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Speaker 2: Tesla That's dock down by three tenths of one percent
Speaker 2: a great scoop by Dana Hall and Ed Ludlow on
Speaker 2: our Bloomberg News team talk about how staff and Tesla
Speaker 2: are bracing for potential job cuts. Apparently, managers were asked
Speaker 2: to affirm whether each of their employees position is critical.
Speaker 2: That feels good.
Speaker 3: Yeah, that always feels.
Speaker 2: Really great when you hear that. Joining us now is
Speaker 2: Steve Mann, Bloomberg Intelligence, Global Autos and Industrials research analyst Hasteve.
Speaker 2: What did you make out of the scoop from Bloomberg?
Speaker 4: Well, I think, I mean, job cuts are never good
Speaker 4: for the employees, but I think the investors will probably
Speaker 4: look at it positively because the stock's been down like
Speaker 4: twelve percent since their last earnings call in thirty percent
Speaker 4: year today, and that's all because as you know, slowing
Speaker 4: EV sales price cuts, so the company needs to do
Speaker 4: something to you know, to address them of the short
Speaker 4: term challenges they're facing.
Speaker 5: So when I see news like this, it's it really
Speaker 5: makes me think, Steve, that maybe they see something fundamental
Speaker 5: in their business such that they have to look at
Speaker 5: a big fixed cost like people, what's the company saying
Speaker 5: these days about where they see well, I guess demand.
Speaker 4: Well, well that's a good question. I think you got
Speaker 4: two questions there. First of all, fundamentally, you know, they've
Speaker 4: done a lot of price cutting, you know, in their operations,
Speaker 4: in an administrative side of things, in their manufacturing, so
Speaker 4: they're naturally they actually they're naturally kind of out of
Speaker 4: They plucked out all the low hanging fruits. There's not
Speaker 4: much to cut anymore other than looking at their human resources,
Speaker 4: and that's what they're doing at this time. Now. Obviously
Speaker 4: you know you don't want to cut, but I think
Speaker 4: they have to. If you look at forged earnings call
Speaker 4: last night, the market is really brutal. They've the margins
Speaker 4: was down, like was that negative ninety eight percent for
Speaker 4: Ford's EV business. That's worse than their third quarter. So
Speaker 4: from that you can see the whole entire EV market
Speaker 4: is still facing you know, price cuts, slower demand, and
Speaker 4: that's you know, I think that's what Tessa is trying
Speaker 4: to dress for twenty twenty four.
Speaker 2: Hey, Steve, do we have an idea of when the
Speaker 2: trough might happen for EV's, when we is just going
Speaker 2: to take cheaper ones or is it going to be
Speaker 2: actually more hybrid and that trough be really pushed out.
Speaker 4: I think hybrid is a good kind of fill in
Speaker 4: between now and when you know EV's can take off.
Speaker 4: Our view is actually, you know, around twenty twenty six,
Speaker 4: because I think that's when prices cost of manufacturing evs
Speaker 4: will come down, you know, with localization of battery production,
Speaker 4: more EV models out there, and everyone, every automaker right
Speaker 4: now is talking about the second generation of EV vehicles,
Speaker 4: the third generation of EV vehicles. They're actually designed on
Speaker 4: a very different platform than the ICE vehicles, the internal
Speaker 4: combustion engine vehicles that is supposed to streamline production, cut parts,
Speaker 4: cut the number of parts, and hopefully drive costs down
Speaker 4: and make it more affordable for the consumers.
Speaker 3: So it's a twenty sixth story. Will the charging infrastructure
Speaker 3: also be a twenty six story?
Speaker 4: Well, no, there are some spending at the moment to
Speaker 4: increase charging infrastructure, but I mean that's another bottleneck that
Speaker 4: the industry is facing. I think, you know, out on
Speaker 4: the West coast, out in the East coast, charging in
Speaker 4: structure are not of a big concern, but Central America is,
Speaker 4: So that's where the focus is. I think in the
Speaker 4: next couple of years you really built up the charging
Speaker 4: infrastructure in that part of the country.
Speaker 5: How many charging units do you have at the Princeton
Speaker 5: campus at Bloomberg right now?
Speaker 4: Oh, it's It's interesting. If you go out to the
Speaker 4: parking lot here, you think it's a Tesla dealership out here,
Speaker 4: there's probably you know, fifty forty.
Speaker 2: Fifty people have the cars, like are the Tesla's actually
Speaker 2: being plugged in or ev oh.
Speaker 4: Yeah, oh yeah, oh yeah. You'll see mostly Tesla. You'll
Speaker 4: see a couple of Volkswagen, a couple of Volvols.
Speaker 5: But because when I was that's why when I was
Speaker 5: at the Princeton campus, Steve, you know, I guess I
Speaker 5: haven't been there since before the pandemic. It's called it
Speaker 5: five years. Five years we had two. Now you're telling
Speaker 5: we have fifty. That is a good barometer.
Speaker 3: I think.
Speaker 5: I think Bloomberg is usually on the cutting edge of
Speaker 5: this stuff, but still interesting.
Speaker 2: Yeah, and I wonder like, did you get the idea
Speaker 2: that the charging was there, therefore you brought the EV's
Speaker 2: or it's just a clientele that has the EV's. Unfair question,
Speaker 2: But like, what do.
Speaker 4: You think that's a good question. It's all about the
Speaker 4: cost of ownership. I think you're right, Alex. Having the
Speaker 4: charging stations here make it convenient for people to charge
Speaker 4: and really cut their monthly costs. Right, there's no fuel
Speaker 4: costs anymore with the with the evs, and but it's
Speaker 4: all by the cost of ownership.
Speaker 3: It's free.
Speaker 6: The energy should be charging you people down there for this.
Speaker 3: They got I mean they got the solar panels up back, they.
Speaker 6: Got free launch, the literally free launch.
Speaker 5: It's awesome down all right, Steve, thanks so much for
Speaker 5: joining us. Steve Manny's a global autos industrials research he's
Speaker 5: down there in Bloomberg in our Princeton office, which is
Speaker 5: really cool.
Speaker 3: That's you know, that was one of the Bloomberg's first offices.
Speaker 3: Down there.
Speaker 5: They had the global data folks and I don't know
Speaker 5: how many people we have that there with three thousand
Speaker 5: maybe maybe more do some awesome work down there, and
Speaker 5: that's where a lot of.
Speaker 2: The b I folks, and also all the EV's apparently.
Speaker 3: Carent all the EV's fifty. That's pretty cool.
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Speaker 3: It's got a Hermit chen here.
Speaker 5: He's a senior and was covering the regional banks Hermit
Speaker 5: New York Community Bank. That's the story of I guess
Speaker 5: the last several days. What's the current status of that?
Speaker 5: Is that something that bank investors in general have to
Speaker 5: worry about regional banks in this country?
Speaker 7: Sure, I think it's definitely brought to the forefront worries
Speaker 7: about commercial real estate in particular. But really New York
Speaker 7: Community's issues are a bit aiosyncratic because they just crossed
Speaker 7: over that one hundred billion dollar threshold that requires tougher
Speaker 7: regulatory scrutiny. And New York Community is also the dominant
Speaker 7: lender in the rent regulated apartment lending area here in
Speaker 7: New York Work, so not much read across to other regionals.
Speaker 2: Well, we also had headline that they want to sell
Speaker 2: some of their RV loans and offloads some mortgage risk.
Speaker 2: Are there going to be the buyers for that.
Speaker 7: Right, so that that's going to be an issue for
Speaker 7: the records.
Speaker 2: The buyers at the right price, buyers at the right price.
Speaker 7: So for newer community what these two actions are really
Speaker 7: a bid to improve their capital ratios. They've talked about
Speaker 7: lifting their CT one ratio to ten percent by the
Speaker 7: end of the year, which would be more in line
Speaker 7: with their larger regional baking peers. And so the synthetic
Speaker 7: transaction to add insurance on their residential mortgage loans and
Speaker 7: offload some RV loans is designed to potentially do that.
Speaker 5: R V loans, now, these are recreational vehicle loans. John
Speaker 5: Tucker thought there's some technical arcane these.
Speaker 2: We're sure to John Tucker, that was me. I was
Speaker 2: the one who was like, is this a specialized sort
Speaker 2: of loan?
Speaker 3: So is that a thing?
Speaker 7: Yeah, So that's the thing that some regional banks actually do,
Speaker 7: and it's it's a lucrative business. You can think of
Speaker 7: as sort of like a an auto loan, but just
Speaker 7: for r v's and banks like M and T and
Speaker 7: Bank ozk Uh.
Speaker 3: These are RV lenders.
Speaker 2: Well, also, remember that RVs were super hot in twenty twenty.
Speaker 2: Everyone wanted them. You couldn't like make them fast enough
Speaker 2: because that was the only vacation you could have get
Speaker 2: in your RV go around.
Speaker 7: So that's right, what's going to be the open road?
Speaker 2: Exactly what's going to be next for this company? Because
Speaker 2: you could make an argument that they're doing everything right
Speaker 2: and I'm putting that in quotes in terms of like
Speaker 2: updating investors, getting their books in order, et cetera. So
Speaker 2: what do they do now that they right?
Speaker 7: They're trying to control the narrative, But the market's saying
Speaker 7: something else entirely where where the market's concerned that even
Speaker 7: though liquidity is in a pretty good shape and deposits
Speaker 7: are actually up, but since the end of the year,
Speaker 7: are they going to be able to generate enough earn
Speaker 7: to meet their capital ratios? And how are they going
Speaker 7: to fare in the upcoming stress test? When they did that,
Speaker 7: if you step back and when you look at what
Speaker 7: they did after they announced the signature transaction last year,
Speaker 7: when they were viewed as a savior, they could have
Speaker 7: been I guess maybe a bit more aggressive in building
Speaker 7: up their capital and liquidity back then, so they're not
Speaker 7: in a pickle now. But that's really spilled milk at
Speaker 7: this point.
Speaker 5: So one of the themes I'm still in the back
Speaker 5: of my mind if I were a bank investors, I
Speaker 5: just don't know the magnitude of some of these commercial
Speaker 5: real estate exposures.
Speaker 3: I believe in the past you've.
Speaker 5: Said for most lenders, it's not that big a deal, is.
Speaker 7: That right, Well, we're gonna talk specifically about office commercial
Speaker 7: real estate, where that's that's really the potential boogeyman here.
Speaker 7: On average, across our research coverage, which covers the largest
Speaker 7: nineteen twenty regional banks, it's two percent of their total
Speaker 7: low books, so it's actually really small, advantageable and you
Speaker 7: can and then on top of that, you have pretty
Speaker 7: conservative underwriting, and they've they know this is a risk,
Speaker 7: and the regulators know this is a risk, so the
Speaker 7: banks have already started to build up reserves to protect
Speaker 7: against potential losses. So put that all together, it just
Speaker 7: seems like it's going to be a manageable issue. But
Speaker 7: you're going to see losses eventually.
Speaker 2: So can this bank stay in business.
Speaker 3: That's going to be an open question.
Speaker 8: Uh.
Speaker 7: They've tried to put a very encouraging view out there
Speaker 7: on their earning, on their management call earlier this morning,
Speaker 7: talking about the strength of deposit franchise and you're not
Speaker 7: seeing deposits flow out of the branches, and they have
Speaker 7: a boost of liquidity. So they're they're what they need
Speaker 7: is time and it remains to be seen if the
Speaker 7: market's going to give them time to build up their capital.
Speaker 3: I want some m and A. I want some business.
Speaker 5: I want to come in here every Monday morning and
Speaker 5: see company A, bank A buying bank B.
Speaker 2: But that's what they did. And look what they're in now.
Speaker 3: Careful what you wish? What are we going to see?
Speaker 7: You know, this whole issue surrounding your community. Where they
Speaker 7: came in, helped out the FDIC and the regulators and
Speaker 7: really helped out the banking system by taking over signature,
Speaker 7: and now they're in this pickle where they have to
Speaker 7: adhere to these tougher regulations clearing that one hundred billion mark.
Speaker 7: I don't think any other bank that's going to be
Speaker 7: in this same situation wants to jump into that same scenario.
Speaker 6: Can I answer a quse stupid question. Is there a
Speaker 6: stock price that we need to be worried about? Is
Speaker 6: it three seventy well zero, but three seventy nine right now?
Speaker 6: Down another today?
Speaker 7: I think if the market pressure continues, it's going to
Speaker 7: be something where where the regulators take a more focus
Speaker 7: view and maybe be more forceful with what's next.
Speaker 2: But you have to wonder too. You know they were
Speaker 2: able to do that with SVBN First Republic, right, but
Speaker 2: now look at what happened with this bank which boughts
Speaker 2: of first of public access because of that? So what
Speaker 2: will regulators do to that?
Speaker 3: Right?
Speaker 2: Hey, Jamie, Jamie, sorry to ask, but I got another
Speaker 2: favor you got to do me.
Speaker 3: For here start a body down at St.
Speaker 5: Barts, but can you go over and buy you in
Speaker 5: your community bank? Hermit Chap, Thank you so much. We
Speaker 5: appreciate that, Hermit cham He's a senior analys He covers
Speaker 5: the regional banks in the US Force. It's been a
Speaker 5: go to source here really over the last you know,
Speaker 5: twelve to eighteen months as we kind of figure out
Speaker 5: what's happening with the regional bank business.
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Speaker 5: All right, let's get a sense of what we're doing
Speaker 5: here with this market's We're about halfway through the earnings
Speaker 5: for the quarter. We've got to fed that presumably is
Speaker 5: in the mood of rate cutting.
Speaker 3: So what do we do here?
Speaker 5: Couch Schlife joins and she's a chief investment officer at
Speaker 5: Bimo Family Offices. I remember when they were Bank of Montreal,
Speaker 5: but some I'm sure you know consultant came in and
Speaker 5: said bemo and shorten it to BEMO. So Pang of
Speaker 5: Montreal bought a lot of my loans that I originated
Speaker 5: at Chase, So we love those folks. Carol, what are
Speaker 5: we doing with this market here? I had a great
Speaker 5: November December. I'm not sure if everybody else did, but
Speaker 5: I had a great period there. I'm wondering what do
Speaker 5: I do now in twenty twenty four.
Speaker 9: Yeah, November and December were definitely fun periods, especially coming
Speaker 9: after October. But we think the market's got a little
Speaker 9: over their skis with exuberance about how soon and how
Speaker 9: often the FED was going to cut this year, and
Speaker 9: so the some rationalization of that coming into this year
Speaker 9: is actually makes a lot of sense.
Speaker 10: But our approach really hasn't changed much.
Speaker 9: We actually were in the soft landing camp all of
Speaker 9: last year, from the beginning of the year on, thinking
Speaker 9: the FED was going to be able to navigate both
Speaker 9: keeping the employment and the economy humming along while we
Speaker 9: were seeing inflation straighten itself out. But coming into this
Speaker 9: you're keeping that balanced approach to risk where you're getting
Speaker 9: paid to invest in some bonds, so having that portion
Speaker 9: of your portfolio maybe out of cash into some of
Speaker 9: those higher yielding, shortened intermediate term bonds, but then also
Speaker 9: not wanting to back away from a growth oriented sort
Speaker 9: of We think the economy is in decent shape. We
Speaker 9: think you'll see a broadening like you saw in November
Speaker 9: December last year. The most encouraging thing about that period
Speaker 9: was seeing that broadening of the market, the participation.
Speaker 10: You narrowed it up.
Speaker 9: On the good days here as we've had earnings from
Speaker 9: the Magnificent seven or five or two as you were
Speaker 9: talking earlier, but bringing that through and continuing to see
Speaker 9: more participation in mid and small cap will really be necessary.
Speaker 2: And we think too, Carol, But I guess I wonder
Speaker 2: when we get there, because it doesn't seem like a
Speaker 2: really no one's going to sell right now? That feels clear, right,
Speaker 2: The hurdle to cell feels really high. But if I
Speaker 2: have money in a money market fund, the hurdle to
Speaker 2: then buy here feels also really high. So what am
Speaker 2: I supposed to do?
Speaker 10: Yeah, it does.
Speaker 9: It feels high until we're looking back and the Fed's
Speaker 9: done a couple cuts and all of a sudden, you're
Speaker 9: five percent in cash is three three and a half percent.
Speaker 2: So I need to buy small cabs now.
Speaker 9: Is smaller mid cap in terms of more broadly, and
Speaker 9: there's ways to do it in a passive way. There's
Speaker 9: ways to look through. You know, are there interesting sectors
Speaker 9: or industries or actively managed ETFs that you want to
Speaker 9: be part of. There's some secular stories going on out there,
Speaker 9: as it relates to artificial intelligence, as it relates to
Speaker 9: infrastructure rebuild.
Speaker 10: There's some active ETFs.
Speaker 9: That follow those those segments, if you will, And so
Speaker 9: there's interesting ways to play it. And then again too,
Speaker 9: even if you have passive s and P exposure and
Speaker 9: dollar cost average into that you're getting participation de facto
Speaker 9: by the overweight in those major indexes to technology in
Speaker 9: the United States here in particular.
Speaker 5: So cal when when you talk to your your clients
Speaker 5: at BIMO Family Office, the the you know, the financial
Speaker 5: consultants at BIMO, what's the ETF allocation.
Speaker 3: For you guys?
Speaker 5: How often do you say do you recommend an ETF
Speaker 5: to get at you know, maybe just exposure to fixed
Speaker 5: income or just different asset classes.
Speaker 3: So how important are ETFs?
Speaker 9: Well, ETFs play a role, so do active and passive.
Speaker 9: We also have passively managed tax or passively managed tax
Speaker 9: efficient strategies where we can do separate accounts. So there's
Speaker 9: a variety. It depends on the size of the account.
Speaker 9: It depends on the inclinations. If we're going to take
Speaker 9: and say, adopt an exposure to artificial intelligence, an extra
Speaker 9: exposure to Japan or artificial intelligence, we might take a
Speaker 9: three to five percent position in a particular ETF or
Speaker 9: a suite of ETF. If the account is the such
Speaker 9: a size that we want to use ETFs to deploy
Speaker 9: some short, intermediate, long term bonds, the whole position might
Speaker 9: be in a variety of ETFs, and they would most
Speaker 9: likely be passive.
Speaker 2: There what do you really hate right now? Like what
Speaker 2: can you not touch?
Speaker 10: What could we not touch?
Speaker 9: Yeah, I'm not sure depending on the client, that there's
Speaker 9: anything we really hate, if you will, that's part of
Speaker 9: being balanced. We're going to be underweight some certain things.
Speaker 9: Emerging markets, develop markets in Europe where underweight those relative
Speaker 9: to relative to.
Speaker 10: The overweight we've had in the United States.
Speaker 9: Sector Wise, it's tough because there's a lot of interesting
Speaker 9: things going on, especially from a secular build standpoint in
Speaker 9: the United States, and there's a lot of things that
Speaker 9: are overlooked and unloved. We don't hate technology, but clearly
Speaker 9: that's where all the emphasis has been. But there's a
Speaker 9: lot of things like industrial and infrastructure companies where when
Speaker 9: you look at those as sectors, they're only ten or
Speaker 9: twelve percent of the S and P. And we think
Speaker 9: you'll see that grow as we reindustrialize and bring manufacturing
Speaker 9: back here, as we build out the grid. You mentioned
Speaker 9: having the green and the hook, you need to get
Speaker 9: it on the grid. Also in places where take Minnesota,
Speaker 9: where you've got the western part of the state is
Speaker 9: where the solar can be built, but it's not attached
Speaker 9: to the grid, so they actually have to build hundreds
Speaker 9: of miles of transmission power just to get it to
Speaker 9: the grid.
Speaker 2: To be fair, there is like a name for that thing,
Speaker 2: that thing, but I just know the thing that you
Speaker 2: need to plug into the grid.
Speaker 3: But there is a need a plugging things.
Speaker 2: It's the pluggy thing. We'll just coin that right here.
Speaker 5: So, Carol, we're about halfway through earnings. Here is anything
Speaker 5: kind of jumping out at you?
Speaker 11: Here?
Speaker 2: Are you?
Speaker 3: Are you okay with the earnings? Do you think we're.
Speaker 5: Seeing some cracks maybe in earnings power out there?
Speaker 9: I think the thing that jumps out at me on
Speaker 9: earnings is that you can't and you can't broad brushstroke
Speaker 9: even in an entire sector. There's been a lot of
Speaker 9: dispersion in those sectors about the haves and the have nots.
Speaker 9: There's also been a lot of dispersion in how investors
Speaker 9: are treating them because a company might beat on the
Speaker 9: top and the bottom line, and they nail the stock
Speaker 9: because they don't like what the CFOs said and the
Speaker 9: conference call, and so it's really it feels and smells
Speaker 9: like we're back into a stock pickers market. We're actively managed,
Speaker 9: should have an advantage if they've got deep and broad research,
Speaker 9: and so that's one of the things that strikes me,
Speaker 9: because overall earnings are pretty reasonable.
Speaker 10: They're not as exuberant.
Speaker 9: On the beats on the top and bottom line as
Speaker 9: they have been in prior quarters, but they're reasonable and
Speaker 9: they're consistent with this economy. The other thing that's really
Speaker 9: notable is companies are seeing from the reaction and other
Speaker 9: stock prices that if they announce, oh, we're triming heads
Speaker 9: over here and we're cutting costs over here, the stock
Speaker 9: prices go up sort of no matter what the numbers are,
Speaker 9: because it looks like management teams are staying really focused
Speaker 9: to be laser precise in how they're running their business.
Speaker 10: In the street likes that it does.
Speaker 3: Absolutely. We saw that with Meta last year. Just amazing.
Speaker 5: Cowrischlife, Chief Investment Officer for BEMO Family Office, Thanks so
Speaker 5: much for joining us. Based after in Minneapolis, Saint Paul,
Speaker 5: I'm happening to be a Saint Paul fan versus Minneapolis.
Speaker 5: That's just my I thought that architecture in Saint Paul's
Speaker 5: really cool.
Speaker 2: I've never been the same place.
Speaker 6: The airport that has a plane hanging from the ceiling.
Speaker 3: I think so. I don't know, it's just I've been
Speaker 3: so many airports in the Midwest that I.
Speaker 2: Can't help your eyes with out with this one.
Speaker 3: Ye got an great hotel. I forget the name of
Speaker 3: the hotel that I like to stay in Saint Paul.
Speaker 3: It's just awesome, really old school.
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Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2: Disney reporting after the closing bell today. Of course, yesterday
Speaker 2: we got the news the ESPN, Fox and Warner Brothers
Speaker 2: were going to do a streaming sports service. I don't
Speaker 2: truly understand what that means, but luckily KEITHA. Mrgnahan is
Speaker 2: here with us, Bloomberg Intelligence analyst on US Media. Gith,
Speaker 2: is everyone going to ignore the quarter now and just
Speaker 2: focus on this ESPN thing? Yeah?
Speaker 8: Definitely, big, big news, Alex. Absolutely, I think there are
Speaker 8: a lot of you know, obviously, it raised more questions
Speaker 8: than answers, but potentially it could be a huge game changer.
Speaker 8: I mean, especially if it kind of comes out at
Speaker 8: a really really attractive price point.
Speaker 3: So Githa, why, Well, I guess why are they doing
Speaker 3: it now?
Speaker 1: Do you think?
Speaker 5: I mean, what's kind of the strategy there? Are they
Speaker 5: trying to get people who just don't watch sports or
Speaker 5: don't have subscribed a cable.
Speaker 3: What's the play here?
Speaker 11: Yeah?
Speaker 8: I think you know, definitely, we know that we've lost
Speaker 8: about thirty million consumers to court cutting. It used to
Speaker 8: be one hundred million, we're now down to seventy million.
Speaker 8: We also have multiple, multiple four who have actually never
Speaker 8: subscribed to a PATV bundle, and a lot of them
Speaker 8: actually tend to be very hardcore sports enthusiasts. So you
Speaker 8: know that the companies are actually pinning that market at
Speaker 8: about sixty million subscribers potential subscribers, So there's obviously a
Speaker 8: huge target market for them. And I think this is
Speaker 8: really a wave Paul for these companies to kind of
Speaker 8: finally take control of their own destinies in a way. Right,
Speaker 8: they own content production, but they have never you know,
Speaker 8: owned distribution. You know, they've always kind of been at
Speaker 8: the mercy of the PATV distributor, and so this is
Speaker 8: a way for them kind of I think, whatever you
Speaker 8: want to call it, but in a way kind of
Speaker 8: future proofing their their revenue streams.
Speaker 2: So when you say an attractive price, what is that price?
Speaker 8: So there, you know, there have been some rumors out there,
Speaker 8: so we know an attractive price has to be something
Speaker 8: way below the seventy dollars PATV package, right, that's what
Speaker 8: we're paying right now. If you just want to buy
Speaker 8: this package off of Comcast or Charter or any of
Speaker 8: the PATV operators out there, it's obviously not going to
Speaker 8: be as low as say, you know, a regular streaming
Speaker 8: service right like Netflix for twenty dollars. It's obviously going
Speaker 8: to have to be higher than that. We have seen
Speaker 8: some reports trickle in about a potential forty to fifty
Speaker 8: dollars price point. I would say that that is still
Speaker 8: pretty attractive for a hardcore sports fan. Of course, some
Speaker 8: others will argue that you're still not going to get
Speaker 8: all of the sports, right, You're not having paramount, you're
Speaker 8: not having you know, NBC content, So it's still going
Speaker 8: to be somewhat of an incomplete package. So it remains
Speaker 8: to be seen, you know, you know, the devil obviously
Speaker 8: is in the details. We'll have to wait and watch
Speaker 8: and see if you know they're going to be able
Speaker 8: to license out any of the other sports, or how
Speaker 8: it exactly works. But I would say, you know, for first,
Speaker 8: at first glance, the forty dollars price point seems pretty attractive.
Speaker 5: Well, I got to pay for that somehow, and I
Speaker 5: think the way I'm going to pay for it either
Speaker 5: is I'm going to call up podcasts and cancel my
Speaker 5: video package and just keep broadband. The cable companies can
Speaker 5: be very happy.
Speaker 3: About this, no way.
Speaker 8: I mean, this is really I think in and if
Speaker 8: you just kind of look at the market reaction today,
Speaker 8: you look at the broadcasters, you look at some of
Speaker 8: these other media companies, obviously a very negative reaction, and
Speaker 8: I think a lot of that is kind of exactly
Speaker 8: this point that you're bringing up, Paul, which is this
Speaker 8: worry that this is actually going to accelerate cord cutting.
Speaker 8: So we already know that cord cutting is running at
Speaker 8: about I mean it used to be back in the day,
Speaker 8: it used to be two percent, three percent, just to
Speaker 8: kind of this little trickle, so nobody was really overly
Speaker 8: concerned about it. Of course, now that has accelerated to
Speaker 8: about eight and a half percent right now, and I
Speaker 8: think this news obviously can take it well into the
Speaker 8: double digits, and that's really a dismally bleak future for
Speaker 8: all of these broadcasters.
Speaker 2: Do you think that the broad the broadcasters are surprised
Speaker 2: by this? I mean, I had to have seen something
Speaker 2: like this coming, right, like what's their plan ABCD?
Speaker 8: Yeah, I mean I think we kind of knew that
Speaker 8: ESPN was going to do it, but just kind of
Speaker 8: getting this more robust bundle, you know, having you know,
Speaker 8: both fought like if you kind of think about it.
Speaker 8: Fox has never ever said in fact, they've been always
Speaker 8: kind of married to the PATV bundle. So having them
Speaker 8: kind of do something like this of these a little
Speaker 8: bit of a shock, I would say, in some ways,
Speaker 8: similarly Warner Brothers Discovery. Again, they don't have too much
Speaker 8: of sports, but they do have some sports that really count,
Speaker 8: which is the NBA and March Madness, and so you know,
Speaker 8: again having them kind of participate and make this kind
Speaker 8: of this bigger streaming service, I think definitely came as
Speaker 8: a little bit of a surprise, if not as kind
Speaker 8: of blind siding some of these broadcasters.
Speaker 5: All Right, So I'm guessing on the conference call this
Speaker 5: afternoon after the market close, when Disney reports earnings, this
Speaker 5: will be a topic of conversation. But there's a long
Speaker 5: list of issues for Disney and investors. What's topic number
Speaker 5: one for you aside from what's going on here with
Speaker 5: the sports business?
Speaker 8: And I think the two things that everybody is kind
Speaker 8: of really looking to is, you know what the streaming
Speaker 8: profitability numbers are going to look like. I mean, Disney
Speaker 8: has obviously already done a really really good job, Paul,
Speaker 8: in terms of bearing those streaming losses. So just two
Speaker 8: years ago they were losing about four billion dollars a year.
Speaker 8: Last year they kind of really cut that down to
Speaker 8: about two and a half billion. This year, hopefully they
Speaker 8: get it down even lower. They're supposed to turn break
Speaker 8: even to slightly positive by the end of the fourth quarter.
Speaker 8: But any any kind of guidance that they can offer
Speaker 8: on that front, I think is something that investors are
Speaker 8: going to be looking very very closely at. And then
Speaker 8: I think in general, just the cost cutting efforts, right,
Speaker 8: We've seen Disney already do a fantastic job. I think
Speaker 8: in many ways, even the sports streaming service kind of
Speaker 8: speaks to that whole concept of, you know, rationalization of
Speaker 8: sports costs because when they kind of bid in the
Speaker 8: future for you know, for sports rights, you know, the
Speaker 8: joint venture kind of really helps them limit the downside,
Speaker 8: I think in many ways, because sports makes up forty
Speaker 8: percent of Disney's total content bill, so it's a huge, huge,
Speaker 8: huge part for them. So I think anything on those
Speaker 8: two fronts, cost cutting and streaming profitability will be top
Speaker 8: of mine.
Speaker 2: So let's go to the streaming profitability for a second.
Speaker 2: What is less bad versus good?
Speaker 8: So right now, less bad is good, you know, because
Speaker 8: nobody is making profits right now other than of course, Netflix,
Speaker 8: which just through out about seven billion dollars of EBITDA
Speaker 8: seven billion dollars of cash flow. None of these other
Speaker 8: big media companies are doing it, and so that is
Speaker 8: kind of, you know, the guiding light, if you will.
Speaker 8: I mean, everybody wants to be Netflix. Of course, it's
Speaker 8: not easy to get there. There's going to be a
Speaker 8: lot of challenges down the road. But I think that
Speaker 8: you know, we do have one streamer that has kind
Speaker 8: of achieved profitability. We do have Netflix at twenty percent
Speaker 8: operating margins. It's going to take a long time for
Speaker 8: Disney for a lot of these other piers to kind
Speaker 8: of get anywhere close to Netflix. But I think they
Speaker 8: know what they have to achieve if they've got to
Speaker 8: win over the street.
Speaker 5: Does Bob I have a successor yet, because that's still
Speaker 5: kind of an issue.
Speaker 8: No, I mean, maybe they do. I'm not really sure.
Speaker 8: I mean, you know, the one thing that I think
Speaker 8: was kind of a little bit surprising is is their
Speaker 8: hiring of an external CFO. So we've always kind of
Speaker 8: seen Disney go internal for a lot of these key
Speaker 8: management hires. It was interesting that they kind of, you know,
Speaker 8: have mister Johnston there in the CFO post. I think
Speaker 8: obviously he's going to do extremely well. But I think
Speaker 8: that again raises the question of whether they will kind
Speaker 8: of look externally for a candidate to lead Disney.
Speaker 2: Is Disney stock a value trap? At this point, she
Speaker 2: keeps laughing. I don't know what that means.
Speaker 8: I wish I knew the answers. I mean, you know,
Speaker 8: if you just kind of look at the profit profile
Speaker 8: of this company, it's actually really really strong. I mean,
Speaker 8: I'm kind of when I think about the EPs potential.
Speaker 8: I mean it's it's you know, ten to fifteen percent
Speaker 8: EPs growth over the next few years, especially if it
Speaker 8: gets to streaming profitability pretty quickly. So in that situation,
Speaker 8: I think, you know, the stock will definitely have to
Speaker 8: re rate. So I mean, it all kind of now
Speaker 8: boils down to what they're going to say on the
Speaker 8: profitability numbers, what they're going to say on this new
Speaker 8: streaming service, whether that is going to accelerate the whole
Speaker 8: profit profile. So you know, the devil again is going
Speaker 8: to be in those details.
Speaker 5: All right, Githa, you're going to be busy the say,
Speaker 5: I think a lot of people are and be listening
Speaker 5: into this call to forgot how they're going to get
Speaker 5: their sports going forward.
Speaker 3: Who cares about the EPs? But what do I have
Speaker 3: to buy?
Speaker 5: I don't have to pay to get all my sports here,
Speaker 5: So we'll be paying attention to that. Keith Ranganath, and
Speaker 5: she covers all of the media stuff for Bloomberg Intelligence
Speaker 5: based down in Princeton, New Jersey.
Speaker 3: So all I know is I'm not.
Speaker 5: Gonna pay an incremental forty bucks for stuff I already get.
Speaker 3: So I mean, I'm just gonna cut.
Speaker 2: Have you cut the cord. No, okay, I haven't and
Speaker 2: you haven't because.
Speaker 5: Mostly sports, mostly sports, So now if I can get
Speaker 5: you know, but CBS, Now, CBS isn't part.
Speaker 3: Of this package.
Speaker 5: So that's a problem because they have a lot of
Speaker 5: football that you like to watch. They have a lot
Speaker 5: of NCAA basketball they like to watch. So it's really
Speaker 5: getting difficult here, I think for the consumer before. I mean,
Speaker 5: what I used to argue for people is, yeah, you're
Speaker 5: upset about the cababile. Everybody's upset about their cabable. But man,
Speaker 5: it's convenient. It's one check and you get everything. Now
Speaker 5: you're writing six, seven, eight checks, and are you getting
Speaker 5: a better product?
Speaker 3: I don't know.
Speaker 2: First of all, he's still writing checks.
Speaker 3: Let's just just what that is.
Speaker 2: Yeah, generational thing you were, But you were bringing up
Speaker 2: the idea that we walk up and pay cash to
Speaker 2: the He just gives it right to them. That we're
Speaker 2: gonna have like a bundle for streaming too, But eventually
Speaker 2: they'll have to bundle up to sort of sidestep exactly
Speaker 2: what you're just talking about.
Speaker 1: Yep.
Speaker 3: It is.
Speaker 5: It is the total disruption of the media marketplace and
Speaker 5: who pays. I think the consumer does here so terms,
Speaker 5: certainly in terms of convenience.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Let's get the perspective though, on how do you invest
Speaker 2: and where to put money? When we're near five thousand,
Speaker 2: which really, lets be honest, means nothing with the S
Speaker 2: and P. People like round numbers, but I don't feel
Speaker 2: a lot of conviction heading into this fill Orlando is
Speaker 2: cheap what he strategist with vetterated hermes and he joins us, Now, Phil,
Speaker 2: do you buy this rally here? Do you sell it?
Speaker 2: Do you sit tight? What do you do?
Speaker 11: First of all, Alex, thank you very much for having
Speaker 11: me back on the program. Your previous guests made an
Speaker 11: interesting comment about buying dips and that dip at forty
Speaker 11: one hundred in late October was a great buying opportunity
Speaker 11: we like. I'm sure a lot of folks were all
Speaker 11: in at that time, but the market has now rallied
Speaker 11: by twenty two percent from the end of October up
Speaker 11: here to you know, a week into February. The Magnificent
Speaker 11: seven has really driven that rally. Last year, the mag
Speaker 11: seven was up seventy six percent, the S and P
Speaker 11: was up twenty four percent, the other four hundred and
Speaker 11: ninety three names were up twelve percent. So there's a
Speaker 11: valuation disparity that's been created here. And that's the point
Speaker 11: I'd like to make. We think that a lot of
Speaker 11: the the froth in the market should spread out, and
Speaker 11: this rally should should diversify, should broaden out the areas
Speaker 11: of the market that were left for dead last year.
Speaker 11: Domestic large cap value, domestic small cap growth, International, those
Speaker 11: are the areas that we think have some room to
Speaker 11: run here. And we'd be very nervous with stocks up here,
Speaker 11: you know, as you said knocking on the door. At
Speaker 11: five thousand, we're only four percent away from our full
Speaker 11: year target of fifty two hundred. So something's got to
Speaker 11: give here, all right?
Speaker 3: Is our earning's going to give here?
Speaker 5: I mean, can we see an earnings growth driven market here?
Speaker 3: What are you seeing?
Speaker 11: I think that's a great point, Paul, that as we
Speaker 11: look at the cumulative effect of what the Federal Reserve
Speaker 11: has done in terms of tightening monetary policy over the
Speaker 11: last you know, two years, right, they took interest rates
Speaker 11: from zero to five and a half percent. They've shrunk
Speaker 11: the balance sheet from nine trillion dollars down to seven
Speaker 11: point seven trillion dollars. We think that the cumulative weight
Speaker 11: of that tightening is going to start to have an
Speaker 11: impact on the economy and corporate earnings. So we saw
Speaker 11: that the fourth quarter was slower than the third. We
Speaker 11: think that over the course of this year, the first
Speaker 11: three quarters of this year, GDP growth is going to
Speaker 11: be in that you know, one one and a half
Speaker 11: percent neighborhood. Not a recession. We're in the soft landing camp.
Speaker 11: But if GDP drops down from let's say five percent
Speaker 11: in last year's third quarter to one percent at its
Speaker 11: trough this year, should there be a commensurate decline in
Speaker 11: corporate earnings. Earnings growth is going to slow, and we
Speaker 11: think ultimately, given where valuation levels are, we could see
Speaker 11: we could see some slowing in some stocks, particularly the
Speaker 11: growth and technology names that have just had a phenomenal
Speaker 11: run here over the last year or so.
Speaker 2: Small cap trade, though worked for a second last year
Speaker 2: and then it didn't. What gives you the confidence that
Speaker 2: this time will be different.
Speaker 11: The foremost dangerous words the English language for an investor.
Speaker 11: This time it's different. What we're focused on within the
Speaker 11: small cap row space domestically is healthcare with a real
Speaker 11: focus on biotechnology. As we talk to our biotech experts here.
Speaker 11: The pipeline, the drug pipeline for these companies has never
Speaker 11: been stronger. The valuations have never been cheaper, and if
Speaker 11: interest rates are in fact going to go down over
Speaker 11: the course of this year, which we believe they will,
Speaker 11: that should make the potential for m and a merger
Speaker 11: and acquisition activity more prominent. So given the valuation and balance,
Speaker 11: we think small caps against specifically biotech auto work.
Speaker 5: All right, Phil, how about just some sectors in general here?
Speaker 5: I mean you mentioned the tech names which have been
Speaker 5: a leader. A lot of folks feel.
Speaker 3: Like they need to continue to be a leader to
Speaker 3: move this market higher.
Speaker 5: Is there other places I need to be looking, because
Speaker 5: unlike John Tucker, I did not own the MACS seven
Speaker 5: last year.
Speaker 11: Well, you know, more broadly speaking, let's look over in
Speaker 11: the domestic large cav value area that I mentioned. There
Speaker 11: are two categories there, financials and energy that we like
Speaker 11: a lot. Energy. You know, crude prices are working higher.
Speaker 11: We've gone from the mid sixties the mid seventies over
Speaker 11: the last couple of months based upon all of this
Speaker 11: instability you know in the Middle East. The stocks really
Speaker 11: haven't participated. We could see crude prices in our view
Speaker 11: working back to eighty ninety dollars a barrel given all
Speaker 11: of this volatility on the underlying commodity. So energy should
Speaker 11: work ps or low giving in yields are very high.
Speaker 11: And then financial services. You go back a year ago
Speaker 11: when Silicon Valley Bank and that whole thing blew up.
Speaker 11: These stocks dropped fifty percent. Now, what we know now,
Speaker 11: or we think we know now, is that the problems
Speaker 11: were largely concentrated in a handful of companies that were
Speaker 11: poorly managed, and the rest of the banking industry, particularly
Speaker 11: the large cap names, are relatively in good shape, but
Speaker 11: they haven't come back to where they were or should
Speaker 11: have been. We think there's some catch up that will
Speaker 11: play out over the course of this year for them
Speaker 11: as well.
Speaker 2: So what we see New York Community Bank, and you
Speaker 2: could say that they bought some stuff from First Republic
Speaker 2: and that's kind of why they're in that mess.
Speaker 11: So do you that was going to be my answer.
Speaker 2: Okay, so, but what about some of the regionals that
Speaker 2: aren't that company and that aren't like the JP Morgan's like,
Speaker 2: do you need to be looking at those between like
Speaker 2: two hundred and two hundred and fifty billion or is
Speaker 2: that it going to be too risky?
Speaker 11: Well, and I think we get into a stock pickers
Speaker 11: market environment where you've got to do your fundamental due
Speaker 11: diligence on these companies and what do their balance sheet
Speaker 11: and income statements look like? Do they have the same
Speaker 11: sort of exposure to commercial real estate that Silicon Valley
Speaker 11: Bank or New York Community Bank did, Do they have
Speaker 11: the mismatch and assets and liabilities? Or have we just
Speaker 11: thrown out the baby with the bathwater. So that's got
Speaker 11: to be an individual decision that the analyst and the
Speaker 11: portfolio manager is going to make about whether an individual
Speaker 11: regional bank or money center has the same problems that
Speaker 11: some of the ones that have got taken out behind
Speaker 11: the woodshed. And rightly so a year ago.
Speaker 3: All right, very good, Phil Orlando, thank you so much
Speaker 3: for joining us. Philer Orlando.
Speaker 5: He's a chief equity market strategist, and he's head of
Speaker 5: the Client Portfolio Group, a federated hermes joining us at
Speaker 5: via zoom from New York City.
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