Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Well, the earnings we've
Speaker 1: gotten so far this week from the big retailers have
Speaker 1: really put pressure on the broader equity markets, really bringing
Speaker 1: to the four inflation and what it means for consumers
Speaker 1: and consumers spending. Um, It's raising questions about stagflation, about recession,
Speaker 1: and then question for a lot of folks is how
Speaker 1: do equities perform in that type of environment. Let's bring
Speaker 1: in our favorite strategist, Gina Martin Adams, chief equity strategists
Speaker 1: for Bloomberg Intelligence. Gina, would you take away from the
Speaker 1: earnings this week we saw from the retailers, more importantly,
Speaker 1: the markets response to those earnings. Yeah, first of all,
Speaker 1: thanks for calling me your favorite strategist. All that absolutely
Speaker 1: through today. Nonetheless, you know what have we learned as
Speaker 1: a lot of more of the same, except for the
Speaker 1: market is finally paying attention, and I think the market
Speaker 1: is finally paying attention because the companies have gotten to
Speaker 1: the point where the margin pressures are so severe they
Speaker 1: have a really hard time forecasting where things are headed
Speaker 1: into the second quarter, and they took down expectations materially.
Speaker 1: So more of the same was really We know that
Speaker 1: this group has been contending with increasing amounts of margin pressure,
Speaker 1: but it's just been broadening and deepening over the course
Speaker 1: of the last several quarters. It just got a lot
Speaker 1: worse in the first quarter and is now anticipated to
Speaker 1: continue to get worse in the second quarter every other season.
Speaker 1: And you know, they may have missed expectations that generally
Speaker 1: guided us to anticipate things to get maybe slightly better,
Speaker 1: and that's the big difference this time around. So we
Speaker 1: did see a massive capitulation moment on the retail trade
Speaker 1: over the course of just twenty four maybe closer to
Speaker 1: eight hours, considering it kind of started with Walmart two
Speaker 1: days ago. You know, I think the other thing that
Speaker 1: you take away from this is um the market clearly
Speaker 1: had of been and anticipating that there were areas to
Speaker 1: hide yesterday, and some of those areas to hide were
Speaker 1: in the more defensive quote unquote defensive sectors like consumer staples,
Speaker 1: and then finally realized as of yesterday, that's not necessarily
Speaker 1: a great place to hide when really, uh, when inflation
Speaker 1: and inventory cycle or your predominant drivers of weakness in
Speaker 1: the earning stream. Gina, you've done so much smart work
Speaker 1: on margins, and they always like to ask you about
Speaker 1: margins every time you come on. UM, so you're probably
Speaker 1: getting tired of this, but so we are no creed.
Speaker 1: I never get tired of talking about markins. This is
Speaker 1: my personal obsession and has been for more than a
Speaker 1: year or so. I'm so glad you did. Because Andrea
Speaker 1: Felst dead one of our Bloomberg opinion writers. She covers
Speaker 1: consumer goods. Um. She wrote this really interesting column last
Speaker 1: night about Target and Walmart being victims of their own
Speaker 1: success and that they've essentially secured their supply chain so
Speaker 1: well and they were able to pass on the cost
Speaker 1: of the consumers. But just any sign of weakness, the
Speaker 1: stocks really got punished, but essentially it made them victims
Speaker 1: of their own success. So I have to ask you here,
Speaker 1: where does the margin conversation even fall? Because a drop
Speaker 1: and Target just seems extreme. Yeah, it does, except I
Speaker 1: think investors have been hanging onto this, right, so I
Speaker 1: would agree it does seem extreme relative to the size
Speaker 1: of the revision. Um. That said, remember how much these
Speaker 1: stocks were areas of strength for much of the last
Speaker 1: two years, right, And I think that that perspective is
Speaker 1: really important to just consider. Is these were pandemic place.
Speaker 1: We knew that consumers weren't going to go out to restaurants,
Speaker 1: maybe weren't going to fly as much, weren't going to
Speaker 1: travel and you know, uh, stay at hotels. But but
Speaker 1: we also knew that they would still buy their everyday
Speaker 1: items at Target and Walmart, probably even start to buy
Speaker 1: more durable goods items because they could have those items
Speaker 1: delivered to their homes as they were staying home. And
Speaker 1: the result is that this group developed quite a bit
Speaker 1: of premium and concentration and holdings, and that's been unwind
Speaker 1: largely over the course of the last um couple of days.
Speaker 1: It had started to unwind over the last year or so,
Speaker 1: but we really saw that unwind over the last couple
Speaker 1: of days. We're close now to seeing these stocks trade
Speaker 1: in line with the overall index. When you go about
Speaker 1: all the way back to the beginning of the pandemic
Speaker 1: to date, so hopefully we've seen a lot of the
Speaker 1: unwind occur. Now the question going forward is, Okay, how
Speaker 1: do they perform relative to the rest of the market. Well,
Speaker 1: the reality is these are goods oriented companies. Goods oriented
Speaker 1: companies at this stage in the cycle are most likely
Speaker 1: going to underperform because they're more sensitive to interest rates.
Speaker 1: They had their time to shine, and now we probably
Speaker 1: need to move on to more services. Are into companies
Speaker 1: in the consumer space to lead, and that certainly is
Speaker 1: reflected in a lot of our work. Margins are one
Speaker 1: of the triggers that we follow really closely to watch
Speaker 1: that rotation interest rate through the other trigger typically, Gina,
Speaker 1: just quickly, here, um valuation, where is this market? I
Speaker 1: know you're in your team do a lot of work
Speaker 1: on valuation for those that are looking to say, at
Speaker 1: least I've got an attractive valuation for this market. Are
Speaker 1: we there yet? We're getting really close, and I think
Speaker 1: for the majority of stocks in the market are now
Speaker 1: trading it relatively attractive valuations. We still are deflating. Uh.
Speaker 1: You know, a couple of pandemic related bubbles in tech
Speaker 1: and some of the consumer names certainly, which is going
Speaker 1: to in our view way on the market. But if
Speaker 1: you look at an equalated S and P five and
Speaker 1: you kind of, you know, get rid of a lot
Speaker 1: of that market cap, uh, concentrated risk. You're looking at
Speaker 1: a market that's trading under fifteen times forward earnings, and
Speaker 1: we think the market to accurately price where the bond
Speaker 1: market is right now should be trading somewhere between fourteen
Speaker 1: and fourteen and a half times. So you're getting really close, um,
Speaker 1: you know, within certainly within a stone's thrill of what
Speaker 1: we would say are are pretty fair value valuations. All right, Gina,
Speaker 1: thank you so much for taking a time, really appreciate
Speaker 1: getting your thoughts, particularly as we, you know, continue to
Speaker 1: deal with this selloff in this market so far in
Speaker 1: two looking for perspective. Gina Martin Adam's chief equity strategist
Speaker 1: for Bloomberg Intelligence. She's been doing us a long time.
Speaker 1: She was a chief strategist there at Wells farg A
Speaker 1: for a while before we lured her over to Bloomberg
Speaker 1: Intelligence some number of years ago. Right now, let's go
Speaker 1: to Schnali Basset. She covers all things Wall Street for
Speaker 1: Bloomberg News. She joins us here in on our Bloomberg
Speaker 1: Interactive Brokers Studio and SI big story out today. I
Speaker 1: think you know one of the big stories on global
Speaker 1: Wall Street is it's tough in the hedge fund business.
Speaker 1: They have not escaped the carners that we've seen in
Speaker 1: the credit markets, in the equity markets, and big name
Speaker 1: is closing stores. Tell us the story. Yeah, so this
Speaker 1: is really a holdover from the game stop era. If
Speaker 1: you all remember the short squeeze that we saw early
Speaker 1: last year that really hurt Gabe Plotkins Melvin Capital, remember
Speaker 1: that fifty decline. He recovered from a little bit last year,
Speaker 1: still ending the year lower, but not as low as
Speaker 1: it could have been, and there were a lot of
Speaker 1: big names that came to his rescue, think Ken Griffin,
Speaker 1: Steve Cullen and others we have heard as well. But
Speaker 1: this year the sell off really accelerated and in the
Speaker 1: first four months of the year, his hedge fund lost
Speaker 1: twenty three percent. Bloomberg's ham A Palmer broke last night
Speaker 1: that he wrote a letter to investors saying that he
Speaker 1: would be returning money to investors they would soon be
Speaker 1: stopping management fees and you are seeing an unwind of
Speaker 1: his positions. So what happens next? Does he does he
Speaker 1: have further ambitions? What do you do when your hedge
Speaker 1: fund closes? That's been a big question lately. You know,
Speaker 1: he wrote the letter last night, so it's too soon
Speaker 1: to say what he's gonna do next. But a lot
Speaker 1: of hedgeman managers see a second act, you know, one
Speaker 1: very prominent one that we talked about a lot given
Speaker 1: the crypto excitement. I guess as Mike novograts, everyone remembers
Speaker 1: he had to shut his macro fund. Uh. Steve Cohen
Speaker 1: saw second act himself. A lot of people do see
Speaker 1: second acts in the money management industries. Some people go
Speaker 1: around family offices, some people just decided to do something
Speaker 1: else at large. But remember, he did have a great
Speaker 1: track record before the last two years. He had a
Speaker 1: very good track record actually, and so his investors who
Speaker 1: have stuck with him despite you know, some concerns about
Speaker 1: his restructuring plans, do believe that he has done a
Speaker 1: great job prior to this route. Is it should we
Speaker 1: be expecting other situations like this where some hedge funds
Speaker 1: shut down, because boy, it was just been a brutal,
Speaker 1: brutal start to the year, and maybe they don't see
Speaker 1: any opportunity to get above that high watermark and start
Speaker 1: generating those performance returns. I think that's such an important
Speaker 1: question because it's not just the carnage or see in
Speaker 1: the public stock market. You're also seeing a few other headwinds.
Speaker 1: Private market valuations are starting to get hurt as well.
Speaker 1: Tiger Global is a ten pound gorilla in that room.
Speaker 1: Remember they were really a force in Silicon Valley. They
Speaker 1: put the biggest venture capital firms on notice. They have
Speaker 1: really had a lot of pain in their public market
Speaker 1: portfolio this year, and they you know, do they see
Speaker 1: more pain in that private market portfolio as well? Um
Speaker 1: do other people close their doors? Big question the cost
Speaker 1: of leverages going up. You can't just easily borrow money
Speaker 1: to to put on easy trades. And honestly, hedge fund
Speaker 1: leverage has been at record levels as well as retail leverage,
Speaker 1: and that unwind is going to be showing in the
Speaker 1: stock market more so, really a gain here to mitigate
Speaker 1: losses this year, to keep your doors open longer. I'm
Speaker 1: a loudly you mentioned Tiger Capital for audience for our
Speaker 1: worldwide audience, I should say this is a hedge fund
Speaker 1: and the Tiger Cubs, of course, that are known for
Speaker 1: their tech investments, and that's why you've seen extra extra
Speaker 1: pain in some of those companies. Very quickly, Shannali, I
Speaker 1: have to ask about the retail story. We talked. That's
Speaker 1: how we started this conversation. Does the retail bid come
Speaker 1: back very quickly? It's so interesting because you see f
Speaker 1: t X getting into stock trading and there's still excitement
Speaker 1: around it, and you know, influencers are talking about it.
Speaker 1: But the question is can they get in as much
Speaker 1: as they were before. It's not creating that additional bit
Speaker 1: in the market, and you're seeing that very plainly. All right,
Speaker 1: we appreciate it. Shannale Bassett covers All Things Wall Street,
Speaker 1: got the Wall Street beat down for Bloomberg News talking
Speaker 1: about Melvin Capital shutting down, winding down, and you know
Speaker 1: it's a big, big fund. It was it about eight
Speaker 1: billion dollars um and so a big issue. Mr Plotkin
Speaker 1: a former player at Stevie Cohen's firm as well. So
Speaker 1: interesting the note there. I'm gonna get right to our
Speaker 1: next guest, David Coudla. No stranger here, he's a founder,
Speaker 1: CEO and c i O of Main State Capital Management. David,
Speaker 1: thanks for taking a few minutes here. You know, we've
Speaker 1: been kind of frame mean, the investment environment is kind
Speaker 1: of no place to hide unless you happen to be
Speaker 1: in commodities, I mean fixed and come down double digits
Speaker 1: total return SMP near bear market levels. How are you
Speaker 1: as you step away and maybe you know, communicate with
Speaker 1: your clients? What's your message these days? Good morning, Paul. Yeah,
Speaker 1: we uh, we just did a webinar for our clients
Speaker 1: this week and talked exactly about that. And we're at
Speaker 1: Mainstake Capital Management. We're taxo asset allocators. So uh, an
Speaker 1: environment like this is where we can um actually allocate
Speaker 1: among alternative strategies, allocate among commodities, actually short bonds versus
Speaker 1: being long bonds. If we look at a typical portfolio
Speaker 1: this year, uh, if that's in or the plastic classic portfolio,
Speaker 1: if that's in the SMP five, in the NASDAC composite,
Speaker 1: in the US Aggregate Bond Index, that portfolio is down.
Speaker 1: Through active management. Going to these other areas, you can
Speaker 1: be down a lot less this year, a lot less
Speaker 1: this year. We're looking at SMP fire down well now
Speaker 1: only two tents of one percent. It was done as
Speaker 1: much as one and a half percent earlier. What do
Speaker 1: you make of this kind of volatility, Well, there's so
Speaker 1: much fear of where inflation goes from here in the
Speaker 1: coming months and how the Fed responds to that. The
Speaker 1: you know, we we have you know, we've seen the
Speaker 1: year of year inflation come down a bit in the
Speaker 1: last read, but we don't know if peak inflation is
Speaker 1: behind us. Uh, there's other external factors. But it's just
Speaker 1: a concern that the Fed will continue and and jpal
Speaker 1: said that right, he said that, Uh, they will do
Speaker 1: what it takes. Uh, the inverse of what Mario Drow
Speaker 1: said back in two thousand and twelve in terms of
Speaker 1: moving the other way and easy monetary policy. Ja Pale
Speaker 1: said he's going to tighten as far as he needs
Speaker 1: to to bring inflation down. And that's just put a
Speaker 1: lot of fear, anxiety, indigestion into the markets. And so
Speaker 1: we're seeing this extreme volatility day to day on the
Speaker 1: upside and the downside. What we saw on what we
Speaker 1: saw yesterday, what we saw in May five on the downside,
Speaker 1: extreme days. So David give us a sense of valuation. Here,
Speaker 1: a lot of folks as they try to and I
Speaker 1: think foolishly, try to catch the you know, call the
Speaker 1: bottom of the market. They might look at maybe evaluation
Speaker 1: as a metric here is this market get attractive from
Speaker 1: evaluation perspective? Or historically does your data show there's more
Speaker 1: to go? Um. Evaluation has never been a good measure,
Speaker 1: either on the upside of the downside. Uh. You know,
Speaker 1: typically what happens, and I like to say it is
Speaker 1: there's some maybe an external effect at an external event
Speaker 1: or something that starts to selling or something that starts
Speaker 1: to buying, and people look around and say, boy, look
Speaker 1: at valuation. Stocks are very attractive, and the buying begets
Speaker 1: more buying. Or when valuations are high, investors look around
Speaker 1: and say, well, look how high valuations are, and the
Speaker 1: selling begets selling. But you know, one thing we know
Speaker 1: for sure is is when rates are very low, as
Speaker 1: they have been for the past decade, we can support
Speaker 1: a higher valuation. Now rates are going higher and it's
Speaker 1: going to be harder to support those valuations. Uh, we've had, Tina,
Speaker 1: there is no alternative. Bond yields are up now and
Speaker 1: actually getting more attractive um. So so you know, we'll
Speaker 1: have an environment where we won't be able to or
Speaker 1: we probably won't be able to support the valuations that
Speaker 1: that we've had over these past years. So evaluations aren't
Speaker 1: the roadmap that perhaps other investors think it is. What
Speaker 1: do you look at margins. It's right now, right now, Critty,
Speaker 1: It's all about inflation. Right now. It is all about inflation.
Speaker 1: That was a message to our clients in our webinars
Speaker 1: this week. It's all about inflation. Uh. We you know,
Speaker 1: we saw what the retailers did to the markets, and
Speaker 1: that's a function of how inflation is impacting their bottom line.
Speaker 1: But as far as the macro impact on the markets,
Speaker 1: it's it's about, um does inflation come to? How much
Speaker 1: does inflation come down on zone? The thought was durable
Speaker 1: goods inflation would would be coming down already as the
Speaker 1: labor force and the supply chains. Heell, we're yet to
Speaker 1: see a lot of that. We're seeing a little bit
Speaker 1: of it. You know, if you look at some of
Speaker 1: the data, um, you know, if this continues, we saw
Speaker 1: housing starts uh lower than expected. Existing home sales are
Speaker 1: off um. In fact, existing home sales the lowest level
Speaker 1: in two years because mortgage rates have climbed so high.
Speaker 1: We're off a little bit this week, but still up
Speaker 1: around five and a half percent. Jobless claims higher than expected,
Speaker 1: so we're seeing a little bit of this come through,
Speaker 1: but it's it's really about where we go with inflation
Speaker 1: and can the FED back off on this aggressive monetary
Speaker 1: tightening schedule that they've they've has been suggested ahead of us.
Speaker 1: All right, David, good stuff. We always appreciate getting your perspective.
Speaker 1: David could founder CEO and CEO of Mainstay Capital Management
Speaker 1: and also notably he's a founder and sponsor of Engage,
Speaker 1: world's largest student stock pitch competition end conference that's hosted
Speaker 1: at the University of Michigan. So that's really a good
Speaker 1: opportunity for students to get a sense of what it's
Speaker 1: like to invest in these markets. And UH, David's a
Speaker 1: big supporter that appreciate that. I want to switch gears here,
Speaker 1: but it's kind of in line with what we just
Speaker 1: heard from President Biden welcoming the leaders of Finland and
Speaker 1: Sweden as they UH. Europe continues to deal with the
Speaker 1: war in Ukraine. Peter Plats or Sea of Spire spires
Speaker 1: a space the cloud analytics company that owns and operates
Speaker 1: the largest multipurpose constellation of satellite Peter, thanks so much
Speaker 1: for joining us here. I wonder if you could give
Speaker 1: us a sense of your company, what it does and
Speaker 1: and kind of how perhaps your customers are using satellites
Speaker 1: as they think about navigating around the ground war in
Speaker 1: the Ukraine. Absolutely, there are two elements respired data and
Speaker 1: analytics is helping customers. You know. One element is understanding
Speaker 1: the global supply chain, you know, where are products going? Uh,
Speaker 1: looking at how that has changed. You know, we've seen
Speaker 1: quite a bit of change in the in the Russian
Speaker 1: oil has been going, especially as as pipelines, consumption you know,
Speaker 1: might be decreased. You know, we see tankers going, you know,
Speaker 1: more to with Asia than to us in the traditional
Speaker 1: country that it has been going. We also have a
Speaker 1: good insight for our customers that are concerned with food
Speaker 1: supplies and countries. You know, Ukraine has been has been
Speaker 1: a bretty big supplier off of grains and other food
Speaker 1: elements and we've seen that decreased dramatically. And the second
Speaker 1: element where our data is relevant is an understanding you know,
Speaker 1: radio frequency emissions like GPS jamming on the ground and
Speaker 1: helping national and international security efforts. International security efforts Russia
Speaker 1: and Ukraine aren't the only tensions. Russia and China also
Speaker 1: uh and evolving relationship I think is the best way
Speaker 1: to put it. Is Spires Intelligence able to offer any
Speaker 1: insights there to the extent that I can talk about it. Yes,
Speaker 1: you know, the power off of satellite constellation is that
Speaker 1: it provides an objective, neutral and correct few from the
Speaker 1: ultimate highest vantage points space. Uh SPIRE owns and operates
Speaker 1: one of the largest constellations, the fourth largest on the planet.
Speaker 1: We on and operate the largest commercial r f G
Speaker 1: A location constellation with forty satellites UM and as such
Speaker 1: we do cover all of the regions you mentioned and
Speaker 1: indeed the rest of the globe about a hundred times
Speaker 1: a day, and that gives us a very objective few
Speaker 1: with data and analytics that can help support activities and
Speaker 1: understanding of what is happening, including access denied areas. Is
Speaker 1: there any evidence that you're seeing from your satellite imagery
Speaker 1: that Western ships are are maybe not visiting Russian ports
Speaker 1: that you know some of these uh I guess sanctions
Speaker 1: are in fact happening on the ground on the high seas. Absolutely, Um,
Speaker 1: there is absolutely you know, recently we looked at the data.
Speaker 1: There are no U. S flag ship so in any
Speaker 1: of the Russian ports for example. So yes, we do
Speaker 1: exactly see the impact of that, and even more so,
Speaker 1: we can detect and identify and alert where certain ships
Speaker 1: or certain flag carriers might be trying to circumvent certain sanctions,
Speaker 1: circumvent certain sanctions. I mean, this is probably we were
Speaker 1: talking about how the schemes are like Cold War esque
Speaker 1: almost it definitely feels feels cold War asked, So I
Speaker 1: have to ask is salite technology actually effective in the
Speaker 1: fog of war? That is the power of the type
Speaker 1: of technology that we are using, which is radio frequency based,
Speaker 1: because radio frequencies to the sorry to play the pun,
Speaker 1: you know, goes right through fog. Um. It is independent
Speaker 1: of sunlight, it is independent of the weather, and it
Speaker 1: listens to what is happening. Um. I come from Vienna.
Speaker 1: So just as in the Cold War you had to
Speaker 1: listen for footsteps around the corners of the of the
Speaker 1: hot streets of Vienna, um our satellites are capable of
Speaker 1: picking up information even when there is no sunlight and
Speaker 1: bad weather stuff, really fascinating stuff. Peter, really appreciate you
Speaker 1: taking the time. Peter Platzer, CEO of Spire. It's a
Speaker 1: publicly traded company on the New York Stock Exchange sp
Speaker 1: i R. Thanks for listening to the Bloomberg Markets podcast.
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Speaker 1: on Twitter at Matt Miller three. Put on fall Sweeney
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