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Speaker 2: We're all kind of keeping a watch on GM today.
Speaker 3: Yeah, shares are certainly revving up right now. This is
Speaker 3: the carmaker sees higher profits ahead this year on improved sales,
Speaker 3: thanks largely to a belief that its biggest problems in
Speaker 3: twenty twenty three are in the rear view mirror. I
Speaker 3: mean that was a big deal with the striker last year.
Speaker 2: Yeah, it was a lot of things, certainly, you know,
Speaker 2: chipping away at them. So the automaker plans to reintroduce
Speaker 2: gas electric hybrid models, which the company sells and other
Speaker 2: markets currently. They're also staying, though very committed to wrapping
Speaker 2: up production of battery only vehicles. GM CEO Mary Barrow
Speaker 2: remains committed to an all electric vehicle lineup by twenty
Speaker 2: thirty five.
Speaker 4: We're going to be building many more ultium based evs
Speaker 4: we had to construct with modules we have addressed that
Speaker 4: were on track for the first month and by the
Speaker 4: middle of the year that should be well behind us.
Speaker 4: So that's going to allow us to build many more
Speaker 4: of the existing vehicles like the Cadillac Lyric and the
Speaker 4: GMC Hummer EV, the Silverado EV work.
Speaker 2: Truck, etc.
Speaker 3: That was GM CEO Mary Bara, who said once again
Speaker 3: that she remains committed to an all electric vehicle lineup
Speaker 3: by twenty thirty five, but they are reintroducing gas electric
Speaker 3: hybrid models. With more on GM, Let's bring in our
Speaker 3: Detroit bureau chief where we find Bloomberg News Detroit bureau
Speaker 3: chief David Welch joining us on zoom David, good to
Speaker 3: have you back with us. Let's talk a little bit
Speaker 3: about the stock move today. I mean, what is it
Speaker 3: about the results specifically you think that are driving investors
Speaker 3: to send shares higher?
Speaker 5: And actually speaking, they beat everywhere they could, right, So,
Speaker 5: the fourth quarter was a bit better than expected, always
Speaker 5: a good thing to do. And for the year they
Speaker 5: were as well, and then for twenty twenty four also
Speaker 5: better than analysts were expecting. And then you look at
Speaker 5: what goes into that kind of there were three big
Speaker 5: things that really hurt profits last year. One was how
Speaker 5: much they spent on Cruise, which is their robotaxi company.
Speaker 5: They grounded the fleet because of regulatory problems after an
Speaker 5: accident they had hitting a pedestrian and a crosswalk. So
Speaker 5: they're going to reduce spending on crews by a billion
Speaker 5: dollars while still developing the technology. Investors place almost no
Speaker 5: value on autonomous vehicles right now, so if GM spends less,
Speaker 5: they like that. Another big item, one point seven billion.
Speaker 5: That hurt earnings because GM is making battery sales for
Speaker 5: its evs and they're doing so at low run rates
Speaker 5: that are not profitable at all, and because of some
Speaker 5: accounting rules, they basically they take a charge for that
Speaker 5: and they expect that to be much less this year.
Speaker 5: So one point seven billion losing from the EV program.
Speaker 5: They'll lose some probably in twenty twenty four, but not
Speaker 5: as much. So investors like that. And then there was
Speaker 5: a strike. They have took one point one billion out
Speaker 5: of profits and they're not going to have another strike
Speaker 5: again because they've got a labor contract. So you add
Speaker 5: all those things back in there and the profits this
Speaker 5: year they're talking about twelve billion at least in earnings
Speaker 5: before interest in taxes, and maybe as much as fourteen billion,
Speaker 5: that gets up close to record profits of twenty twenty two.
Speaker 5: So all this says profits are going to grow versus
Speaker 5: twenty twenty three, getting back to the really good times
Speaker 5: they had two years ago, and they're spending less on
Speaker 5: some of these trouble spots. And also they say they're
Speaker 5: going to start getting evs produced, which has been a
Speaker 5: big problem for them. So some momentum.
Speaker 2: David, I love this line in your story. While it
Speaker 2: struggles to build electric vehicles that are a keystone of
Speaker 2: Mary Barr's long term growth plan, and it's cruise REBOTAXI
Speaker 2: unit is on full reboot, GM's core business and making
Speaker 2: gasoline powered trucks and SUVs thrown off a lot of cash,
Speaker 2: all right, So there are the contrasting sides of General Motors.
Speaker 2: Which side should investors focus on at this point?
Speaker 5: Right now? I think they're looking at the internal combustion
Speaker 5: side of the business, which is throwing off a lot
Speaker 5: of cash, because look, it's the cash generation power of
Speaker 5: that business that allow GM to raise the dividend and
Speaker 5: buy back ten billion dollars in shares. So right now,
Speaker 5: even though GM, you listen to Mary Borrow today, still
Speaker 5: positioning the company as one with a technology story, one
Speaker 5: with a growth story going forward for the next five
Speaker 5: or ten years with these electric vehicles with crews. Investors
Speaker 5: are focusing less on that because they see GM as
Speaker 5: a company that's returning cash, and if the forecast says
Speaker 5: they're going to do well enough to continue to do that,
Speaker 5: then investors are going to buy in.
Speaker 3: I mean, David, this seems to be the theme of
Speaker 3: twenty twenty four, which is stepping back from the idea
Speaker 3: of everyone switching to evs quickly, which people really got
Speaker 3: wrong over the last couple of years, and many companies
Speaker 3: really got wrong, and saying that the transition is going
Speaker 3: to be a lot longer. I mean, look what's happening
Speaker 3: with Ford, Look what's happening with Tesla. Does it seem
Speaker 3: to you that the company is indeed not putting these
Speaker 3: on the back burner, but tamping back investment in a
Speaker 3: way that other companies are too.
Speaker 5: Well, With GM, a lot of the investment in that
Speaker 5: EV program has already been made. You look at the
Speaker 5: vehicles that they're bringing out this year and the ones
Speaker 5: where they're trying to ramp up production. It's the Cadillac
Speaker 5: lyric it's the Chevy Silverado EV, the Chevy Blazer SUV,
Speaker 5: and the small Chevy Equinox Compact. They still have the
Speaker 5: Hummer that they're wrapping up. They're already spent the money
Speaker 5: developing those, so that's money spent. Where they're saving money
Speaker 5: is delaying programs like the Chevy Silverado EV. There's a
Speaker 5: plant in suburban Detroit that's going to wrap up production
Speaker 5: of that. They're delaying that by a year. So they
Speaker 5: have delayed some of the investment and that does save
Speaker 5: them some cash this year, but it's not a huge amount.
Speaker 5: I think. Really the EV story is there's still growth
Speaker 5: out there. It's just not what everybody thought it was.
Speaker 5: So everyone is in to watch and see mode with that.
Speaker 5: But they're pulling back some investment and that allows them
Speaker 5: to maybe return money to shareholders. Maybe we're freshing up
Speaker 5: some of the internal combustion vehicles that are making some
Speaker 5: more money for them.
Speaker 2: All right, So maybe, you know, pulling off a little
Speaker 2: bit of the evs, but still, you know, that's part
Speaker 2: of their core mission longer term and focusing on kind
Speaker 2: of what consumers want today. Isn't that what GM and
Speaker 2: Mary Barr should be doing as the head of a
Speaker 2: company and just kind of adjusting to the environment, maybe
Speaker 2: keeping those long term goals in place. David, how do
Speaker 2: you see it as somebody who follows this industry? Is
Speaker 2: this herd just kind of managing for where we are
Speaker 2: today in this auto cycle.
Speaker 5: Yeah, and it's absolutely what they should be doing, because
Speaker 5: you can't go and just keep building factories to make
Speaker 5: EV batteries or add more EV production if the buyers
Speaker 5: aren't there. So I think the real story will be
Speaker 5: over the course of twenty twenty four and twenty twenty
Speaker 5: five when you see some of their evs come out,
Speaker 5: like the Chevy Blazer, Chevy Equinox, and the Silverado pickup
Speaker 5: which will compete with the F one fifty Lightning. How
Speaker 5: many of those do they sell? How quickly can they
Speaker 5: get production ramped up? And if the volumes are there,
Speaker 5: if consumers really want them, they can continue to add production.
Speaker 5: If not, then they won't, and then they've got other
Speaker 5: decisions to make, like, for example, bringing out a new
Speaker 5: Chevy Equinox I'm talking about the gasoline powered version next month.
Speaker 5: And do they continue to freshen some of these vehicles
Speaker 5: that they thought may have gone away in the middle
Speaker 5: of next decade. My bet is that they absolutely will,
Speaker 5: because it is going to take a lot longer than
Speaker 5: everyone thought to do this. There's another wildcard here, which
Speaker 5: is that the federal tax credit, the seventy five hundred dollars.
Speaker 5: Not as many vehicles qualify for that, but more vehicles
Speaker 5: will qualify for it, and that's just starting and it's
Speaker 5: a new way of distributing the incentive. You get it
Speaker 5: at the dealership instead of having to file for it
Speaker 5: in new taxes. So that's real money in the showroom
Speaker 5: for EV buyers. That could have an impact. We're just
Speaker 5: not seeing it quite yet, and you know, we need
Speaker 5: to see how that plays out this year and whether
Speaker 5: or not it really gins up some demand and makes
Speaker 5: everybody think that, okay, you know, maybe there still is
Speaker 5: a lot of growth from the tax benefits to be had.
Speaker 3: You mentioned Cruz. I want to go back to Cruz,
Speaker 3: the autonomous driving platform four GM. What is the future
Speaker 3: of Cruise, especially in the wake of the incident that
Speaker 3: I had earlier in the past few months.
Speaker 5: This is a really tough one. So look, this year,
Speaker 5: had all that not happened and they not had some
Speaker 5: of these technological problems and even worse regulatory problems. They
Speaker 5: were going to try to deploy a robotaxi service in
Speaker 5: twelve cities. That's probably not going to happen. They've grounded
Speaker 5: all of that and they laid off all the people
Speaker 5: who are doing the development work. I think kind of
Speaker 5: near term, they'll probably go back to one city if
Speaker 5: that works well, maybe two, and they will slowly ramp
Speaker 5: up the robotaxi business very slowly. I think the second
Speaker 5: thing they'll probably do is really continue to develop that
Speaker 5: because GM does see a real future in selling personally
Speaker 5: owned self driving vehicles, and consumers do like these things,
Speaker 5: like GM supercrews test to autopilot where they can drive
Speaker 5: hands free on the road, and they would probably like
Speaker 5: a vehicle that completely drives itself a lot too, and
Speaker 5: they probably pay good money for it. But that's a
Speaker 5: ways way. But GM will keep developing that technology for
Speaker 5: that reason, and they'll kind of see how robotaxi goes,
Speaker 5: if consumers want it, and if they can make money
Speaker 5: off of the business.
Speaker 2: Hey, real quickly before we go thirty seconds here, I'm David.
Speaker 2: Same thing. Some of the issues that GM is seeing
Speaker 2: here in the US same thing in terms of overseas
Speaker 2: or is there any distinction?
Speaker 5: Just quickly, In China, EV sales continue to grow fast
Speaker 5: because the government practically mandates similar thing. In Europe, you're
Speaker 5: seeing better growth theory. The US is the laggered when
Speaker 5: it comes to consumers not buying evs.
Speaker 2: All right, So appreciate you weigh in on General Motors, David,
Speaker 2: Thank you so much. To Troit Bureau is where we
Speaker 2: find our own Detroit Bureau Chief David Welt on this
Speaker 2: Tuesday joining us on zoom. Shares of General Motors tim
Speaker 2: still up about eight and a half percent, up ten
Speaker 2: percent at their highs today, but still holding on to
Speaker 2: most of their games.
Speaker 3: I mean, if there's one theme that sort of defines
Speaker 3: the transition from automakers from last year to this year,
Speaker 3: from late, you know, twenty twenty two to twenty twenty three,
Speaker 3: it's the EV transition is taking so much longer than
Speaker 3: pretty much everybody thought it would.
Speaker 6: Yeah.
Speaker 2: Well, I think there's a lot of enthusiasm. I think
Speaker 2: those government credits certainly help and prices coming down via Tesla.
Speaker 2: But I feel like there was a period where I
Speaker 2: just saw them everywhere. But it's interesting the numbers are
Speaker 2: telling a different story.
Speaker 3: They're expensive.
Speaker 2: They're expensive. That's definitely holding people back.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 2: Speaking of that FED meeting, Bloomberg Economics, they've got their
Speaker 2: FED speak.
Speaker 3: That's really cool, right.
Speaker 2: They look at natural language or they've got i should
Speaker 2: say a natural language processing model. It is trained on
Speaker 2: more than sixty thousand FED headlines and it suggests that
Speaker 2: the first rate cut will come in May. That's later
Speaker 2: than markets bets of March, but earlier than the second
Speaker 2: half of twenty twenty four, which we've heard from by
Speaker 2: a lot of folks. Also as flagged in December Summary
Speaker 2: of Economic projections.
Speaker 3: All of this is top of mind is the FED
Speaker 3: kicked off a two day meeting with the first FED
Speaker 3: decision of the year expected tomorrow. So for our interview
Speaker 3: this afternoon, we bring in Brad Case, former economist at
Speaker 3: Fannie May and the Fed. Brad also chief economist at
Speaker 3: Middleburg Communities, which buys and builds rental housing in the
Speaker 3: southeastern and mid Atlantic US. Brad is here in the
Speaker 3: Bloomberg studio and.
Speaker 2: Then out there on Zoom from Cape Canaveral, Florida. Back
Speaker 2: with us is Steve Skanke, chief economic advisor at Keel Point.
Speaker 2: He is also a former US Treasury in White House
Speaker 2: National Security Council staff member. Brad and Steve welcome, Welcome
Speaker 2: the data buy and large continues to come in okay,
Speaker 2: if not better than okay, Consumers are still confident in spending.
Speaker 2: Brad to you first, is it crazy for many of
Speaker 2: us to continue to talk about a FED rate cut
Speaker 2: when you see things kind of humming along.
Speaker 7: Yes, I think it's pretty crazy to think about a
Speaker 7: RAID cut tomorrow. I think you're what you were saying about,
Speaker 7: maybe it's happening in May and not even March. I
Speaker 7: think that's pretty realistic. Look, the FED is looking for
Speaker 7: things to come into balance so that we don't have
Speaker 7: inflationary pressures pushing inflation back up. They want to make
Speaker 7: sure that it's dead for the time being. They don't
Speaker 7: want on a recession to kill it. They want a
Speaker 7: soft landing to kill it. They're they're close to that,
Speaker 7: but you know.
Speaker 2: They want a soft landing to kill it.
Speaker 7: They want a soft landing to mean that inflation is
Speaker 7: not going to come back, not going to come out
Speaker 7: of the grave. And they're pretty close to that, but
Speaker 7: they're not that the data continue to come in a
Speaker 7: little bit too strong.
Speaker 3: At what point, Brad, could the FED say mission accomplished.
Speaker 3: What does the FED need to see in terms of
Speaker 3: data in order to do that?
Speaker 7: Well, So, so we've just seen too much over demand
Speaker 7: throughout the economy. It's you know, it's strong wage growth,
Speaker 7: it's strong income growth that that drives strong consumption. It's
Speaker 7: a demand relative to supply in the labor markets. So
Speaker 7: they're just they just need balance, you know, sort of
Speaker 7: throughout the economy to make sure that they're not going
Speaker 7: to pull a pull a late seventies early eighties mistake.
Speaker 2: Hey, on the flip side of all of this, the
Speaker 2: concept of real rights, I'm kind of obsessed. I was
Speaker 2: bothering Mike McKee or Michael McKee in a big way today,
Speaker 2: which is when you're take into account inflation. So Steve
Speaker 2: bring you into this. Even though the Fed's main rate
Speaker 2: has stayed the same since last July, as inflation comes down,
Speaker 2: the real rate of inflation has actually gone up, continuing
Speaker 2: to put pressure on the US economy. How closely do
Speaker 2: you watch that as an indication of why and when
Speaker 2: the Fed will need to ultimately cut rates, and maybe
Speaker 2: while it could happen sooner rather than later.
Speaker 8: Well, it's an important rate and data point to watch,
Speaker 8: and it'll be interesting to see how attent of the
Speaker 8: FED is to that. With a run rate of core
Speaker 8: PCE inflation right now at about two percent, last six
Speaker 8: months annualizes at one point nine last three months annualizes
Speaker 8: at one and a half percent, the real rate of
Speaker 8: interest is in the neighborhood of three to three and
Speaker 8: a quarter percent, which is double or even triple what
Speaker 8: you would normally expect. And so the Fed is not
Speaker 8: unaware that this is a monetary constraint on the economy.
Speaker 8: And the question is, and they can to be confident
Speaker 8: that inflation is dead or is vanquished before they a
Speaker 8: lot up on the brakes and they're paying attention to that.
Speaker 8: Certainly we're paying attention to that too.
Speaker 3: Steve, I'm going to kind of send a similar question
Speaker 3: over to you. I mean, what would it take for
Speaker 3: the FED to say, for you to say that your
Speaker 3: confident inflation is back to two percent consistently, and we're
Speaker 3: not going to see a mistake of the seventies or eighties.
Speaker 8: Well, it's not just the seventies and eighties, tim The
Speaker 8: FED got burned in twenty twenty one with their declaration
Speaker 8: that it was transitory and it was going to be okay,
Speaker 8: and they got head faked, and along came inflation in
Speaker 8: a way that they had really not expected. They were embarrassed,
Speaker 8: and they don't want that to happen again. So I
Speaker 8: think it's fair to say that it's pretty much finished.
Speaker 8: The FED gets a pass on the January meeting, even
Speaker 8: though arguably they could or should start cutting now, but
Speaker 8: they don't have to do anything now, and as a result,
Speaker 8: they get to see January labor information productivity, we get
Speaker 8: to see all of the things that are coming next
Speaker 8: before they meet again in mid March, and that really
Speaker 8: ought to give them confidence that it's vanquished or not.
Speaker 8: And I think there's a big opportunity for them to
Speaker 8: start cutting in March, but the rhetoric tomorrow is going
Speaker 8: to be very much the forward guidance. We're not ready
Speaker 8: to do that yet. We want to see that it's finished,
Speaker 8: But what's the app start?
Speaker 2: Let me jump in for a moment, Steve, because one
Speaker 2: of the things I'm obsessed. My whole team knows this.
Speaker 2: I listen to surveillance this morning on radio and they
Speaker 2: head on Nadia Leavel, senior US equity strategist over at
Speaker 2: UBS Financial Services, and she talked about the nearly one
Speaker 2: trillion dollars that is still on consumers balance and she
Speaker 2: said everything is contingent in terms of the US economy
Speaker 2: and what consumers do and what she said, fair amount
Speaker 2: of that excess saving nearly one trillion with a fifty
Speaker 2: billion or so burn rate gives a healthy cushion for
Speaker 2: a year plus. That should provide momentum and support for earnings.
Speaker 2: So Brad come back in on this. How much the
Speaker 2: FED is watching the consumer the consumer balance sheet, even
Speaker 2: though we continually talk with folks who talk about stress
Speaker 2: on that balance sheet. Nonetheless, for her to come in
Speaker 2: and say that there's still room to spend, does the
Speaker 2: FED have to be careful about pulling off too quickly
Speaker 2: and for kind of consumers to be off and running again.
Speaker 7: Yeah, absolutely, I think she's exactly right. Consumer balance sheets. Yeah,
Speaker 7: we've heard about increases in delinquency rates, and that's all true,
Speaker 7: but the truth is that consumer balance sheets are still
Speaker 7: pretty strong, and so the FED will look for signs
Speaker 7: of signs that consumption has started to falter. The most
Speaker 7: likely thing that comes first is that employment growth starts
Speaker 7: to falter. So you look for early warnings. But really
Speaker 7: what determines whether they can really pull off on the
Speaker 7: brakes is when consumption stops become being so strong going
Speaker 7: forward and we're just not there yet. The consumer keeps
Speaker 7: on surprising us.
Speaker 2: Well, and let's bring Steve. Why how do you make
Speaker 2: sense of the strength and the consumer and when you
Speaker 2: might anticipate that that starts to slow down or do
Speaker 2: you at all?
Speaker 8: Well, I think it will slow down. We're we've been
Speaker 8: seeing average hourly earnings at four percent, which is above
Speaker 8: the rate of inflation. Some of that is catch up
Speaker 8: to what we've experienced in higher prices, even though the
Speaker 8: rate of inflation has come down significantly, But consumers are
Speaker 8: spending there, they're doing it on their credit cards. Delinquencies
Speaker 8: are increased. I think the exces savings on balance sheets
Speaker 8: is not so evenly distributed, so I don't know how
Speaker 8: much of that will continue to power it going forward.
Speaker 8: That's a good point, but for right now. And you know,
Speaker 8: we saw a consumer confidence of percent with the with
Speaker 8: the January numbers. That that tells us that consumers feel
Speaker 8: good about what's happening in the economy right now.
Speaker 3: Hey, Brad, you were an economist at Fanny May and
Speaker 3: at the FED. So I want to hear from you
Speaker 3: if there's anything out there in the environment that you
Speaker 3: see that concerns you that isn't getting a lot of
Speaker 3: attention right now.
Speaker 7: Well, I think you know what, Mostly what most concerns
Speaker 7: me are things that do get a lot of attention.
Speaker 7: You know, the stock market is certainly overvalued, and so
Speaker 7: don't I don't want to call, you know, a stock
Speaker 7: market decline, but that's maybe the biggest risk going forward.
Speaker 7: But the other big risk that gets a lot of
Speaker 7: attention is the fact that house prices are so high.
Speaker 7: So if consumers start to feel stretched in terms of
Speaker 7: their balance sheets, I think what you're going to see
Speaker 7: is that they're not going to be willing to buy
Speaker 7: a house at these astronomical prices.
Speaker 3: I mean, I don't see that ever shifting. I know
Speaker 3: that was a dangerous thing to say pre two thousand
Speaker 3: and eight exactly what would shift. The demographics show right
Speaker 3: now that there is a serious lack of housing. And
Speaker 3: this is something that Powell has talked about over the years. Right,
Speaker 3: this is not a new problem by any means. I
Speaker 3: don't see how it gets solved now.
Speaker 7: I you know, well, I think actually my company is
Speaker 7: trying to solve that with with build to rent communities.
Speaker 7: You know, because it has always been that if you
Speaker 7: wanted four walls, you had to buy them. We're providing
Speaker 7: a different product and that provides an outlet for some
Speaker 7: of that demand.
Speaker 2: Well, yeah, it's interesting. We did get a data point
Speaker 2: today that US home growth, US home price growth slowing
Speaker 2: as those high mortgage rates are squeezing.
Speaker 3: To me, look what we heard from the Worldpool CEO
Speaker 3: yesterday concerned that people aren't going to be buying those
Speaker 3: big ticket items anymore in the near future at.
Speaker 2: Least, right So that's significant. But again with you know,
Speaker 2: I guess what I'm trying to figure out, Steven. I
Speaker 2: think Tim, you and I talk about this all the time,
Speaker 2: is are we just getting back to normal? You know,
Speaker 2: all of the unprecedented stimulus and all of the moves
Speaker 2: and the new you know, moves and measures if you will,
Speaker 2: the impact on the supply chain, everything that went on
Speaker 2: during the pandemic post pandemic. Are we finally getting companies
Speaker 2: and everything kind of back to normal, kind of pre
Speaker 2: pandemic if you will.
Speaker 8: Well, it certainly feels like we are. If you just
Speaker 8: look across the economy, things do look pretty much back
Speaker 8: to normal. The most unsettling thing is that things actually
Speaker 8: look very very good when you look across the economy. Yes,
Speaker 8: there are the things that we've been talking about in
Speaker 8: housing and home ownership, and some of the inconsistencies in
Speaker 8: the distribution of jobs and wage growth, but by and large,
Speaker 8: things look very much back to normal. Earnings seem to
Speaker 8: be having a bigger impact on stock market performance than
Speaker 8: what folks think the Fed is going to do. I
Speaker 8: think it'll be really interesting to see when the Fed
Speaker 8: starts cutting, the economy continues to be as generally bust
Speaker 8: as it is with positive economic growth, and how marcuts
Speaker 8: react to that. Historically, they've reacted very well, even when
Speaker 8: they were fairly priced already.
Speaker 3: Hey, Brad, to that point of view, were actually getting
Speaker 3: in touch asking about negative payrolls. And if you start
Speaker 3: to see negative payrolls on the horizon.
Speaker 7: Yeah, I don't see when that's going to happen or
Speaker 7: what's going to trigger that. You know, when we as
Speaker 7: we get closer to normal, you will see payrolls getting
Speaker 7: closer to zero. And that's good thing. I mean, we
Speaker 7: just can't continue with the certain kind of excess demand
Speaker 7: throughout the economy that we've had for a few years now.
Speaker 7: But that doesn't mean we're gonna have to we're gonna
Speaker 7: go to negative payroll growth. I'll give you an example.
Speaker 7: We you know, in the rental housing space, we were
Speaker 7: expecting rent growth to become markedly negative. It didn't. Why
Speaker 7: didn't it because there was more demand for housing than
Speaker 7: we expected there to be. And where that's coming from
Speaker 7: is people moving out from their parents' basement, moving out
Speaker 7: from their trinity brothers, you know, shared apartment and get
Speaker 7: in their own place. There is a lot of room
Speaker 7: for that to run.
Speaker 2: And so is it also the regions you play in
Speaker 2: just staying with it because you guys are building and
Speaker 2: buying in the south eastern part of the US and
Speaker 2: mid Atlantic, you're in a hots I have a lot
Speaker 2: of family members that have moved to like the Carolinas,
Speaker 2: is that because of the region you're.
Speaker 7: In specifically, the migration story has been there for more
Speaker 7: than twenty years already and that will that will continue.
Speaker 7: So yes, But the main thing that's happening is is
Speaker 7: an increase in the number of people who are moving
Speaker 7: out and signing their own leases. That's that's what we
Speaker 7: call new household formation. That's what is still likely to
Speaker 7: run for several years now and provide this backwind, you know,
Speaker 7: you know, favorable wind for housing demand four years.
Speaker 2: One last thing, hey to you, Steve, as we listen
Speaker 2: to j Powell tomorrow, really is the tone, the tenor
Speaker 2: the message that he tries to get across. What's the
Speaker 2: most important thing and only have about twenty twenty five seconds.
Speaker 8: How much he he prepositions for the FED not to
Speaker 8: be cutting in Mars Arch. If he if he's somewhat
Speaker 8: neutral about that, I think that's really positive. If he's
Speaker 8: really harsh, they're really trying to buy more time because
Speaker 8: of something that they're uneasy about.
Speaker 2: All right, well, we will all certainly be watching, listening,
Speaker 2: parsing every word that he says. Gentlemen, Thank you so much,
Speaker 2: doctor Steve Skanky, Chief Economic advisor over at kill Point,
Speaker 2: former US Treasuring White House National Security Council staff member
Speaker 2: joining us on zoom out there in Florida, and Broadcase,
Speaker 2: thanks for coming in studio. I really appreciate it, my pleasure.
Speaker 2: Brad Case is chief economist Middleburg Communities, former economists at
Speaker 2: Fannie May and of course the Federal Reserve Board.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 2: All right for all of you keeping check. Still one
Speaker 2: day left in January for those making new New Year resolutions.
Speaker 2: And while many challenge themselves to a dry January, is
Speaker 2: anyone up for a digital detox? This is something you
Speaker 2: and I have talked about before. Yes, this means actually
Speaker 2: putting down your smartphone for one month.
Speaker 3: Uh yeah, okay, So it's an interesting challenge. The folks
Speaker 3: over at Siggy's Yogurt are trying to do it, and
Speaker 3: we wanted to know more and how it relates to
Speaker 3: the business and also about the business. So we got
Speaker 3: back with us on Bloomberg Business Week the chairman and
Speaker 3: founder Siggi's Yogurt, Seggie Hilmerson here in the Bloomberg studio. SEGGI,
Speaker 3: good to see you again. Let's talk about this digital
Speaker 3: detox because I think Carol and I we love the
Speaker 3: idea of spending less time on our phones, but the
Speaker 3: actual challenge that you guys are putting up is a
Speaker 3: month away from your smartphone, and in its place, you're
Speaker 3: gonna send what's called a dumb.
Speaker 2: Phone clip phone phone.
Speaker 3: Where did this idea come from?
Speaker 9: Well, I think I think the idea is sort of,
Speaker 9: you know, connected a little bit to the brand in
Speaker 9: a way. So our sort of philosophy when I started
Speaker 9: the business like many months ago, was to strip away
Speaker 9: all the stuff that we saw in yogurt, which is
Speaker 9: like a lot of ingredients. So like our sort of
Speaker 9: tackling was simple ingredients, right, And we see a lot
Speaker 9: of that today in people's behavior with their phone. They
Speaker 9: sort of are addicted to it, and a lot of
Speaker 9: it is maybe not stuff that's useful. You know, it's
Speaker 9: like very hard to be without your maps. For example,
Speaker 9: when you're navigating a new city. But do you ever
Speaker 9: get an itch to look up maps? Right, But you
Speaker 9: do get an itch to check stuff that sort of
Speaker 9: you don't necessarily need in the moment. So I think
Speaker 9: the sort of idea and how it's connected to the
Speaker 9: brand is sort of to strip away the sort of
Speaker 9: the non essentials of what you don't need in your
Speaker 9: life right now and sort of putting away the phone
Speaker 9: for a while and see how you do. Is one
Speaker 9: of those things.
Speaker 2: Well, part of us loves it, part of us reaming
Speaker 2: about doing it. We want to continue with this, but
Speaker 2: we also want to mention a headline crossing PayPal Holdings
Speaker 2: is going to reduce its workforce by about nine percent
Speaker 2: this year as a company's CEO out Chris, who took
Speaker 2: over you might recall in September, is grappling with rising competition,
Speaker 2: profit pressures, and a raft of analysts downgrades. So again,
Speaker 2: cutting around twenty five hundred jobs. Just taking a quick
Speaker 2: check on the stock and we're seeing PayPal shares still
Speaker 2: up on the day, just shy of one percent, but
Speaker 2: off its highs. So going back to we're talking about
Speaker 2: chairman and founder of Ciggy's yogurt ciggy hill Maarson. So
Speaker 2: you're talking about this digital detox, and I think it's
Speaker 2: kind of interesting, this idea, almost an attractiveness towards simpler times.
Speaker 3: I didn't mention the ten thousand dollars, by the way.
Speaker 2: No, And right there is a competition, a little bit
Speaker 2: of an incentive.
Speaker 3: Yeah, pretty good incentive.
Speaker 9: Not just free yogurt, not just for your well there's
Speaker 9: a little bit of free yogurty, but supply o yoga, true,
Speaker 9: but ten thousand dollars for yogurt.
Speaker 2: You know, it catches people's attention. And I think, you
Speaker 2: know what's interesting, it's stuff like this that makes us
Speaker 2: kind of think about our environment right now. And we
Speaker 2: talk so much about the role of technology and how
Speaker 2: it consumes us, we're also kind of using technology as
Speaker 2: a great you know, kind of clues. Sometimes data collection
Speaker 2: gives us an idea of kind of what the environment
Speaker 2: is like. And I want to just go there if
Speaker 2: we can for a moment, just coming off that headline,
Speaker 2: how do you see the business environment right now? How
Speaker 2: does it feel to you?
Speaker 9: Well, at least for sick Is, we've been doing great
Speaker 9: in the last few quarters. You know, business is like
Speaker 9: a little close to three times. The categories are like
Speaker 9: around six percent, categories up around two percent. So business
Speaker 9: is doing pretty well for us. You know, we sort
Speaker 9: of see still a strong interest in our offering. We
Speaker 9: see a lot of the sort of hiccups that we
Speaker 9: went through, like everybody in COED fading out, like supply
Speaker 9: chain issues you know, on anything from freight to cardboard
Speaker 9: was a huge issue during the pandemic. We also saw
Speaker 9: some of the sort of changes in the consumer settle
Speaker 9: that you know, like for example, the desire We had
Speaker 9: a lot of single serve business and we saw that
Speaker 9: graduate a little bit more to like family sizes during
Speaker 9: COVID going out as people are not sort of on
Speaker 9: the go going through the office. Obviously, that has since
Speaker 9: picked up a little bit because of you know, office openings. Again.
Speaker 3: What about raw materials costs, not cardboard, not containers, but
Speaker 3: dairy I mean we're off of you know, the highs
Speaker 3: from COVID when it comes to dairy prices, but they're
Speaker 3: still elevated.
Speaker 9: Yeah, this is there's still you know, some of those
Speaker 9: cost pressures are not going to go down. But we
Speaker 9: see a lot more sort of more balanced environment.
Speaker 2: Well, it's interesting too in terms of your environment, and
Speaker 2: we talked about the first time we talked to you
Speaker 2: guys had just been acquired. This was back in I
Speaker 2: think twenty eighteen correct, correct, the French dairy giant like Talis.
Speaker 2: I think I'm home saying yeh correct. But I'm just
Speaker 2: curious as your business, which you began back in a
Speaker 2: New York City kitchen back in two thousand and five,
Speaker 2: how it evolves, grows, you know, what kind of you
Speaker 2: know stands out for you in terms of that process
Speaker 2: and how the market changes, consumer demands changed, what's changed.
Speaker 9: Well, the biggest thing that obviously has changed for Cigis
Speaker 9: since the acquisition was, you know, we're now international, which
Speaker 9: is a lot of fun, you know, Like, so Cigis
Speaker 9: is not just a US brand, It's it's doing phenomenally
Speaker 9: in France. The sales team there has done an amazing
Speaker 9: job and Canada Australia as well. So that sort of
Speaker 9: stands out for me personally. But in terms of what
Speaker 9: stands out, like the market as a whole, is that
Speaker 9: when I started, yogurt in America had crazy amount of sugar, right, Like,
Speaker 9: the best selling yogurt at the time when I started
Speaker 9: had twenty eight grams of sugar pair cup that doesn't
Speaker 9: really almost exist anymore, so everybody has come down. So
Speaker 9: for us, that's obviously great because we sort of feel
Speaker 9: like we moved the needle a little bit on the market,
Speaker 9: but it's more competition, so it's sort of like a
Speaker 9: blessing in disguise a little bit. But we are still
Speaker 9: the only one that sort of offers to what I
Speaker 9: call the complete package, which is that lower sugar, clean ingredients,
Speaker 9: and higher protein and better texture. So there's a lot
Speaker 9: of people who's sort of copy one element of our strategy,
Speaker 9: but nobody who offers this sort of trifecta of all
Speaker 9: the things that are good for you.
Speaker 3: I think, how are you thinking about brand innovation in
Speaker 3: a category that has, as Carol mentioned, no shortage of competition,
Speaker 3: Like where's the white space right now?
Speaker 1: For you?
Speaker 9: Well, we think like the drinkable yoga space is pretty exciting,
Speaker 9: So we're coming out with some new innovation there in
Speaker 9: the coming months and years or quarters. Maybe that's like
Speaker 9: since we're here, we just say quarters, But so I
Speaker 9: think that's pretty exciting, and we're revrapping some of our
Speaker 9: older drinkable yogurts that have been doing vel and been
Speaker 9: on the market for a while, so we see interest there.
Speaker 9: But you are right, the competition is pretty fierce.
Speaker 2: I think it's interesting too, because you know, we talk
Speaker 2: about whether it's becoming more sustainable, you know, making that
Speaker 2: so that works with the cost side of the equation.
Speaker 2: But you talked about how in terms of yogurt it's
Speaker 2: really shifted in terms of ingredients becoming much more healthy.
Speaker 2: Do you feel like increasingly consumers we talk about it.
Speaker 2: It's certainly priority for me. I know it's priority for
Speaker 2: your family. It's obviously priority for you and your company.
Speaker 2: But you increasingly see consumers demanding their turning it around,
Speaker 2: checking the ingredients. They want cleaner products.
Speaker 9: I mean, there's like a day and night when I
Speaker 9: moved here and when I started the company about fifteen
Speaker 9: years ago, is that people are so much more savvy
Speaker 9: and not only do they do what you say, they
Speaker 9: look at their ingredients. They know even some of the
Speaker 9: more esoteric ingredients that people use. So you know, that's
Speaker 9: sort of still our claim to fame. You know, we're
Speaker 9: one of the few brands that only uses, for example,
Speaker 9: just fruit. We don't use flavorings, so people notice that
Speaker 9: kind of stuff.
Speaker 3: Okay, ten seconds. Is there another thing from Iceland that
Speaker 3: you could bring to the US that you think would
Speaker 3: be successful?
Speaker 9: Well, I think the dried fish is delicious, but I don't.
Speaker 3: You're not talking about the buried shark that ferments underground,
Speaker 3: are you?
Speaker 10: No?
Speaker 9: No, because that is not delicious. That is still quite moist.
Speaker 9: But I love the dry fist. I eat a lot
Speaker 9: of the dryed fish when I go home. I love
Speaker 9: it with a little The next company, I don't know.
Speaker 9: I think that might be a tough sell.
Speaker 2: For we gotta run. Good luck at the contest. Siggey
Speaker 2: Hill Marson, of course, chairman and founder of Siggi's Yogurt.
Speaker 2: Right here on Bloomberg business Week, you're.
Speaker 1: Listening to the Bloomberg Business Week Podcast. Catch us Live
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Speaker 2: Already all right, everybody, Well, all right, got a great
Speaker 2: take on youps, But we want to talk about what's
Speaker 2: going on with the consumer. It's kind of all connected
Speaker 2: because when we buy things, somebody's got to get it
Speaker 2: to us. But one thing we keep wondering about. We
Speaker 2: talked about this earlier in our FED discussion is about
Speaker 2: the strength of the consumer and consumer confidence we saw
Speaker 2: increase in January to the highest level since the end
Speaker 2: of twenty twenty one. Is Americans grew more upbeat about
Speaker 2: the economy and the job market. That was the data point.
Speaker 2: Today we've got a great voice of Okay.
Speaker 3: Let's bring in Alex Scaley, senior data and listed Bankrade.
Speaker 3: She joins us here in the Bloomberg Interactive Brokers studio.
Speaker 3: Alex I wanted to talk to you because you guys
Speaker 3: have a new survey out that kind of throws a
Speaker 3: little bit of water on all the positive data points
Speaker 3: that we've gotten about the American consumer. It's about savings.
Speaker 3: Talk to us a little bit about what you found.
Speaker 11: Yeah, so we did see some positive consumer data come
Speaker 11: out today and that looked great. But our own data,
Speaker 11: bank Grade, actually found that over half of American workers
Speaker 11: say it's either difficult or impossible to consistently save enough
Speaker 11: money to feel comfortable for retirement emergencies or really any
Speaker 11: other reason given their current situation. And so we are
Speaker 11: also seeing additional data at bank Grade that shows that
Speaker 11: less than half of Americans can afford an emergency expense
Speaker 11: of one thousand dollars or more from their savings. And
Speaker 11: so although the consumer may feel generally confident right now,
Speaker 11: they are still struggling with their savings and we are
Speaker 11: still seeing inflation play and to affect their budgets. Essentially,
Speaker 11: we've got.
Speaker 2: A great chart for everybody who's watching on YouTube and
Speaker 2: Bloomberg originals. And in terms of your survey and you
Speaker 2: looked I think this was December eighteen through the twentieth
Speaker 2: right of twenty twenty three, and about twenty eight percent
Speaker 2: find it's somewhat difficult. In terms of saving for emergencies,
Speaker 2: You've got thirty two percent someone easy. When you look
Speaker 2: at this breakdown, how does it compare to the trend line?
Speaker 2: I'm always interested in, like kind of trend lines? Are
Speaker 2: we building momentum to a different story or a significant story?
Speaker 2: Are we, in your view, as you guys look at
Speaker 2: these data points building towards something where you can kind
Speaker 2: of definitively say the consumer's starting to fall apart because
Speaker 2: other data points say differently.
Speaker 11: Yeah, there's a lot of mixed research out there, and
Speaker 11: our research at bank rate, we do track this year
Speaker 11: over year, and when it comes to retirement savings and
Speaker 11: emergency funds, we haven't really seen progress on that front
Speaker 11: in the last two years. It's very similar. Yes, which
Speaker 11: I guess you could say that's not necessarily bad news,
Speaker 11: but it's not good news either, because we would hope
Speaker 11: that we would be seeing progress on the front of
Speaker 11: emergency savings or retire savings.
Speaker 2: So is it like five years ago, I think, is
Speaker 2: this kind of like what we tend to see though
Speaker 2: in terms of the breakdown or a few years ago.
Speaker 11: Well, you know, it really depends on what's happening in
Speaker 11: the economy at that time. So right before the pandemic,
Speaker 11: you were seeing overall stronger consumer, job market was doing well,
Speaker 11: things were going well, and then boom, the pandemic happened.
Speaker 2: And this isn't the kind of chart we just showed
Speaker 2: everybody you would have gotten pre pandemic. No, Yeah, so
Speaker 2: people would have felt like, Okay, we're in good positions.
Speaker 2: Yeah Oka, absolutely.
Speaker 10: Okay.
Speaker 3: So you talk a little bit about in your report
Speaker 3: what people should be doing in the way they can
Speaker 3: sort of incrementally improve their position, and it has a
Speaker 3: lot to do with different types of psychology, and like
Speaker 3: thinking about saving differently, what do you guys find a
Speaker 3: bank rate?
Speaker 11: Yeah, so we find at bank rate that's starting small
Speaker 11: is really the effective, most effective way to build up
Speaker 11: your savings because we often hear financial experts say you
Speaker 11: need three to six months worth of expenses. That is
Speaker 11: thousands of dollars for most Americans, and that's a very overwhelming.
Speaker 10: Song.
Speaker 3: Last week Jared Dillion, who wrote a new book about Yeah,
Speaker 3: and he says you should have a couple of years
Speaker 3: of catch on here.
Speaker 11: Well, yeah, I mean it really comes down to you,
Speaker 11: and you.
Speaker 2: Should have a spreadsheet with your wife or your husband
Speaker 2: or your partner in terms of home ownership.
Speaker 3: But go ahead, it's an unconventional book, let's right, right, I.
Speaker 11: Mean, it comes down to your personal finances. But ultimately,
Speaker 11: three to six months worth of expenses can feel very overwhelming,
Speaker 11: and so we recommend that you start small. Five dollars
Speaker 11: a week, twenty dollars a month, that's five hundred dollars.
Speaker 11: In two years, that's thirteen hundred dollars, and five years,
Speaker 11: that's three thousand dollars and ten years. And although that
Speaker 11: may sound seem like small amounts, the momentum that you'll
Speaker 11: get there, you'll start to really feel the motivation and
Speaker 11: keep adding to your savings.
Speaker 2: Alex is there's something that you guys are over being
Speaker 2: great And this maybe goes away from this survey, but
Speaker 2: just generally in your discussions when you look at data
Speaker 2: points and here we are, what three years out of
Speaker 2: the pandemic?
Speaker 3: Yeah, I mean we're we're getting to the point where
Speaker 3: we're a four year anniversary.
Speaker 2: Ase trying to remember where we are, Like where you say,
Speaker 2: I know that data points look good, but here's what
Speaker 2: we're hearing or here's what we're seeing that we're getting
Speaker 2: a little worried or you're not there yet on what
Speaker 2: specifically in terms of concerns about the consumer, that maybe
Speaker 2: the data isn't just showing everything.
Speaker 11: Yeah, I mean, data isn't perfect, right, It's something that
Speaker 11: we use to help us inform us on what's happening
Speaker 11: with the consumer. But overall, I think the picture right
Speaker 11: now is that you know, the consumer is feeling the
Speaker 11: pressure of inflation. Still inflation is still well above the
Speaker 11: FEDS two percent target rate. Those higher prices are still
Speaker 11: squeezing household budgets still going up, just not as much absolutely,
Speaker 11: and at the same time, we have rising interest rates
Speaker 11: right now, and we do see that Americans are increasingly
Speaker 11: turning to credit cards right now to pay for things.
Speaker 11: Our research at bank rate found that forty nine percent
Speaker 11: of credit card holders are carrying a balance months a month.
Speaker 11: That is up from thirty nine percent in twenty twenty one.
Speaker 11: So you are seeing that debt really rise across American
Speaker 11: household and that debt is very expensive to months a
Speaker 11: month right now. Those high bar and costs are likely
Speaker 11: impacting American's ability to save right now as well. So
Speaker 11: there are a lot of economic factors at play. Inflation,
Speaker 11: rising interest rates, wages have not been keeping up with
Speaker 11: inflation and have not caught up yet. And at the
Speaker 11: same time, yeah, you have all this at play and
Speaker 11: it is impacting Americans.
Speaker 2: That's interesting.
Speaker 3: The credit card balance is like I feel like we
Speaker 3: keep and you know, some stuff is still rising double digits.
Speaker 3: Car insurance we talked about that.
Speaker 2: I'm not gonna get you started.
Speaker 3: Okay, don't get me started, but I good to talk
Speaker 3: to you about that. Okay, did you look at your
Speaker 3: car insurance? Okay, bad though, Okay, that's good.
Speaker 2: Alex Keay, thank you so much. Some great insight in
Speaker 2: terms of the consumer. Senior data analystair At Bank rate
Speaker 2: jetting us here in our Bloomberg Interactive Brokers studio.
Speaker 1: This is Bloomberg Business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine plus
Speaker 1: global business finance and tech news as it happens. Bloomberg
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Speaker 2: All Right, everybody, so we just heard obviously from Microsoft
Speaker 2: and Alphabet. We talk about the shares. We've got Alphabet
Speaker 2: down about four and a half percent. Here in the aftermarket,
Speaker 2: We've got Microsoft down about one point three percent. So
Speaker 2: let's get to it and do a little bit of
Speaker 2: a round up for you. With us right now is
Speaker 2: David Kirkpatrick. He is founder and editor in chief of
Speaker 2: Technolomy Techonomy. It's a media and conference company that focuses
Speaker 2: on technology. He's familiar, certainly to our audience, and he
Speaker 2: joins us on zoom in San Francisco. Also with us
Speaker 2: is Mandeep Seeing, senior tech industry analysts for Bloomberg Intelligence.
Speaker 2: Joining us right here in studio. Mandeep, I want to
Speaker 2: turn to you right now and Alphabet down four point
Speaker 2: four percent. What's the important part of what they just
Speaker 2: released A lot of kind of data points if you.
Speaker 6: Yeah, search had a slight miss when you look at
Speaker 6: the top line number, but it was sort of expected
Speaker 6: given you know, everyone was talking about how the competition
Speaker 6: from chat GPT will have an impact on the volume,
Speaker 6: and I feel on the cost side, there puts and takes.
Speaker 6: Clearly they have brought down the costs through the layoffs,
Speaker 6: but when you look at the cloud numbers that have
Speaker 6: actually done better than expected. So what the GENI workloads
Speaker 6: are doing is boosting the profitability of the cloud. But
Speaker 6: the core search business remains under pressure and that's why
Speaker 6: you're seeing that.
Speaker 3: Really, But is it under pressure from chat GPT? I mean,
Speaker 3: are people using chat gpt the way that they use
Speaker 3: Google Search? I mean chat GPT is it doesn't provide
Speaker 3: the same service as it doesn't.
Speaker 6: But think of the volume growth, right, So for search
Speaker 6: business to grow double digit you need both volume and
Speaker 6: ad pricing. We know ad pricing has been declining for
Speaker 6: the past six quarters, not just for Alphabet but for
Speaker 6: everyone in the industry, So you need that volume growth
Speaker 6: and I feel in this case you're not seeing that
Speaker 6: volume growth because it's not just chat GPT. There are
Speaker 6: other competitors that are building on top of that GPT
Speaker 6: stack and really trying to disrupt search here, Amazon and
Speaker 6: TikTok they're doing it, but now there is even more competition.
Speaker 2: To the ad business so important to Alphabet. David Kirkpatrick,
Speaker 2: come on in on this your reaction first of all
Speaker 2: with Alphabet.
Speaker 12: Well, I love listening to Mande by the way, I
Speaker 12: would say, you know, it's interesting both companies, Microsoft and Alphabet.
Speaker 12: The CEO's statements are raving about going into the AI age,
Speaker 12: and yet I don't think in either case, certainly in
Speaker 12: Alphabet's case, we are yet really seeing that much impact
Speaker 12: on revenue and profit from AI. That's still to be
Speaker 12: to be seen. But you know, they have done a
Speaker 12: pretty good job recouping from the perception of having been
Speaker 12: really way behind the eight ball on AI, and it
Speaker 12: just the economy is helping also quite a bit right now,
Speaker 12: much better than we might have feared it would be.
Speaker 12: So I think both companies are surprisingly impressive right now
Speaker 12: in their results. Yeah, David, I'm really glad to know
Speaker 12: they were overbought, so you know, if people paid have
Speaker 12: been buying these stocks like crazy in recent months, and
Speaker 12: I think a little bit of decline doesn't mean anything
Speaker 12: for the long term. I'm really glad you said that
Speaker 12: about the investments in AI necessarily showing up in the
Speaker 12: top and the bottom line. And I mentioned that just
Speaker 12: before Starbucks earnings crossed when we were with our simulcasts
Speaker 12: with our colleagues on Bloomberg TV, because it does seem
Speaker 12: like it's improved the product a lot. And I've had
Speaker 12: people talk to me about PowerPoint and just how easy
Speaker 12: PowerPoint is because AI actually makes it so much easier
Speaker 12: to build these slides, like it saves so much time.
Speaker 12: But does that sell more power Point? Does it sell
Speaker 12: more Microsoft Office Suite when when the market is already
Speaker 12: pretty saturated with that, Well, it will sell more PowerPoint
Speaker 12: over time. I don't think we've seen that yet. I Mean,
Speaker 12: what actually I think will happen is we're going to
Speaker 12: see a leveling of all tech products that are all
Speaker 12: going to have AI infused into them, and the people
Speaker 12: that will lose are the ones who don't infuse AI
Speaker 12: into their products. Now, Microsoft is a little bit ahead
Speaker 12: of the curve because they have this great partnership.
Speaker 5: With open Ai.
Speaker 12: But I mean, everybody's going to be doing it, and
Speaker 12: we might even not notice it in a year or
Speaker 12: two because we're just going to expect it.
Speaker 2: All right, So let's flip to the other big report
Speaker 2: that we got was Microsoft. Right now, the shares are
Speaker 2: pretty much little changed here in the aftermarket. They were
Speaker 2: only slightly lower revenue topping estimates, cloud growth disappointing some
Speaker 2: second quarter cloud revenue was thirty three point seven The
Speaker 2: estimate was for thirty two point twenty one. Revenue overall
Speaker 2: was a little bit better. What do we need to
Speaker 2: know what jumps out for you when it comes to
Speaker 2: Microsoft specifically?
Speaker 12: Are you asking me? Yeah?
Speaker 2: Oh, I'm sorry, David, Yes, Well.
Speaker 12: I mean Microsoft is the great execution engine of the
Speaker 12: technology industry, is my basic observation. You know, a three
Speaker 12: trillion dollar company with with you know, two hundred and
Speaker 12: twenty billion in revenues growing at sixteen percent roughly annually.
Speaker 12: I mean, these guys are just executing perbly, and you know,
Speaker 12: I think that their partnership with open ai really has
Speaker 12: proven to be one of the most brilliant marketing efforts
Speaker 12: in technology's history. Whether or not it does.
Speaker 10: Have any concrete short term.
Speaker 12: Profit and revenue implications. I mean, I think Saky Innadela
Speaker 12: is probably the greatest CEO in global.
Speaker 3: Business right now. Why do you say that.
Speaker 12: I just think that he is managing to take that
Speaker 12: company at its vast scale, unprecedented scale, and continue to
Speaker 12: point it towards the future in a way that is
Speaker 12: incredibly intelligent. I mean, cloud is the future of business,
Speaker 12: you know, AI infused cloud is the future of business.
Speaker 12: You know, they are brilliantly positioned. I mean, it wasn't
Speaker 12: that long ago that Amazon essentially overwhelmingly dominated cloud, and
Speaker 12: now we have to talk about Amazon and Microsoft and
Speaker 12: even Google is creeping up Alphabet creeping up there. But
Speaker 12: I think also another amazing thing. You look, you know,
Speaker 12: there's hearings tomorrow morning for the social media companies. Microsoft
Speaker 12: has done an astonishing job keeping itself out of controversy
Speaker 12: for the most part. They had the controversy around buying Activision,
Speaker 12: they got through it, they bought the company. I mean,
Speaker 12: these people are not being held back.
Speaker 2: Yeah, it's interesting, and they really you know, definitely kind
Speaker 2: of navigate as the market continues to change. I just
Speaker 2: want to forgive me, David. I just want to take
Speaker 2: another look at what Microsoft is doing here in the aftermarket.
Speaker 2: They're now up one point three percent, so the investors
Speaker 2: have at least the investor sentiment, which wasn't that dour
Speaker 2: right after the release, but the stock was a little
Speaker 2: bit lower. Now we're actually seeing Microsoft pop one up
Speaker 2: about one point two percent. Back to Alphabet if I may,
Speaker 2: which has been down about four percent in the aftermarket,
Speaker 2: still down about three point seven percent. So let's go
Speaker 2: to the analyst call number one question that you would
Speaker 2: put to the team over at Alpha bet On. The
Speaker 2: analyst called what you would ask Sundhar Pachai.
Speaker 12: Well, I think the key question to ask is when
Speaker 12: will you see revenue improvements because of Ai. Okay, you've
Speaker 12: got Gemini, You've come through this challenging period where people
Speaker 12: said you didn't get it. Now you apparently have gotten it.
Speaker 12: But does it matter? That's the key question I would
Speaker 12: say if I were an investor, especially buying at these
Speaker 12: valuation levels, because they have to show something dramatic going
Speaker 12: forward to justify their value.
Speaker 2: Hey, listen, I just want to mention to AMD just crossing.
Speaker 2: Why do we care? This is one of the best
Speaker 2: performing stocks in the S and p five hundred once
Speaker 2: again in the great chip race, if you will. What
Speaker 2: I'm going to go right to is the outlook for
Speaker 2: first quarter revenue five point one billion to five point
Speaker 2: seven billion. The estimate was for five point seven seven billion.
Speaker 2: So that certainly feels a little bit like what's the
Speaker 2: stock doing in the aftermarket?
Speaker 3: Yeah, the stock is moving, AMD down about two point
Speaker 3: two percent in the after hours, but there was a
Speaker 3: big trade earlier that took it down significantly, so bouncing around.
Speaker 4: Yeah.
Speaker 2: It also is talking about the first quarter adjusted gross
Speaker 2: margin about fifty two percent. The estimate was fifty one
Speaker 2: point eight so the gross margin there, the adjusted gross
Speaker 2: margin is certainly better, and expecting data center segment revenue
Speaker 2: to be flat sequentially, AMD says, positioning for quote strong
Speaker 2: product ramp in twenty twenty four.
Speaker 3: Hey day, I thinks the concern is this first quarter
Speaker 3: revenue guidance that really came in on the right side,
Speaker 3: really right, I mean yeah, well, five point one to
Speaker 3: five point seven when estimates were for five point seven
Speaker 3: seven billion. I mean, shares dropped four percent, Carol, when
Speaker 3: that number came out.
Speaker 2: It's still down about three percent. Hey, David just got
Speaker 2: about thirty seconds here, twenty five seconds. Any thoughts about
Speaker 2: the kind of the great chip race that's underway feels like, well.
Speaker 12: You know, I certainly don't write AMD out. I mean,
Speaker 12: they are not in Vidia, but they are as close
Speaker 12: to in Nvidia at any company right now. Although from
Speaker 12: what I hear, even Intel is coming up with some
Speaker 12: interesting improvements that might help them in the AI universe,
Speaker 12: which is just like again defining everything. Everything has to
Speaker 12: be seen through the lens of the AI battle. Now,
Speaker 12: you know, I've seen a m D go from the
Speaker 12: most right, the leaguered company when I used to be
Speaker 12: a fortune back in the day, to a company that
Speaker 12: really is a great exciting interest to all.
Speaker 2: Yes, for good reasons. It's fascinating. Hey, David, thanks, It's
Speaker 2: been fast and furious, but we really appreciate it. David
Speaker 2: Kirkpatrick is founder and editor in chief of Techonomy Brother mac.
Speaker 5: A journal. Now about you let me drive?
Speaker 3: Oh no, no, no, no, alright, please, I'll do.
Speaker 2: I want to drive.
Speaker 12: It's a question.
Speaker 1: This is the drive to the globe down to me.
Speaker 1: I think we'll buy around each other on Bloomberg Radio.
Speaker 2: All right, everybody, less than eighteen minutes left in today's
Speaker 2: trading session, getting ready to wrap up the Tuesday trade.
Speaker 2: Just breaking down some of the equity numbers. DAL still
Speaker 2: in the green if you will, just up slightly a
Speaker 2: little bit lower on the Nasdack just down about seven
Speaker 2: tents of a percent, but the S and P call
Speaker 2: it flat right now. Everyone's just waiting waiting for the
Speaker 2: Fed decision.
Speaker 3: Wayne, for earnings too, that too. Yeah, there's a lot,
Speaker 3: there's a lot. Hey, Speaking of earnings, our next guest says,
Speaker 3: most of the return this year has come from five
Speaker 3: large tech stocks, and they're in the midst of reporting.
Speaker 3: Two of them, Microsoft and Alphabet are happening after the
Speaker 3: bell today. He says, Carol, those five large tech stocks
Speaker 3: earnings will be market moving.
Speaker 2: Right, We've already heard from some of them. So let's
Speaker 2: get to it with Sandy Villary, portfolio manager at Hillary
Speaker 2: and Co. On Zoom from New Orleans. The Villary Equity
Speaker 2: Fund little change this year fractionally on a percentage basis. Sandy,
Speaker 2: good to have you back here on Bloomberg. Let's go
Speaker 2: to those five large tech stocks that have been so
Speaker 2: important when it comes to momentum moves, certainly in the
Speaker 2: trade last year. Even though we've seen a broadening out
Speaker 2: and we continue to keep a real close watch on
Speaker 2: this year. What have you learned from what we've got
Speaker 2: and so far? And how much are you watching Microsoft
Speaker 2: in alphabet when they report later today?
Speaker 13: Yeah, I think it's extremely important. I mean, they had
Speaker 13: such a good run last year. I just think they're
Speaker 13: you know, pretty over you know, I just think it's
Speaker 13: a very overcrowded trade and they're going to put up
Speaker 13: good numbers. The question is, you know, will they beat
Speaker 13: all these whisper numbers out there? And then you know,
Speaker 13: when do people feel like finally stocks are just overvalued
Speaker 13: and there's not much more to go from here. I
Speaker 13: think the rest of the year is actually going to
Speaker 13: look all up like it does today, where you have
Speaker 13: kind of tech a little bit weaker and maybe you know,
Speaker 13: some money flowing into things like financials and energy.
Speaker 10: That feels to me like the way things are going
Speaker 10: to be, you know, really for the rest of the year.
Speaker 3: So where does the where are the opportunities then for
Speaker 3: the rest of the year, Sandy.
Speaker 13: Yeah, I mean when I look at just you know,
Speaker 13: twenty year averages again on large cap growth, you know
Speaker 13: that typically it's been around eighteen point nine times. Now
Speaker 13: we're trading around twenty seven times, so again I think
Speaker 13: that's crowded, and the place we like is small cap,
Speaker 13: where the twenty year average is closer to sixteen point
Speaker 13: seven times, and it's sixteen point three times. So I
Speaker 13: just feel like, you know, there's going to be a
Speaker 13: much better opportunity to find, you know, undervalued securities in
Speaker 13: small cap that's really been left or dead and a
Speaker 13: good chance to sort of dig through that rubble as
Speaker 13: opposed to jumping on with everybody else and being in
Speaker 13: that overcrowded tech trade.
Speaker 2: Here's my problem though, if you've got companies like an
Speaker 2: Alphabet where they're expected to share revenue gain twelve percent
Speaker 2: in the fourth quarter, marking the second consecutive period of
Speaker 2: double digit growth, the company benefiting from things like what
Speaker 2: they're doing in generative AI and adding to their portfolio there.
Speaker 2: I mean, if that's where the growth is while these
Speaker 2: big meg megacap tech companies, I think we talked about
Speaker 2: this with Gina APMs. Maybe not the biggest part of
Speaker 2: the economy, but obviously a big part of the market.
Speaker 2: But if this is where the growth is, don't you
Speaker 2: want to have some exposure and then what kind of
Speaker 2: exposure do you choose for your portfolio.
Speaker 13: Yeah, and frankly, they could be they could be younger
Speaker 13: companies that are going to use AI to become more efficient,
Speaker 13: et cetera. I just think of I used to own
Speaker 13: a three D three D printer company and it did fine,
Speaker 13: but one of its one of its customers, Aligned Technology,
Speaker 13: did so much better because they were making the Invisiligne
Speaker 13: braces and so sometimes when you use that technology, you
Speaker 13: can do a lot better than some of the videos
Speaker 13: of the world that are creating it. So I just
Speaker 13: think a lot of those names are just price for perfection.
Speaker 13: No doubt they're going to have incredible runs. They're incredible companies,
Speaker 13: but I just feel like they're for the short run,
Speaker 13: probably on the overvalued side. Especially with my sort of
Speaker 13: macro thesis that inflation is going to be a little
Speaker 13: bit more stubborn and you may not see the kind
Speaker 13: of the ten year fall from these levels. I think
Speaker 13: it actually gets, you know, lifts a little bit, and
Speaker 13: that's going to be a little bit of a headwind
Speaker 13: for technology stops that do well when rates fall.
Speaker 3: Carol, to your point in terms of waitings, I looked
Speaker 3: up VTI, which is the Vanguard Total Stock Market Index.
Speaker 3: It tracks about thirty eight different thirty eight hundred different
Speaker 3: companies the entire US dock market. Apple is six percent
Speaker 3: of that, Microsoft is six percent of that, Amazon is
Speaker 3: three percent, and videos two point five percent.
Speaker 2: So outsized presence, I mean.
Speaker 3: Outsized presence, like to put it lightly right, exactly, it's
Speaker 3: pretty wild.
Speaker 2: No, I get that, but it's just interesting because I feel,
Speaker 2: like Sandy, I've been there before, where people are like
Speaker 2: got to back off these big you know, omegacap tech names,
Speaker 2: only to see them coming charging ahead and then also
Speaker 2: seeing them fundamentally perform. So I kind of get some
Speaker 2: of the enthusiasm.
Speaker 10: Yeah, it's just one of those things.
Speaker 13: And I guess if you go back through history, and
Speaker 13: I mean I can certainly remember nineteen ninety seven, ninety eight,
Speaker 13: ninety nine, you know, and that's those are sort of
Speaker 13: the dot com era. But when things when things you know,
Speaker 13: fall apart, they fall apart quickly. And these are much
Speaker 13: more sound, you know, solid businesses, et cetera. But you know,
Speaker 13: it wasn't too long ago. In twenty twenty two, you know,
Speaker 13: of course, in the face of eleven straight rate hikes
Speaker 13: where you know, tech was down, you know, thirty plus percent,
Speaker 13: and so you know, you just want to be you
Speaker 13: just want to be cautious. And I'm a big believer
Speaker 13: in buying individual companies at reasonable prices and trying not
Speaker 13: to overpay for things.
Speaker 10: And I just see too many opportunities in smaller names.
Speaker 2: So just a valuation, really, you know, call for you,
Speaker 2: all right, So let's go to some of the names
Speaker 2: that you like on holding. We have had one of
Speaker 2: the company's CFOs or the CFO on along with they
Speaker 2: think he was also coached.
Speaker 3: Yamar Hoffman co CEO and CFO. We talked too recently
Speaker 3: just before the marathon.
Speaker 2: I got it pretty well, fully transparent, he did. I
Speaker 2: went and bought a pair of sneakers after he was on,
Speaker 2: Like we talked about that, and I like them. I
Speaker 2: like them.
Speaker 10: I like them.
Speaker 2: You like them as well as a stock in your portfolio,
Speaker 2: and I think it's one of your bigger holdings. Talk
Speaker 2: to us about that play.
Speaker 13: Yeah, I mean it's you know, Swiss, Swiss, you know,
Speaker 13: shoe company essentially. I guess I've got about five percent
Speaker 13: that's exposed to apparel. It's really a direct to consumer story.
Speaker 13: They do have wholesale. They now have fifty retail stores,
Speaker 13: so that's between owning and franchising.
Speaker 10: So the growth is just, you know, too phenomenal.
Speaker 13: I mean, it's a it's a brand that I see
Speaker 13: certainly you know here, you know, in Louisiana, but you
Speaker 13: see them a lot in the Southeastern Conference sort of
Speaker 13: you know areas and that sort of thing.
Speaker 10: But you know, these guys are.
Speaker 13: Going to do probably three hundred and eighty six million
Speaker 13: Swiss francs and ebitda this year and then you'll see
Speaker 13: you know, twenty twenty five, shit be more like five
Speaker 13: hundred and eleven million Swiss francs.
Speaker 10: So I just think you put a twenty two multiple.
Speaker 13: When you start looking at enterprise value to EBITDAE, you
Speaker 13: sort of get a forty dollars stock price and that's
Speaker 13: fifty percent upside from here. So I think because they have,
Speaker 13: you know, exposure to the consumer with a crazy interest
Speaker 13: rate market, you know, people are a little bit down
Speaker 13: on them, but this is a real premium brand that
Speaker 13: I think people are going back and they're very brand
Speaker 13: loyal and they're buying that fourth and fifth pair and
Speaker 13: it's it's a neat story with a great growth trajectory.
Speaker 3: Okay, we got twenty seconds left, but let's hear about
Speaker 3: Palamar Holdings. It is a one point five billion dollar
Speaker 3: market cap company PLMR. Are you optimistic there?
Speaker 10: Yeah?
Speaker 13: I like the story a lot specialty insurance company. But
Speaker 13: it's cheap, right, you know, when you start looking at
Speaker 13: the large cap tech names. This is one that they're
Speaker 13: going to earn four dollars and fifteen cents you know,
Speaker 13: this year. So you're talking about a fourteen point three
Speaker 13: multiple for a very fast growing insurance company. It came
Speaker 13: out of private equity, so great technology allows them to
Speaker 13: get super granular on their underwriting, and it's it's a
Speaker 13: business I think is going to work out well, especially
Speaker 13: from these low levels.
Speaker 10: It's just got a high margin of safety, so we
Speaker 10: like it as well.
Speaker 12: Yeah.
Speaker 2: Seeing the stock up almost nine percent already here in
Speaker 2: twenty twenty four, all right, Sandy, good to check in
Speaker 2: with you. Sandy Villary, portfolio manager at Villary and Co.
Speaker 2: Joining us on zoom from New Orleans. Stock's bouncing around.
Speaker 2: We are seeing the Dow only in the green right now.
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