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Speaker 2: Lots of earnings coming out this week.
Speaker 3: We also had in addition to the tech game, so
Speaker 3: I also had a lot of big energy companies report.
Speaker 3: Exxon Chevron reported. Let's break it all down with Vince Piazza.
Speaker 3: He's a senior equity research channels covering the oil and
Speaker 3: gas space for Bloomberg Intelligence. Joining us from Philadelphia via
Speaker 3: zoom So, Vince, let's break it down. Let's start with
Speaker 3: Exxon Mobile. Looks like they missed a little bit here
Speaker 3: on some of their earnings. Give us the lowdown from
Speaker 3: Xon Mobile.
Speaker 4: Well, look, I think here's the takeaway we're telling investors
Speaker 4: and listeners right, this is about cash. Cash is king. Yes,
Speaker 4: they missed, they telegraphed some of that miss It's really
Speaker 4: on lower natural gas prices, margins, a lot of timing
Speaker 4: effects and maintenance issues one timers. Really, But if you
Speaker 4: think about Exon Mobile this quarter, I want you to
Speaker 4: say cash is king free cash flow of over ten
Speaker 4: billion dollars this quarter. That's a forty billion dollar run
Speaker 4: rate annualized. You know, they paid out something like six
Speaker 4: point eight billion distributions, dividends and also share buybacks. Thirty
Speaker 4: three billion of cash on the balance sheet at the
Speaker 4: end of Q one. This is the lowest financial leverage
Speaker 4: they've had in roughly a decade. So, yes, earnings did miss.
Speaker 4: That seems to be dragging it down roughly four percent
Speaker 4: this morning. But the main takeaway for us is that
Speaker 4: they're in a really strong position balance sheets, they're generating capital,
Speaker 4: they're paying dividend to three percent yield, and they're buying
Speaker 4: backstop the Pioneer acquisition. At least from what I heard,
Speaker 4: it doesn't really seem that there's much in the way
Speaker 4: it's going to push the closing of that deal past
Speaker 4: past the first half. So once that deal closes, Paul,
Speaker 4: you're looking at a stop buy back run rate of
Speaker 4: roughly twenty billion dollars a year. So I think they're
Speaker 4: in a fairly good position, probably better than this four
Speaker 4: percent clip that you're seeing this morning, and I think,
Speaker 4: quite frankly better than what Chevron had to offer.
Speaker 5: Yeah, breakdown Chevron for US that company adjusted EPs beat,
Speaker 5: upstream earnings beat, but the cash flow from operations for
Speaker 5: the first quarter six point eight billion dollars versus estimates
Speaker 5: of seven point eight billion.
Speaker 4: Yeah, so you know, again cash is king, right, they
Speaker 4: posted gap free cash flow of just under a three billion,
Speaker 4: yet they paid out three billion of divvies and another
Speaker 4: three billion and shary purchases. You know, if you compare
Speaker 4: the financial leverage, right, Exon is net debt to cap
Speaker 4: of roughly three percent, again, lowest in a decade. For Chevron,
Speaker 4: it's closer to nine percent, So they're not generating the
Speaker 4: kind of free cash flow and they're probably dipping in
Speaker 4: to the balance sheet to help fund those distributions.
Speaker 1: You know.
Speaker 4: Obviously there's also the uncertainty around preemption rights over Hess
Speaker 4: and really really Guyana, so that remains an open question.
Speaker 4: Whereas Exxon's acquisition a Pioneer looks like it shouldn't be
Speaker 4: that many issues for them to close at that time.
Speaker 4: Whereas you know, the Hess deal for Chevron could get extended,
Speaker 4: so fewer questions around Exon, yet it's four more. I
Speaker 4: have more questions around Chevron and that seems to be
Speaker 4: you know, roughly down one percent. But in terms of
Speaker 4: what's going on, what what has gone on this year,
Speaker 4: I mean Exon even with that four percent clip, it's
Speaker 4: up seventeen percent this year. Yeah, and it's you know,
Speaker 4: pretty much in line with with crude and what we've
Speaker 4: seen CREWD do this year as well.
Speaker 3: And that's the one I wanted to get to Vincent
Speaker 3: we just updated. I mean, both of these companies are
Speaker 3: so diversified within the energy space.
Speaker 2: How highly correlated are they to the price of Brent crude?
Speaker 6: Yeah.
Speaker 4: Look, you know what with the acquisitions that Exon has
Speaker 4: made and what the acquisition that Exon you know will
Speaker 4: make with Pioneer, they're going to be much more correlated
Speaker 4: to us on sure, And in this case, Pioneer is
Speaker 4: is much more exposed to to the to the permium
Speaker 4: basin and much more exposed to regional Texas benchmarks in
Speaker 4: the case of in the case of Chevron, you know,
Speaker 4: with the UH with with the Hess deal, they're going
Speaker 4: to have some US exposure via via the Bakan, but
Speaker 4: you know, obviously the Guyana exposure in offshore, so that
Speaker 4: seems to be more tilted toward seaborne marks, whereas Exon
Speaker 4: and they're the importance of the Permian for Exon I
Speaker 4: will likely shine through post the Pioneer deal.
Speaker 5: We had Tesla earnings earlier this week, we talked a
Speaker 5: lot about dropping demand for electric vehicles. I'm wondering to
Speaker 5: what extent is that bullish for companies like Exon and Chevron.
Speaker 4: So when we discuss natural gas, you know, we've had
Speaker 4: rough and storage actually ballooned. You know, we're roughly thirty
Speaker 4: percent above the five year high for now gas storage
Speaker 4: in the US, and that's a new a new five
Speaker 4: year average high. We have over we have an oversupply issue,
Speaker 4: and we had a horrible winter, so we didn't see
Speaker 4: the demand, the cyclical demand. But in terms of natural
Speaker 4: gases share in the more important sectors, the power stack,
Speaker 4: that has actually improved over the last several years, So
Speaker 4: that gas as a feedstock into power generation that will increase.
Speaker 4: It's not so much evs, but think about the amount
Speaker 4: of power that one needs for all these data all
Speaker 4: these data centers. Whether you're mining bitcoin or whether you're
Speaker 4: Microsoft and these other tech companies building out their data centers,
Speaker 4: you're still going to need and a massive amount of power.
Speaker 4: And while you still are investing in solar and wind
Speaker 4: uh and other technologies, you're still going to need that
Speaker 4: transparency and the depend didn't see on natural gas as
Speaker 4: a major feedstock into the power sect.
Speaker 3: Hey, Vince, just wondering kind of where we are in
Speaker 3: terms of this commitment to going green, greener energy. I
Speaker 3: was at a bn EF conference with Alex Steele last
Speaker 3: week in New York, and a lot of the energy
Speaker 3: companies were there, and they're talking about the investments that
Speaker 3: they're making and thinking things like that. How do investors
Speaker 3: feel about the investments that these energy companies are making
Speaker 3: in their traditional fossil fuels versus maybe some of the
Speaker 3: newer technologies.
Speaker 7: Yeah, I still think we're in the.
Speaker 4: Early stages.
Speaker 1: Uh.
Speaker 4: You know, Exon talked about direct air capture and gray
Speaker 4: versus green hydrogen. You're still going to need significant amount
Speaker 4: of civic support, government support for these projects.
Speaker 8: You know.
Speaker 4: Occidental seems to be more further along in terms of
Speaker 4: direct air capture. Exon talked about that. Excellon continues to
Speaker 4: talk about it, but I think we're still somewhat a
Speaker 4: ways from using it as a mechanism in our models
Speaker 4: for a fundamental change in the makeup of these entities.
Speaker 4: It's still going to be about upstream extraction and cracking
Speaker 4: the molecules and putting them into the system, into the broad.
Speaker 2: All right, Vince, thanks so much, appreciate it.
Speaker 3: Vince Biazza, senior equity analyst covering the oil and gas
Speaker 3: space for Bloomberg Intelligence. There again, we had a couple
Speaker 3: of the big companies report earnings here, Exxon Mobile and Chevron.
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Speaker 2: We're a little lonely today. Friday's on a big in
Speaker 2: person day.
Speaker 5: Not a lot of people.
Speaker 8: You know.
Speaker 3: We're here in our Bloomberg Interactive Broker studio, but we're
Speaker 3: kind of kind of lonely here. But I'll say we're
Speaker 3: joined now by Sarah Ponsek. She's a financial advisor at
Speaker 3: UBS Private Wealth Management. She's based down a Boca Briton, Florida.
Speaker 3: Nice Trade from New York City, she joined the mess
Speaker 3: of moving down to Florida.
Speaker 2: She was actually a little bit on the early side. Sarah,
Speaker 2: thanks so.
Speaker 3: Much for joining us here. A lot of earnings, a
Speaker 3: lot of economic data. This week, we've seen some volatility
Speaker 3: in the equity markets, pulling back maybe four or five
Speaker 3: percent here off off the peak.
Speaker 2: What are you telling your clients at ubs?
Speaker 7: It's great to be here with you both. And yes,
Speaker 7: I was part of the mass exodus down to Florida,
Speaker 7: but I tell everyone that I I was raised here,
Speaker 7: I'm from Florida. I have a lot of a lega.
Speaker 7: But no, Look, this was a big week in terms
Speaker 7: of information when you think about what's driving the market
Speaker 7: right now and what is most important when it comes
Speaker 7: to thinking about the market outlook, there's really two components
Speaker 7: of that.
Speaker 8: One inflation and growth, which we had insight into this week,
Speaker 8: and two tech and tech earnings, because so much of
Speaker 8: this rally that we have seen over the past five months,
Speaker 8: past year has been predicated upon this assumption that we
Speaker 8: are going to see.
Speaker 7: Unbelievable growth and AI. Now, with that said, what did
Speaker 7: we learn this week?
Speaker 8: Honestly, nothing too new at the PCEE numbers this morning
Speaker 8: that came in pretty much bang in line with expectations.
Speaker 7: Inflation sticky. We all know that the Fed's dealing with
Speaker 7: it and they're just waiting at this point in time.
Speaker 8: And we saw some unbelievable tech earnings overnight as well,
Speaker 8: proving that CAPEC spending in AI is paying off.
Speaker 7: So, you know, as for what we saw this.
Speaker 8: Week, how that reflects into the outlook for the market ahead,
Speaker 8: There really isn't too much of a change at this
Speaker 8: point in time.
Speaker 5: Okay, So when you look at the macro data, not
Speaker 5: just this week, but what we've seen over the last
Speaker 5: several months, are we really going to get cuts this
Speaker 5: year from the Federal reserves era?
Speaker 7: It's a good question. I think it's the million dollar
Speaker 7: questions on everyone's mind.
Speaker 8: And frankly, I don't even know if FED Chair Powell
Speaker 8: and his colleagues at the FED know the answer to
Speaker 8: that question right now. Look, our economists base case is
Speaker 8: that we will still see two FED rate cuts this year.
Speaker 8: Coming into the year, our expectation was for three. We
Speaker 8: never bought into the markets expectations that we might see
Speaker 8: six seven rate cuts throughout twenty twenty four. We were
Speaker 8: standing pad at three that has since been revised to two,
Speaker 8: with that starting likely in September, sometime in the back
Speaker 8: half of the year. But again, the only way that
Speaker 8: we are actually going to see that come to fruition
Speaker 8: is if we see progress on the inflation front, and
Speaker 8: right now there are concerns and question marks surrounding that.
Speaker 8: So I would say, if we think about what, what's
Speaker 8: the biggest risk to you know, our base case right now,
Speaker 8: what's our biggest risk to the market outlook, it is
Speaker 8: that inflation stays sticky for longer and that those cuts
Speaker 8: just get pushed out into the future.
Speaker 7: And I know there has been some talk of even
Speaker 7: a great hike at this point. That's not our forecasts
Speaker 7: at this point in time, and we would you know,
Speaker 7: there'd be a lot that would have to happen.
Speaker 8: We would need to see a reacceleration in inflation for
Speaker 8: us to believe that that might be on the table.
Speaker 3: So, Sarah, what do you mean you speak to your
Speaker 3: clients kind of what are you telling them here as
Speaker 3: it relates to any change in maybe asset allocation, stocks, bonds, alternatives.
Speaker 3: What's what's kind of the message you're trying to get
Speaker 3: across to your clients So the.
Speaker 8: Message within the last couple of weeks, because it seems
Speaker 8: as though, you know, investors always have short term amnesia.
Speaker 8: You see any blip in the market, any volatility, and
Speaker 8: there is concern. So even amongst clients of ours who
Speaker 8: you know have had phenomenal performance over the last year.
Speaker 8: For all, if you look at the S and P
Speaker 8: five hundred over a five month span, we saw the
Speaker 8: stock market almost just go straight up thirty percent over
Speaker 8: five months, and all of a sudden over the last
Speaker 8: couple of weeks, we are faced with volatility and we
Speaker 8: see a pullback. What are we telling them in relation
Speaker 8: to that, Well, one we all have to know as investors,
Speaker 8: pullbacks are normal. Corrections are a healthy element of the
Speaker 8: investment process. In fact, if you actually look at how
Speaker 8: often we see five percent pullbacks in the stock market
Speaker 8: and averagely happen about three times a year. So making
Speaker 8: sure that you don't see this pullback as a reason
Speaker 8: to completely throw your plan and strategic acid allocation.
Speaker 7: Out of place.
Speaker 8: Now, as you're asking a question as to what we're
Speaker 8: talking about, if we're making any changes as it pertains
Speaker 8: to asset allocation, I would say the biggest message to
Speaker 8: get across right now. For a long term investor who's
Speaker 8: trying to build wealth long term is if you are
Speaker 8: sitting on a lot of cash right now, which a
Speaker 8: lot of investors are. If you look at the amount
Speaker 8: of cash and market funds, it's above six trillion dollars,
Speaker 8: So there's a lot of cash out there. At this
Speaker 8: point in time, you should be looking to buy bonds
Speaker 8: lock in yields, because yes, it's great that you can
Speaker 8: get a juicy five five and a half percent in
Speaker 8: a money market right now on your cash, But what
Speaker 8: are you going to be thinking And I'm not even
Speaker 8: going to say a year from now, but two three
Speaker 8: years from now, we see interest rates come back down
Speaker 8: and all of a sudden, you didn't invest your cash.
Speaker 7: You're not getting a return on your cash.
Speaker 8: And by the way, at that point in time, you
Speaker 8: can't go out and buy bonds yielding what they're yielding
Speaker 8: now either. So making sure that if you're someone who's
Speaker 8: sitting on a hefty cash position, working through a plan
Speaker 8: and making sure that you're putting that cash to work,
Speaker 8: at least in the bond market at this point in time.
Speaker 8: For stocks, look, we're seeing volatility, it might make sense
Speaker 8: to ease into the market over a period of time.
Speaker 7: Don't need to do it all at once. But it's
Speaker 7: time in the market, not timing the market that matters.
Speaker 8: And over a long period of time, cash is not
Speaker 8: the best asset class to be sitting.
Speaker 5: I'm wondering what you make of the boom in some
Speaker 5: of these options linked products. I write about ETFs, and
Speaker 5: earlier this week I wrote about a new ETF that
Speaker 5: offers one hundred percent downside protection, but it caps the upside.
Speaker 5: We know that covered call ETFs have seen about seventy
Speaker 5: billion dollars. Is that a product that people are interested
Speaker 5: in from your view, Sarah, or is it just an
Speaker 5: easier bet to just buy bonds don't worry about all
Speaker 5: the time it's done well.
Speaker 8: Well, it's a completely different, you know, investment scenario investors
Speaker 8: who are looking to trade options or you know, we
Speaker 8: do work with clients when it comes to structured products
Speaker 8: or structured notes as well. Occasionally investors like the idea
Speaker 8: of you know, being able to have their cake and
Speaker 8: eat it too. In essence, what you're describing is an
Speaker 8: investment product in which you can get upside but limit
Speaker 8: your downside as well well. Investors, you know, would take
Speaker 8: that any day of the week. Of course, there's always
Speaker 8: trade offs, and I don't know the specifics of the
Speaker 8: ETF that you're speaking of, but I would imagine that
Speaker 8: there's got to be some trade offs. You can't get
Speaker 8: one hundred percent upside in the stock market and you
Speaker 8: had cap your downside one hundred percent as well. But
Speaker 8: I would say from our perspective more so, I have
Speaker 8: had clients who might be sitting on and I'm not
Speaker 8: going to name particular names, but maybe a large megacap
Speaker 8: tech stock that has run up significantly over the last year,
Speaker 8: and we're talking about different options strategies with them on
Speaker 8: how to limit their downside or how to maybe take
Speaker 8: some profits while being really smart and tactical tactical about
Speaker 8: the tax implications of realizing those gains as well. You know,
Speaker 8: how do you deal with the actual ramifications of having
Speaker 8: a position in your portfolio that has performed phenomenally. That's great,
Speaker 8: but at that point in time, if it is a
Speaker 8: significant portion of your portfolio, how can you diversify out
Speaker 8: of that position? How can you limit your downside? But
Speaker 8: while being cognizant of the tax effects as well.
Speaker 2: Sarah, thanks so much for joining us. Always appreciate checking
Speaker 2: in with you.
Speaker 3: Sarah Ponsek, She's a financial advisor UBS Private Wealth Management
Speaker 3: down there in lovely Boca Raton, Florida.
Speaker 2: Back going back to her home state.
Speaker 7: There.
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Speaker 3: Let's talk tech earnings. At least was just reporting on
Speaker 3: some of the tech names. Both Microsoft and Google reported
Speaker 3: numbers last night, beating expectations, putting in some pretty solid numbers.
Speaker 3: Both stocks trading quite well here this morning. Let's bring
Speaker 3: in man Deep Singh and Onna rog Rana. They are
Speaker 3: senior technology analyst for Bloomberg Intelligence. Man Deep is here
Speaker 3: in our Bloomberg Interactor Brooker Studio, and Honurrock is in
Speaker 3: work is in Chicago, hon rog Let's start with you Microsoft.
Speaker 3: What you see from our good friends in Seattle last night.
Speaker 9: Yeah, I was a bit surprised. I think the beat
Speaker 9: was much more than what I had anticipated. I was
Speaker 9: actually a little more pessimistic going in but they really
Speaker 9: showed that they are the you know, one software company
Speaker 9: that's really capitalizing on the AI demand. So so I
Speaker 9: mean all go down to Microsoft side margins. A good
Speaker 9: outlook is good, so you know, no bad news there.
Speaker 3: All right, So man, deep, let's like likewise on alphabet,
Speaker 3: I'm seeing stock you know, fifty two weeks high today,
Speaker 3: just ripping. You've liked this name, You've been on top
Speaker 3: of it all along.
Speaker 2: What were some of the takeaways from the quarta last night.
Speaker 10: Was focus because everyone thought their traditional search is getting disrupted.
Speaker 10: You know, they're going to lose share in search. And
Speaker 10: what they showed us last night is not only you know,
Speaker 10: they have maintained their share, Jenny I is actually helping
Speaker 10: engagement with their search and not just search on maps,
Speaker 10: on YouTube and on top of that, I think what
Speaker 10: really should excite investors is they have got the cloud
Speaker 10: business where you see accelerating growth along with YouTube. So
Speaker 10: now it's one hundred billion dollar ERUR business going at
Speaker 10: twenty five percent without any impact.
Speaker 2: To the cost.
Speaker 10: Remember, everyone thought, oh, the search queries are going to
Speaker 10: cost more because you have to use this GENI infrastructure. No,
Speaker 10: there was a five hundred basis point margin expansion in search.
Speaker 10: So clearly they have executed very well and it's not
Speaker 10: a one quarter thing. I think this is going to continue.
Speaker 5: So, Mandy, the cloud operation for Google first quarter profit
Speaker 5: of nine hundred million dollars, that was ahead of estimate
Speaker 5: projections of six hundred and seventy two million. So can
Speaker 5: you talk a little bit more about what's fueling that
Speaker 5: beat in the cloud side for Google.
Speaker 10: I mean, in the case of cloud, there is one
Speaker 10: traditional cloud revenue and then there is the GENAI link
Speaker 10: cloud revenue. And what Google has done well is one
Speaker 10: they are getting the n video GPUs and that's where
Speaker 10: you know, the sixty percent increase in CAPEX is coming in.
Speaker 10: And the market didn't mind that capex in increase in
Speaker 10: contrast to Meta where the stock felt. So clearly they're
Speaker 10: deploying that those GPUs on the cloud and it's contributing
Speaker 10: in terms of additional revenue, which is where the beat
Speaker 10: comes from in terms of why that growth rate accelerated.
Speaker 3: And anag I'm just kind of looking at the you know,
Speaker 3: Microsoft such An Adela, the CEO. He's been infusing Microsoft's
Speaker 3: entire product line with AI technology from partner Open AI.
Speaker 3: How much of advantage is partnering with open ai. How
Speaker 3: much is advantage does that give Microsoft?
Speaker 9: I think it's only in terms of time, so you know,
Speaker 9: before all the others ketchup and try to do the
Speaker 9: same thing. I think it's a land grab thing at
Speaker 9: this point of you know, try to get as much
Speaker 9: as you can get people hooked into these products with
Speaker 9: open AI and then you know, but I'm fairly certain
Speaker 9: other companies, everybody from Google to Amazon will have similar
Speaker 9: infrastructure for other people to play where they currently have
Speaker 9: it already. It's just that it's not getting infused in
Speaker 9: products that quickly.
Speaker 5: What exactly are like Microsoft's AI services? What are some
Speaker 5: examples of how that company is basically deploying a AI
Speaker 5: especially for these enterprise customers.
Speaker 9: Yeah, the first and the foremost is they run open
Speaker 9: AI's back end, so you use more chat GPT, they
Speaker 9: make more money off of it, and that's the number
Speaker 9: one place where you see we see their growth rate.
Speaker 9: Now we calculate that to somewhere around a billion dollars
Speaker 9: a quarter at this point run rate of all AI
Speaker 9: services added in for Microsoft, So that's a very big
Speaker 9: number or annualized at four billion The second part is
Speaker 9: a product called GitHub where they have infused open Ai services,
Speaker 9: so it helps people code things on a very much
Speaker 9: faster pace. Then you have Office three sixty five that
Speaker 9: also has copilots built in using open Ai services. I
Speaker 9: would say their entire suite, you know, same thing, were
Speaker 9: LinkedIn same thing for you know, other products. So they
Speaker 9: are using a lot of those R and D dollars
Speaker 9: from or R and D expertise from open Ai to
Speaker 9: improve their own products.
Speaker 3: Hey man, deep, I'm looking at our good friends at Google.
Speaker 3: This is an AH alphabet free studios. You know, so
Speaker 3: are good friends of Google? Eighty billion a free cash
Speaker 3: flow this year, ninety billion next year. I'm a big,
Speaker 3: you know, use of cash kind of guy. They're buying
Speaker 3: back seventy billion dollars worth of stock and they started
Speaker 3: they're going to initiate an actual dividend.
Speaker 2: That's a good thing, right, Yeah? Is that a good
Speaker 2: use of cash.
Speaker 3: I mean, it's not like they're skipping on capex or anything.
Speaker 10: They're not in Probably they're following the Apple playbook, where
Speaker 10: all the free cash flow you generate you use it
Speaker 10: for buybacks and dividend and capex increases. I mean look,
Speaker 10: Google did raise their CAPEX guide by almost sixty seventy percent,
Speaker 10: so clearly I think that's what investors want them to do,
Speaker 10: and they can't acquire any companies, so this is probably
Speaker 10: the best use of the cash.
Speaker 5: You know, How do you compare that with Meta, because
Speaker 5: earlier in the week it seemed like the Meta investors
Speaker 5: were not very happy about increased spending on AI initiatives.
Speaker 10: I think Meta is one of the top three companies
Speaker 10: when it comes to generative AI, and they are exposed
Speaker 10: in a positive way. It's just they don't have a
Speaker 10: cloud business like Amazon, Microsoft and Google have, so all
Speaker 10: the CAPEX they do is going for their own infrastructure
Speaker 10: for their own apps, which is very important and it's
Speaker 10: helping them actually improve their at targeting recommendation engines. But
Speaker 10: they also have a money losing reality lab segment, and
Speaker 10: investors just want to discern how much are you continuing
Speaker 10: to lose on reality labs versus the AI capex, which
Speaker 10: is I think the good capex. So that's why you
Speaker 10: saw that stock reaction.
Speaker 2: All right, an rad I'm looking ahead. That's what I do.
Speaker 3: Next Thursday, after the close, Apple is going to report
Speaker 3: earnings their stock is down eleven percent year to date,
Speaker 3: really underperforming what it considers its peers being the metas,
Speaker 3: the Amazon's, the you know, the Microsoft's of the world. Here,
Speaker 3: what do you need to see next Thursday on that
Speaker 3: conference call after the close.
Speaker 9: Yeah, any comments about stabilization in China is the only catalyst.
Speaker 9: Other than that. I mean, I don't see anything that
Speaker 9: can you know, I would say change the mood for
Speaker 9: what's happening with Apple, primarily because iPhone sales is what
Speaker 9: drives company, and then there are no leading indicators that
Speaker 9: will give us any signs that that can improve anytime soon.
Speaker 5: Can I ask about Snap? Oh, Paul, I mean, I
Speaker 5: know we were talking about, you know, the larger companies
Speaker 5: and the larger earnings, but I mean Snapchat. This was
Speaker 5: the first time that we're seeing the stock higher the
Speaker 5: prior seven earnings reports. The stock just absolutely tanked after
Speaker 5: the earning. So is this a turnaround for Snap?
Speaker 10: I mean, look for a company like Snap which is
Speaker 10: not profitable, they are sort of driven by how the
Speaker 10: overall digital ad market is doing. And in this case,
Speaker 10: the print from Beta and Alphabet shows digital ad market
Speaker 10: is coming back. You're seeing a rebound even though the
Speaker 10: small business sentiment is still quite weak, and if there
Speaker 10: is a TikTok ban, there is no doubt that Snap
Speaker 10: is one of the beneficiaries, both in terms of engagement
Speaker 10: as well as ad dollars moving to their platform. And
Speaker 10: we saw a glimpse of that in their print when
Speaker 10: they said their advertisers actually grew eighty five percent and
Speaker 10: their brand ad revenue grew twelve percent, which is the
Speaker 10: first time in the last four quarters their brand ad
Speaker 10: actually is positive.
Speaker 3: All right, men, deep saying thank you so much. Mendeep
Speaker 3: sing Anaragrana. They are senior technology analys for Bloomberg Intelligence.
Speaker 3: They drive our global technology research effort at Bloomberg Intelligence.
Speaker 2: Two of the best on the street. We appreciate getting
Speaker 2: them again.
Speaker 3: Big numbers, good numbers out of the tech companies last night,
Speaker 3: you know, Snap on the smaller capsite ony billion of
Speaker 3: market cap, and then of course Microsoft and Google and
Speaker 3: again all those stocks hire as we talked with the Anorog,
Speaker 3: a big big Thursday next week when Apple reports it's
Speaker 3: earning example for the close, a lot of pressure I
Speaker 3: think on that company too, as Aniog said, kind of
Speaker 3: give some clarity about China.
Speaker 2: I'm not sure they can.
Speaker 3: They might just be one of those issues that's going
Speaker 3: to be hanging over this company, force many quarters to come.
Speaker 2: I don't know.
Speaker 3: And then, of course you know their play on AI.
Speaker 3: They do have a developer event on May seventh that's
Speaker 3: also going to be highly anticipated. Maybe that's an opportunity
Speaker 3: for Apple to come out and say here is our
Speaker 3: AI strategy. iPad right, yeah, I mean I still have
Speaker 3: my iPad, the original one. I don't know, but I
Speaker 3: put everything on the phone. These days, I don't. I
Speaker 3: rarely use the iPad. It's just everything's on the phone.
Speaker 2: But we'll see.
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Speaker 3: This market is moving higher. We had some PCE data today.
Speaker 3: The month on month of zero point three kind of
Speaker 3: came in line with expectation, but the annualized number a
Speaker 3: tick higher. But again, strong tech earnings kind of driving
Speaker 3: this market here. Maybe a little bit of relief that
Speaker 3: the inflation data didn't come in even hotter, maybe a
Speaker 3: zero point four percent or zero point five percent on
Speaker 3: a month month basis. Here and on a Rothbund joins
Speaker 3: us here, chief investment officer at Sibiz Investment Advisory Services
Speaker 3: on and thanks so much for joining us here. Boy
Speaker 3: a busy, busy week in terms of economic data, earnings
Speaker 3: data tie it all up together for us. And how
Speaker 3: is your market perception changed, if at all?
Speaker 7: Good morning.
Speaker 11: My market perception hasn't early changed. We expected this week
Speaker 11: to be a very interesting and busy week. If you
Speaker 11: think about the market cap of the companies that are
Speaker 11: leading the S and P five hundred, those were the
Speaker 11: ones that were reporting this week, So it was going
Speaker 11: to move the markets up or down and definitely affect
Speaker 11: the beta of the market and the sentiment. And that's
Speaker 11: what we're seeing today. We saw that yesterday. I don't
Speaker 11: think it changes the general feel of the market's feeling
Speaker 11: like it's over bought, so I don't think it changes
Speaker 11: the dynamics. The PCE certainly could have had a bit
Speaker 11: bigger impact on the markets today, but it.
Speaker 2: Really did it.
Speaker 11: So I think it's pretty much the same old a
Speaker 11: little bit of a difference today with alphabet ana.
Speaker 5: Do you think that the macro is getting maybe more confusing, because,
Speaker 5: like we were talking about John Tucker were saying, the
Speaker 5: PC data came in a little bit hotter, but we're
Speaker 5: seeing treasure yields down. Earlier this week we had Bill
Speaker 5: Gross saying that he was bearish on tech void tech.
Speaker 5: Now we have the Nasdaq up about two percent.
Speaker 2: What is going on?
Speaker 5: Is it getting harder for experts like you to kind
Speaker 5: of discern, you know, what's really driving this market?
Speaker 11: Well, so it's been hard for a while, so I
Speaker 11: don't think it has become hard. So in terms of PCEE, frankly,
Speaker 11: it is hotter. The year of A number is a
Speaker 11: little bit hotter than expected, but it's actually in line
Speaker 11: with what the FED has forecast back in March. By
Speaker 11: the end of this year, the FED is expecting two
Speaker 11: point six percent in core PC were ear y'ere around
Speaker 11: two point eight and that was a March figure, right,
Speaker 11: So we have a lot of room. Anything can happen
Speaker 11: between now and December, so I think we can be
Speaker 11: patient on that. I think the market's reflecting that. With
Speaker 11: regards to tech. I think tech right now, especially big
Speaker 11: tech they're at a sweet spot between development of AI
Speaker 11: and they're not betting the farm on it. They're just
Speaker 11: incubating it somewhere deep inside of their company while there's
Speaker 11: still excuse me, while they're still able to turn cash right,
Speaker 11: and so Google or Alphabet signaling a divid end, I
Speaker 11: think it's a big that's a signal. So I think
Speaker 11: that it's the sweet spot of AI and cash flow
Speaker 11: and quality earnings. I think I think TEX still has
Speaker 11: some room to run, certainly notwithstanding the volatility that may come.
Speaker 11: But over the long run, I don't think it's necessarily
Speaker 11: a place to run away from.
Speaker 3: So on a we've had I guess about forty five
Speaker 3: percent of the S and P five hundred report they're
Speaker 3: earnings as of today. Any takeaways for you here, how's
Speaker 3: corporate America doing well?
Speaker 11: The corporate America is not doing as well as the
Speaker 11: big tech companies might imply. Right, So if you think
Speaker 11: about the three companies Microsoft, Meta and Alphabet, I mean
Speaker 11: together they have returned what your earnings growth of more
Speaker 11: than sixty percent. That is definitely skewing the earnings growth
Speaker 11: profile of the S and P five hundred index in general.
Speaker 11: So I mean where do people say SMP four hundred
Speaker 11: and ninety five or that would be four hundred ninety seven, right,
Speaker 11: So I think that the rest of the markets, they're
Speaker 11: still lagging. I believe as at the end of last Friday,
Speaker 11: that was the last number I actually looked at for
Speaker 11: the entire index out if you're looking at four or
Speaker 11: ninety five stocks outside of some tech stocks, we're looking
Speaker 11: at year or year's earning growth. That was a little
Speaker 11: bit on the negative side in terms of expectations. Hopefully
Speaker 11: we will beat those expectations for the second half of
Speaker 11: the earning season, but it's certainly not looking it's not
Speaker 11: looking all that stellar.
Speaker 5: When you look at the month of April, we have
Speaker 5: the S and P five hundred SPY ETF down about
Speaker 5: three percent. We have TLT, which is an ETF that
Speaker 5: tracks long term treasury bonds, down six percent. Where are
Speaker 5: you going for protection when it seems like that traditional
Speaker 5: stock bond correlation hasn't really been serving investors for protection.
Speaker 11: Yeah, and that's been true for a while now, and
Speaker 11: it's been really tough for people who are sixty, forty,
Speaker 11: fifty to fifty, you name it. I think you have
Speaker 11: to be actively protecting, especially with fixed income, which traditionally
Speaker 11: has been a hedgekin secuity beta. Lately it hasn't been
Speaker 11: right lately, meaning the last two years. It's a long time.
Speaker 11: I think you still have to be mindful of duration
Speaker 11: because even if the Fed, you know, PC came in
Speaker 11: relatively in line with expectations and the markets are sort
Speaker 11: of thinking, okay, maybe the Fed can be on track,
Speaker 11: three rate cuts is still a bit high in my opinion.
Speaker 11: They may be doing two, maybe down the one, depending
Speaker 11: how the data runs between now and the end of
Speaker 11: the year. So I think duration, you still have to
Speaker 11: be a bit careful. But look, the total yield profile
Speaker 11: is very delicious. It's yummy. So I think clipping coupons
Speaker 11: and being aware of duration is what you have to
Speaker 11: do with your fix income portfolio.
Speaker 3: So I mean, that's a great point. I wanted to
Speaker 3: just get on the fixingcome story. Here do I sit
Speaker 3: in my two year treasury close to five percent or
Speaker 3: do I take some credit risk here?
Speaker 11: So high yield I mean I think when I think
Speaker 11: of lower duration profile than your traditional fixing combined benchmark,
Speaker 11: which is the AG and then of course clipping high coupons,
Speaker 11: I think of high yield. Right, high yield is sitting
Speaker 11: at duration a little bit less than four years, and
Speaker 11: I think the last time I checked the yield, the
Speaker 11: total yield for the Bloomberg High Yield Index is around
Speaker 11: you know, just under eight percent, nearly eight percent. I mean,
Speaker 11: that's that's a really if you think about you know,
Speaker 11: yield versus duration risk, that's actually a not a bad
Speaker 11: risk reward ratio. And frankly high yield if you stay
Speaker 11: in the higher credit profile, it's not a bad deal. Right,
Speaker 11: So rate hikes, I'm not saying that, you know, everything
Speaker 11: is a tie that lifts all Boat's not like that
Speaker 11: at all. If you want to utilize active managers to
Speaker 11: really look for quality balance sheet, I think that that
Speaker 11: could also work as well. But that yield, actually, if
Speaker 11: there is a spread, winding can go a long way
Speaker 11: to protecting on the downside in terms of price section.
Speaker 3: All right, Anna, thank you so much for joining us.
Speaker 3: As always, Anna rathbun She is the chief Investment Officer
Speaker 3: Sibiz Investment Advisory Services. Joining us from Cleveland, Ohio via
Speaker 3: that zoom thing.
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Speaker 2: Eric Zaski Joints is here.
Speaker 3: He's the senior municipal bond strategist for Bloomberg Intelligence. Hey, Eric,
Speaker 3: talk to us here. We've had rates kind of moving
Speaker 3: around here. We had some higher rates earlier. Talk to
Speaker 3: us about what's happening in the municipal bond market visa
Speaker 3: VI kind of the treasury market here.
Speaker 7: Yeah.
Speaker 6: Absolutely, Well, there's two ways you can really look at it, right.
Speaker 6: We can focus on total returns, which certainly aren't that great,
Speaker 6: or you could look at it is a buying opportunity
Speaker 6: right yield draw up thirty basis points on the month,
Speaker 6: about fifty five sixty basis points on the year. Certainly
Speaker 6: not near where we were last fall, but certainly an
Speaker 6: interesting opportunity to come back into the market and you know,
Speaker 6: get those four percent five percent higher premium structures at
Speaker 6: cheaper dollar prices. And that's ultimately what people want to
Speaker 6: be doing when they're building portfolios.
Speaker 5: If you run ETF go on the terminal. I'm bringing
Speaker 5: ETFs into this poll.
Speaker 6: Yeah, let's do it.
Speaker 5: You can see that over the last year when you
Speaker 5: scan for municipal bond ETFs, sixteen billion dollars of inflows
Speaker 5: into those funds. Does that make sense to you that
Speaker 5: we're seeing this much money kind of pour into the
Speaker 5: strategy right now?
Speaker 7: Yeah?
Speaker 1: Absolutely right.
Speaker 6: So, anytime you have a cheap data strategy that has
Speaker 6: gotten a lot of attention in the news, not only
Speaker 6: what we're saying on the Bloomberg side, but externally, there's
Speaker 6: going to be more attention focused on that from WELP
Speaker 6: advisors and retail clients, and that's why you're seeing those
Speaker 6: flows go in there. But just to keep it in context,
Speaker 6: from a notional standpoint, sixteen billion flows in a fortullion
Speaker 6: dollar market, it's not really that big of a deal.
Speaker 6: It seems impactful sort of looking at it in a vacuum,
Speaker 6: but when you look at a total mini market, still
Speaker 6: a very small piece.
Speaker 3: Hey, Eric, I want to ask you about this Brightline deal,
Speaker 3: this railroad deal. Yeah, talk to us about I know
Speaker 3: they came to market recently. What is Brightline and what
Speaker 3: was the deal they brought to market?
Speaker 6: Yeah, so they obviously they have a train system down
Speaker 6: in Florida right now, it's going from you know, Palm
Speaker 6: Beach area down to Miami. They're extending it up to
Speaker 6: o Orlando. It's a high yield deal. There was two
Speaker 6: portions of the deal. While was triple B, there was
Speaker 6: a non rated portion. Part of it was a funding. Look,
Speaker 6: it's still a speculative project. You know, will people use
Speaker 6: the train, what will rider ship be a lot of
Speaker 6: questions that nobody really seems to have answers for. But
Speaker 6: I will say, look, I'm definitely jealous. I wasn't able
Speaker 6: to get any of those bonds.
Speaker 1: Right.
Speaker 6: If you look at this sort of where they came
Speaker 6: on the non rated portion, you're talking about twelve percent
Speaker 6: tax exempt yields, you know, on a tax equivalent yield basis,
Speaker 6: it's like eighteen percent, right, So obviously a lot of
Speaker 6: risk and a lot of compensation being demanded for the
Speaker 6: risk being taken.
Speaker 3: Andre that, How was that deal welcomed by the marketplace
Speaker 3: in terms of demand?
Speaker 6: Very oversubscribed and that really sort of speaks to the
Speaker 6: dearth of high old issuans that we're seeing in the marketplace,
Speaker 6: and also the returns that we're seeing in high yold
Speaker 6: muni's as well. So we started off the conversation talking
Speaker 6: about IG total returns, which are down almost like two
Speaker 6: percent on the year, But higommunities are positive, right, They're
Speaker 6: really the only green portion of the screen I can
Speaker 6: look at when I look at I go and looking
Speaker 6: for munis. So there is obviously a lot of interest
Speaker 6: both retail and institutional in high yield credit and looking
Speaker 6: for deals that have some hair to them.
Speaker 5: You have a note out it says muni tourists who
Speaker 5: dabble casually in the municipal bond market are being bombarded
Speaker 5: with calls to come back to what has been a
Speaker 5: treacherous place so far in twenty twenty four. What kind
Speaker 5: of market outlook does an investor have to have if
Speaker 5: there's someone who was a muni tourist and now they're
Speaker 5: going to come back into this space.
Speaker 6: Lot of people got scared last year because they found
Speaker 6: out that their bond portfolios could have losses, and I
Speaker 6: think that's something a lot of investors probably hadn't seen before,
Speaker 6: So there was probably some reticence there, and then there's
Speaker 6: a lot of excitement as last year ended, where rates
Speaker 6: were rallying right and Meeti's turned out.
Speaker 2: To be a great buy.
Speaker 6: There's still a great buy from a risk adjusted, you know,
Speaker 6: purchase standpoint, you know, because they have much lower default
Speaker 6: risk than corporate credits. But you know, there is probably
Speaker 6: a reticence to sort of dive back in knowing that
Speaker 6: the Fed really doesn't have a firm control where inflation
Speaker 6: is right now and when and if they're going to cut.
Speaker 6: But I, like I said, the ball, you know, if
Speaker 6: you can come in and you can buy those five
Speaker 6: percent coupons at a lower dollar price, I think it's
Speaker 6: more interesting opportunity right now.
Speaker 3: So, Eric, so what's the credit risk profile of the
Speaker 3: municipal bond space? I know, in historic has generally been
Speaker 3: pretty darn good. Are we seeing any cracks out there?
Speaker 6: No, not as of yet. I mean, if you look
Speaker 6: at just the the Bloomberg Media Index, it's average double
Speaker 6: A credit quality and that really sort of spans the gamut.
Speaker 6: You have some trip wle B rated credits in there
Speaker 6: and some triple A rated credits right just the averages
Speaker 6: double A. I will say that from a rating agency standpoint,
Speaker 6: we're not really seeing any cracks, but they're also very
Speaker 6: backwards looking and that they're looking at audits from last year.
Speaker 6: Everything's on a very big lag. We're actually working on
Speaker 6: a new sentiment monitor over on our side on BI
Speaker 6: and what we're showing on a predictive standpoint is that
Speaker 6: things should be worsening or at least softening a little
Speaker 6: bit when it comes to me to spoke credit in
Speaker 6: the next twelve to twenty four months. Right we've seen
Speaker 6: a very large up taken headlines talking about layoffs from
Speaker 6: the state and local government sector, as well as budget
Speaker 6: cuts and budget deficits. So something we want to keep
Speaker 6: our eye on.
Speaker 5: How should investors be thinking about picking where in the
Speaker 5: market they want to invest. I'm going to bring this
Speaker 5: back to ETFs, but obviously you can buy immuni ETF
Speaker 5: that's going to track a number of different regions of
Speaker 5: a specific state in the US. Is that the better
Speaker 5: bet or should people be kind of maybe zeroing in
Speaker 5: on a specific state right now?
Speaker 6: Well, I think it goes back to the argument of
Speaker 6: passive versus active management, And I think in a sloppier
Speaker 6: market like we're seeing now, when yields are hired and
Speaker 6: there's a lot more volatility, the case for active management
Speaker 6: can really be made. You talk about those ETFs that
Speaker 6: are getting the flows, they're passive structures. So if you
Speaker 6: look at what they're actually investing in, they're missing about
Speaker 6: thirty percent of the UNI market by credit exposure. They're
Speaker 6: not buying higher education, they're not buying hospitals, they're not
Speaker 6: buying natural gas bonds or bond subject to AMT, So
Speaker 6: all the sort of the higher alpha areas that we've
Speaker 6: seen over the last several months they're missing out on.
Speaker 6: You know, so that is an opportunity that you would
Speaker 6: find more on the active sector, but you're going to
Speaker 6: be paying more for a management fee for that. So
Speaker 6: if it was me, I'd probably be looking more toward
Speaker 6: active management right now in this market.
Speaker 2: All right, Eric, thanks so much for joining us.
Speaker 3: Eric Kazaski, senior municipal strategists for Bloomberg Intelligence, joining us
Speaker 3: from the Princeton, New Jersey offices of a BI in Princeton.
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