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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. He is

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Speaker 1: definitive on Amazon of course, the Trophy book right now

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Speaker 1: Amazon Unbound. Jeff Bezos The Invention of a Global Empire.

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Speaker 1: He joins us from Davos, the meetings of the World

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Speaker 1: Economic Forum at brad Thrilled to have you with Bloomberg

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Speaker 1: Surveillance this morning. Let me cut to the chase. I

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Speaker 1: see AI at Microsoft is countable, revenue, co pilot, azore

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Speaker 1: all the rest of it. And I see a lot

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Speaker 1: of other AI is smoking mirrors. How do you parse

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Speaker 1: between legitimate artificial intelligence future and the makeup, the fantasy,

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Speaker 1: the comedy of it. How do you parse?

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Speaker 2: Oh? Boy, well, thanks Tom for having me. Hi Damien. Look,

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Speaker 2: I've been covering Silicon Valley long enough that I've seen

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Speaker 2: this story play out before. We're at the beginning of

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Speaker 2: a hype cycle. There will be disappointment a lot of

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Speaker 2: you know, the visions of Agi computers that reason that

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Speaker 2: change our world, they seem far fetched, you know. There

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Speaker 2: there we talk about a trough of dissolutionment that will happen.

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Speaker 2: But you're right that there you know that there are

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Speaker 2: real revenues, real benefits. Yesterday, Microsoft announced that it was

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Speaker 2: bringing its open AI powered co pilot to the office seat,

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Speaker 2: so you know at twenty dollars a month, making it

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Speaker 2: available small business as an individual users.

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Speaker 1: That's real. Yeah, brtt I signed up last night. I

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Speaker 1: was going to be reack. Can you see me, Damien?

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Speaker 1: Can you see me do an artificial Intelli get out

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Speaker 1: of the way. Fred. If I look at this, can

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Speaker 1: you say that the Magnificent seven they seem to be

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Speaker 1: away from the hype. How is the Magnificent seven going

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Speaker 1: to create revenue and cash flow out of AI?

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Speaker 3: Yeah?

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Speaker 2: I mean they're the best position because they're they're they're

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Speaker 2: selling the picks and shovels to all the miners. You know,

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Speaker 2: this is Alphabet and Amazon and Microsoft running the world's

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Speaker 2: most powerful cloud services and making basically AI available as

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Speaker 2: a service to every university and startup in consumer goods

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Speaker 2: company that you know wants to use these tools for

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Speaker 2: a variety. It's it could be R and D could

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Speaker 2: be customer service. So you know, even even though that'll

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Speaker 2: be a work in progress there, the revenues will be real.

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Speaker 2: My question for Santia Tom by the way yesterday was

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Speaker 2: you know, do you control any of this. You're you're

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Speaker 2: investors in open AI. You don't even have a board seat.

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Speaker 2: You're like in the back of the bus with a seatbelt,

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Speaker 2: and it's got such peculiar governance. And he said, you know,

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Speaker 2: it's fine, we just want stability. So I don't know

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Speaker 2: if I quite believe it. I think they're outsourcing a

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Speaker 2: key competency. But they're in the cappards seat, the driver's

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Speaker 2: seat because they did make that investment. I'm sure the

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Speaker 2: Amazons and the Googles of the world wish that they

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Speaker 2: hadn't passed up the open AI opportunity when they had

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Speaker 2: the chance.

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Speaker 4: Well, Brad, I appreciate you answering those two questions from

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Speaker 4: that artificial personification of Tom Keen that wasn't really Tom

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Speaker 4: Keen answering those questions, And my question for you is

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Speaker 4: talk to me about deep fake videos X these platforms.

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Speaker 4: What's to stop open AI and chat, GPT and all

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Speaker 4: this artificial nonsense from mudding the waters ahead of the election?

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Speaker 5: Yeah?

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Speaker 2: Well, what it's funny because it is really the talk

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Speaker 2: of the conference that you've got national elections in some

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Speaker 2: seventy seven countries around the world. Half the world's population

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Speaker 2: could head to the polls at the same time as

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Speaker 2: this enormously powerful technology is made available to people, and

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Speaker 2: what's to stop it from being missus? I know this

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Speaker 2: is going to carry a lot of water with our listeners,

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Speaker 2: but you know they are raising their right hand and

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Speaker 2: putting their left hand over their hearts and saying, we're

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Speaker 2: not going to allow our technology to be abusing.

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Speaker 4: They really understand the risks.

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Speaker 6: I mean, I mean do they?

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Speaker 2: I think they do? They?

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Speaker 7: I think they do because we've.

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Speaker 2: All seen this movie before and meta its reputation went

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Speaker 2: through the meat grinder because social media was perverted. You know, yesterday,

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Speaker 2: it's no surprise that Sam Altman's here. He spent time

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Speaker 2: with us at the Bloomberg House, and before our interview,

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Speaker 2: they posted a statement on their blog on their election

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Speaker 2: policy and said that chat GPT cannot be used for

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Speaker 2: any political campaign. And they said that images generated by DOLI,

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Speaker 2: their their image maker, will carry a cryptographic watermark to

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Speaker 2: show the providence. And but you know, and my question

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Speaker 2: for Sam was like, these are great intentions. You've got

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Speaker 2: the weight of all the black cat developers trying to

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Speaker 2: break this stuff. How to enforce it where Meta and

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Speaker 2: Google and TikTok have all kind of let failed it

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Speaker 2: with the genie out of the bottle, right And he said,

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Speaker 2: you know, they're aware of the risks. So I do

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Speaker 2: think it's going to be a rocky year with some

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Speaker 2: of these elections, and we're going to see this technology abuse, right.

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Speaker 4: Brand I'm sure that no one can forge those crypto

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Speaker 4: water marks. I have one last question. I mean, my

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Speaker 4: colleague Tim Craig had from BI is actually in Davos

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Speaker 4: listening to Altman, and he said, I mean, you know,

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Speaker 4: Paulman obviously spoke and he was talking about how AI

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Speaker 4: will make people more productive. Talk to us a little

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Speaker 4: bit about that narrative.

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Speaker 2: The great worry is that when this technology is fully implemented,

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Speaker 2: that there will be a great dislocation of workers at

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Speaker 2: low level level programmers, customer service agents, you know, in

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Speaker 2: en mass replacement along with productivity, and it will worsen

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Speaker 2: the digital divide, and you'll have countries that are particularly

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Speaker 2: hard hit, and it could lead to further political alienation

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Speaker 2: and you know, maybe more or autocratic government's or real

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Speaker 2: nightmare scenario. So you know, that's the worry.

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Speaker 7: And I think the stewards of.

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Speaker 2: This technology, you know, Davos is the land of performative optimism,

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Speaker 2: I kind of like to joke, And so of course

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Speaker 2: they're saying that it's going to increase productivity and we're

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Speaker 2: all going to lead better lives working less. You know,

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Speaker 2: maybe Tom will get to sleep in one one morning

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Speaker 2: when AI kind of takes over. But I don't know.

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Speaker 2: I mean, you know, the I think it will make

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Speaker 2: people more productive, but I think it might replace some

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Speaker 2: jobs as well.

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Speaker 1: More question, I think it's what everyone knows. With your

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Speaker 1: your ownership of Amazon and all you've done with the

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Speaker 1: Amazon unbound, They've gone round trip massive post pandemic collapse.

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Speaker 1: The come back is the next Amazon, Josie's Amazon. Is

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Speaker 1: it going to make total return like we've known over

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Speaker 1: the last decade.

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Speaker 2: Excuse me, so you're asking me about the stock price.

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Speaker 2: I mean it's it's yeah. I mean, look, if I

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Speaker 2: could predict it, I'd probably be in a different line

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Speaker 2: of work. I mean, I do think. You know, Andy

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Speaker 2: Jassey is now a couple of years into his tenure.

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Speaker 2: He is and by the way he's here at Davos,

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Speaker 2: he has pared back some of the excesses of the

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Speaker 2: late stage Bezos that we just saw another round of Laos.

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Speaker 2: This is becoming a very lead and efficient company as

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Speaker 2: he bets on the core competencies, which is AWS and

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Speaker 2: the Amazon marketplace, empowering third party sellers. They've got their

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Speaker 2: work cut out for them. But I do think there's

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Speaker 2: a bit of momentum there.

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Speaker 1: Brad Stone from the meetings of the World Economic Forum,

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Speaker 1: I can't say enough about his new book, Amazon and Bound.

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Speaker 1: Jeff Bezos, The Invention of a Global Empire.

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Speaker 6: Joining us now the Tech Pignata of two twenty four.

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Speaker 1: Daniel Heize joins us in Webbush. He's been traveling ces

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Speaker 1: Las Vegas, joining us today from Warsaw Poland. And what

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Speaker 1: you learn at Las Vegas at cees don't give me

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Speaker 1: the mumbo jumble. What was the backstory in Las Vegas?

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Speaker 8: I thought it's about Ai just how mainstream the technology

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Speaker 8: is getting. I mean, tom My opinion, the biggest cees

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Speaker 8: in the last twenty five years. It shows this AI

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Speaker 8: revolution it's not hype, it's real.

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Speaker 7: It's on the doorstep.

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Speaker 1: I want you to talk Dan Ives, and this is

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Speaker 1: what you don't see folks, as Dan Ives is doing.

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Speaker 5: The media blah blah blah by this apple. The gloom

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Speaker 5: crew hates them, but beneath it is careful financial work.

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Speaker 5: Can you quantify what the new announcement of AI over

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Speaker 5: to Microsoft three sixty five, like, can you add up

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Speaker 5: the impact of that to a giant company like Microsoft.

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Speaker 8: It's when you put it together, this is going to

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Speaker 8: be eight hundred billion to a.

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Speaker 7: Trillion of incremental value to the Microsoft story.

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Speaker 9: I mean they are leading the AI revenlue with the

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Speaker 9: Della and Redman, along with the godfather of AI jents

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Speaker 9: and the video Tom I think the monzation that's happening

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Speaker 9: in Microsoft is still so underappreciated in terms of what

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Speaker 9: we're seeing in the field.

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Speaker 4: Dan they're asking for more money, I mean they're asking

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Speaker 4: for more computing power, more hardware, more technology. They say,

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Speaker 4: this is not just big, it is massive.

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Speaker 6: It is huge.

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Speaker 4: Do you agree with that.

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Speaker 8: I think it's the biggest transformational tech we've seen since

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Speaker 8: Star of the Internet. And that's why enterprises they're lining up.

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Speaker 8: Conversion could be sixty seventy percent. And that's why as

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Speaker 8: Tom's talking about the doomsayers again, you know, obviously negative.

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Speaker 7: Untech, I think this earning season turns.

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Speaker 8: That around because the real monization of AI is here.

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Speaker 7: It starts from the Della and Microsoft and Dan.

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Speaker 4: I mean the real I mean you just said it

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Speaker 4: right there. Don't you need access to data, to unique

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Speaker 4: data sets in order to basically make the AI go.

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Speaker 4: And so when I think of Amazon, okay, find they've

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Speaker 4: got access to consumer data, I think of Microsoft. It's

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Speaker 4: everything else. You know, people on their computer and talk

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Speaker 4: to us about these companies and the data they have

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Speaker 4: access to and how that's going to differentiate them in

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Speaker 4: the environment you're talking about.

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Speaker 7: I mean, it's a new age.

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Speaker 8: And that's why when you look at the cloud, the

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Speaker 8: big hyperscale players, Microsoft, of course, Amazon, Google and others,

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Speaker 8: they've had the data sets, but they haven't had the

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Speaker 8: tools that they can monetize and make intelligence. That that's

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Speaker 8: why the use cases are excluding. That's why this AI

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Speaker 8: revolution right now, I believe it fuels is new tech

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Speaker 8: bull market.

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Speaker 1: I a February second, We're going to get Apple earnings.

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Speaker 1: It's a ballet. I actually sit down with the beverage

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Speaker 1: of my choice folks at the home computer after the

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Speaker 1: surveillance n APP and what's a joy here? Is they

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Speaker 1: release like other firms, a press release that's clear and

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Speaker 1: in English? Dan ies, what are we going to see

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Speaker 1: in the treatment of the four accounting statements from Apple?

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Speaker 1: Four pm, February second.

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Speaker 8: Yeah, look, that's the drum roll, right, And I think

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Speaker 8: when Cooper Tino comes out, the big thing is going

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Speaker 8: to be services. We are looking at team type of

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Speaker 8: growth for services and that's key that could really be

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Speaker 8: incrementally we need that as a one point five to

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Speaker 8: one point six trillion services the margins double out of

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Speaker 8: hardware obviously all focus on iPhone units. Despite obviously many

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Speaker 8: yelling fire in a crowd theater, I actually think it

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Speaker 8: was a pretty strong iPhone unit number.

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Speaker 6: Okay, wait, well, want to get upside of the track now.

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Speaker 10: Dan knows a drill, Damian pick it up here. Okay,

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Speaker 10: But I'm sitting there with the beverage in my left hand,

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Speaker 10: looking at the accounting statement, and the media is not

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Speaker 10: readjusting the currency iPhone sales as mister Ive says, we're

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Speaker 10: pretty darn good. And then you had to figure in

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Speaker 10: dollar currency adjustments.

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Speaker 6: Whoa doom and gloom?

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Speaker 1: I mean, Ives is one hundred percent.

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Speaker 4: Right about the iPhone of the global market, Tom. I mean,

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Speaker 4: it just passed Samsung as the world's top phone in

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Speaker 4: the full year twenty twenty three. But I mean, Dan,

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Speaker 4: here's my question. What companies are best position to profit

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Speaker 4: from what you're talking about here? I mean, is it

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Speaker 4: the chip makers? I mean what sort of hardware companies?

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Speaker 4: Is it software? I mean, what are you seeing?

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Speaker 8: I think it's software and chips. When you look at

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Speaker 8: names like Microsoft, the Magnificent seven, you can Microsoft, Google, Amazon.

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Speaker 8: Then you look at some of these names like Mango, dB, Salesforce,

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Speaker 8: dot Com and of course a MD with Lisa Sue

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Speaker 8: and chips. This is the start of this tidal wave,

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Speaker 8: A trillion dollars of incremental spend next decade.

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Speaker 7: That's how this is all going to play out. Software

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Speaker 7: and chips leading it.

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Speaker 4: You know, I got one more for you. I mean,

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Speaker 4: if you're a new company with you know, and you're

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Speaker 4: in the AI boom, and you know you've got the talent,

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Speaker 4: and you know you're competing. Where do you want to

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Speaker 4: be located? Do you want to be on the West Coast?

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Speaker 4: Do you still want to be in Palo Alto.

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Speaker 8: I want to be based in a five one two area.

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Speaker 3: Oh.

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Speaker 8: Really, that's new look and that's what that's that's that's

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Speaker 8: a silicon value two dot of you're seeing that boom

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Speaker 8: more and more for AI engineers, and I think that's

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Speaker 8: really started the new age that we're seeing from an

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Speaker 8: AI perspective.

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Speaker 6: Well, we'll help.

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Speaker 1: Our international audience. What is Michael Dell and Venna down

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Speaker 1: in Austin to the two of you, Damien?

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Speaker 10: When you think five to one two.

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Speaker 4: South Congress, I think of South Congress. I think of barbecue.

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Speaker 4: I mean I think of Austin, Texas. I mean that

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Speaker 4: is the Los Angeles.

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Speaker 1: I think of Joe Wisenthal's band myself. I think they're

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Speaker 1: you know, outstanding dan Ees. What's special about Austin, Texas.

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Speaker 8: I Mean, there's a lot of things special about Austin, Texas,

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Speaker 8: but the engineering talent that that's been created there, obviously

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Speaker 8: outside University of Texas, is really unprecedented. It's one of

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Speaker 8: the you know, more and more tech companies from Google

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Speaker 8: to of course Tessa to Meadow moving down there, and

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Speaker 8: it's really becoming a really go to destination for tech

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Speaker 8: leaving the four one five, going to the five one two.

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Speaker 1: Worldwide on Bloomberg surveillance. And it's time now to make

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Speaker 1: some news. You got a two hundred and fifty dollars

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Speaker 1: price target on Apple. Can we lift that up to day?

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Speaker 1: Miss Graves?

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Speaker 7: I mean, look Tom, I mean you talk the bolt case.

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Speaker 8: This will be a four trillion dollar mark ab we

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Speaker 8: believe by the end of this year.

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Speaker 7: I remember AI.

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Speaker 8: There's zero dollars given for AI in Apple's valuation. That's

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Speaker 8: why this is it. Get that popcorn ready in the

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Speaker 8: key in household when they come out with that AI

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Speaker 8: and au June.

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Speaker 1: From Warsaw poland a trooper to be with us in

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Speaker 1: his travels. Dana is a Webush of course, outstanding work

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Speaker 1: by him. It's he's with Webbush Security is optimistic on

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Speaker 1: Apple and computers. Right now, we're going to talk about

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Speaker 1: the pulse of the Christmas holiday this season that we saw.

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Speaker 1: There's just no one better to do with this than

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Speaker 1: Dana at Telsea with all of our heritage at the

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Speaker 1: corner in Fifth Avenue in fifty seventh Street, her family's heritage,

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Speaker 1: and she's done it in securities analysis per year at Dana,

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Speaker 1: you were right, the gloom crew was wrong. What did

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Speaker 1: the people of caution get wrong about retail America into

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Speaker 1: the end of the year.

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Speaker 11: I think overall, and Tom, thank you so much for

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Speaker 11: having me. I think overall. One of the key things

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Speaker 11: that was the difference is we had Christmas that was

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Speaker 11: later this year, so people had more time in order

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Speaker 11: to procrastinate, and so really everything was driven around the

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Speaker 11: event days, whether it was the Black Friday weekend or

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Speaker 11: then that week leading up to Christmas. It's what made

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Speaker 11: the difference. It's not that holiday sales were so great,

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Speaker 11: but goods sold at full price inventory levels only, and

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Speaker 11: sales came in line with expectations for the most part.

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Speaker 1: And as a Dana Telsea Microeconomics Damien sasaw or what

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Speaker 1: she just said there goods sold at full price was

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Speaker 1: to me my observation on it.

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Speaker 4: You know, I'm curious, Dan, I'm curious to here we

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Speaker 4: got some China date overnight, right, I know, I just

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Speaker 4: I'm pivoting away here, but I mean, wow, that economy

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Speaker 4: is sluggish, and I think a lot of the big

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Speaker 4: luxury goods LVMH carrying her mad I mean, they were

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Speaker 4: a pretty big overnight in Europe. Talk to us a

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Speaker 4: little bit about what that GDP figure means to you,

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Speaker 4: what it.

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Speaker 11: Means to me, especially for luxury and I spoke last

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Speaker 11: week to the CEOs of Neiman, Marcus and Sacks, and

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Speaker 11: they all talked about the slowing and more challenging luxury

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Speaker 11: goods environment. Look at Berbery's numbers, which we were just

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Speaker 11: released at the end of the week last week, it

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Speaker 11: talked about the slowdown and in Europe, the local slowdown

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Speaker 11: spending and you're still not seeing the Chinese come over

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Speaker 11: and spend, whether in Europe or in the US, anywhere

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Speaker 11: near what we had pre pandemic. We're gonna get next

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Speaker 11: week LVMH. And I think all eyes are going to

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Speaker 11: be on what they say about the deceleration globally.

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Speaker 1: Is there Tiffany experiment working out for those of you internationally?

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Speaker 1: We have two blocks away from us, really across the

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Speaker 1: street from where Dana grew up, Tiffany's with one hundred

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Speaker 1: million dollars or so investment by the Arnoul family. Has

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Speaker 1: that experiment been successful for LVMH.

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Speaker 11: It has. Not only has it been successful, but also

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Speaker 11: they garnered profitability much quicker, frankly than when it was

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Speaker 11: a public company. And the way they've done it, they

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Speaker 11: modernized the store, they've modernized the products. They've brought in influencers,

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Speaker 11: celebrities that appeal to younger consumer. Think about it. You're

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Speaker 11: talking about engagement jewelry. When do people get engaged twenties

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Speaker 11: and thirties want to have a store to cater to

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Speaker 11: that demographic.

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Speaker 1: She's just joining us on Bloomberg surveinglist. Dana Telsey, the

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Speaker 1: Telsey Advisory Group. She and Joe Feldman with great work

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Speaker 1: across all of retail. And I know Damien Missus Sassa

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Speaker 1: are called me up. She said, you got to ask

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Speaker 1: about the ani there leathern Red Soul Christian labby Tom

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Speaker 1: Boots one thousand and five hundred ninety five dollars.

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Speaker 10: It's a way to get through the snow drifts.

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Speaker 1: Yeah, no, I'm not in New York City.

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Speaker 4: I'm not worried about demand with Missus Sasa right there.

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Speaker 4: But what I will say and Dana, And this is

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Speaker 4: my question for you. You know, El Nino, right, input costs, margins,

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Speaker 4: you know, talk to me about the impact of El

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Speaker 4: Nino on cotton prices on some of these things. I mean,

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Speaker 4: do you see that kind of trickling through to the

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Speaker 4: bottom line?

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Speaker 11: It does? I mean one of the things keep in

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Speaker 11: mind all the freight expenses and the tailwinds that companies

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Speaker 11: got from lower freight costs in twenty twenty three. Apparel,

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Speaker 11: it's going to benefit with lower cotton costs in twenty

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Speaker 11: twenty four, but maybe not to the same magnitude. We're

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Speaker 11: still going to need some level of sales leverage. And

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Speaker 11: there are two drivers in twenty twenty four. It's about

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Speaker 11: innovation and it's about value. You have those two elements

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Speaker 11: and you'll have a formula to drive sales growth.

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Speaker 4: So talk to us also. I mean on the input side,

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Speaker 4: I mean, what are you thinking here? I mean, gas

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Speaker 4: prices are now ticking up. Obviously we didn't see much

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Speaker 4: evidence of that in the retail sales print. But you know,

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Speaker 4: how does this really impact some of these you know,

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Speaker 4: these large luxury goods companies. I mean, do you see

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Speaker 4: any pack there?

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Speaker 11: I don't for certainly for raw materials, cost increases, luxury goods.

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Speaker 11: Companies have the power frankly of being able to raise price.

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Speaker 11: You're certainly seeing Chanelle do it trying to reach what

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Speaker 11: Ourmez is doing. But all the others you're not seeing

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Speaker 11: price increases like you had, and they're managing their inventory

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Speaker 11: much more carefully.

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Speaker 1: I gotta go get your away from March data. Telsey,

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Speaker 1: tell me about your single best buy when you and

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Speaker 1: Joe Felman get to work. Where's the value? Is it

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Speaker 1: in big box? Is it in middle of the road or.

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Speaker 11: Is it in lux I think overall, definitely. I think

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Speaker 11: when the weakness and luxury, like any weakness in LVMH,

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Speaker 11: I think that's an opportunity. But really it continues to

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Speaker 11: be about off price and discount. Given what you've seen

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Speaker 11: in the moderation consumer spend a low TJX I mean.

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Speaker 1: Air Mez, I mean, I guess leading Away is being

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Speaker 1: least affected. Why are they trading at a multiple of

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Speaker 1: forty seven times earnings?

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Speaker 11: Because, frank when you think about something like Ramez, there

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Speaker 11: is so far there is no level of supply where

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Speaker 11: the demand doesn't exceed the supply.

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Speaker 1: Miss yeah, perfect, I mean to interrupt Missus Sassar's on

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Speaker 1: the phone.

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Speaker 6: What's the question?

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Speaker 4: She only shots at the Ponsovecchio in Florence. Tom Now,

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Speaker 4: I mean, you know, I was just in Europe and

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Speaker 4: I have to say, I mean there was a lot

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Speaker 4: of foot track in some traffic in some of these places.

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Speaker 4: And you know you talk about Hugo Boss, you know

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Speaker 4: who had disappointing operating profits. I mean Berber you mentioned them.

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Speaker 4: I think you know, the things seem to be turning

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Speaker 4: around here in Europe.

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Speaker 11: That's good to hear. I think that would help all

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Speaker 11: a luxury.

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Speaker 1: Lisa Mateo's here as well. She wants to ask the question.

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Speaker 1: Lisa Matteo, question here for Dana Telsea to get your

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Speaker 1: retail days started.

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Speaker 3: Ooh, all right, what is the hottest? What should I

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Speaker 3: be looking for? As far as you hear these talks

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Speaker 3: about selling back those fashionable high end pocket books, if

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Speaker 3: I just happened to have one at home, what's the

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Speaker 3: remarket value of something like that?

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Speaker 11: It depends if it's an ermez bag, whatever market value

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Speaker 11: you walked it out of the store of or tried

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Speaker 11: to bring it to someone to sell, it's higher. And

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Speaker 11: for some I've heard it's at least ten percent higher.

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Speaker 11: Even the day it walks out the door, it holds

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Speaker 11: its value.

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Speaker 1: What's the greatest brand destructure into Lisa Matteo's brilliant question,

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Speaker 1: which is the bag Lisa wants to unload this morning?

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Speaker 11: Do you want a higher price? A Birken or a Kelly?

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Speaker 11: Is your bag that you're going to get a higher price?

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Speaker 1: Dana Telsey, thank you. So it's give me a single

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Speaker 1: best buy, please, I need a name here. Give me

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Speaker 1: a single best bike.

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Speaker 11: Go to TJX. Believe me, it's the winner for twenty four.

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Speaker 1: And they have the Kelly bag as well. Dana Telsey,

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Speaker 1: thank you, thank you, thank you so much. On the

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Speaker 1: real retail of America now joining us to piece it

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Speaker 1: Together's liz Ane Saunders, chief investment strategist to Charles Schwab,

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Speaker 1: She's in charge their led Zeppelin division or thrilled that

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Speaker 1: you could join today. I look at the market and

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Speaker 1: I need a whole lot of love here, and to me,

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Speaker 1: the whole lot of love is going to come from

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Speaker 1: six trillion dollars in money market funds. How much of

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Speaker 1: that is going to go?

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Speaker 10: At Schwab over to the equity market.

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Speaker 12: I wouldn't necessarily count on a lot of it. I

435
00:22:25,400 --> 00:22:28,399
Speaker 12: don't think that that should be seen as money that

436
00:22:28,560 --> 00:22:31,160
Speaker 12: is poised to jump into the equity market. I think

437
00:22:31,160 --> 00:22:33,240
Speaker 12: a lot of that is stickier money that might have

438
00:22:33,320 --> 00:22:38,760
Speaker 12: been in other places, including traditional deposits, or in riskier

439
00:22:38,800 --> 00:22:41,040
Speaker 12: places in order to pick up income that now can

440
00:22:41,119 --> 00:22:43,760
Speaker 12: be in the safety. And also, yes, six trillion dollars

441
00:22:43,880 --> 00:22:46,600
Speaker 12: is a record, but we're nowhere near a record as

442
00:22:46,640 --> 00:22:49,399
Speaker 12: a share of total stock market capitalization. All you have

443
00:22:49,440 --> 00:22:51,960
Speaker 12: to do is look to the nineteen nineties to see

444
00:22:51,960 --> 00:22:56,480
Speaker 12: a period where you consistently saw increases in the amount

445
00:22:56,520 --> 00:23:00,560
Speaker 12: of money and money market funds commensurate with the increase

446
00:23:00,560 --> 00:23:03,439
Speaker 12: in the stock market, the drivers being different. So I

447
00:23:03,520 --> 00:23:06,959
Speaker 12: don't view that as some sort of moment in time

448
00:23:07,400 --> 00:23:10,040
Speaker 12: source of additional funds that would flow into equities.

449
00:23:10,400 --> 00:23:13,720
Speaker 1: Right now, I'm confused because I get a stream of

450
00:23:13,800 --> 00:23:17,240
Speaker 1: thought that people are cautious, nervous, and I get another

451
00:23:17,320 --> 00:23:21,240
Speaker 1: stream of thought that everybody, including damiens ors O Pair,

452
00:23:21,400 --> 00:23:24,480
Speaker 1: is in the market. Which is it at Schwab, is

453
00:23:24,480 --> 00:23:27,760
Speaker 1: there an enthusiasm by your clients for equities?

454
00:23:28,640 --> 00:23:33,520
Speaker 12: I think there's cautious optimism I wouldn't consider it over enthusiasm.

455
00:23:33,600 --> 00:23:37,680
Speaker 12: In fact, if you look at attitudinal measures of investor

456
00:23:37,800 --> 00:23:41,840
Speaker 12: sentiment more broadly than Josh Schwab, although at seven trillion

457
00:23:41,880 --> 00:23:46,000
Speaker 12: dollars we're a pretty big slice of the retail investing universe.

458
00:23:46,040 --> 00:23:49,720
Speaker 12: But if you look at attitudinal measures like AAII, those

459
00:23:49,720 --> 00:23:53,159
Speaker 12: are purely attitudinal. It's survey base, and that's jumped around

460
00:23:53,240 --> 00:23:55,600
Speaker 12: quite a bit, and it's just there tends to be

461
00:23:55,640 --> 00:23:57,760
Speaker 12: more of a knee jerk reaction to what's going on

462
00:23:57,840 --> 00:24:00,239
Speaker 12: in the market moment in time. But even within that

463
00:24:00,440 --> 00:24:04,600
Speaker 12: survey you get the equity exposure, and at times where

464
00:24:04,600 --> 00:24:08,520
Speaker 12: you've seen bearishness really pick up fairly quickly, it's not

465
00:24:08,760 --> 00:24:11,960
Speaker 12: met with a similar move down in equity exposure. So

466
00:24:12,000 --> 00:24:14,320
Speaker 12: I think when looking at sentiment, you've got to look

467
00:24:14,320 --> 00:24:18,119
Speaker 12: at the marriage between the attitudinal side and the behavioral side.

468
00:24:18,320 --> 00:24:20,440
Speaker 1: Interesting and of course, in the nine o'clock are here

469
00:24:20,480 --> 00:24:24,000
Speaker 1: Wall Street time, Damien Sassar has been medicated to tang

470
00:24:24,080 --> 00:24:28,920
Speaker 1: mimosas have clicked in Damien. No questions to lizan on Indonesia.

471
00:24:29,000 --> 00:24:32,159
Speaker 4: Okay, I'm not going to channel Robert Planting led Zippelin

472
00:24:32,359 --> 00:24:34,480
Speaker 4: led Zeppelin now Lizan, but I am going to channel

473
00:24:35,000 --> 00:24:37,119
Speaker 4: Pink Floyd. I'm gonna channel Roger Waters. Here are the

474
00:24:37,160 --> 00:24:40,840
Speaker 4: markets comfortably numb to the concept of a FED cut

475
00:24:40,920 --> 00:24:43,040
Speaker 4: in March? I mean, let's be clear, I mean like,

476
00:24:43,119 --> 00:24:45,600
Speaker 4: this is unbelievable that you know the markets are priced

477
00:24:45,640 --> 00:24:47,480
Speaker 4: that way, yet you know it seems to becoming fast

478
00:24:47,480 --> 00:24:49,520
Speaker 4: becoming consensus. What are your thoughts on that?

479
00:24:50,240 --> 00:24:54,399
Speaker 12: So we have seen a bit of a shift, particularly

480
00:24:54,400 --> 00:24:56,880
Speaker 12: with with today's retail sales report. So a week ago,

481
00:24:57,000 --> 00:24:59,920
Speaker 12: if you look at probabilities in terms of FOED funds

482
00:25:00,000 --> 00:25:02,000
Speaker 12: future market of what's going to happen at the March

483
00:25:02,119 --> 00:25:05,199
Speaker 12: FOMC meeting, you were up at around sixty five percent probability.

484
00:25:05,200 --> 00:25:07,440
Speaker 12: I think that's down to I don't know, fifty seven

485
00:25:07,520 --> 00:25:09,680
Speaker 12: or fifty eight percent now, and it's been kind of

486
00:25:09,720 --> 00:25:13,240
Speaker 12: a moving target. So I think the market may slowly

487
00:25:13,320 --> 00:25:17,320
Speaker 12: be adjusting to what. Frankly, most FED speakers have been trying.

488
00:25:17,359 --> 00:25:19,399
Speaker 12: The message they've been trying to impart is you know

489
00:25:19,640 --> 00:25:23,399
Speaker 12: whoa all l squel. It's given what we know now,

490
00:25:23,720 --> 00:25:27,119
Speaker 12: it is probably not a backdrop supportive of not just

491
00:25:27,240 --> 00:25:31,199
Speaker 12: starting as soon as March, but the FED providing you know,

492
00:25:31,320 --> 00:25:35,560
Speaker 12: six rate cuts this year. I think that disconnect still exists,

493
00:25:35,560 --> 00:25:38,080
Speaker 12: it's just not as wide as it was even a

494
00:25:38,080 --> 00:25:38,520
Speaker 12: week ago.

495
00:25:38,680 --> 00:25:41,000
Speaker 4: So then lusanna backuping yields means, I guess from the

496
00:25:41,040 --> 00:25:43,280
Speaker 4: equity perspective, you want to get a little bit more defensive.

497
00:25:43,280 --> 00:25:45,840
Speaker 4: What areas of the market would you go to to

498
00:25:45,960 --> 00:25:48,520
Speaker 4: protect to protect in this type of environment. I mean

499
00:25:48,560 --> 00:25:51,000
Speaker 4: you would think classic defensive sectors like you know, utilities.

500
00:25:51,040 --> 00:25:52,719
Speaker 4: I mean, I mean, look at where valuations are there,

501
00:25:52,760 --> 00:25:54,320
Speaker 4: I mean, what works in your portfolio.

502
00:25:54,960 --> 00:25:58,240
Speaker 12: Well, so there are the classic defensive sectors like utilities.

503
00:25:58,280 --> 00:26:02,879
Speaker 12: Then there's this era's defense sectors, which incorporates what I

504
00:26:02,920 --> 00:26:05,679
Speaker 12: call the growth trio of tech communication service as a

505
00:26:05,720 --> 00:26:09,760
Speaker 12: consumer discretionary of course, housing all of the Magnificent seven

506
00:26:09,800 --> 00:26:11,400
Speaker 12: and really all the way back to the early part

507
00:26:11,400 --> 00:26:16,200
Speaker 12: of the pandemic. That's been this era's defensive type names.

508
00:26:16,240 --> 00:26:18,520
Speaker 12: And that's because of strength the balance sheet. They don't

509
00:26:18,520 --> 00:26:22,040
Speaker 12: have to rely on funding in the traditional banking system

510
00:26:22,119 --> 00:26:26,080
Speaker 12: or even in the capital markets. So defensive is just

511
00:26:26,200 --> 00:26:29,719
Speaker 12: a descriptor. It's not some well determined type, and it

512
00:26:29,800 --> 00:26:33,119
Speaker 12: is quality and you know, it's specific to the beginning

513
00:26:33,119 --> 00:26:36,800
Speaker 12: of your question with this direct relationship in yields, I

514
00:26:36,800 --> 00:26:40,480
Speaker 12: mean the peak and yields. It gave us the big

515
00:26:40,520 --> 00:26:43,320
Speaker 12: move up from late July, I mean from late October

516
00:26:43,680 --> 00:26:45,480
Speaker 12: until the end of the year. But then we saw

517
00:26:45,560 --> 00:26:49,119
Speaker 12: that bottom end yields, and that meant we saw the

518
00:26:49,160 --> 00:26:51,600
Speaker 12: market rollover, particularly small caps. And one of the things

519
00:26:51,600 --> 00:26:54,119
Speaker 12: we've been saying, especially with small caps, do you know

520
00:26:54,200 --> 00:26:57,600
Speaker 12: there's money that's once to find ideas down the cap spectrum,

521
00:26:57,600 --> 00:27:00,680
Speaker 12: but do not sacrifice quality, particularly when you go down

522
00:27:00,720 --> 00:27:02,880
Speaker 12: the cap spectrum. So you want to still have that

523
00:27:03,200 --> 00:27:07,040
Speaker 12: strength of balance sheet, interest coverage very importantly, especially as

524
00:27:07,119 --> 00:27:10,919
Speaker 12: yields tick back up again, strong return on equity, have

525
00:27:11,000 --> 00:27:14,600
Speaker 12: an actual earnings profile, don't be a zombie company or

526
00:27:14,600 --> 00:27:16,960
Speaker 12: a non profitable company. And I think that's a lesson

527
00:27:17,000 --> 00:27:18,880
Speaker 12: being taught in the last few weeks.

528
00:27:18,920 --> 00:27:20,760
Speaker 4: Well, Lazan, I do have one last question there, what

529
00:27:20,760 --> 00:27:22,919
Speaker 4: about this low volatility factor. I see a lot of

530
00:27:22,960 --> 00:27:26,280
Speaker 4: investors moving into low VALL as sort of a defensive

531
00:27:26,320 --> 00:27:29,160
Speaker 4: way of approaching the equity market. Here, how did those

532
00:27:29,160 --> 00:27:30,880
Speaker 4: sectors screen from a low VALL perspective?

533
00:27:31,520 --> 00:27:33,960
Speaker 12: So it's a factor that has done well when the

534
00:27:34,040 --> 00:27:36,720
Speaker 12: other quality factors have been doing well, when you get

535
00:27:36,760 --> 00:27:41,480
Speaker 12: these moves shifts in expectations for either FED policy or

536
00:27:41,520 --> 00:27:45,119
Speaker 12: the economy, and you see it reflect and yields. You

537
00:27:45,160 --> 00:27:48,320
Speaker 12: can go through short periods where you get higher volatility,

538
00:27:48,440 --> 00:27:52,680
Speaker 12: higher variability as factors that do well. I think those

539
00:27:53,119 --> 00:27:56,080
Speaker 12: you probably want to fade those lower quality factors, And

540
00:27:56,119 --> 00:27:58,800
Speaker 12: I think low volatility maybe not as important as it

541
00:27:58,920 --> 00:28:01,800
Speaker 12: was last twoar but I still think it's in the

542
00:28:01,840 --> 00:28:03,920
Speaker 12: basket of quality oriented factors.

543
00:28:04,280 --> 00:28:09,720
Speaker 1: Lisanzi, your iconic work. How for our listeners are viewers

544
00:28:09,760 --> 00:28:14,520
Speaker 1: on YouTube? How do you avoid a Boeing? How do

545
00:28:14,600 --> 00:28:19,359
Speaker 1: you avoid a Disney? How do you avoid blue chip

546
00:28:19,400 --> 00:28:21,240
Speaker 1: stocks that blow up?

547
00:28:22,440 --> 00:28:25,479
Speaker 12: Well, don't have a heck of a lot of your

548
00:28:25,480 --> 00:28:29,640
Speaker 12: portfolio invest in any one name or even group of names.

549
00:28:30,280 --> 00:28:33,439
Speaker 12: So I think that that's one of the messages that

550
00:28:33,520 --> 00:28:36,720
Speaker 12: come from things like the mag seven. There's nothing wrong.

551
00:28:36,760 --> 00:28:39,040
Speaker 12: There's a reason why those stocks have done well because

552
00:28:39,080 --> 00:28:42,120
Speaker 12: they check the boxes on so many of those quality factors.

553
00:28:42,560 --> 00:28:46,360
Speaker 12: But be mindful of volatility and portfolio based rebalancing. You

554
00:28:46,360 --> 00:28:48,920
Speaker 12: know a lot of investors do the rebalancing based on

555
00:28:48,960 --> 00:28:51,120
Speaker 12: the calendar. They might do it once a year, at

556
00:28:51,120 --> 00:28:54,200
Speaker 12: best once a quarter. But our message has been let

557
00:28:54,200 --> 00:28:57,400
Speaker 12: your portfolio tell you when it's time to rebalance, even

558
00:28:57,480 --> 00:29:01,120
Speaker 12: at the individual stock level, where the moves in your

559
00:29:01,160 --> 00:29:05,160
Speaker 12: portfolio are going to dictate when you add low and

560
00:29:05,200 --> 00:29:08,520
Speaker 12: trim high. Maybe don't focus so much on doing it

561
00:29:08,600 --> 00:29:09,480
Speaker 12: at the calendar.

562
00:29:09,640 --> 00:29:13,160
Speaker 1: Okay, trigger, stop the show. This is the single most

563
00:29:13,200 --> 00:29:15,960
Speaker 1: important insight of the day for all of you listening

564
00:29:15,960 --> 00:29:20,240
Speaker 1: and watching. I can't say enough the importance of moving

565
00:29:20,360 --> 00:29:27,480
Speaker 1: to a Sander's percentage ownership rebail versus a calendar gimmick

566
00:29:27,960 --> 00:29:31,160
Speaker 1: invented by marketing people that have never owned a share

567
00:29:31,640 --> 00:29:36,200
Speaker 1: of Anaconda Copper in their life. Liz Anna, what percentage

568
00:29:36,280 --> 00:29:39,320
Speaker 1: is a vanilla statement? Do you rebail? Is it when

569
00:29:39,320 --> 00:29:42,240
Speaker 1: something gets the five percent of portfolio? Or is there

570
00:29:42,280 --> 00:29:43,880
Speaker 1: a Sander's magic number.

571
00:29:44,480 --> 00:29:46,920
Speaker 12: I don't know that there's a magic number for individual investors.

572
00:29:47,000 --> 00:29:49,320
Speaker 12: Keeping mind though, that part of the issue with the

573
00:29:49,400 --> 00:29:52,080
Speaker 12: mag seven and how big they've become as a share

574
00:29:52,200 --> 00:29:55,560
Speaker 12: of the SMP recently hitting thirty percent, is that even

575
00:29:55,600 --> 00:29:59,800
Speaker 12: institutional managers, whether it's mutual funds or even ETFs, have

576
00:30:00,000 --> 00:30:01,720
Speaker 12: perhaps on how much they can own if the S

577
00:30:01,760 --> 00:30:04,040
Speaker 12: and P. If someone just said, hey, let's create this

578
00:30:04,120 --> 00:30:06,760
Speaker 12: index and here's what's going to look like. It wouldn't

579
00:30:06,760 --> 00:30:10,440
Speaker 12: actually pass muster or securities regulations, not to mention the

580
00:30:10,480 --> 00:30:14,400
Speaker 12: fact that many fund managers can't hold such a large

581
00:30:14,400 --> 00:30:17,520
Speaker 12: share of those names. So you can use that as

582
00:30:17,960 --> 00:30:21,360
Speaker 12: maybe not an exact guide for what percent becomes too much,

583
00:30:21,760 --> 00:30:23,760
Speaker 12: but this notion that there are going to be a

584
00:30:23,800 --> 00:30:27,120
Speaker 12: lot of institutions that simply have to trim because of

585
00:30:27,160 --> 00:30:29,680
Speaker 12: their own guidelines on how much they can own of

586
00:30:29,360 --> 00:30:31,880
Speaker 12: the stock. Just in many cases it's fibers.

587
00:30:31,880 --> 00:30:33,640
Speaker 1: We've got to interrupt with. And just in from led

588
00:30:33,720 --> 00:30:37,200
Speaker 1: Zeppelin News, Robert Plant will tour the United Kingdom with

589
00:30:37,240 --> 00:30:40,880
Speaker 1: Saving Grace. Look for that two thousand and twenty four.

590
00:30:41,160 --> 00:30:44,440
Speaker 12: I want to see him tour with Jimmy Page and

591
00:30:44,520 --> 00:30:46,880
Speaker 12: John Paul Jones and Jason Bottoms. So that's what I'm

592
00:30:46,880 --> 00:30:47,360
Speaker 12: waiting for.

593
00:30:47,600 --> 00:30:50,480
Speaker 1: That's what she's waiting for, and she will be there

594
00:30:50,520 --> 00:30:54,680
Speaker 1: in the arena when they do that. So well, Lizzie Siders,

595
00:30:54,680 --> 00:30:58,160
Speaker 1: thank you so much. Subscribe to the Bloomberg Surveillance podcast

596
00:30:58,280 --> 00:31:02,080
Speaker 1: on Apple, Spotify and anywhere else you get your podcasts.

597
00:31:02,520 --> 00:31:06,600
Speaker 1: Listen live every weekday starting at seven am Eastern. I'm

598
00:31:06,640 --> 00:31:10,640
Speaker 1: Bloomberg dot com the iHeartRadio app tune In, and the

599
00:31:10,640 --> 00:31:14,680
Speaker 1: Bloomberg Business App. You can watch us live on Bloomberg

600
00:31:14,720 --> 00:31:18,960
Speaker 1: Television and always I'm the Bloomberg Terminal. Thanks for listening.

601
00:31:19,440 --> 00:31:22,240
Speaker 1: I'm Tom Keen, and this is Bloomberg