1: Of course, So Brooke, bringing you into the conversation here,
Speaker 1: tell me a little bit about what this is looking
Speaker 1: like on the deal side. What are people most excited
Speaker 1: about when it comes to Deer? Uh, sure, I mean
Speaker 1: on the deal side. I think in the industrial world,
Speaker 1: it's just interesting to see, um, you know, how these
Speaker 1: companies might behave if we see some valuation reset. We've
Speaker 1: heard a lot of companies complaining about prices being very expensive. Certainly,
Speaker 1: Deer has been making some inroads on the technology front,
Speaker 1: which you know, we've seen that across the industrial sector
Speaker 1: of companies wanting to invest in these higher tech options
Speaker 1: for their equipment. But you know, I think what's interesting
Speaker 1: in today's numbers and just really echoes what we've heard
Speaker 1: across the manufacturing sector this quarter that they're not really
Speaker 1: seeing that dramatic drop off in demand that people have
Speaker 1: been worried about for so many quarters. Certainly there's pockets
Speaker 1: of weakness um for Deer, particularly that's on the more
Speaker 1: consumer facing side. Some of those sort of hobby tractors
Speaker 1: that were very big during the pandemic when we were
Speaker 1: all sitting at home, and I'm trying to figure out really,
Speaker 1: I mean, people who think tractors are sexy and we're
Speaker 1: excited to get out and do that during the pandemic,
Speaker 1: and so we're seeing weakness there. But in terms of
Speaker 1: they're really in more industrial facing businesses, it's just not
Speaker 1: happening there and and nor is it for a lot
Speaker 1: of the other industrial companies that I look at. But
Speaker 1: go through some of the headlines and numbers that we
Speaker 1: got from Dear though that was so strong about you know,
Speaker 1: they addressed demand, they talked about supply chains, walk us
Speaker 1: through it a little bit, sure, like Elizabeth was saying,
Speaker 1: you know, um, farmers are are doing well right now.
Speaker 1: Crop prices are up, and you know, there's some expectation
Speaker 1: that net income for farmers will be down next year
Speaker 1: relative to this year, but Deer still expects it to
Speaker 1: be at a very healthy level to support that replacement
Speaker 1: demand for this aging farm equipment that we've been talking
Speaker 1: about for years and years now, and they are looking
Speaker 1: to invest. And you know, Deer has also come out
Speaker 1: with higher tech offerings UM that can help improve farmers productivity,
Speaker 1: which of course is very appealing at a time when
Speaker 1: crop prices are high, and you want to get as
Speaker 1: much bang for your buck as you possibly can. UM.
Speaker 1: You know, it's part of this. And let me first
Speaker 1: start with you and then I'll bring you back in Elizabeth.
Speaker 1: It's part of this the inflation story that because farmers
Speaker 1: have been have they been able to charge higher prices?
Speaker 1: Is that part of it. Deer seen incredible pricing power
Speaker 1: and they're not alone in this UM, you know, But
Speaker 1: I think it is just notable how much Deer has
Speaker 1: raised prices. And it's somewhat similar to what we've seen
Speaker 1: at Caterpillar in terms of pricing power. But these are
Speaker 1: very big companies with very deep networks of dealers UM
Speaker 1: and service providers, and they have a lot of power
Speaker 1: when it comes to pricing UM and they certainly have
Speaker 1: not hesitated to flex that in this environment. But is
Speaker 1: it because farmers are making more money off the crops?
Speaker 1: I mean, I think farmers be able to absorb the
Speaker 1: higher costs UM. And you know, at the end of
Speaker 1: the day, if you need the equipment, UM, you're you're
Speaker 1: going to You're gonna want to buy it. UM. Of course,
Speaker 1: you know there are competitors that you can look to
Speaker 1: in this field. But you know, like I said, Deer
Speaker 1: is a big company in the agriculture equipment space and
Speaker 1: they have a lot of power. Elizabeth, come on in
Speaker 1: on this and what we've been talking about. Yeah, absolutely, So, Um,
Speaker 1: commodity crop prices are really really high and farmers are,
Speaker 1: as we've said, making a lot of money off of that. Um,
Speaker 1: you know, we do as as we've been looking at
Speaker 1: this year or this past sort of year period, UM,
Speaker 1: we've been worried somewhat about like farmers being able to
Speaker 1: outpace inflation, right because everything that goes into growing crops
Speaker 1: goes into like the farm you know, like processes. We've
Speaker 1: seen like massive inflation on that. But but so far
Speaker 1: crop prices have kept up pace more than so and
Speaker 1: so um yeah there. I mean, farmers are kind of
Speaker 1: rolling in cat right now. And that's where we see
Speaker 1: this come in, right, So farmers are rolling in cash.
Speaker 1: I wonder how much of this is the fundamentals versus
Speaker 1: the technicals for dear, Like, what what is the exact
Speaker 1: data point that people are most excited about when looking
Speaker 1: at Deer and Brooke? I wonder if you can touch
Speaker 1: on that sure, I mean, I think it's a variety
Speaker 1: of things. I think there was a lot of angst
Speaker 1: heading into this quarter. Um you know that we might
Speaker 1: start to see signs of a slow down. Deer uh
Speaker 1: It's stock is up significantly over the last couple of years,
Speaker 1: and you know, I think people are wondering if you know,
Speaker 1: there's an opportunity for some profit taking at some point here,
Speaker 1: but the company just keeps out performing, blowing past. It's
Speaker 1: kind of markable. I just went back to I guess
Speaker 1: that was a little bit of a Yeah, I think
Speaker 1: was a little bit of a down year, but they
Speaker 1: have just been shooting up year after year they have.
Speaker 1: And I mean it's not just the agricultural equipment either.
Speaker 1: I mean one of the things that stood out to
Speaker 1: me just you know, looking at the industrial sector more broadly,
Speaker 1: like I do, is their optimism around construction equipment that
Speaker 1: you know, whatever weakness we're seeing and housing, they still
Speaker 1: are seeing very strong demand for construction and forest equipment. Um.
Speaker 1: You know, as some of that institutional commercial spending comes in, um,
Speaker 1: you know, benefits from infrastructure spending, that sort of thing.
Speaker 1: So you know, that's a focus for a lot of
Speaker 1: investors in the industrial side. And I know Elizabeth that
Speaker 1: you cover this in a much more high brow way.
Speaker 1: But I do wonder to what extent kind of the
Speaker 1: memification of Deer and Caterpillar has any impact on the companies.
Speaker 1: Like when we see everyday consumers just wanting to buy
Speaker 1: anything branded Dear to kind of express their own love
Speaker 1: of the company. Um, does that stay sticky? Does that
Speaker 1: remain a good sign for the company when you look,
Speaker 1: you know, a year from now, five years from now.
Speaker 1: I mean, look, Dear is like one of these top names, right,
Speaker 1: I mean I don't think that I can think about
Speaker 1: driving through I went to school in Alabama, Like, I
Speaker 1: can't think of that driving through Alabama without seeing a
Speaker 1: bunch of big green deer tractors, right, Um, and the hats,
Speaker 1: you know, and the children. Really they have so much
Speaker 1: that you can buy to just be like, I love
Speaker 1: this brand, and they've done so much marketing around that,
Speaker 1: and I just wonder. I know that's a low expense,
Speaker 1: but I wonder if that has an impact on the
Speaker 1: health of the company. I think it's a great thought.
Speaker 1: I mean, the branding is obviously really really important to
Speaker 1: a company like this, and you know, like you said,
Speaker 1: even like the hats and things like those are things
Speaker 1: that I who like don't. I don't drive tractors, right,
Speaker 1: but I could still buy a bunch of like deer
Speaker 1: you know, hats and uh shirts and things and like
Speaker 1: be like, yeah, I love big grain tractors, you know,
Speaker 1: all of those country songs like I can still do that.
Speaker 1: So I would imagine that that is helpful for these companies, right.
Speaker 1: I would also think that the brand power helps and
Speaker 1: plays a role in the pricing factor to um. You know,
Speaker 1: it's a well known brand that people think of and
Speaker 1: that that gives them a lot of power. You know,
Speaker 1: I'm looking at your een go back to the end
Speaker 1: of it's up at almost I mean, it's really just
Speaker 1: been on a tear. So guys, let me just we
Speaker 1: just have about a minute and a half left here. Brook.
Speaker 1: Let me start with you. So when you look at
Speaker 1: the industrial space more broadly, we've had reports you've got, dear,
Speaker 1: what does it tell you about what's going on more
Speaker 1: broadly in the economy. I mean, as you say, these
Speaker 1: are not inexpensive machines, No they're not. But I mean
Speaker 1: I think one of my biggest takeaways this earning season
Speaker 1: has been CEO's willingness to not only hold steady capital
Speaker 1: expenditures but step them up. I mean, I think you
Speaker 1: have to feel like they're they're taking a pretty confident
Speaker 1: view of the economy here to be making these spinning
Speaker 1: decisions that you know, there might be some sort of
Speaker 1: soft dip, a soft landing, short term dip, but they're
Speaker 1: looking past that and thinking about the long term future
Speaker 1: of their companies and seeing a very robust demand back drop,
Speaker 1: whether that's from reshoring or infrastructure or other stimulus programs
Speaker 1: in the US and in Europe or China, and they
Speaker 1: feel good. Elizabeth, come on in for a final thought here,
Speaker 1: just got about thirty forty seconds here, because I always
Speaker 1: think about people think about farmers always needing subsidies, and
Speaker 1: it's such a tough industry. What does it say more
Speaker 1: broadly to you about what's going on in agg and
Speaker 1: again got about thirty seconds here. Absolutely, yeah, I mean,
Speaker 1: it is a tough industry. But at the same time,
Speaker 1: like you see huge commodity farmers like really making money. Um.
Speaker 1: That being said, you also see some of the smaller
Speaker 1: farmers really struggling. Um. And I think that you can
Speaker 1: see that in some of these equipment sales numbers. UM,
Speaker 1: small egg in the US was looking down for the year,
Speaker 1: and UM, I think that that's sort of telling of
Speaker 1: some of the smaller scale farmers rather than these big
Speaker 1: commodity farmers that we talked about a lot. Well, the
Speaker 1: deer numbers stock still up about seven point three percent.
Speaker 1: We saw a co going up, and we saw other
Speaker 1: names in the space definitely trending higher. Um. Thank you
Speaker 1: both really appreciated. Bloomberg News Agriculture reporter Elizabeth Elkin joining
Speaker 1: us via zoom in New York City, and of course
Speaker 1: Bloomberg Opinion, Deals and Industrious columnist Brooks Sutherland. You're listening
Speaker 1: to the Bloomberg Business Week podcast. Catch us live week
Speaker 1: days from two to five pm Easter on Bloomberg Radio,
Speaker 1: the Bloomberg Business Band. You too. You can also listen
Speaker 1: live to our flagship New York station. Just say Alexa,
Speaker 1: play Bloomberg even dirty. I'm room journal. Yeah, but you
Speaker 1: let me drive, no, no, no, hon please, I'll go
Speaker 1: Bombardi Revels. Right, I want to drive. Good question D.
Speaker 1: This is the Drive to the Globe down on bloom
Speaker 1: Bird Radio. All Right, we just heard from Charlie of
Speaker 1: course breaking down the trade here. Keep in mind we
Speaker 1: are on track for the S and P to see
Speaker 1: its first back to back weekly declines, the first time
Speaker 1: that we've seen that here. In standout though, is those
Speaker 1: small caps up about one and a half percent for
Speaker 1: the week overall, and a little bit higher certainly in
Speaker 1: today's trade. So let's talk about the markets. Let's talk
Speaker 1: about it with someone who knows it very well. We've
Speaker 1: got Alan Zaffran, founding partner and co CEO at I
Speaker 1: e Q Capital. He is joining Carol and myself on
Speaker 1: zoom from northern California. Allen, great to speak with you here.
Speaker 1: I'm gonna start with the million dollar question on all
Speaker 1: of our minds. What's the outlook for recession in three
Speaker 1: Can you read the tea leaves for us? Mawson and Carol,
Speaker 1: thanks for having me. Of tea leaves are not terribly
Speaker 1: encouraging other than this day. If we're going to have
Speaker 1: a recession, the appearances are that will be relatively shallow
Speaker 1: but extended. And I think the challenges being seen in
Speaker 1: the way the market is playing out right now. It
Speaker 1: is a strange time, Madison. And the reason is the
Speaker 1: bulls are arguing that we've avoid were avoiding recession. But
Speaker 1: if you're avoiding recession, the economy is going to be strong.
Speaker 1: And if the economy is going to be strong, that
Speaker 1: means the Fed's going to keep rates up higher and longer,
Speaker 1: which in turn is going to push down economic activity,
Speaker 1: and it's gonna push down valuations and earnings estimates. And
Speaker 1: so the market wants to hear that we've already pivoted
Speaker 1: with the Fed, We've had a soft landing, and it's
Speaker 1: all steam ahead. The problem is the market isn't yet
Speaker 1: priced in fully higher rates for a longer period of time,
Speaker 1: and the fact that has on reducing earnings estimates. That
Speaker 1: is the struggle worth witnessing right now. Al I gotta say,
Speaker 1: it feels like chicken and the egg, like I'm not
Speaker 1: quite sure you know it's and this is the predicament
Speaker 1: that FED finds it's self in. And we know FED
Speaker 1: policy not exact or you know, it takes a while
Speaker 1: for these moves to really feel their impact, and so
Speaker 1: none of this is an exact science. Having said that,
Speaker 1: we do know are a lot of conversations have been
Speaker 1: about inflation. Bringing it down. It's harder, right, The first
Speaker 1: bunch is easier but as as as the time drags on,
Speaker 1: it's a little bit stickier and trickier. Um. Having said that,
Speaker 1: the investors that you talked to, are they more optimistic
Speaker 1: or pessimistic at this point because the earnings and the
Speaker 1: kind of held up out here in the Silicon Valley,
Speaker 1: people are guarded and concerned. Not from the standpoint that
Speaker 1: it's armageddon. There's just this feeling that we're in the
Speaker 1: middle of an elongated, slow grinding cycle that hasn't played out,
Speaker 1: and it's just gonna take more time, and it's aggravating,
Speaker 1: particularly for those in Silicon Valley that have startup in
Speaker 1: early stage businesses with short runways of cash before they
Speaker 1: burn up and need more money. That's the scary part.
Speaker 1: Other much more well positioned, solid businesses, predominantly in the
Speaker 1: SMP five or an index, don't have those near term
Speaker 1: cash problems, but they recognize the economy is slowing as
Speaker 1: the FED raises rates, and we all know academically in theory,
Speaker 1: when the FED raises the rate fed rate, it takes
Speaker 1: about twelve months from the full impact of each rate
Speaker 1: hike to fully filter through in the economy. So if
Speaker 1: you believe that to be the case, the slowdown economically
Speaker 1: is still going to show up six to twelve months
Speaker 1: from now, not today. This goes back to I have
Speaker 1: to say, you know, Maddie's something that I've been talking
Speaker 1: about a lot Ken Rogoff on surveillance this week, and
Speaker 1: just this whole idea of we don't really know what's
Speaker 1: going to happen and how this plays plays out, and
Speaker 1: this is what makes it so tricky and so interestingly
Speaker 1: he was the one who was saying we're going to
Speaker 1: have soft without the landing, like another thing to add
Speaker 1: to our little reel of options for for where we're
Speaker 1: heading with this. UM, I want to ask you Alan
Speaker 1: about tech companies because you are in Silicon Valley and
Speaker 1: you're talking about the importance of cash. As the era
Speaker 1: of free money starts to wrap up, how are you
Speaker 1: thinking about tech companies, UM, Tech companies still have a
Speaker 1: fabulous quality in which they're incredibly capital like high margin
Speaker 1: businesses with recurring revenue streams, and you get entrenched customers
Speaker 1: who just can't let go of their software based systems
Speaker 1: once they grab them. So if you have a really
Speaker 1: strong franchise and a durable product until a better competitive
Speaker 1: technology shows up, it's a winner. The challenges. These companies
Speaker 1: are valued on the basis of long term cash flows,
Speaker 1: so those businesses are the most susceptible to rising FED
Speaker 1: fund rates because I'm going to use higher discount rate
Speaker 1: when I value the present value of those distant cash flows.
Speaker 1: I do think they're increasingly attractive, but in an era
Speaker 1: where the Fed is going to keep rates higher for
Speaker 1: longer in the short run, there's still sub it to
Speaker 1: some whims of continued valuation pressure. Despite how far they've
Speaker 1: come down. They're compelling long term opportunities, but you have
Speaker 1: to be selective and ensure you're in a business that
Speaker 1: has a long enough cash runway to endure whatever slowdown
Speaker 1: might show up in the next six to twelve months.
Speaker 1: I mean, Ellen, this is the important conversation, right, and
Speaker 1: you write about it in your latest research about you know,
Speaker 1: this fifteen year period of easy money being over UH
Speaker 1: interest rates, you know, structurally elevated amainst the return of inflation.
Speaker 1: I mean, if we are going to forgive me a
Speaker 1: new norm when it comes to where inflation settles and
Speaker 1: were rates settle and the Fed funds, I know they're
Speaker 1: sticking to two percent, but I think a lot can
Speaker 1: be debated about that. That means it's a whole valuation
Speaker 1: reset for asset classes. And that's the predicament we find
Speaker 1: ourselves in. And just got about a minute here. Don't
Speaker 1: put all your eggs in one basket. Don't forget there's
Speaker 1: a reason to own reads, there's a reason to own
Speaker 1: value based businesses, consumer staples. Financials will do it, which
Speaker 1: will do okay when we get back to more upward
Speaker 1: sloping you old curve, which is look what forward looking
Speaker 1: healthcare stocks. So, despite being here in Silicon Valley, um
Speaker 1: our clients are well diversified across all sectors because we
Speaker 1: recognize that area is change and with it, different valuations
Speaker 1: are applied in different business models can be durable despite
Speaker 1: in your term economic conditions. All right, we're gonna leave
Speaker 1: it on that note, Allen, have a great weekend. Appreciate
Speaker 1: checking in with you once again. Alan Zaffron he's founding
Speaker 1: partner and co CEO at I e Q Capital. This
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