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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside

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Speaker 1: my co host Matt Miller. Every business day, we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. We have a in

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Speaker 1: our studio today, met a Bloomberg alumn coming back. Kelly

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Speaker 1: Cox joins this year US investment analysts at E Touro

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Speaker 1: and a proud graduate of the University of North Carolina

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Speaker 1: at Chapel Hill. That's okay, we'll allow her in the

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Speaker 1: studio here. Callis have you back? Oh yeah, We're back

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Speaker 1: and forth and all about it before. But it's so

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Speaker 1: great to be here. And I'll put that aside with

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Speaker 1: good stuff. I tell you, last year was so bad. Uh.

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Speaker 1: And I know I follow you on Twitter closely. I

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Speaker 1: know you make all the historical analogies and analyzes. What

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Speaker 1: are you kind of telling? What are you what are

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Speaker 1: you telling your clients for about? Can we kind of

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Speaker 1: regroup here? Well? Hopefully for our own c entity? Um?

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Speaker 1: WELLO was painful. I mean no doubt about that anyway

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Speaker 1: you slice it. We're still in a challenging environment. Rates

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Speaker 1: are still high, quite high. The FED doesn't seem to

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Speaker 1: be backing off too much, and chances are they won't

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Speaker 1: back off unless we hit a recession, and obviously nobody

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Speaker 1: wants that. That's the worst case scenario. So we're hoping

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Speaker 1: we can avoid a recession right now. So far, so good.

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Speaker 1: But if we do avoid a recession, we're just cautioning

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Speaker 1: people against the fact that we are in a high

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Speaker 1: rate environment and that's still a challenging operating environment for companies.

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Speaker 1: So I don't think we're there yet, but we're getting closer. So,

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Speaker 1: I mean, it's a relatively high rate environment. But we've

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Speaker 1: heard a couple of people say we're getting back to

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Speaker 1: basics in terms of investing UM. People like bonds again

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Speaker 1: after the horrible year of UM. Jeremy Siegel thinks it's

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Speaker 1: the decade for dividends, which is kind of cool. I mean,

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Speaker 1: you're no longer going to get meme stocks, these crazy

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Speaker 1: home runs, get rich off of nothing with your stimmies.

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Speaker 1: But maybe you know, with dedicated a savings plan and investments,

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Speaker 1: you can you know, grow UM your wealth with income

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Speaker 1: and reinvestments. What do you think, Well, I think you're right, Matt.

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Speaker 1: I think investors have been forced to shift their mindsets

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Speaker 1: towards what's working now and how they can make money

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Speaker 1: now because yields are just so healthy and stocks and

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Speaker 1: other risk assets just aren't working. And I think it's

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Speaker 1: a healthy balance, right, Like you have to have a

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Speaker 1: little bit of growth, a little bit of both, excuse me.

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Speaker 1: But at the same time, you know, we kind of

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Speaker 1: got too far on the growth side of the equation

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Speaker 1: and we're coming back, you know. I think it's really important.

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Speaker 1: I mean, investors are learning a lot of lessons right now,

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Speaker 1: but they're also being forced to pay attention to the

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Speaker 1: financial strength of companies that they invest in, and companies

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Speaker 1: that actually rise and fault with the economy. That some

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Speaker 1: are even economically resistant, the more defensive stocks. So, you know,

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Speaker 1: I think it's a good shift back, and I think

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Speaker 1: it's going to teach, you know, retail investors in general

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Speaker 1: a lot about how markets work. So what are some

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Speaker 1: of the sectors you like here? Um, I mean there's

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Speaker 1: something to choose. Some are to belief from a evaluation perspective,

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Speaker 1: um that we're beaten down where you kind of taught

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Speaker 1: tongue your client to start doing some work. So I'm

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Speaker 1: generally a cup have full person, I said a few

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Speaker 1: minutes ago. It's a challenging environment, but I'm also looking

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Speaker 1: to the fact that you know, we know a bowl

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Speaker 1: market is after this. We don't know how we get there,

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Speaker 1: but we know that cycles exist in the stock market,

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Speaker 1: and we will eventually get back into that bowl, even

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Speaker 1: if it is painful from here until now. So we're hoping,

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Speaker 1: you know, by one step or another, we get there soon.

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Speaker 1: And our customers are longer term. Retail investors are longer

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Speaker 1: term investors, so we're encouraging them to sew their seeds

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Speaker 1: for the next bull market because eventually we see inflation slowing.

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Speaker 1: The Feed is committing to get committed to get rates down,

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Speaker 1: so you know, we think it's time to prepare for that. Wait,

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Speaker 1: why do you mean the FED is committed to get

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Speaker 1: rates down? I mean inflation, Okay, But the thing is

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Speaker 1: in the FED might not need to cut if we

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Speaker 1: don't have a recession, if we get this soft landing

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Speaker 1: that Over the past few days more people have been

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Speaker 1: optimistic about um the FED could hold at five or

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Speaker 1: five and a quarter depending on where they get right.

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Speaker 1: But we're in a restrictive environment right now. The FED

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Speaker 1: has said that, so eventually they're hoping to get rates

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Speaker 1: back down and get inflation back down. Their target is

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Speaker 1: two percent so for inflation correct. So we're trying to

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Speaker 1: get back to that low inflation environment, and we think

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Speaker 1: that low rates would come after that. So if you're

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Speaker 1: a long term investor, it's a great environment to prepare

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Speaker 1: for what's coming next and maybe you know, load up

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Speaker 1: on those cyclicals in the case that we don't hit

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Speaker 1: that recession. Of course, be guarded here, you know, look

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Speaker 1: at a barbell, look at you know, possibly hedging your positions.

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Speaker 1: But we're down about from the highs, and we're seeing

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Speaker 1: a lot of value in the financials, the industrials, the

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Speaker 1: more cyclical stocks, So you know, why not take a

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Speaker 1: look the balanced portfolio that's sixty forty portfolio that a

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Speaker 1: lot of folks grew up on that did not work

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Speaker 1: last year with fixed income pretty much across the board

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Speaker 1: down double digits. UM. I don't im an equity person.

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Speaker 1: When I see people tell me we have historic declines

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Speaker 1: in fixed income in I'm just naturally calling up my

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Speaker 1: advisors and let's just buy some bonds. What are you

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Speaker 1: kind of thinking about the fixed income space this year? Well, Paul,

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Speaker 1: that's smart. I think a lot of financial advisors are

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Speaker 1: telling their clients to do that. Uh, yeah, you're right.

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Speaker 1: We saw a pretty unprecedented year when it came to

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Speaker 1: stock and bond of clients. And I think that's why

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Speaker 1: it was so painful, because it felt like nothing worked. Uh.

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Speaker 1: You know, usually when stocks fall, bonds compensate for it,

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Speaker 1: and that just didn't happen. Uh. And we think as

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Speaker 1: we had into a recession obviously, or we don't know

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Speaker 1: if a recession is coming. Excuse me, but you know,

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Speaker 1: if we had into a recession, we could see people

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Speaker 1: lean more on bonds for their safety. You know, we're

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Speaker 1: already seeing that too with the tenure coming down from

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Speaker 1: about four point five percent to three point five percent. So,

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Speaker 1: you know, never say never. We don't know what happens

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Speaker 1: in the future. I don't have a crystal ball, but

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Speaker 1: you'd think that there there would have to be some

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Speaker 1: balance coming back out there. In terms of valuations. I mean,

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Speaker 1: I look at this stock market and think we're still

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Speaker 1: not looking at cheap stocks, right, Um, in terms of

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Speaker 1: the broader market, we're still looking at seventeen times earnings,

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Speaker 1: so or or eighteen times earnings. So where do you

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Speaker 1: think we need to go before you start putting your

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Speaker 1: money to work in a in a hefty way. Well,

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Speaker 1: if you think about it, seventeen or eighteen times earnings

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Speaker 1: is about average for what we've seen over the past decade.

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Speaker 1: And this past decade has not been average. I'll give you.

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Speaker 1: I was going to say it's a zero inters rate decade,

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Speaker 1: but yeah, correct, correct, Like there's context there. But I

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Speaker 1: think it's also important to remember that there are there's

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Speaker 1: a lot of dispersion insectors. UM tech does look expensive still,

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Speaker 1: um some cyclicals do look a little bit cheaper. I

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Speaker 1: thought it was interesting, you know that the stocks that

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Speaker 1: actually did really well last year, the industrials of the world,

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Speaker 1: the materials of the world, are still attractively valued when

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Speaker 1: you look at their price to free cash flow. So

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Speaker 1: I think that there's still a little bit of you know,

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Speaker 1: rebalancing that needs to be done there. But you know,

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Speaker 1: at the same time, I wouldn't be talked to see

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Speaker 1: the market accept evaluation here except the current valuations here.

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Speaker 1: If we don't fall into a recession. Yeah, that's one

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Speaker 1: of the things we're speaking with Kylie Cox, us investment

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Speaker 1: analyst at tro the question about evaluation. You kind of

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Speaker 1: have to talk about earnings as we get to kick

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Speaker 1: off another earning season at the end of this week

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Speaker 1: with some of the big banks UM people calling out

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Speaker 1: earnings risk as a material risk to this market here

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Speaker 1: that estimates have not come down enough. Um, how do

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Speaker 1: you think about that? So earnings for us are the

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Speaker 1: determinant one of the things we're watching as we question

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Speaker 1: if we're heading into a recession, because typically you see

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Speaker 1: earnings fall about s ANDP earnings I'm talking fall about

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Speaker 1: during recession. That's the average of all recessions we've seen

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Speaker 1: since nineteen fifty. Right now, it looks like earnings could

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Speaker 1: drop about you know, two to five in the fourth quarter,

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Speaker 1: or you know, we're talking backwards, so they could have

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Speaker 1: dropped two to four percent in the fourth quarter. You know,

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Speaker 1: that's nowhere nearer recession. That doesn't look like a bad

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Speaker 1: hit to us yet. So we're watching earnings to judge

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Speaker 1: the degree of this pullback, if you know, if it

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Speaker 1: falls into recessionary territory and if it justifies stocks possibly

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Speaker 1: finding the bottom again. Um, And we think earnings are

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Speaker 1: the thing to watch. Obviously the job market, I mean,

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Speaker 1: the job market has the leading indicators that we're not

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Speaker 1: seeing a ton of weakness and yet, but earnings will

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Speaker 1: ultimately tell us I think where it settled out here,

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Speaker 1: and right now, we think the market has priced in

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Speaker 1: a slight earnings pullback and that's what we're seeing. That's

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Speaker 1: that's the kind of argument to there's there's earnings risk

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Speaker 1: out there. The kind of argument is that the markets

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Speaker 1: price that in already. Yeah, I just don't know. I

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Speaker 1: have no idea, But I think once we get past

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Speaker 1: this cycle, I'm like, all right, I'm done with the

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Speaker 1: earnings risk story. But you mean once we get pastor

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Speaker 1: well this this next quarter, oh, I see Q four.

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Speaker 1: So once we get you know, basically Friday's big bank earnings.

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Speaker 1: I mean, how much does that matter to you when

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Speaker 1: when we when we see the numbers on Friday, how

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Speaker 1: closely we need pay attention because they're like six or

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Speaker 1: seven big banks reporting on Friday. Well, big banks are

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Speaker 1: the forefront of the economy. I think you need to

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Speaker 1: pay attention to them. We've heard a lot of cautious

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Speaker 1: rhetoric coming out of the banks, but overall their earnings

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Speaker 1: have been decent. They've been surprising to the upside. I

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Speaker 1: was actually parsing through earnings data last night, and I

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Speaker 1: thought it was interesting that a lot of services sectors

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Speaker 1: are expected to see the bigger earnings hit in this

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Speaker 1: quarter in subsequent quarters, which is interesting if you think

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Speaker 1: about it, because the balance that we saw last year

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Speaker 1: was a lot of services spending less good spending. So

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Speaker 1: coming into this earning season, I'm going to be watching

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Speaker 1: the services sectors. You know, banks fall into that, Um,

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Speaker 1: they're very consumer oriented. Um. You know, the more software

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Speaker 1: companies fall into that because I just travel, for example,

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Speaker 1: because I just don't think that there has been enough

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Speaker 1: pessimism priced in there and the commentary is gonna matter. Yep,

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Speaker 1: Absolutely forward guidance, all that good stuff. Kelly Cox us

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Speaker 1: investment analysts for Etorro, joining us live here in the

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Speaker 1: Bloomberg Interactive Broker Studio, U n C grad former reporter

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Speaker 1: at Bloomberg's Analysts at four or five shops, and now

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Speaker 1: she's got her at E Touro based in Charlotte, North Carolina.

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Speaker 1: Thanks so much for joining us in studio. So that's

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Speaker 1: it for me, Met on the earning stress story. Once

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Speaker 1: we get past the next three or four weeks, I

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Speaker 1: got all my guidance for three that's it. I mean,

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Speaker 1: I think everybody's gonna give guidance that's gonna assume a

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Speaker 1: modest kind of slowdown slash recession. And then, you know,

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Speaker 1: I feel like we could get a kitchen sync quarter

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Speaker 1: because because of because the recession was such a huge worry,

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Speaker 1: especially a couple of weeks ago. You know, people have

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Speaker 1: gotten more optimistic recently, but the work has been done

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Speaker 1: on the earnings reports, and I feel like a lot

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Speaker 1: of CEOs will say I'm throwing everything at this quarter.

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Speaker 1: We have a CEO in the studio with us. Wendy

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Speaker 1: Thomas joins us. She runs Secure Works NASDAC ticker s

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Speaker 1: c w X. They are security as a service company, right,

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Speaker 1: Wendy tell us a brief history of Secure Works and

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Speaker 1: what you're doing. Sure, So, Securic has been through an

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Speaker 1: important transformation to a security sas platform to really address

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Speaker 1: the challenges we've seen in security over the last twenty

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Speaker 1: plus years. So we were founded as a security services

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Speaker 1: organization and then looking to address security challenges largely with

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Speaker 1: very expert security folks. But what we found is that

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Speaker 1: that we needed a new technology, machine learning AI approach

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Speaker 1: to solving securities challenges, and that's what we launched a

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Speaker 1: few years ago, the TAGES platform, and so our business

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Speaker 1: model has been in a pretty significant transition to addressing

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Speaker 1: security through that plant. So what do you expect in

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Speaker 1: three As you know, Paul and I talked to so

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Speaker 1: many people who say to us that cybersecurity is one

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Speaker 1: of the number one issues, one of the number one

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Speaker 1: threats facing companies, And of course we report on so

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Speaker 1: many hacks and thefts and data leaks over the past,

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Speaker 1: not just this year, but over the past five or

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Speaker 1: six or seven years. UM, how does the growth look

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Speaker 1: to you from from this transition vantage point? Sure? I

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Speaker 1: mean our growth has been outsized in comparison to the

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Speaker 1: market in terms of our tageous XDR platform. What what

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Speaker 1: I see more generally in the security space, Clearly there's

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Speaker 1: a broader economic backdrop right now in terms of pressure,

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Speaker 1: but security is simply something that companies cannot just dispense with.

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Speaker 1: What I see right now is that companies have an

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Speaker 1: opportunity with with the type of technology that TAGES brings

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Speaker 1: to actually reduce their total security spend, kind of like

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Speaker 1: you didn't need a you'll need a separate camera from

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Speaker 1: your phone or separate GPS device from your phone. You

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Speaker 1: can consolidate your security spend into a platform approach to

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Speaker 1: save money and get a better security posture. Broadly, speaking

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Speaker 1: with the clients, do you deal with Wendy, what percentage

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Speaker 1: of their tech spend every every year is cybersecurity versus

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Speaker 1: maybe just hardware upgrades of software upgrades. Yeah, it's a

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Speaker 1: great question because rules of thumb are really important when

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Speaker 1: you're trying to look at your spend, and there's a

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Speaker 1: couple of I would look at depending on your industry,

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Speaker 1: somewhere between four and as much as ten percent of

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Speaker 1: your total I T spend is generally on security. That's

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Speaker 1: what that's what good looks like. If you want to

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Speaker 1: translate that into employees on average, we see see organizations,

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Speaker 1: not the largest organizations, but you know, your small medium

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Speaker 1: businesses six hundred dollars per employee on average for a year,

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Speaker 1: but can be as much as again depending on your

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Speaker 1: business model and your I T estate. So um, we

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Speaker 1: have heard kind of conflicting reports in terms of I

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Speaker 1: T spending plans. For the most part, it seems that

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Speaker 1: people are gonna pull back on I T spending. But

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Speaker 1: we were talking with Honora Rata Rata and man Deep

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Speaker 1: Sing yesterday from Business Bloomberg Intelligence, and they were saying

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Speaker 1: that in some places, for instance, in cloud, you're gonna

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Speaker 1: see an increase in spending three. I feel like, if

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Speaker 1: you're going to increase your cloud spend, you've got to

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Speaker 1: be boosting your security spend as well. Is that wrong? No?

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Speaker 1: I think the mix of spend is absolutely shifting. So

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Speaker 1: it may be that the total is under pressure, but

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Speaker 1: the mix to get the yield in terms of automation

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Speaker 1: for your business and flexibility UH is going to go

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Speaker 1: up in areas like cloud and security. So we continue

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Speaker 1: to see security spend um increasing year over year. I

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Speaker 1: think the question is where's the opportunity to make a

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Speaker 1: step function change in your security investments to again get

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Speaker 1: your get your security posture much higher relative to the

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Speaker 1: breaches we continue to see in the marketplace. So for

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Speaker 1: secure works, what's your typical customer and what's their typical

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Speaker 1: need that you're trying to kind of meet for them?

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Speaker 1: Sure that the typical customer needs UH simple security, and

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Speaker 1: they don't want to have to bring a large security

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Speaker 1: staff in house. They want to make sure that their

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Speaker 1: business is up and running and that they don't have

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Speaker 1: damages from breaches, and that they can ensure themselves. From

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Speaker 1: a cyber insurance perspective, we check all of those those boxes.

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Speaker 1: They as cyber insurance. We do not sell cyber insurance,

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Speaker 1: but by having a costure yes, absolutely late and in

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Speaker 1: fact it's if you've if you've read the headlines. Because

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Speaker 1: of all the breaches over the past few years, the

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Speaker 1: cyber insurance market is really contracted in terms of much

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Speaker 1: more rigorous underwriting and rising rates. So the ability to

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Speaker 1: demonstrate controls around the part of your business that generates

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Speaker 1: your revenue or your cash flow is an important part

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Speaker 1: to being able to cost effectively ensure your organization. I see. So,

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Speaker 1: just like with car insurance, if I can demonstrate that

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Speaker 1: I have a decent security system on my vehicle, I'll

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Speaker 1: get a discount from my insure that ensure cyber insurance

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Speaker 1: is the same with businesses. They'll say, all right, if

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Speaker 1: you have secure works, we'll give you a better rate.

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Speaker 1: Show me that. And so we work with cyber insurers

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Speaker 1: around incident response as well as putting the kinds of

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Speaker 1: security controls in place that help those customers reduce that

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Speaker 1: that rate. Where do you think your clients are just

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Speaker 1: maybe companies in general are under investing today, and as

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Speaker 1: it relates to their cybersecurity platform, they tend to undervest

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Speaker 1: in two two areas. One, they try to go it

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Speaker 1: alone with people. That just doesn't make a lot of sense.

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Speaker 1: You can actually get more for less spend by having

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Speaker 1: an expert partner like secure works. So they try to

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Speaker 1: do it in house. Okay, they do, and it had

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Speaker 1: just given the diversity of skill sets required in security

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Speaker 1: today because you let the technology do what it does

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Speaker 1: in terms of the XDR platform, so the people who

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Speaker 1: are then working on the things that the platform can't

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Speaker 1: solved need to be much more expert. And the second

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Speaker 1: is it remains true that just the basics of security

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Speaker 1: prevention can prevent the majority of security attacks. And so

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Speaker 1: when we see the ability to have a second way

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Speaker 1: to authenticate that it is you logging into the system,

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Speaker 1: that goes a long way to preventing a large number

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Speaker 1: of the sort of commodity criminal cyber attacks. I look

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Speaker 1: at your stock tickers, s C w X on the

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Speaker 1: nasdack UM and I put it up against you know,

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Speaker 1: the NASDAC or the Russell two thousand or the Technology

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Speaker 1: index on the Russell, it looks like you've really outperformed

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Speaker 1: in booms and underperformed in busts. Uh, why do you

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Speaker 1: think that is? Why? Why are investors making more volatile,

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Speaker 1: dramatic moves with your stocks? And they are. There's to

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Speaker 1: two elements to that. One is our business model has

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Speaker 1: been in a transition from a services led organization to

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Speaker 1: a technology lead approach to security, and in the midst

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Speaker 1: of exiting some of those non strategic services, the total

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Speaker 1: top line has been under pressure, which is why we

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Speaker 1: talk about the TAGES platform and the air are associated

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Speaker 1: with that growing eighty percent year over a year, you know,

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Speaker 1: two million lesson three years after launch. So it's it's

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Speaker 1: a rapidly growing area of security and emerging market trend.

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Speaker 1: So you do need investors to look underneath the covers

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Speaker 1: to see the opportunity in the in the valuation and

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Speaker 1: the business transition. We're gonna hit this at the end

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Speaker 1: of this year. We've said we're gonna exit probably more

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Speaker 1: than eight percent of the news on the new platform,

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Speaker 1: so the end of that time is coming. Michael Dell

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Speaker 1: is your largest shareholder, is your chairman of the board.

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Speaker 1: What's it like working from Michael Dell? He is an

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Speaker 1: amazing entrepreneur. So this is an individual who understands how

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Speaker 1: to grow businesses, is invigorated around going businesses and really

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Speaker 1: going to speak to their their pain points. He is

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Speaker 1: a big supporter of the the importance of merging security

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Speaker 1: with the technology story for ce i os and not

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Speaker 1: just s sos, and sees a lot of synergies in

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Speaker 1: terms of those types of investments that must be fascinating

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Speaker 1: and and a little scary. I would think Wendy Thomas uh,

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Speaker 1: CEO and president of Secure Works public trader company s

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Speaker 1: cw X there in town speaking at the need Him conference,

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Speaker 1: which is a great conference. A lot of really cool

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Speaker 1: small mid cap tech media names are good. Friend Lauren

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Speaker 1: Martin is a big, big part of that team there

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Speaker 1: and need Him so good to see Secure Works out

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Speaker 1: in front of clients. Good to see everybody out and

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Speaker 1: about doing stuff. I want to get to the story here.

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Speaker 1: Microsoft gonna potentially invest ten billion dollars open ai and

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Speaker 1: open ai, which would give it an Open AI evaluation

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Speaker 1: about twenty nine billion dollars. So I'm going to start

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Speaker 1: with the most basic with an a Rock Rana, he's

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Speaker 1: our Bloomberg Intelligence. What is open AI? What for? For

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Speaker 1: you know, I mean Mats a lot. You know, he's

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Speaker 1: not as tex savvy as Iron, but so for mats

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Speaker 1: sake and maybe for some of our listeners, what is

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Speaker 1: open AI? So you have a number of artificial intelligence

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Speaker 1: companies that are basically building algorithms to make you know,

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Speaker 1: some kind of function good. So they have a they

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Speaker 1: have a product called chat GPT and it works like

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Speaker 1: a search function. I mean, you go and type in

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Speaker 1: and says, you know, how should I invest and will

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Speaker 1: give you a very complicated answer or a very simple

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Speaker 1: answer to any of those things. So it is it

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Speaker 1: is really products like that or anything that enhances the

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Speaker 1: insights that anybody can can can get on the data.

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Speaker 1: That's underline. So it it is a bit, it's it's

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Speaker 1: it's not as complicated as it sounds. It's practically it's

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Speaker 1: like a search box. Sounds like Watson again, but exactly,

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Speaker 1: you are absolutely right. It is like Watson. But the

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Speaker 1: results for chat GPT has been really good. And Microsoft

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Speaker 1: is already an investor. It's not as if it's not

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Speaker 1: an investor right now, UM, but it's it seems that

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Speaker 1: the company has a very high valuation and somebody might

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Speaker 1: want to take it. So a I'd like to see

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Speaker 1: chat gpt, then take on Watson on Jeopardy, Yes, and

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Speaker 1: be jing and buh what do they call it? When

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Speaker 1: it kind of like turns human? Is Is it possible

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Speaker 1: that it's going to develop its own Was it? No?

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Speaker 1: There was? There was? There was? Wasn't there a Google

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Speaker 1: UM employee who was worried that the AI they were

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Speaker 1: developing had become sentient? Do you remember that? Yeah, there's

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Speaker 1: a lot of that stories. But to remember it's not

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Speaker 1: as if, you know, Microsoft is just going to use

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Speaker 1: the chat GPT function. They're basically going to look at

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Speaker 1: the algorithms and the way this is written and then

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Speaker 1: and most likely again this is just my speculation, it's

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Speaker 1: going to be UM enhance the productivity features of a

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Speaker 1: lot of their suites that they have, you know, let's

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Speaker 1: say office suite or LinkedIn or being for search. Think

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Speaker 1: about it this way. If you are a salesperson and

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Speaker 1: you walk in every day and say, you know you

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Speaker 1: are your best bet today is to go out and

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Speaker 1: make a sales pitch to Paul because the likelihood of

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Speaker 1: him closing a deal over the next few days is

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Speaker 1: very high. And that really is what is going to

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Speaker 1: drive a lot of the next generation insights for all

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Speaker 1: software packages. All right, So Microsoft, maybe ten billion dollars,

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Speaker 1: that seems like if I'm thinking about this space, I

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Speaker 1: kind of feel like it validates the space a little bit.

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Speaker 1: Is certainly validates open AI. How do you think about it? No,

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Speaker 1: it's it is truly in that same case. And I

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Speaker 1: can tell you, you know, just like an emerging technologies,

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Speaker 1: there are probably hundreds and hundreds of new AI companies

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Speaker 1: all over the world that are trying to figure the

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Speaker 1: same thing out, you know, whether that's based on images

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Speaker 1: so image recognition, speech recognition, vision, or for that matter,

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Speaker 1: natural language processing. Almost every technology companies building some capabilities

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Speaker 1: within their product portfolio. So think of this from a

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Speaker 1: Microsoft as more of an R and D going into

430
00:22:25,880 --> 00:22:28,560
Speaker 1: you know, a new company where if they can you know,

431
00:22:28,600 --> 00:22:31,320
Speaker 1: I'm assuming there is some commercial agreement here that they

432
00:22:31,320 --> 00:22:34,119
Speaker 1: can use these products to to enhance the value of

433
00:22:34,119 --> 00:22:38,840
Speaker 1: what they do. All right, That's uh an interesting story.

434
00:22:38,880 --> 00:22:41,200
Speaker 1: I think we have a jumping off point from which

435
00:22:41,200 --> 00:22:44,320
Speaker 1: Paul and I can dig down into a deep rabite GPT.

436
00:22:44,680 --> 00:22:47,280
Speaker 1: We're gonna be I go, and we're gonna we're gonna

437
00:22:47,280 --> 00:22:49,119
Speaker 1: get into this. Okay. I want to quickly ask you

438
00:22:49,119 --> 00:22:53,040
Speaker 1: about Apple on our because it seems like, um, some

439
00:22:53,119 --> 00:22:56,000
Speaker 1: investors may have been taken by surprise or Broadcast may

440
00:22:56,000 --> 00:23:00,159
Speaker 1: have been taken by surprise as Apple intends to develop

441
00:23:00,200 --> 00:23:03,320
Speaker 1: its own products and no longer use those that it

442
00:23:03,359 --> 00:23:06,000
Speaker 1: gets from others like broad Company. We've known this for

443
00:23:06,040 --> 00:23:09,200
Speaker 1: a long time, right, Intel was cut out a while back,

444
00:23:09,640 --> 00:23:13,320
Speaker 1: and Claw Calm has told investors like, yeah, this is

445
00:23:13,359 --> 00:23:15,240
Speaker 1: what we get like ten billion revenue from them, but

446
00:23:15,240 --> 00:23:18,720
Speaker 1: that's gonna dwindle over time. For Broadcom, it seems like

447
00:23:18,760 --> 00:23:21,399
Speaker 1: they were kind of counting on this future revenue streat.

448
00:23:21,440 --> 00:23:24,440
Speaker 1: I think. I think from you know, I would say

449
00:23:24,440 --> 00:23:26,479
Speaker 1: I don't want to comment on the guys who are

450
00:23:26,520 --> 00:23:29,440
Speaker 1: losing in this case, only because you know, you would

451
00:23:29,440 --> 00:23:31,639
Speaker 1: expect a company like Apple to make sure they have

452
00:23:31,720 --> 00:23:34,359
Speaker 1: full control over the supply chain as well as the

453
00:23:34,359 --> 00:23:36,600
Speaker 1: parts that come in, you know. But from my side,

454
00:23:36,600 --> 00:23:38,919
Speaker 1: and this is far more than just cost control or

455
00:23:38,960 --> 00:23:42,359
Speaker 1: supply chain management. It is really about dictating what the

456
00:23:42,400 --> 00:23:45,399
Speaker 1: next generation products are going to be, because frankly speaking,

457
00:23:45,400 --> 00:23:47,440
Speaker 1: Apple is not going to tell them what they are

458
00:23:47,440 --> 00:23:50,560
Speaker 1: working on for their next generation products in the case

459
00:23:50,600 --> 00:23:53,760
Speaker 1: of chips for example, or processor for example. UM they

460
00:23:53,840 --> 00:23:56,400
Speaker 1: got rid of Intel and they you know, they're developing

461
00:23:56,400 --> 00:24:00,080
Speaker 1: their own processors and that really has helped them to

462
00:24:00,520 --> 00:24:04,240
Speaker 1: see double digit growth rate in their higher end mac books.

463
00:24:04,680 --> 00:24:07,000
Speaker 1: UM and that is because the mptwo processor is is

464
00:24:07,040 --> 00:24:10,040
Speaker 1: pretty amazing, or the mband processor before that, and that's

465
00:24:10,080 --> 00:24:12,720
Speaker 1: far better than what Intel could do. So from my side,

466
00:24:12,760 --> 00:24:14,920
Speaker 1: I think they're not just going to jump off call

467
00:24:15,000 --> 00:24:17,520
Speaker 1: com because they're going to save some money unless they

468
00:24:17,520 --> 00:24:19,879
Speaker 1: have a product that's better than that UM And I

469
00:24:19,880 --> 00:24:21,800
Speaker 1: think that's that the reason for that is that's going

470
00:24:21,880 --> 00:24:26,639
Speaker 1: to drive innovation from their side. So I mean, is

471
00:24:26,680 --> 00:24:29,520
Speaker 1: this what's Apple gonna do? Are they gonna ensure this stuff?

472
00:24:29,600 --> 00:24:31,920
Speaker 1: I mean, that's kind of seems to be the thing

473
00:24:31,960 --> 00:24:35,480
Speaker 1: now again again, it's going to you know, it's going

474
00:24:35,560 --> 00:24:37,000
Speaker 1: to take some time for us to figure out. I

475
00:24:37,080 --> 00:24:39,439
Speaker 1: think a lot of this would be they develop their

476
00:24:39,480 --> 00:24:41,959
Speaker 1: own you know, design than they're going to do somebody

477
00:24:42,000 --> 00:24:43,600
Speaker 1: like a t M c T S MC as Money

478
00:24:43,760 --> 00:24:47,040
Speaker 1: said yesterday, to develop those particular chips and they're gonna

479
00:24:47,080 --> 00:24:49,040
Speaker 1: put it in their products. But one of the big

480
00:24:49,040 --> 00:24:52,040
Speaker 1: things is going to be the product may have features

481
00:24:52,080 --> 00:24:55,159
Speaker 1: that may be used in the next generation iPhones that

482
00:24:55,480 --> 00:24:58,400
Speaker 1: you know, may or may not be on paper at

483
00:24:58,400 --> 00:25:01,359
Speaker 1: this point, because they're looking out ahead years down the

484
00:25:01,440 --> 00:25:04,080
Speaker 1: road of what some of these things can do that

485
00:25:04,240 --> 00:25:06,560
Speaker 1: is not the current capabilities or may not be even

486
00:25:06,600 --> 00:25:10,320
Speaker 1: part of the product designed for either Welcome or broadcom. Alright,

487
00:25:10,359 --> 00:25:13,480
Speaker 1: good stuff. Lots of movement there in the tech space,

488
00:25:13,600 --> 00:25:16,720
Speaker 1: as always, Apple discussions, Microsoft, some of the big names

489
00:25:17,320 --> 00:25:19,639
Speaker 1: doing big things as they always do. And so when

490
00:25:19,640 --> 00:25:21,719
Speaker 1: we got that, we talked to on a rock run

491
00:25:21,800 --> 00:25:23,240
Speaker 1: and we talked to Man Deep sing. Those are the

492
00:25:23,240 --> 00:25:26,040
Speaker 1: tech anlems. We just type I go, we just type

493
00:25:26,040 --> 00:25:29,280
Speaker 1: B I go. And just to remember, everybody, Bloomberg Intelligence

494
00:25:29,400 --> 00:25:33,080
Speaker 1: is the best research shop on Wall Street. We've got

495
00:25:33,119 --> 00:25:36,000
Speaker 1: like four hundred analysts all around the world covering two

496
00:25:36,000 --> 00:25:40,560
Speaker 1: thousand companies, a hundred twenty industries, equity, fixed income, commodities,

497
00:25:41,240 --> 00:25:43,639
Speaker 1: you know, all that kind of stuff. Cars and I

498
00:25:43,680 --> 00:25:45,560
Speaker 1: just saw Michael Dean walking around. I know, Chael Deane

499
00:25:45,560 --> 00:25:47,879
Speaker 1: We've got Kevin Tynan. We got the best car analysts

500
00:25:47,920 --> 00:25:49,919
Speaker 1: in the world. Yeah. So if you have a Bloomberg terminal,

501
00:25:50,000 --> 00:25:51,840
Speaker 1: beat I go and you can actually call up and

502
00:25:51,880 --> 00:25:53,440
Speaker 1: talk to these analysts, just like in the old days.

503
00:25:57,480 --> 00:26:00,720
Speaker 1: Let's stuck fixed income. Those are bonds, Matt, that's credit,

504
00:26:00,800 --> 00:26:03,320
Speaker 1: that's that kind of stuff. I'm the stocks guy. I

505
00:26:03,400 --> 00:26:06,199
Speaker 1: just my job is to tell a good story, you know,

506
00:26:06,280 --> 00:26:08,560
Speaker 1: forecasting earning, Slap a multiple on it, and we're good

507
00:26:08,560 --> 00:26:10,760
Speaker 1: to go. But fixing comes a whole different animal. That's

508
00:26:10,760 --> 00:26:12,840
Speaker 1: why I bring in the smart people. George Bori, chief

509
00:26:12,880 --> 00:26:16,119
Speaker 1: investment strategist for Fixed. Them with fixing, come with all

510
00:26:16,200 --> 00:26:20,639
Speaker 1: Spring Global Investments, Pride of Milwaukee. But you're based here

511
00:26:20,680 --> 00:26:22,600
Speaker 1: in New York, right, I'm in New York. Okay, So

512
00:26:22,640 --> 00:26:24,960
Speaker 1: I thought I thought you guys were all like in

513
00:26:25,000 --> 00:26:28,520
Speaker 1: that mononymy Falls campus. Yeah, well not many of us.

514
00:26:28,520 --> 00:26:30,239
Speaker 1: So you guys have an outpost here. We have an

515
00:26:30,240 --> 00:26:32,760
Speaker 1: office here in York, which is what's great. It's uh,

516
00:26:32,880 --> 00:26:34,919
Speaker 1: it's kind of a branch office, but but still a

517
00:26:34,920 --> 00:26:38,399
Speaker 1: good hub for the team. Good stuff, George, you know

518
00:26:38,440 --> 00:26:41,400
Speaker 1: what I mean. Two, You know it as well as anybody.

519
00:26:41,520 --> 00:26:44,440
Speaker 1: Brutal brutal year for fixed income. I'm wondering how you're

520
00:26:44,480 --> 00:26:47,000
Speaker 1: you're thinking about going forward. Let's just forget about twenty two.

521
00:26:47,000 --> 00:26:49,240
Speaker 1: And I'm sure you're gonna tell your boss during a review.

522
00:26:49,280 --> 00:26:51,520
Speaker 1: Let's just forget about twenty two. It didn't happen. What

523
00:26:51,560 --> 00:26:53,480
Speaker 1: are you focusing on in twenty three? Well, thanks for

524
00:26:53,560 --> 00:26:55,560
Speaker 1: having me on the show. First off, it's always great

525
00:26:55,600 --> 00:26:57,760
Speaker 1: to be back in studio. It's been a while, and

526
00:26:58,040 --> 00:27:00,320
Speaker 1: I love being on the radio segment. But you know,

527
00:27:00,359 --> 00:27:02,680
Speaker 1: as as a fixed income investor, I think there's kind

528
00:27:02,680 --> 00:27:05,400
Speaker 1: of one central message that we've been kind of working with.

529
00:27:05,440 --> 00:27:07,440
Speaker 1: And you know, we've coming out of about ten to

530
00:27:07,520 --> 00:27:10,479
Speaker 1: fifteen years of a lot of financial repression, and the

531
00:27:10,480 --> 00:27:13,879
Speaker 1: whole notion of like there's no alternative, the whole Tina

532
00:27:13,960 --> 00:27:17,080
Speaker 1: notion has changed, and our view is that there is

533
00:27:17,119 --> 00:27:19,919
Speaker 1: an alternative. There is an alternative going forward, and the

534
00:27:19,960 --> 00:27:23,960
Speaker 1: alternative is fixed income. The Feds done a tremendous amount

535
00:27:23,960 --> 00:27:26,399
Speaker 1: of work to get cash rates up to sort of

536
00:27:26,400 --> 00:27:30,879
Speaker 1: a more typical or more normal rate. The macroeconomics around

537
00:27:30,960 --> 00:27:34,280
Speaker 1: us are still calibrating. We expect inflation to ultimately come

538
00:27:34,280 --> 00:27:36,320
Speaker 1: down over the course of this year, but it's gonna

539
00:27:36,359 --> 00:27:38,480
Speaker 1: be kind of a choppy road. It's not it's not

540
00:27:38,520 --> 00:27:41,120
Speaker 1: gonna be one way in directional. But when we look

541
00:27:41,160 --> 00:27:45,920
Speaker 1: across fixed income, fixed income can do what it's supposed

542
00:27:45,920 --> 00:27:49,800
Speaker 1: to do, and and that's really generated very consistent and

543
00:27:50,040 --> 00:27:53,840
Speaker 1: steady and predictable stream of income. It's not sexy, it's

544
00:27:53,880 --> 00:27:57,399
Speaker 1: not wildly exciting, but it's pretty gratifying when it shows

545
00:27:57,440 --> 00:28:00,440
Speaker 1: up when it's supposed to and there's some predict ability

546
00:28:00,480 --> 00:28:03,080
Speaker 1: there for people to sort of build out their wealth

547
00:28:03,119 --> 00:28:06,080
Speaker 1: and their portfolios and immunize their liability. And I think

548
00:28:06,280 --> 00:28:09,040
Speaker 1: that's the point. I think it is pretty exciting UM

549
00:28:09,080 --> 00:28:11,840
Speaker 1: for students of the market. What we have seen over

550
00:28:11,880 --> 00:28:16,000
Speaker 1: the last ten years was obviously crazy drama and you

551
00:28:16,119 --> 00:28:21,960
Speaker 1: had you know, central banks performing financial repression, pushing everybody

552
00:28:22,000 --> 00:28:27,600
Speaker 1: out the risk curve. You know, it's the kind of UM,

553
00:28:27,640 --> 00:28:34,400
Speaker 1: it's the kind of uh uh artificial UM market atmosphere

554
00:28:34,440 --> 00:28:40,160
Speaker 1: that nobody understands with UM with consequences that are unpredictable,

555
00:28:40,240 --> 00:28:43,320
Speaker 1: and that's not great. Although some people may have made

556
00:28:43,320 --> 00:28:45,440
Speaker 1: a lot of money, a lot of other people got crushed.

557
00:28:45,440 --> 00:28:48,200
Speaker 1: But you didn't get to put to use anything that

558
00:28:48,240 --> 00:28:50,840
Speaker 1: you learned in school, anything that you read in books, right,

559
00:28:50,880 --> 00:28:54,040
Speaker 1: And now we're getting back to an era where I think, um,

560
00:28:54,120 --> 00:28:57,600
Speaker 1: you can actually take lessons that you that you've that

561
00:28:57,680 --> 00:29:00,320
Speaker 1: you've built up over years and put them to work

562
00:29:00,320 --> 00:29:02,520
Speaker 1: in the market in a conservative way. You can build

563
00:29:02,560 --> 00:29:05,840
Speaker 1: a portfolio, save money, and and and and build and

564
00:29:05,840 --> 00:29:07,920
Speaker 1: build income. And that's a good thing I think for

565
00:29:08,000 --> 00:29:11,280
Speaker 1: most investors. We we do as well. And and when

566
00:29:11,280 --> 00:29:13,640
Speaker 1: we think about fixed income, like I said, it really

567
00:29:13,640 --> 00:29:16,640
Speaker 1: does kind of does three things. Actually, one is income,

568
00:29:16,720 --> 00:29:19,800
Speaker 1: and we know that, you know, sort of a fixed

569
00:29:19,800 --> 00:29:22,880
Speaker 1: income portfolio's return is ultimately going to be that income.

570
00:29:22,920 --> 00:29:25,280
Speaker 1: And so the recognition that I can get it today

571
00:29:25,520 --> 00:29:28,200
Speaker 1: that there is an alternative to sort of capture that income,

572
00:29:28,480 --> 00:29:30,800
Speaker 1: you know, is front and center. The second is just

573
00:29:30,880 --> 00:29:33,680
Speaker 1: being able to weather volatility. You think back where yields

574
00:29:33,680 --> 00:29:35,680
Speaker 1: were a year or so ago, not a lot of

575
00:29:35,720 --> 00:29:38,720
Speaker 1: cushion in that trade, and so when volve struck, you know,

576
00:29:38,800 --> 00:29:42,080
Speaker 1: prices fell pretty quickly. Today we have a much greater

577
00:29:42,200 --> 00:29:44,360
Speaker 1: cushion in the in the sort of the bond market

578
00:29:44,360 --> 00:29:47,240
Speaker 1: world to allow us to deal with a lot more uncertainty.

579
00:29:47,240 --> 00:29:50,320
Speaker 1: And then the last it's just diversification. As we all know,

580
00:29:50,400 --> 00:29:53,480
Speaker 1: the sixty strategy didn't work out so well last year.

581
00:29:53,760 --> 00:29:56,880
Speaker 1: But with bond yields now sort of more consistent with

582
00:29:56,960 --> 00:29:59,760
Speaker 1: a kind of what we'd call more typical economic backdrop,

583
00:29:59,800 --> 00:30:02,240
Speaker 1: it least some cushion against inflation, a little bit of

584
00:30:02,240 --> 00:30:06,680
Speaker 1: cushion against unexpected sort of shocks. That should allow fixed

585
00:30:06,720 --> 00:30:10,280
Speaker 1: income to provide some diversification against other things. And so

586
00:30:10,400 --> 00:30:13,880
Speaker 1: it's the income, it's the break even and and and

587
00:30:13,040 --> 00:30:17,360
Speaker 1: um and volatility cushion and then the diversification. And that's

588
00:30:17,400 --> 00:30:20,400
Speaker 1: what's exciting about fixed it. How do we know when

589
00:30:20,640 --> 00:30:23,400
Speaker 1: you know, what we've seen with this foreigner fitty basis

590
00:30:23,440 --> 00:30:25,920
Speaker 1: points in the past twelve months, is the FED essentially

591
00:30:26,520 --> 00:30:30,640
Speaker 1: forcing the market to reprice assets and and the whole

592
00:30:30,680 --> 00:30:35,640
Speaker 1: process um and the intervention that we've seen over the

593
00:30:35,640 --> 00:30:38,920
Speaker 1: past decade. That's kind of a sionara to that. How

594
00:30:38,960 --> 00:30:42,040
Speaker 1: do we know when that process is over? Um, you know,

595
00:30:42,120 --> 00:30:45,520
Speaker 1: when we can start working from square one? Yeah, that's

596
00:30:45,640 --> 00:30:47,840
Speaker 1: that's a great question, and that you know, we talked

597
00:30:47,840 --> 00:30:50,280
Speaker 1: to clients about that, we talk amongst ourselves on the

598
00:30:50,320 --> 00:30:53,200
Speaker 1: investment teams, and you know, it's it's hard to sort

599
00:30:53,200 --> 00:30:55,080
Speaker 1: of narrow it down to one but but if we

600
00:30:55,160 --> 00:30:58,240
Speaker 1: look back through the last sort of fifty sixty seventy years,

601
00:30:58,640 --> 00:31:01,280
Speaker 1: FED cycles have all to really been determined, or at

602
00:31:01,320 --> 00:31:03,840
Speaker 1: least the sort of the peak in that cycle has

603
00:31:03,920 --> 00:31:07,680
Speaker 1: typically aligned. When the Feds sort of base rate you

604
00:31:07,720 --> 00:31:09,840
Speaker 1: can define it by FED funds or the three month

605
00:31:09,920 --> 00:31:13,120
Speaker 1: T bill, whichever you prefer, is above kind of the

606
00:31:13,200 --> 00:31:16,920
Speaker 1: spot level of inflation, well, then you can decidedly say

607
00:31:16,960 --> 00:31:19,360
Speaker 1: the Fed is kind of ahead of the curve, and

608
00:31:19,440 --> 00:31:21,800
Speaker 1: we know inflation, we're going to get data on Thursday,

609
00:31:21,800 --> 00:31:24,480
Speaker 1: we'll get an updated number, but a kind of let's

610
00:31:24,520 --> 00:31:27,320
Speaker 1: call it a six percent type of level on inflation

611
00:31:27,440 --> 00:31:29,640
Speaker 1: right now, and the Feds still at four fifty, you

612
00:31:29,680 --> 00:31:31,960
Speaker 1: know they're they're they're not ahead of the curve. Now,

613
00:31:32,160 --> 00:31:34,440
Speaker 1: the market is hoping, and so are we, that inflation

614
00:31:34,480 --> 00:31:36,840
Speaker 1: is going to continue to trend lower, and at some

615
00:31:36,880 --> 00:31:39,200
Speaker 1: point in the first half of this year, we think

616
00:31:39,280 --> 00:31:42,400
Speaker 1: those sort of two lines will cross. Fed funds will

617
00:31:42,480 --> 00:31:46,840
Speaker 1: ultimately be above where inflation sort of is at the time.

618
00:31:47,080 --> 00:31:50,920
Speaker 1: We think that's gonna happen around five percent. And it's

619
00:31:50,960 --> 00:31:53,520
Speaker 1: at that point that the Fed can become a lot

620
00:31:53,560 --> 00:31:56,160
Speaker 1: more symmetric in their messaging. They don't have to be

621
00:31:56,240 --> 00:32:00,080
Speaker 1: so exclusively um hawkish. And then this sort of the

622
00:32:00,120 --> 00:32:03,400
Speaker 1: expectation about where's the next move going to come where

623
00:32:03,480 --> 00:32:06,239
Speaker 1: we're seeing some of that hopefulness get priced into the

624
00:32:06,320 --> 00:32:09,120
Speaker 1: to the front end of the curve, specifically in FED funds.

625
00:32:09,160 --> 00:32:11,680
Speaker 1: I think that's a little optimistic. We think that actual

626
00:32:11,720 --> 00:32:14,400
Speaker 1: trade is probably more into next year rather than this year.

627
00:32:14,680 --> 00:32:17,760
Speaker 1: But the symmetry or the distribution of that that next

628
00:32:17,840 --> 00:32:20,640
Speaker 1: step that's gonna unfold over the course of the year.

629
00:32:20,680 --> 00:32:23,120
Speaker 1: But the thing we're looking for, or the point, the

630
00:32:23,200 --> 00:32:25,640
Speaker 1: data point that we're looking for, is is once FED

631
00:32:25,720 --> 00:32:28,480
Speaker 1: funds is sort of above that spot rate of inflation,

632
00:32:28,760 --> 00:32:31,880
Speaker 1: then we can focus on other things other than just inflation.

633
00:32:32,160 --> 00:32:34,080
Speaker 1: Until we get to that point, it's sort of all

634
00:32:34,080 --> 00:32:36,880
Speaker 1: inflation all the time, all right, George. I mean, if

635
00:32:36,920 --> 00:32:39,040
Speaker 1: I want to go out on the risk spectrum a

636
00:32:39,080 --> 00:32:41,160
Speaker 1: little bit and play in the high yield space, is

637
00:32:41,160 --> 00:32:45,600
Speaker 1: that fulls? Is that a fulls Errand because everybody's telling

638
00:32:45,600 --> 00:32:47,600
Speaker 1: me there's a recession next year, how do you think

639
00:32:47,600 --> 00:32:50,640
Speaker 1: about high yield? I mean, typically, you know, the rule

640
00:32:50,680 --> 00:32:53,200
Speaker 1: of thumb is, you know, avoid avoid high yield going

641
00:32:53,200 --> 00:32:55,200
Speaker 1: into recession. As as you mentioned, you know, it's a

642
00:32:55,360 --> 00:32:57,680
Speaker 1: sort of a low grade risk, a low grade play

643
00:32:57,880 --> 00:33:00,200
Speaker 1: on kind of equity vall. You know, if we look

644
00:33:00,240 --> 00:33:02,680
Speaker 1: at at high but but I think the dominant factor

645
00:33:02,720 --> 00:33:06,000
Speaker 1: in markets today is just simply yield. And so you know,

646
00:33:06,080 --> 00:33:09,080
Speaker 1: as investors sort of recalibrate portfolios, there's a very strong

647
00:33:09,120 --> 00:33:11,760
Speaker 1: technical to sort of capture that yield. And we look

648
00:33:11,800 --> 00:33:14,120
Speaker 1: at a market like high yield. And when high yield

649
00:33:14,120 --> 00:33:16,760
Speaker 1: typically is yielding between eight and ten percent, which is

650
00:33:16,880 --> 00:33:19,320
Speaker 1: roughly where it is today, you know, high yield as

651
00:33:19,320 --> 00:33:22,680
Speaker 1: an asset class tends to have very attractive future returns.

652
00:33:23,040 --> 00:33:26,000
Speaker 1: Going back to that break even and sort of volatility cushion,

653
00:33:26,240 --> 00:33:28,959
Speaker 1: you can absorb a lot of sort of market volatility

654
00:33:29,000 --> 00:33:31,960
Speaker 1: as well as kind of credit migration and ultimately default

655
00:33:32,080 --> 00:33:34,680
Speaker 1: risk when your average yield is sort of eight to

656
00:33:34,760 --> 00:33:38,320
Speaker 1: ten percent. So while we're cautious about the economic outlook

657
00:33:38,320 --> 00:33:40,400
Speaker 1: and there's we need to do some work and make

658
00:33:40,440 --> 00:33:42,760
Speaker 1: sure that we're picking the right credits, making sure that

659
00:33:42,760 --> 00:33:45,240
Speaker 1: your pencil sharp and you're you're really attuned to the

660
00:33:45,320 --> 00:33:48,680
Speaker 1: right type of companies. The value is just simply the yield,

661
00:33:48,720 --> 00:33:51,280
Speaker 1: and the yield is ultimately the cushion that's what I

662
00:33:51,320 --> 00:33:54,000
Speaker 1: earn in in high yield and say, you know, eight

663
00:33:54,000 --> 00:33:57,640
Speaker 1: to ten running yield says nothing about compression. A little

664
00:33:57,680 --> 00:34:00,360
Speaker 1: bit of compression and you could see, you know, solid

665
00:34:00,400 --> 00:34:02,680
Speaker 1: double digit returns in high yield this year, which is

666
00:34:02,720 --> 00:34:06,240
Speaker 1: exactly what we're expecting. That's what I'm talking about. Yeah, absolutely,

667
00:34:06,280 --> 00:34:09,920
Speaker 1: I mean, and especially great if you don't have the

668
00:34:10,000 --> 00:34:11,799
Speaker 1: kind of recession that we were worried about a couple

669
00:34:11,840 --> 00:34:14,000
Speaker 1: of weeks ago. It seems like a lot of more

670
00:34:14,080 --> 00:34:17,359
Speaker 1: commentators have gotten some optimism in the last few weeks

671
00:34:17,360 --> 00:34:19,279
Speaker 1: that a soft landing is possible, that we're not going

672
00:34:19,320 --> 00:34:23,600
Speaker 1: to see Matthew Mish said nine percent defaults possible um

673
00:34:23,719 --> 00:34:26,880
Speaker 1: this year, but it's looking less likely, at least from

674
00:34:26,880 --> 00:34:29,400
Speaker 1: the people we've talked to over the past couple of weeks. Yeah. Well,

675
00:34:29,520 --> 00:34:32,000
Speaker 1: I mean, we're cautious on the economic outlook. You know,

676
00:34:32,040 --> 00:34:34,279
Speaker 1: we think things will soften up this year. There's a

677
00:34:34,400 --> 00:34:37,440
Speaker 1: very healthy and robust debate going across our investment teams.

678
00:34:37,719 --> 00:34:39,520
Speaker 1: Is that a hard landing? Is it a soft landing?

679
00:34:39,920 --> 00:34:42,480
Speaker 1: My personal view, and I think the view of many

680
00:34:42,520 --> 00:34:44,400
Speaker 1: of the folks on the team is that it's just

681
00:34:44,440 --> 00:34:48,120
Speaker 1: going to be a very sluggish and ungratifying year. From

682
00:34:48,120 --> 00:34:51,120
Speaker 1: a pure growth perspective, it doesn't mean we careen into

683
00:34:51,120 --> 00:34:54,680
Speaker 1: a recession, and rather than sort of expecting a really

684
00:34:54,760 --> 00:34:57,680
Speaker 1: hard landing, we're going through a massive rotation. And when

685
00:34:57,719 --> 00:35:00,200
Speaker 1: we talk about things like high yield, you know there's

686
00:35:00,239 --> 00:35:02,200
Speaker 1: different ways to play it. If you don't want to

687
00:35:02,239 --> 00:35:05,440
Speaker 1: play the duration component, you can still harbor yourself in

688
00:35:05,480 --> 00:35:08,160
Speaker 1: the front end of the curve, capture two thirds three

689
00:35:08,239 --> 00:35:11,480
Speaker 1: quarters of that yield and take much less risk. And

690
00:35:11,560 --> 00:35:14,399
Speaker 1: so to us fixed income, the beauty of it right

691
00:35:14,400 --> 00:35:17,480
Speaker 1: now is that you can finesse your view and really

692
00:35:17,560 --> 00:35:19,719
Speaker 1: pick the spots that are gonna work for you. If

693
00:35:19,719 --> 00:35:22,719
Speaker 1: you want just pure your yielded income, things like short

694
00:35:22,800 --> 00:35:25,839
Speaker 1: duration hiw yield or full full sector how yield can work.

695
00:35:26,040 --> 00:35:28,640
Speaker 1: If you want longer duration, maybe you should think about

696
00:35:28,719 --> 00:35:32,920
Speaker 1: municipal bonds. Municipals have been very well protected, uh they're

697
00:35:32,960 --> 00:35:36,319
Speaker 1: performing very nicely and it's a good sort of duration

698
00:35:36,440 --> 00:35:39,640
Speaker 1: anchor in your portfolio. And if you just want the

699
00:35:39,640 --> 00:35:42,000
Speaker 1: broad market, there's always kind of the straight up the

700
00:35:42,000 --> 00:35:45,200
Speaker 1: middle core and core plus strategy. So there's a lot

701
00:35:45,239 --> 00:35:48,120
Speaker 1: to chew on here with with some pretty and fairly

702
00:35:48,160 --> 00:35:51,360
Speaker 1: predictable returns that we think will work well for folks

703
00:35:51,760 --> 00:35:54,840
Speaker 1: in their portfolios. All right, good stuff, George Boy. George,

704
00:35:54,880 --> 00:35:56,799
Speaker 1: thanks so much for joining us here. George Boy, chief

705
00:35:56,800 --> 00:36:00,280
Speaker 1: investment strategist for fixed income at all Spring, a mobal

706
00:36:00,440 --> 00:36:05,520
Speaker 1: investments group. Well, a little healthcare M and A And

707
00:36:05,560 --> 00:36:07,279
Speaker 1: as I've always said, in the next life, I'm want

708
00:36:07,280 --> 00:36:09,280
Speaker 1: to come back as a healthcare m and a banker

709
00:36:09,400 --> 00:36:13,360
Speaker 1: because those guys just get paid every year. There's always deals,

710
00:36:13,400 --> 00:36:16,640
Speaker 1: And here's another one. CBS health Core is exploring an

711
00:36:16,640 --> 00:36:20,520
Speaker 1: acquisition of oak Street Health, which one's primary care centers

712
00:36:20,560 --> 00:36:24,040
Speaker 1: for Medicare recipients. That's according to people familiar with the matter. Uh,

713
00:36:24,080 --> 00:36:26,239
Speaker 1: the deal could value oak Street at more than ten

714
00:36:26,280 --> 00:36:29,160
Speaker 1: billion dollars in full enterprise values. Let's break this deal

715
00:36:29,200 --> 00:36:31,960
Speaker 1: down and we can do with Jonathan um Palmer. He

716
00:36:32,040 --> 00:36:34,720
Speaker 1: is a senior equity research channels and team leader covering

717
00:36:34,760 --> 00:36:38,360
Speaker 1: all healthcare for Bloomberg Intelligence. Jonathan, thanks so much for

718
00:36:38,480 --> 00:36:40,240
Speaker 1: joining us here. Just give us the kind of the

719
00:36:40,239 --> 00:36:43,040
Speaker 1: the key points here on what is another big deal

720
00:36:43,040 --> 00:36:46,360
Speaker 1: in that healthcare space? Yeah, hide fall Matt, thanks for

721
00:36:46,400 --> 00:36:48,399
Speaker 1: having me on. You know this week is the JP

722
00:36:48,560 --> 00:36:51,839
Speaker 1: Morgan Healthcare conference out in San Francisco. That's where I'm

723
00:36:51,840 --> 00:36:54,719
Speaker 1: at right now, and it's really the seminal event in

724
00:36:54,800 --> 00:36:57,759
Speaker 1: the healthcare investment landscape. And we see a lot of

725
00:36:57,800 --> 00:37:00,719
Speaker 1: deal noise typically around this event, and this year is

726
00:37:00,760 --> 00:37:03,400
Speaker 1: really no different. There's been a couple of small therapeutic

727
00:37:03,440 --> 00:37:05,239
Speaker 1: deals that have been announced. But you know, as you

728
00:37:05,280 --> 00:37:09,800
Speaker 1: saw yesterday, there's a media speculation that CBS might acquire

729
00:37:09,960 --> 00:37:13,680
Speaker 1: oak Street uh for ten billion dollars and and really

730
00:37:13,680 --> 00:37:15,680
Speaker 1: this comes as not much of a surprise, to be

731
00:37:15,719 --> 00:37:18,920
Speaker 1: honest with you. Um, CBS has talked about wanting to

732
00:37:18,960 --> 00:37:22,399
Speaker 1: acquire companies in the primary care space. That's what Oak

733
00:37:22,480 --> 00:37:25,239
Speaker 1: Street does, and they've been rumored to be kicking the

734
00:37:25,280 --> 00:37:28,839
Speaker 1: tires on you know, uh oak Street another company called

735
00:37:28,880 --> 00:37:33,400
Speaker 1: Cano Health, and according to you know, our news reporters,

736
00:37:33,440 --> 00:37:36,480
Speaker 1: they've lost out on Amazon's bid for for one Medical.

737
00:37:36,920 --> 00:37:39,719
Speaker 1: So there's a lot going on in this space. Pharmacies

738
00:37:39,760 --> 00:37:42,640
Speaker 1: don't really want to be in the pharmacy business anymore.

739
00:37:43,640 --> 00:37:46,160
Speaker 1: You know, you've seen Walgreens do a deal with Village

740
00:37:46,239 --> 00:37:51,080
Speaker 1: m D. You saw right, Aid just cut their CEOs

741
00:37:51,160 --> 00:37:54,400
Speaker 1: yesterday and replace her as they're not doing too well.

742
00:37:54,680 --> 00:37:56,799
Speaker 1: So there's a lot going on, and there's a lot

743
00:37:56,880 --> 00:37:59,200
Speaker 1: that's happening, you know where these companies want to become

744
00:37:59,239 --> 00:38:02,640
Speaker 1: more healthcare service providers instead of just you know, a

745
00:38:02,719 --> 00:38:06,240
Speaker 1: retail pharmacy. At the end of the day, how how

746
00:38:06,239 --> 00:38:09,399
Speaker 1: has healthcare M and A held up in a year

747
00:38:10,239 --> 00:38:15,000
Speaker 1: looking back that was really not good for for deals

748
00:38:15,000 --> 00:38:18,480
Speaker 1: in other industries, And I mean, what are we going

749
00:38:18,560 --> 00:38:21,960
Speaker 1: to expect in three Yeah, it's a good question. I

750
00:38:21,960 --> 00:38:24,440
Speaker 1: think there's a couple of things at play here. You know,

751
00:38:24,480 --> 00:38:27,759
Speaker 1: we had the pandemic, and depending on which subsector of

752
00:38:28,239 --> 00:38:31,440
Speaker 1: healthcare the company companies were in, you know, it filled

753
00:38:31,480 --> 00:38:34,040
Speaker 1: the coffers for some, you know, the visors, and Maderna

754
00:38:34,120 --> 00:38:37,840
Speaker 1: Is obviously generated a lot of cash with their vaccine

755
00:38:37,880 --> 00:38:40,480
Speaker 1: revenues and put that money to work. We saw a

756
00:38:40,480 --> 00:38:43,239
Speaker 1: lot of the diagnostic test makers, you know, take the

757
00:38:43,280 --> 00:38:45,960
Speaker 1: COVID cash if they generated, and put it back in

758
00:38:45,960 --> 00:38:48,759
Speaker 1: into the market via M and A. Last year was

759
00:38:48,800 --> 00:38:51,719
Speaker 1: a touch slower relative to maybe two thousands twenty one,

760
00:38:51,760 --> 00:38:54,400
Speaker 1: but you know, health care is a pretty profitable industry

761
00:38:54,480 --> 00:38:57,239
Speaker 1: and returns on capital are good, so you know, I

762
00:38:57,280 --> 00:39:00,399
Speaker 1: think we'll see more deals happened this year. I mean,

763
00:39:00,400 --> 00:39:04,359
Speaker 1: as public markets have reset for a lot of subsectors.

764
00:39:04,840 --> 00:39:07,640
Speaker 1: You know, prices are down. Whether private valuations you know,

765
00:39:07,719 --> 00:39:09,960
Speaker 1: follow us quickly, I think remains to be seen. But

766
00:39:10,600 --> 00:39:13,600
Speaker 1: you know, there's there's definitely a tenor here at this

767
00:39:13,680 --> 00:39:17,200
Speaker 1: conference that will see more deals. And you know, Matt,

768
00:39:17,360 --> 00:39:19,799
Speaker 1: here's what's fascinating about the healthcare space and the JP

769
00:39:19,880 --> 00:39:23,640
Speaker 1: Morgan conference. JP Morgan is hosting their annual conference where

770
00:39:23,640 --> 00:39:25,440
Speaker 1: they big a bunch of healthcare companies together. It's in

771
00:39:25,440 --> 00:39:27,960
Speaker 1: San Francisco every year. It's the biggest conference in the

772
00:39:28,000 --> 00:39:31,640
Speaker 1: industry by far. So who attends, well, everybody, global companies

773
00:39:31,680 --> 00:39:34,919
Speaker 1: from around the world, global institutional investor clients at JP

774
00:39:35,000 --> 00:39:38,719
Speaker 1: Morgan from around the world. And then guess what, everybody

775
00:39:38,719 --> 00:39:41,480
Speaker 1: else comes to San Francisco who was interested in healthcare,

776
00:39:41,760 --> 00:39:46,520
Speaker 1: like like Jonathan Palmer, and investors and bankers from other

777
00:39:46,520 --> 00:39:49,680
Speaker 1: Wall Street firms because they know that everybody in the

778
00:39:49,719 --> 00:39:52,680
Speaker 1: healthcare space who means anything is in San Francis. I

779
00:39:52,680 --> 00:39:55,920
Speaker 1: think I read that there are almost fifty thousand people

780
00:39:55,960 --> 00:39:58,600
Speaker 1: in San Francisco for the conference and only eight thousand

781
00:39:58,640 --> 00:40:02,319
Speaker 1: are getting in. So it's at least for people who

782
00:40:02,320 --> 00:40:06,600
Speaker 1: are hanging around the bars and restaurants on the sidelines

783
00:40:06,640 --> 00:40:09,560
Speaker 1: trying to get deals done right. So exactly, So, Jonathan,

784
00:40:09,600 --> 00:40:11,439
Speaker 1: this is really amazing. I don't see it in too

785
00:40:11,440 --> 00:40:13,400
Speaker 1: many other industries. But just give us a sense of

786
00:40:13,400 --> 00:40:16,319
Speaker 1: the history of this JP Morgan conference and and kind

787
00:40:16,320 --> 00:40:19,360
Speaker 1: of what it means to the healthcare industry. Well, you

788
00:40:19,400 --> 00:40:21,200
Speaker 1: guys have to nail on the head. I mean, it's

789
00:40:21,239 --> 00:40:24,520
Speaker 1: it is the seminal event in the healthcare investment space.

790
00:40:24,560 --> 00:40:27,560
Speaker 1: It's it's been going on for over thirty years. It

791
00:40:27,600 --> 00:40:29,560
Speaker 1: actually used to be run by a bank called the

792
00:40:29,680 --> 00:40:33,959
Speaker 1: Handbracking Quest. JP Morgan bought back in the day there,

793
00:40:34,000 --> 00:40:36,560
Speaker 1: you know, when they were acquiring you know, everybody bought

794
00:40:36,800 --> 00:40:40,040
Speaker 1: the four Horsemen, the four investment banks in San fran

795
00:40:40,120 --> 00:40:43,120
Speaker 1: and and really the traditions kind of carried on since then.

796
00:40:43,160 --> 00:40:46,000
Speaker 1: I mean, you come to this meeting or there's this

797
00:40:46,440 --> 00:40:50,600
Speaker 1: investment conference, and there's meetings happening everywhere on the street, corners,

798
00:40:50,680 --> 00:40:54,200
Speaker 1: in coffee shops at Starbucks, and free hotel lobby seat

799
00:40:54,280 --> 00:40:57,080
Speaker 1: has taken. I think half of my meetings are in

800
00:40:57,239 --> 00:41:00,520
Speaker 1: coffee shops and hotel lobbies while I'm here. It's really

801
00:41:00,560 --> 00:41:04,040
Speaker 1: just outstanding, you know, the level of participation by the

802
00:41:04,040 --> 00:41:08,320
Speaker 1: industry and after not being in person after two years,

803
00:41:08,680 --> 00:41:10,480
Speaker 1: you know, there's there's probably a little bit of a

804
00:41:11,160 --> 00:41:13,399
Speaker 1: drive here to get some stuff done that we're back

805
00:41:13,440 --> 00:41:16,000
Speaker 1: in person and you know, can see people face to

806
00:41:16,040 --> 00:41:18,640
Speaker 1: face across the table. So what is kind of the

807
00:41:18,719 --> 00:41:21,640
Speaker 1: vibe there in San Francisco as it relates to health

808
00:41:21,680 --> 00:41:25,279
Speaker 1: care is there? Is it generally maybe are there any

809
00:41:25,280 --> 00:41:27,520
Speaker 1: regulatory concerns that are out there or is it just

810
00:41:28,239 --> 00:41:31,680
Speaker 1: full speed ahead here? Yeah? I think it depends a

811
00:41:31,719 --> 00:41:35,080
Speaker 1: little bit on the subsector. You know, different there's different drivers,

812
00:41:35,080 --> 00:41:39,240
Speaker 1: whether you're in therapeutics or health care services or medical products.

813
00:41:39,239 --> 00:41:41,480
Speaker 1: I mean at the stuff I I look at, you know,

814
00:41:41,520 --> 00:41:43,759
Speaker 1: on the healthcare services side, which is what we're talking

815
00:41:43,800 --> 00:41:47,799
Speaker 1: about with CVS and and Oak Street, there's definitely, you know,

816
00:41:48,160 --> 00:41:51,279
Speaker 1: uh a theme here that you know, companies want to

817
00:41:51,600 --> 00:41:56,080
Speaker 1: expand their umbrella, move into new markets or adjacent markets,

818
00:41:56,760 --> 00:41:59,680
Speaker 1: and you know that's happening with Ernest. You know, we've

819
00:41:59,719 --> 00:42:03,359
Speaker 1: seen a fair number of you know, good announcements for

820
00:42:03,440 --> 00:42:07,200
Speaker 1: companies in kind of the product space, pre announcing strong revenues.

821
00:42:07,239 --> 00:42:10,000
Speaker 1: It seems like four Q is shaping up to be,

822
00:42:10,160 --> 00:42:12,200
Speaker 1: you know, pretty much in line for most companies, and

823
00:42:12,400 --> 00:42:15,319
Speaker 1: we're starting to see guidance on two thousand twenty three

824
00:42:15,400 --> 00:42:18,680
Speaker 1: that looks generally in line with consensus. So the the

825
00:42:18,760 --> 00:42:22,880
Speaker 1: underlying um you know, I think attitude here is is

826
00:42:22,880 --> 00:42:25,560
Speaker 1: pretty positive, and you know, we're still kind of waiting

827
00:42:25,560 --> 00:42:28,120
Speaker 1: to see how things shake out with we have a recession.

828
00:42:28,160 --> 00:42:29,800
Speaker 1: But you know, at the end of the day, people

829
00:42:30,040 --> 00:42:32,360
Speaker 1: still get sick, you know, still need to take drugs,

830
00:42:32,360 --> 00:42:34,520
Speaker 1: still need to go to the hospital and get procedures done.

831
00:42:34,760 --> 00:42:39,800
Speaker 1: Healthcare is a really defensive space alright, So, um, what

832
00:42:39,800 --> 00:42:42,839
Speaker 1: what should we expect in terms of the stocks this year?

833
00:42:42,880 --> 00:42:46,120
Speaker 1: I mean M and A is one thing, stock performance

834
00:42:46,160 --> 00:42:50,439
Speaker 1: is another, and everybody got wiped out last year? Um

835
00:42:50,800 --> 00:42:54,120
Speaker 1: house healthcare going to do this year? Yeah? Again, I

836
00:42:54,160 --> 00:42:57,480
Speaker 1: think it depends on the subsector. You know, I think

837
00:42:57,520 --> 00:42:59,960
Speaker 1: therapeutics had a rough year last year. We're starting to

838
00:43:00,040 --> 00:43:02,560
Speaker 1: see some good data come across from a number of

839
00:43:02,560 --> 00:43:05,360
Speaker 1: different companies. That's positive. You know, I think as M

840
00:43:05,400 --> 00:43:07,359
Speaker 1: and A maybe picks up in that sector as well,

841
00:43:07,400 --> 00:43:10,239
Speaker 1: that will support valuations. You know, some of the more

842
00:43:10,320 --> 00:43:14,640
Speaker 1: defensive names in healthcare, like I cover the drug distributors.

843
00:43:14,960 --> 00:43:17,200
Speaker 1: I mean they had banner years last year. You know,

844
00:43:17,520 --> 00:43:20,279
Speaker 1: McKesson I think was up fifty plus percent. You know,

845
00:43:20,360 --> 00:43:22,560
Speaker 1: I don't think they're likely to see another up fifty

846
00:43:22,600 --> 00:43:25,480
Speaker 1: percent year this year. But at the same time, the

847
00:43:25,719 --> 00:43:29,080
Speaker 1: back drop is positive, and you know, there's still still

848
00:43:29,120 --> 00:43:32,640
Speaker 1: things they can do to push revenue growth in EPs growth.

849
00:43:32,800 --> 00:43:35,239
Speaker 1: So you know, overall, I'm pretty positive on the on

850
00:43:35,320 --> 00:43:37,400
Speaker 1: the sector. You know, we had a tough year, like

851
00:43:37,440 --> 00:43:39,800
Speaker 1: I said, in some of the subsectors in two thousand

852
00:43:39,880 --> 00:43:42,600
Speaker 1: twenty two. But you know, for the most part, you know,

853
00:43:42,680 --> 00:43:45,400
Speaker 1: even if there's a recession, you know, the world economy

854
00:43:45,480 --> 00:43:48,880
Speaker 1: as it as it relates to healthcare, carry on, all right, Johnathan,

855
00:43:48,920 --> 00:43:51,480
Speaker 1: If you see any of those vaccine geniuses out there

856
00:43:51,520 --> 00:43:53,879
Speaker 1: that did such a great job, by a beer, put

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Speaker 1: it on my tab, okay, because they did a phenomenal

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Speaker 1: job and kind of change the at least my view

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Speaker 1: a little bit on some of the healthcare What bang

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Speaker 1: them about the high drug costs, But man, and we

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Speaker 1: needed the vaccines. Did they come through and come through quickly?

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Speaker 1: Uh So, pat on the back for a lot of

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Speaker 1: those folks. Thanks for listening to the Bloomberg Markets podcast.

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Speaker 1: You can subscribe and listen to interviews with Apple Podcasts

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Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm

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Speaker 1: on Twitter at Matt Miller, three pt on Fall Sweeney.

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Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you

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Speaker 1: can always catch us worldwide at Bloomberg Radio