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Speaker 1: Welcome to the Bloomberg pm L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Abramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Focused

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Speaker 1: in the markets for the past few weeks has been

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Speaker 1: with her tech. Are we heading toward some sort of

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Speaker 1: peak in the valuation here, especially as we see chips

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Speaker 1: start to lose some luster and as we start to

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Speaker 1: have some questions about the likes that you got that

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Speaker 1: down grade. Yesterday my key Bank Capital they were talking

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Speaker 1: about Cyper Semiconductor n XP Semiconductor, both downgrading because they're

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Speaker 1: awarried about things like autonomous driving and automobile tariffs. Yeah, well,

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Speaker 1: I think Kevin Landis might be a little bit get

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Speaker 1: worried about autonomous driving. He's the CEO and Chief Investment

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Speaker 1: officer at Firsthand Capital Management, also the CEO Firsthand Technology

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Speaker 1: Value Fund, which trades on the NASDACS s vv c UH,

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Speaker 1: and he is based typically in San Jose, California. Thank

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Speaker 1: you so much. For being with us, Kevin, thanks good

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Speaker 1: to be here. So I want to get your view

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Speaker 1: on the autonomous driving because we really have seen some

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Speaker 1: choppy valuation there, with the likes of dime Ler investing

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Speaker 1: a lot in it not getting rewarded, and Tesla perhaps

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Speaker 1: arguably getting rewarded too much. Where are we with with

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Speaker 1: this area. Well, I think, like a lot of complex problems,

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Speaker 1: the way it's being tackled is to break it into

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Speaker 1: smaller problems. So, for example, Uh, we're all very familiar

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Speaker 1: with cruise control, that's no big deal. But in the

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Speaker 1: last few years, people have started noticing that their new

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Speaker 1: cars had adaptive cruise control, which would uh take into

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Speaker 1: account how close you are to the car you're following. Uh. Similarly,

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Speaker 1: we were now getting comfortable that our car can do

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Speaker 1: parallel parking, which is better than most of us can do. Uh.

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Speaker 1: So they're they're putting the pieces together. They haven't got

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Speaker 1: the whole thing quite yet, but they're getting really close. Kevin, Landish,

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Speaker 1: just to maybe offer people a little bit of your

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Speaker 1: background firsthand, was a pre I p O investor in Facebook,

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Speaker 1: in Twitter, in Solar City, in Yelp, in Roku. That's

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Speaker 1: a pretty good track record, any dud's in there that

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Speaker 1: we should just be aware of. Oh none, zero? Right, Yeah. Well,

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Speaker 1: the reason I ask us because sometimes you learn a

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Speaker 1: lot more from your mistakes than you do from your winners. Absolutely,

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Speaker 1: success is a poor teacher. And uh, for better or

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Speaker 1: for worse, we've had ample opportunity to learn along the way. Uh.

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Speaker 1: And you know, you you try to take a lesson

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Speaker 1: uh from every loss, and when you have a winner,

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Speaker 1: you try to remind yourself that there may be a

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Speaker 1: little bit of luck in there too. Alright, So in

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Speaker 1: that context, tell us a little bit about this world

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Speaker 1: of electric vehicles, alternative few vehicles, as well as autonomous driving.

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Speaker 1: Because I want to note that the Dinler's chief executive officer,

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Speaker 1: Dita zet Um, he's no longer going to be the CEO.

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Speaker 1: They're turning to Ola Collenneus, who is really the head

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Speaker 1: of research and development. That certainly points the way for

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Speaker 1: a dimeler. Well, so the way you relate to your

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Speaker 1: car as a human being has has changed, right, I mean,

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Speaker 1: in some sense a lot of us in the rest

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Speaker 1: of the country are turning into New Yorkers. We just

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Speaker 1: want to get into the backseat and uh, and and

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Speaker 1: read or listen to music while a car takes us

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Speaker 1: where we want to go. And and that's that's kind

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Speaker 1: of a natural thing. And uh, we're gonna be in

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Speaker 1: this heterogeneous environment here where you've got some people driving,

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Speaker 1: some people in self driving vehicles, some people who have

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Speaker 1: decided they're never even going to get their first driver's license.

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Speaker 1: And uh, and then they've got you'll have this underlying

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Speaker 1: technology that gets relentlessly better. But we're not. We we

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Speaker 1: can't and we won't wait for perfection before we put

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Speaker 1: it out there. So there's gonna be some bumps along

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Speaker 1: the way. I want to talk just about your investment

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Speaker 1: process us, especially right now, given how much money is

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Speaker 1: being funneled into the tech industry. Are you seeing any opportunities,

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Speaker 1: especially in the non public markets, given how much cash

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Speaker 1: is flowt in. Oh sure, I mean there's lots of

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Speaker 1: great new startup You could spend your entire day just

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Speaker 1: listening to new startup companies. Uh. And that's I think

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Speaker 1: that's been true just for my entire lifetime here in

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Speaker 1: the valley. Um. But what's interesting is the big bucks

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Speaker 1: flowing in tend to pile up in front of the

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Speaker 1: really popular ideas. So today everybody wants to invest in

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Speaker 1: AI some form of a are you everybody is putting

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Speaker 1: an AI slide in their pitch deck so that they

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Speaker 1: can say they're an AI company. Uh. And typically, as

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Speaker 1: you could imagine um, as with any investment, if you're

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Speaker 1: chasing after the same thing that everybody else is chasing after,

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Speaker 1: you're not getting a very good price and you're probably

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Speaker 1: not being compensated for all the risk that you're taking. Sorry, well,

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Speaker 1: I just wanted to follow up that, because then where

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Speaker 1: are you seeing money not flowing that it should be flowing. Well,

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Speaker 1: when's the last time you heard somebody say it's time

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Speaker 1: to invest in semi conductors um private semi conductor startups?

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Speaker 1: No one says that. And because no one saying that,

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Speaker 1: we're having to look there, because you know, we're not

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Speaker 1: having to go to an open auction every time we

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Speaker 1: want to fund a company. And you know, when you're

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Speaker 1: talking about the evolution of the car, one of the

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Speaker 1: things that's going to happen there is that the power

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Speaker 1: electronics within the car are going to get a lot

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Speaker 1: more challenging, and you're not going to be able to

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Speaker 1: do it in silicon and you have to dive deep

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Speaker 1: into the advanced materials of silicon carbide or gallium arsenite

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Speaker 1: or something or I'm sorry, gallium nitrite or something like this.

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Speaker 1: It's really deep, basic fundamental underlying tech. It's pretty interesting,

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Speaker 1: pretty exciting, and I run into basically zero other investors

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Speaker 1: when I go to visit these companies. Kevin, I'm going

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Speaker 1: to give you a choice to talk specifics. Pivotal Systems,

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Speaker 1: intra opt Medical Corps or Revessum. I don't know if

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Speaker 1: I'm pronouncing that correctly, but Reversum is a Australian company,

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Speaker 1: right and it is a company that makes what is

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Speaker 1: described as chemical mechanical planarization and grinding tools for the

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Speaker 1: semiconductor industry. What does it do well? So I get

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Speaker 1: to take myself off the hook on Vossum because they're

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Speaker 1: exploring an Australian listing right now, and uh so because

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Speaker 1: they're they're out on the road, but they haven't filed

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Speaker 1: their perspectus yet. I'll have to come back and tell

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Speaker 1: all right, fair enoughther details another day. But let me

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Speaker 1: tell you Pivotal Systems beat them to the punch. They

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Speaker 1: went public on the a s X on June that's

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Speaker 1: when they're their ip A was priced. And for us,

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Speaker 1: this is the first time we've ever invested in a

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Speaker 1: company that went public, but not here in the US.

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Speaker 1: They went down Under for it, and the reason was

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Speaker 1: that that they were less than fifty million in revenues

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Speaker 1: and really didn't have the size to make the big

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Speaker 1: enough splash to have a nice sexy NASAC listing. Um.

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Speaker 1: But for the Australian market is a good fit, okay.

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Speaker 1: But this is what a company that does controls for

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Speaker 1: the for the semiconductive manufacturing industry. Right. So, the manufacturing

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Speaker 1: process of of wafer semichnactter wafers involves in a lot

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Speaker 1: of times evacuating a chamber, putting a wafer in there,

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Speaker 1: and then pumping in a very specific type of gas

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Speaker 1: at a certain type of pressure, and then you know,

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Speaker 1: you're basically baking the wafer, that's how you process it, uh,

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Speaker 1: and you're baking different gases into it. They have dozens

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Speaker 1: of different types of gases and dozens of different process steps.

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Speaker 1: And so just the market for mass flow controllers, which

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Speaker 1: is what Pivotal does, it's about a five million dollar

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Speaker 1: market and Pivotal is a little company with the better

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Speaker 1: mouse trap taking market share there based in Fremont, California.

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Speaker 1: That's right, Yeah, thank you very much. Kevin landis joining

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Speaker 1: us as the chief executive chief investment officer of Firsthand

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Speaker 1: Capital Management. And just to note that the Firsthands Technology

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Speaker 1: Value Fund trades under the symbol s v v C

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Speaker 1: and it is publicly listed and publicly traded, and the

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Speaker 1: shares of s VVC they're up more than eight year

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Speaker 1: to date. The topic right now though, the housing industry,

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Speaker 1: and we've got Brad Hunter, chief economist at Home Adviser,

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Speaker 1: to tell us about the housing industry and whether rising

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Speaker 1: interest rates are going to curtail the acceleration in housing sales.

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Speaker 1: We've got new home sales today, Brad. They were up

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Speaker 1: three and a half percent month over month, upcent year

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Speaker 1: over year. Also saw an increase in mortgage applications. They

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Speaker 1: were up nearly three percent. What's the role of housing

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Speaker 1: right now, sin, thanks for having me on. Yeah, demand

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Speaker 1: is strong. The problems for home builders are all on

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Speaker 1: the supply side. Demand might become an issue once mortgage

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Speaker 1: rates get above five percent, or if home prices go

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Speaker 1: up faster than I expect them to. But household formations

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Speaker 1: are are well over a million, really in their one

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Speaker 1: point three million range. Now you add on a replacement

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Speaker 1: of two hundred thousand or so units the year or more,

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Speaker 1: and demand is well above production, and most markets are

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Speaker 1: still affordable. But you know, pricing is is going to

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Speaker 1: become the next issue as interest rates go up. You know, Abroad,

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Speaker 1: I'm struck by some of the weakness and where we've

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Speaker 1: seen some of the weakness of late New York, New Jersey,

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Speaker 1: Westchester places that are affected by some of the tax changes.

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Speaker 1: I'm wondering how much has the tax cut and some

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Speaker 1: of the alterations with respect to the salt deductions affected

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Speaker 1: housing values in the northeastern particular. I don't think it's

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Speaker 1: had much of an effect at all, because most people

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Speaker 1: do not itemize, and so even fewer are going to

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Speaker 1: itemize the future given the standard deduction change. So I

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Speaker 1: don't see that as a big deal um in terms

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Speaker 1: of policy changes, I see the tariffs as more of

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Speaker 1: a concern. Really, do you think, well, yeah, when when

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Speaker 1: you think about the home builders and how much production

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Speaker 1: they can bring to bear in this undersupplied market. They're

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Speaker 1: facing what they call the three ls, land, labor and lumber,

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Speaker 1: and lumber is really shorthand for materials, so um, lumber,

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Speaker 1: steal aluminum. These are things that are being affected greatly

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Speaker 1: by tariffs, and it's gonna had a couple of thousand dollars.

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Speaker 1: These arteris are gonna had a couple of thousand dollars

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Speaker 1: to the production costs of the average home. And so

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Speaker 1: it's getting harder and harder for home builders to serve

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Speaker 1: the millennials and other people that are just trying to

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Speaker 1: get into homes for the first time. Well, Brad, in

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Speaker 1: that context of rising lumber prices, does that mean that

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Speaker 1: it is now time to buy home building stocks because

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Speaker 1: they've already sold off in response to that increase in price. Well,

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Speaker 1: I don't give advice or a commentary on what you

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Speaker 1: know whether to buy or sell stocks, but what I

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Speaker 1: can say is that the home builders are facing these constraints,

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Speaker 1: and one of the biggest constraints that they're facing is

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Speaker 1: actually the other l which is land um and the

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Speaker 1: land and lots supplies extremely tight. The prices of land

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Speaker 1: are really making it prohibitive for them to serve the

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Speaker 1: lower echelons of the market. I'll give you an example

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Speaker 1: in Dallas Texas, a new home demand is under two

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Speaker 1: hundred and fifty dollars, but the percentage of lots that

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Speaker 1: are available that are suited to that price range are

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Speaker 1: much lower. In Dallas, the percentage of developed lots, according

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Speaker 1: to Metro study, suited for homes five hundred thousand and

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Speaker 1: up has risen from ten percent ten years ago to

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Speaker 1: twenty three point one percent, and only twelve percent of

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Speaker 1: the lots are suited for homes under two demand, twelve

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Speaker 1: of the supply. Um. You know, so what that's forcing

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Speaker 1: the builders to do is to buy land and locations

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Speaker 1: that are more and more distant from the urban cores

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Speaker 1: and markets all around the country. And you know, occasionally

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Speaker 1: when they're lucky doing an infol project in a condemned

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Speaker 1: shopping center, closed air force base or golf course, but um,

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Speaker 1: they are having to build farther and farther out. Rod Hunter,

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Speaker 1: thank you so much for joining us. It's sort of

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Speaker 1: ignites my imagination about what home ownership will look like

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Speaker 1: going forward, if it really will turn it into people

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Speaker 1: at the top can buy homes and people at the

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Speaker 1: bottom have to rent, or or how this is going

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Speaker 1: to get reconfigured. A conversation for another time. Brad Hunter,

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Speaker 1: chief economist at Home Adviser. It's time to turn to

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Speaker 1: car Whicka Donna, our chief US economist for Bloomberg Economics,

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Speaker 1: to give us some insight into the into today's federal

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Speaker 1: reserve rate decision. And Carl, just to give you a

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Speaker 1: little bit of oomph. Their new home sales coming out

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Speaker 1: just moments ago for the month of August six and

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Speaker 1: twenty nine thousand. The estimate was for six thirtyes, so

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Speaker 1: that was right seemingly right on target. But new home

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Speaker 1: sales month over month increase of three and a half percent.

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Speaker 1: Add that to a nearly three percent increase in mortgage application.

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Speaker 1: Seems as though the housing markets doing pretty well well. Pim,

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Speaker 1: first of all, a good morning, and thanks for having

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Speaker 1: me on the program. Housing markets doing okay. If we

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Speaker 1: look at the new home sales, they're up about in

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Speaker 1: your on your terms. That being said, we've had a

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Speaker 1: little bit of a cold streak over the last couple

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Speaker 1: of months, so uh, we we met expectations for today's forecast,

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Speaker 1: but the prior months were indeed the revised lower that

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Speaker 1: was troop for both July and June. Uh, and what

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Speaker 1: we're seeing is mortgage rates for ex ample, if we

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Speaker 1: look at the thirty year mortgage rates definitely creeping higher,

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Speaker 1: and this is starting to weigh on affordability about four

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Speaker 1: and a half percent. That that's higher than most homebuyers

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Speaker 1: are used to so historically, absolutely, that's still a very

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Speaker 1: low lending rate, but not for folks who are accustomed

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Speaker 1: to what they've seen in the market of the last

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Speaker 1: fifteen years or so. And if we look at what's

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Speaker 1: driving the economy right now, housing is definitely not part

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Speaker 1: of it. And so it looks like interessensitive spending is

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Speaker 1: indeed starting to be impacted by FED rate tightening. And

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Speaker 1: let's pick up on that. We're going to talk more

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Speaker 1: about the housing market later on in this hour, but

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Speaker 1: I want to get to this sort of rate hiking environment.

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Speaker 1: The fact of the FED is expected to raise rates

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Speaker 1: and the fact that we saw two year and five

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Speaker 1: year auctions this week that we're less than inspired. And

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Speaker 1: I have to wonder why are people so uncertain with

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Speaker 1: a lead up to this meeting, considering the fact that

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Speaker 1: it's pretty much a percent priced in that they're going

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Speaker 1: to raise rates. Well, that that hones in on a

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Speaker 1: very important point and That's not the issue of whether

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Speaker 1: they'll raise rates or not at this meeting, because I

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Speaker 1: think that's a fate to complete, but rather what the

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Speaker 1: future policy is going to look like. So those week

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Speaker 1: auctions again, they were you know, weak ish, not not

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Speaker 1: you know, jarringly disappointing. But this happens at the same

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Speaker 1: time that next week we'll see the FED ramping up

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Speaker 1: the pace of balance sheet unwind h the e c

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Speaker 1: B will be ramping down the pace of asset purchases.

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Speaker 1: And all of this has consequences for the financial markets.

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Speaker 1: And so why do you want to lock in rates

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Speaker 1: now when you know these artificial buyers and artificial holders

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Speaker 1: of assets are becoming less aggressive in terms of their holdings.

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Speaker 1: And I think that factors into, uh, the the appetite

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Speaker 1: at these auctions. On top of that, in terms of

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Speaker 1: the FED meeting, again, the rate increases are largely expected,

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Speaker 1: but the guidance for future actions is not entirely clear.

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Speaker 1: So the Feds leaning towards a December move today, they'll

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Speaker 1: have the opportunity to either cast it in stone or

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Speaker 1: retain some optionality ahead of the December meeting. I think

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Speaker 1: it'd be wise to keep that optionality in place and

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Speaker 1: not drive market expectations higher. And also this notion of

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Speaker 1: where rates are going to be going over the course

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Speaker 1: of twenty nineteen and as we close in on neutral

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Speaker 1: is going to be very key to how financial markets respond.

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Speaker 1: If I can just add one last footnote, the rhetoric

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Speaker 1: from the Fed has seemingly toughened as of late. Initially

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Speaker 1: there was some notion that the policy makers would move

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Speaker 1: cautiously as they get into neutral territory. That kind of

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Speaker 1: changed towards let's get to neutral and then reassess, And

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Speaker 1: even some policymakers like Governor Lyle Brainerd have this notion

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Speaker 1: that the short term neutral rate is higher than the

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Speaker 1: long run neutral rate, and therefore the Fed may have

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Speaker 1: to push rates further above neutral uh in the course

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Speaker 1: of the medium term. I'm just digesting that footnote, Carl,

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Speaker 1: that is a long footnote. Um, can you tell us

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Speaker 1: what role crude oil and crude oil prices at seventy

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Speaker 1: one dollars a barrel play in the federal reserves? Thinking

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Speaker 1: about interest rates, given that President Donald Trump spoke at

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Speaker 1: the United Nations yesterday saying that OPEK is ripping people off, well,

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Speaker 1: I think it plays in a very indirect fashion. And

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Speaker 1: and by that I mean the FED is not going

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Speaker 1: to respond to an increase in oil prices or a

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Speaker 1: transitory shock in the energy price in the energy space.

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Speaker 1: But this does factor into the performance of emerging markets,

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Speaker 1: for instance, which the FED. Uh, that's not you know,

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Speaker 1: on the top five list of priorities. But the FED

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Speaker 1: is cognizant that their actions have consequences across the globe

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Speaker 1: and they want to avoid any type of destabilizing action. Uh.

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Speaker 1: That's number one. And number two is through business investment.

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Speaker 1: In prior episodes where oil prices have been high, we

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Speaker 1: see a lot of domestic investment into fracking and those

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Speaker 1: types of industries, and that actually supports business investment in

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Speaker 1: the economy. All right, thank you so much, Carl Goddon,

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Speaker 1: in chief US economist for Bloomberg Economics. I know you're

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Speaker 1: gonna be covering this in detail throughout the day. Thanks

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Speaker 1: for listening to the Bloomberg P and L podcast. You

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Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

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Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

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Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

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Speaker 1: It's one before the podcast. You can always catch us

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Speaker 1: worldwide on Bloomberg Radio