Speaker 1: Welcome to the Bloomberg pm L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Focused
Speaker 1: in the markets for the past few weeks has been
Speaker 1: with her tech. Are we heading toward some sort of
Speaker 1: peak in the valuation here, especially as we see chips
Speaker 1: start to lose some luster and as we start to
Speaker 1: have some questions about the likes that you got that
Speaker 1: down grade. Yesterday my key Bank Capital they were talking
Speaker 1: about Cyper Semiconductor n XP Semiconductor, both downgrading because they're
Speaker 1: awarried about things like autonomous driving and automobile tariffs. Yeah, well,
Speaker 1: I think Kevin Landis might be a little bit get
Speaker 1: worried about autonomous driving. He's the CEO and Chief Investment
Speaker 1: officer at Firsthand Capital Management, also the CEO Firsthand Technology
Speaker 1: Value Fund, which trades on the NASDACS s vv c UH,
Speaker 1: and he is based typically in San Jose, California. Thank
Speaker 1: you so much. For being with us, Kevin, thanks good
Speaker 1: to be here. So I want to get your view
Speaker 1: on the autonomous driving because we really have seen some
Speaker 1: choppy valuation there, with the likes of dime Ler investing
Speaker 1: a lot in it not getting rewarded, and Tesla perhaps
Speaker 1: arguably getting rewarded too much. Where are we with with
Speaker 1: this area. Well, I think, like a lot of complex problems,
Speaker 1: the way it's being tackled is to break it into
Speaker 1: smaller problems. So, for example, Uh, we're all very familiar
Speaker 1: with cruise control, that's no big deal. But in the
Speaker 1: last few years, people have started noticing that their new
Speaker 1: cars had adaptive cruise control, which would uh take into
Speaker 1: account how close you are to the car you're following. Uh. Similarly,
Speaker 1: we were now getting comfortable that our car can do
Speaker 1: parallel parking, which is better than most of us can do. Uh.
Speaker 1: So they're they're putting the pieces together. They haven't got
Speaker 1: the whole thing quite yet, but they're getting really close. Kevin, Landish,
Speaker 1: just to maybe offer people a little bit of your
Speaker 1: background firsthand, was a pre I p O investor in Facebook,
Speaker 1: in Twitter, in Solar City, in Yelp, in Roku. That's
Speaker 1: a pretty good track record, any dud's in there that
Speaker 1: we should just be aware of. Oh none, zero? Right, Yeah. Well,
Speaker 1: the reason I ask us because sometimes you learn a
Speaker 1: lot more from your mistakes than you do from your winners. Absolutely,
Speaker 1: success is a poor teacher. And uh, for better or
Speaker 1: for worse, we've had ample opportunity to learn along the way. Uh.
Speaker 1: And you know, you you try to take a lesson
Speaker 1: uh from every loss, and when you have a winner,
Speaker 1: you try to remind yourself that there may be a
Speaker 1: little bit of luck in there too. Alright, So in
Speaker 1: that context, tell us a little bit about this world
Speaker 1: of electric vehicles, alternative few vehicles, as well as autonomous driving.
Speaker 1: Because I want to note that the Dinler's chief executive officer,
Speaker 1: Dita zet Um, he's no longer going to be the CEO.
Speaker 1: They're turning to Ola Collenneus, who is really the head
Speaker 1: of research and development. That certainly points the way for
Speaker 1: a dimeler. Well, so the way you relate to your
Speaker 1: car as a human being has has changed, right, I mean,
Speaker 1: in some sense a lot of us in the rest
Speaker 1: of the country are turning into New Yorkers. We just
Speaker 1: want to get into the backseat and uh, and and
Speaker 1: read or listen to music while a car takes us
Speaker 1: where we want to go. And and that's that's kind
Speaker 1: of a natural thing. And uh, we're gonna be in
Speaker 1: this heterogeneous environment here where you've got some people driving,
Speaker 1: some people in self driving vehicles, some people who have
Speaker 1: decided they're never even going to get their first driver's license.
Speaker 1: And uh, and then they've got you'll have this underlying
Speaker 1: technology that gets relentlessly better. But we're not. We we
Speaker 1: can't and we won't wait for perfection before we put
Speaker 1: it out there. So there's gonna be some bumps along
Speaker 1: the way. I want to talk just about your investment
Speaker 1: process us, especially right now, given how much money is
Speaker 1: being funneled into the tech industry. Are you seeing any opportunities,
Speaker 1: especially in the non public markets, given how much cash
Speaker 1: is flowt in. Oh sure, I mean there's lots of
Speaker 1: great new startup You could spend your entire day just
Speaker 1: listening to new startup companies. Uh. And that's I think
Speaker 1: that's been true just for my entire lifetime here in
Speaker 1: the valley. Um. But what's interesting is the big bucks
Speaker 1: flowing in tend to pile up in front of the
Speaker 1: really popular ideas. So today everybody wants to invest in
Speaker 1: AI some form of a are you everybody is putting
Speaker 1: an AI slide in their pitch deck so that they
Speaker 1: can say they're an AI company. Uh. And typically, as
Speaker 1: you could imagine um, as with any investment, if you're
Speaker 1: chasing after the same thing that everybody else is chasing after,
Speaker 1: you're not getting a very good price and you're probably
Speaker 1: not being compensated for all the risk that you're taking. Sorry, well,
Speaker 1: I just wanted to follow up that, because then where
Speaker 1: are you seeing money not flowing that it should be flowing. Well,
Speaker 1: when's the last time you heard somebody say it's time
Speaker 1: to invest in semi conductors um private semi conductor startups?
Speaker 1: No one says that. And because no one saying that,
Speaker 1: we're having to look there, because you know, we're not
Speaker 1: having to go to an open auction every time we
Speaker 1: want to fund a company. And you know, when you're
Speaker 1: talking about the evolution of the car, one of the
Speaker 1: things that's going to happen there is that the power
Speaker 1: electronics within the car are going to get a lot
Speaker 1: more challenging, and you're not going to be able to
Speaker 1: do it in silicon and you have to dive deep
Speaker 1: into the advanced materials of silicon carbide or gallium arsenite
Speaker 1: or something or I'm sorry, gallium nitrite or something like this.
Speaker 1: It's really deep, basic fundamental underlying tech. It's pretty interesting,
Speaker 1: pretty exciting, and I run into basically zero other investors
Speaker 1: when I go to visit these companies. Kevin, I'm going
Speaker 1: to give you a choice to talk specifics. Pivotal Systems,
Speaker 1: intra opt Medical Corps or Revessum. I don't know if
Speaker 1: I'm pronouncing that correctly, but Reversum is a Australian company,
Speaker 1: right and it is a company that makes what is
Speaker 1: described as chemical mechanical planarization and grinding tools for the
Speaker 1: semiconductor industry. What does it do well? So I get
Speaker 1: to take myself off the hook on Vossum because they're
Speaker 1: exploring an Australian listing right now, and uh so because
Speaker 1: they're they're out on the road, but they haven't filed
Speaker 1: their perspectus yet. I'll have to come back and tell
Speaker 1: all right, fair enoughther details another day. But let me
Speaker 1: tell you Pivotal Systems beat them to the punch. They
Speaker 1: went public on the a s X on June that's
Speaker 1: when they're their ip A was priced. And for us,
Speaker 1: this is the first time we've ever invested in a
Speaker 1: company that went public, but not here in the US.
Speaker 1: They went down Under for it, and the reason was
Speaker 1: that that they were less than fifty million in revenues
Speaker 1: and really didn't have the size to make the big
Speaker 1: enough splash to have a nice sexy NASAC listing. Um.
Speaker 1: But for the Australian market is a good fit, okay.
Speaker 1: But this is what a company that does controls for
Speaker 1: the for the semiconductive manufacturing industry. Right. So, the manufacturing
Speaker 1: process of of wafer semichnactter wafers involves in a lot
Speaker 1: of times evacuating a chamber, putting a wafer in there,
Speaker 1: and then pumping in a very specific type of gas
Speaker 1: at a certain type of pressure, and then you know,
Speaker 1: you're basically baking the wafer, that's how you process it, uh,
Speaker 1: and you're baking different gases into it. They have dozens
Speaker 1: of different types of gases and dozens of different process steps.
Speaker 1: And so just the market for mass flow controllers, which
Speaker 1: is what Pivotal does, it's about a five million dollar
Speaker 1: market and Pivotal is a little company with the better
Speaker 1: mouse trap taking market share there based in Fremont, California.
Speaker 1: That's right, Yeah, thank you very much. Kevin landis joining
Speaker 1: us as the chief executive chief investment officer of Firsthand
Speaker 1: Capital Management. And just to note that the Firsthands Technology
Speaker 1: Value Fund trades under the symbol s v v C
Speaker 1: and it is publicly listed and publicly traded, and the
Speaker 1: shares of s VVC they're up more than eight year
Speaker 1: to date. The topic right now though, the housing industry,
Speaker 1: and we've got Brad Hunter, chief economist at Home Adviser,
Speaker 1: to tell us about the housing industry and whether rising
Speaker 1: interest rates are going to curtail the acceleration in housing sales.
Speaker 1: We've got new home sales today, Brad. They were up
Speaker 1: three and a half percent month over month, upcent year
Speaker 1: over year. Also saw an increase in mortgage applications. They
Speaker 1: were up nearly three percent. What's the role of housing
Speaker 1: right now, sin, thanks for having me on. Yeah, demand
Speaker 1: is strong. The problems for home builders are all on
Speaker 1: the supply side. Demand might become an issue once mortgage
Speaker 1: rates get above five percent, or if home prices go
Speaker 1: up faster than I expect them to. But household formations
Speaker 1: are are well over a million, really in their one
Speaker 1: point three million range. Now you add on a replacement
Speaker 1: of two hundred thousand or so units the year or more,
Speaker 1: and demand is well above production, and most markets are
Speaker 1: still affordable. But you know, pricing is is going to
Speaker 1: become the next issue as interest rates go up. You know, Abroad,
Speaker 1: I'm struck by some of the weakness and where we've
Speaker 1: seen some of the weakness of late New York, New Jersey,
Speaker 1: Westchester places that are affected by some of the tax changes.
Speaker 1: I'm wondering how much has the tax cut and some
Speaker 1: of the alterations with respect to the salt deductions affected
Speaker 1: housing values in the northeastern particular. I don't think it's
Speaker 1: had much of an effect at all, because most people
Speaker 1: do not itemize, and so even fewer are going to
Speaker 1: itemize the future given the standard deduction change. So I
Speaker 1: don't see that as a big deal um in terms
Speaker 1: of policy changes, I see the tariffs as more of
Speaker 1: a concern. Really, do you think, well, yeah, when when
Speaker 1: you think about the home builders and how much production
Speaker 1: they can bring to bear in this undersupplied market. They're
Speaker 1: facing what they call the three ls, land, labor and lumber,
Speaker 1: and lumber is really shorthand for materials, so um, lumber,
Speaker 1: steal aluminum. These are things that are being affected greatly
Speaker 1: by tariffs, and it's gonna had a couple of thousand dollars.
Speaker 1: These arteris are gonna had a couple of thousand dollars
Speaker 1: to the production costs of the average home. And so
Speaker 1: it's getting harder and harder for home builders to serve
Speaker 1: the millennials and other people that are just trying to
Speaker 1: get into homes for the first time. Well, Brad, in
Speaker 1: that context of rising lumber prices, does that mean that
Speaker 1: it is now time to buy home building stocks because
Speaker 1: they've already sold off in response to that increase in price. Well,
Speaker 1: I don't give advice or a commentary on what you
Speaker 1: know whether to buy or sell stocks, but what I
Speaker 1: can say is that the home builders are facing these constraints,
Speaker 1: and one of the biggest constraints that they're facing is
Speaker 1: actually the other l which is land um and the
Speaker 1: land and lots supplies extremely tight. The prices of land
Speaker 1: are really making it prohibitive for them to serve the
Speaker 1: lower echelons of the market. I'll give you an example
Speaker 1: in Dallas Texas, a new home demand is under two
Speaker 1: hundred and fifty dollars, but the percentage of lots that
Speaker 1: are available that are suited to that price range are
Speaker 1: much lower. In Dallas, the percentage of developed lots, according
Speaker 1: to Metro study, suited for homes five hundred thousand and
Speaker 1: up has risen from ten percent ten years ago to
Speaker 1: twenty three point one percent, and only twelve percent of
Speaker 1: the lots are suited for homes under two demand, twelve
Speaker 1: of the supply. Um. You know, so what that's forcing
Speaker 1: the builders to do is to buy land and locations
Speaker 1: that are more and more distant from the urban cores
Speaker 1: and markets all around the country. And you know, occasionally
Speaker 1: when they're lucky doing an infol project in a condemned
Speaker 1: shopping center, closed air force base or golf course, but um,
Speaker 1: they are having to build farther and farther out. Rod Hunter,
Speaker 1: thank you so much for joining us. It's sort of
Speaker 1: ignites my imagination about what home ownership will look like
Speaker 1: going forward, if it really will turn it into people
Speaker 1: at the top can buy homes and people at the
Speaker 1: bottom have to rent, or or how this is going
Speaker 1: to get reconfigured. A conversation for another time. Brad Hunter,
Speaker 1: chief economist at Home Adviser. It's time to turn to
Speaker 1: car Whicka Donna, our chief US economist for Bloomberg Economics,
Speaker 1: to give us some insight into the into today's federal
Speaker 1: reserve rate decision. And Carl, just to give you a
Speaker 1: little bit of oomph. Their new home sales coming out
Speaker 1: just moments ago for the month of August six and
Speaker 1: twenty nine thousand. The estimate was for six thirtyes, so
Speaker 1: that was right seemingly right on target. But new home
Speaker 1: sales month over month increase of three and a half percent.
Speaker 1: Add that to a nearly three percent increase in mortgage application.
Speaker 1: Seems as though the housing markets doing pretty well well. Pim,
Speaker 1: first of all, a good morning, and thanks for having
Speaker 1: me on the program. Housing markets doing okay. If we
Speaker 1: look at the new home sales, they're up about in
Speaker 1: your on your terms. That being said, we've had a
Speaker 1: little bit of a cold streak over the last couple
Speaker 1: of months, so uh, we we met expectations for today's forecast,
Speaker 1: but the prior months were indeed the revised lower that
Speaker 1: was troop for both July and June. Uh, and what
Speaker 1: we're seeing is mortgage rates for ex ample, if we
Speaker 1: look at the thirty year mortgage rates definitely creeping higher,
Speaker 1: and this is starting to weigh on affordability about four
Speaker 1: and a half percent. That that's higher than most homebuyers
Speaker 1: are used to so historically, absolutely, that's still a very
Speaker 1: low lending rate, but not for folks who are accustomed
Speaker 1: to what they've seen in the market of the last
Speaker 1: fifteen years or so. And if we look at what's
Speaker 1: driving the economy right now, housing is definitely not part
Speaker 1: of it. And so it looks like interessensitive spending is
Speaker 1: indeed starting to be impacted by FED rate tightening. And
Speaker 1: let's pick up on that. We're going to talk more
Speaker 1: about the housing market later on in this hour, but
Speaker 1: I want to get to this sort of rate hiking environment.
Speaker 1: The fact of the FED is expected to raise rates
Speaker 1: and the fact that we saw two year and five
Speaker 1: year auctions this week that we're less than inspired. And
Speaker 1: I have to wonder why are people so uncertain with
Speaker 1: a lead up to this meeting, considering the fact that
Speaker 1: it's pretty much a percent priced in that they're going
Speaker 1: to raise rates. Well, that that hones in on a
Speaker 1: very important point and That's not the issue of whether
Speaker 1: they'll raise rates or not at this meeting, because I
Speaker 1: think that's a fate to complete, but rather what the
Speaker 1: future policy is going to look like. So those week
Speaker 1: auctions again, they were you know, weak ish, not not
Speaker 1: you know, jarringly disappointing. But this happens at the same
Speaker 1: time that next week we'll see the FED ramping up
Speaker 1: the pace of balance sheet unwind h the e c
Speaker 1: B will be ramping down the pace of asset purchases.
Speaker 1: And all of this has consequences for the financial markets.
Speaker 1: And so why do you want to lock in rates
Speaker 1: now when you know these artificial buyers and artificial holders
Speaker 1: of assets are becoming less aggressive in terms of their holdings.
Speaker 1: And I think that factors into, uh, the the appetite
Speaker 1: at these auctions. On top of that, in terms of
Speaker 1: the FED meeting, again, the rate increases are largely expected,
Speaker 1: but the guidance for future actions is not entirely clear.
Speaker 1: So the Feds leaning towards a December move today, they'll
Speaker 1: have the opportunity to either cast it in stone or
Speaker 1: retain some optionality ahead of the December meeting. I think
Speaker 1: it'd be wise to keep that optionality in place and
Speaker 1: not drive market expectations higher. And also this notion of
Speaker 1: where rates are going to be going over the course
Speaker 1: of twenty nineteen and as we close in on neutral
Speaker 1: is going to be very key to how financial markets respond.
Speaker 1: If I can just add one last footnote, the rhetoric
Speaker 1: from the Fed has seemingly toughened as of late. Initially
Speaker 1: there was some notion that the policy makers would move
Speaker 1: cautiously as they get into neutral territory. That kind of
Speaker 1: changed towards let's get to neutral and then reassess, And
Speaker 1: even some policymakers like Governor Lyle Brainerd have this notion
Speaker 1: that the short term neutral rate is higher than the
Speaker 1: long run neutral rate, and therefore the Fed may have
Speaker 1: to push rates further above neutral uh in the course
Speaker 1: of the medium term. I'm just digesting that footnote, Carl,
Speaker 1: that is a long footnote. Um, can you tell us
Speaker 1: what role crude oil and crude oil prices at seventy
Speaker 1: one dollars a barrel play in the federal reserves? Thinking
Speaker 1: about interest rates, given that President Donald Trump spoke at
Speaker 1: the United Nations yesterday saying that OPEK is ripping people off, well,
Speaker 1: I think it plays in a very indirect fashion. And
Speaker 1: and by that I mean the FED is not going
Speaker 1: to respond to an increase in oil prices or a
Speaker 1: transitory shock in the energy price in the energy space.
Speaker 1: But this does factor into the performance of emerging markets,
Speaker 1: for instance, which the FED. Uh, that's not you know,
Speaker 1: on the top five list of priorities. But the FED
Speaker 1: is cognizant that their actions have consequences across the globe
Speaker 1: and they want to avoid any type of destabilizing action. Uh.
Speaker 1: That's number one. And number two is through business investment.
Speaker 1: In prior episodes where oil prices have been high, we
Speaker 1: see a lot of domestic investment into fracking and those
Speaker 1: types of industries, and that actually supports business investment in
Speaker 1: the economy. All right, thank you so much, Carl Goddon,
Speaker 1: in chief US economist for Bloomberg Economics. I know you're
Speaker 1: gonna be covering this in detail throughout the day. Thanks
Speaker 1: for listening to the Bloomberg P and L podcast. You
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
Speaker 1: It's one before the podcast. You can always catch us
Speaker 1: worldwide on Bloomberg Radio