Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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Speaker 3: The real app performance has been in US corporate high yield.
Speaker 4: Are the companies lean enough? Have they trimmed all the fats?
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Speaker 2: Breaking market headlines and corporate news from across the globe.
Speaker 3: Do investors like the M and A that we've seen?
Speaker 5: These are two.
Speaker 3: Big time blue chip companies.
Speaker 6: The window between the peak and cut changing super fast.
Speaker 2: Bloomberg Intelligence with Alex Steinhl and Paul'sweeny on Bloomberg Radio.
Speaker 4: Today's Bloomberg Intelligence Show, we dig inside the big business
Speaker 4: stories impacting Wall Street and.
Speaker 3: The global markets.
Speaker 4: Each and every week, we provided that research and data
Speaker 4: on some of the two thousand companies and one hundred
Speaker 4: and thirty industries of our analysts cover worldwide. Today, we'll
Speaker 4: look at why restaurants are confronting a slowdown in consumer spending.
Speaker 4: Plus we'll discuss why home post sales fell for a
Speaker 4: fifth consecutive quarter. For first, we dive into earnings from
Speaker 4: the world's most valuable chip maker, in Nvidia reported fourth
Speaker 4: quarter revenue that sailed past analyst expectations. It also delivered
Speaker 4: another eye popping sales forecast for the current quarter. This
Speaker 4: is thanks to insatiable demand for Nvidia's artificial intelligence accelerators.
Speaker 4: For more, co hosts Emily Grafeyo and I were joined
Speaker 4: by Kunjohn Sabani, Bloomberg Intelligence Senior semiconductor analyst. We first
Speaker 4: asked for his take on in Nvidia's earnings results.
Speaker 7: Any earning surprise from Nvidia is no longer a surprise.
Speaker 7: We have come to sort of expect this to be
Speaker 7: a new norm. But there were a lot of positive
Speaker 7: reassuring things on the supply side. We saw supply coming
Speaker 7: up really strong. More importantly, supply getting diversified and the
Speaker 7: benefits for which we're seen in their gross margin, which
Speaker 7: beat the estimates. But more important was the assurance that
Speaker 7: demand continues to stay strong, and not just from the
Speaker 7: large cloud players. We all are aware of how much
Speaker 7: money they're spending, but demand strength was broad based across
Speaker 7: their enterprise. Customers are different verticals, so that really reassures us.
Speaker 7: For the twenty twenty four what did.
Speaker 6: You make of the CEO's statement that Generative AI has
Speaker 6: hit the tipping point. I saw that headline, and I
Speaker 6: didn't actually really understand what that meant. So what did
Speaker 6: you think of that?
Speaker 7: I mean, look, it's really Jensen. If you have been
Speaker 7: following the company for the lat past ten years, at
Speaker 7: every junction, that's what his messaging always is in whatever
Speaker 7: they're working on. So but apart from that, I would really,
Speaker 7: you know, ask investors to look into the end data
Speaker 7: points rather than what just he's saying. I mean, he's
Speaker 7: a very important person right now, but we look at
Speaker 7: the end data points. The customers are really increasing their
Speaker 7: AI spen right the IT total capex budgets are increasing,
Speaker 7: but the AI portion within that is also increasing. And
Speaker 7: it's not just at the chip level. The contracts that
Speaker 7: they have with their software customers, even those customers are
Speaker 7: guiding up their revenue targets.
Speaker 3: Hey, Kun John, I love their customer list that they
Speaker 3: read off.
Speaker 4: It's kind of a who's who of Silicon Valley, you know, Facebook, Google,
Speaker 4: whatever their new names are.
Speaker 3: What's the next?
Speaker 4: Is there a next set of customers out there above
Speaker 4: and beyond kind of the household names that we all
Speaker 4: know that maybe they're targeting.
Speaker 7: Yes, an enterprise segment is sort of the new the
Speaker 7: next area that they're really targeting. Right, They already have
Speaker 7: the big large spenders, but now they want to diversify
Speaker 7: and expand the reach across enterprises. And the second big
Speaker 7: target now is sort of governments and sovereign governments and
Speaker 7: sovereign wells. Right, that's what they're targeting that they believe
Speaker 7: AI will be, you know, because of geopolitical and trade
Speaker 7: issues will be more regional and every big economy will
Speaker 7: need to spend on that.
Speaker 6: Are there any headwinds that investors need to be looking
Speaker 6: out for because I just looked on the A and
Speaker 6: R function on Bloomberg and there are zero cells for
Speaker 6: in video. There was one last thing from morning Star
Speaker 6: and now he's upgraded to a hold.
Speaker 8: Yeah.
Speaker 7: I mean, look, if you look at just what the
Speaker 7: data says, usually the stock price follows the analyst price.
Speaker 7: It seems here the price targets are following the stock pride.
Speaker 7: When we look at the fundamentals, right, there was really
Speaker 7: nothing that to highlight as a risk factor in the
Speaker 7: earnings and really in the near term for twenty twenty four.
Speaker 7: But if we were to form a bare thesis, a
Speaker 7: couple of things that would we would look at as
Speaker 7: risk factors for the long term. One is the China risk.
Speaker 7: We did see China revenue almost reduced by half versus
Speaker 7: three q in this quarter, right and we know this
Speaker 7: problem is not going away, if at all, getting worse.
Speaker 7: So right now they are easily able to offset what
Speaker 7: they could have shipped to China while shipping to other
Speaker 7: customers in US and other regions. But at some point
Speaker 7: when the demand supply sort of normalizes and the growth
Speaker 7: rates become more of a normal run rate, you know,
Speaker 7: this is taking out a bite out of that opportunity
Speaker 7: that they could have served in China. So that's one
Speaker 7: risk factor on the long term. The second being their
Speaker 7: largest customers, which are the cloud players, have started to
Speaker 7: design their own ships. So again this is far out,
Speaker 7: but at some point this still take a bite out
Speaker 7: of the apple that N media could have served.
Speaker 4: So that's kind of where I wanted to go, John,
Speaker 4: I mean, just the competitive environment. Can you explain why
Speaker 4: these guys are the only game in town? That seems
Speaker 4: odd to me.
Speaker 7: I mean, it's not by an accident. These guys were
Speaker 7: sort of the inventor, if you will, for the GPU.
Speaker 7: They have been working on a GPU for decades and
Speaker 7: out investing everyone being at the leading edge. So this
Speaker 7: was the same question when we talked about gaming and
Speaker 7: when we talked about crypto, right, the last two waves
Speaker 7: which drove the growth for this company. It was not
Speaker 7: by accident. They have been at this forefront of these
Speaker 7: new applications where the application suddenly realized, well, GPU is
Speaker 7: the best case compute platform, and that's why they adopted GP.
Speaker 7: Same thing what we're saying with AI. So this was
Speaker 7: not by accident. If you look at that R and
Speaker 7: D spend, which they guided to be growing by mid
Speaker 7: thirties next year, that's a significant amount of rn NE
Speaker 7: dollars they continue to spend and to keep again being
Speaker 7: at the leading edge of the next cycle of innovation.
Speaker 6: Can you talk a little bit also about the gaming
Speaker 6: revenue here, because I'm looking at your report you said
Speaker 6: gamings better than seasonal top line, But what was really
Speaker 6: driving that because I actually don't really know if I
Speaker 6: know anything about in Video's gaming involvement.
Speaker 7: Yeah, so the last quarter was if you look at
Speaker 7: typical seasonality, we we expected it to be a down
Speaker 7: quarter at least by mid single digits, but it came
Speaker 7: in flat right, So and the strength the reason driver
Speaker 7: for there was better demand for their RTX products. These
Speaker 7: are their gaming cards you know in dex stops and
Speaker 7: what gamers get. So this is what came in better
Speaker 7: than they had expected due to the holiday season. Now
Speaker 7: this is again a temporary move and sort of not
Speaker 7: no longer a big focus for investors, but that was
Speaker 7: still good to see that in a typical down seasonal
Speaker 7: quarters they were still able to do better than seasonality.
Speaker 4: Thanks to Kunjan Sobani, Bloomberg Intelligence Senior Semiconductor analyst, we
Speaker 4: move next to a big M and a deal in
Speaker 4: the banking industry. Earlier in a week, Capital Won agreed
Speaker 4: to buy Discover Financial Services in a thirty five billion.
Speaker 3: Dollars all stock deal.
Speaker 4: This will create the large US credit card company by
Speaker 4: loan volume. To discuss this deal and the latest and
Speaker 4: consumer finance space, co host Bailly Lipschaltz and I were
Speaker 4: joined by Ben Elliott. He's a consumer finance analyst for
Speaker 4: Bloomberg Intelligence. Well asked him what Capital One is thinking
Speaker 4: with its latest deal.
Speaker 1: So everything's driven by scale and the credit card business.
Speaker 1: And the big thought here from Capital One is that
Speaker 1: if they can acquire this sort of rare and valuable
Speaker 1: thing that Discover has, which is a discrete, proprietary payments network.
Speaker 1: Then they can sort of start to compete with the
Speaker 1: Visa and MasterCard on a much bigger scale over time,
Speaker 1: and they're paying a premium for it.
Speaker 9: Ben is the timing at all surprise just given kind
Speaker 9: of the issues that Discover had towards the end of
Speaker 9: twenty twenty three.
Speaker 1: It leaves Capital One with a potential legal overhang. The
Speaker 1: legal issues are not settled yet at Discover. They've had
Speaker 1: a couple of new issues that are sort of outside
Speaker 1: of the scope of of what they've been dealing with
Speaker 1: over the past couple of years. Discover's been talking about
Speaker 1: sort of a five hundred million dollar a year run
Speaker 1: rate of additional compliance expense. It's sort of a burden
Speaker 1: that Capital One is going to have to take on
Speaker 1: with this acquisition. But I think it's probably pretty well
Speaker 1: understood the scope of that, and I think it's it's
Speaker 1: probably priced into the deal.
Speaker 9: All right.
Speaker 4: So give us a sense of the size of Visa.
Speaker 4: I guess the Visa network, the master Card network, and
Speaker 4: now this new combined network. Is it competitive to Visa
Speaker 4: and MasterCard? I guess even amics, So.
Speaker 1: Historically it's completely non competitive. Visa and MasterCard together are about
Speaker 1: ten trillion in domestic US credit and debit card volume,
Speaker 1: and Discover is about five hundred and fifty billion. So
Speaker 1: it's always been this sort of the tiny, you know,
Speaker 1: red headed stepchild of the of the large payment networks.
Speaker 1: But you know, if you add to that Capital One's
Speaker 1: hundreds of billions of dollars of credit card loans and
Speaker 1: you sort of extrapolate future growth there, it has the
Speaker 1: potential to sort of compete more like an American Express,
Speaker 1: which is closer to one and a half trillion.
Speaker 9: Ben I feel like we can't talk about deals without
Speaker 9: the threat of regulatory scrutiny. What does this bring and
Speaker 9: what could the FTC raise any red flags about?
Speaker 1: Overall, this deal I think will be relatively sort of
Speaker 1: non offensive to regulators. Discover is historically not been very
Speaker 1: competitive with the large networks, so actually bringing sort of
Speaker 1: the power of Capital One to bear will make it
Speaker 1: more competitive with the large networks, as the potential to
Speaker 1: give customers a real sort of fourth alternative, whereas in
Speaker 1: the past you really only had one option, Right you
Speaker 1: get a Discover card, it only has one sort of
Speaker 1: set of rewards. It's got a relatively low credit line
Speaker 1: versus some of the other offerings. It doesn't have sort of,
Speaker 1: you know, high end travel rewards offerings. So I think
Speaker 1: if Capital One can start to issue some of its
Speaker 1: sort of higher end cards on the Discover network, that
Speaker 1: could be pro competitive and that might make the deal
Speaker 1: somewhat more attractive to regulators.
Speaker 9: Ben in terms of kind of what these credit cards
Speaker 9: offer Discover from my understanding, mainly cash back. Capital One
Speaker 9: has a range of some of.
Speaker 3: Those rewards cards.
Speaker 9: How does that impact potentially acquiring new customers, new users
Speaker 9: of for both companies or I guess the folded end company.
Speaker 1: Yeah, So I think that will make it a challenge
Speaker 1: for Capital One to issue some of its sort of
Speaker 1: high fee, high reward cards on the Discover network because
Speaker 1: historically the Discover network's only been used for a very
Speaker 1: limited cash back card with caps that I think it's
Speaker 1: like fifteen hundred dollars a quarter of cash back. So
Speaker 1: for your high spenders, people who are putting tens of
Speaker 1: thousands of dollars on a credit card, that's not a
Speaker 1: very attractive offering. So that means that the brand has
Speaker 1: not been sort of in their minds as you know,
Speaker 1: a potential credit card they med aquire. So Capital One
Speaker 1: is going to have to do some relatively heavy lifting.
Speaker 1: And you see that in what is a very modest
Speaker 1: run rate synergy assumption in their in their sort of
Speaker 1: deal model which only cuts back discovers marketing costs about
Speaker 1: ten percent. So you know, Capital One is going to
Speaker 1: have to do some pretty heavy marketing I think, to
Speaker 1: start to leverage that network on the credit card.
Speaker 3: Side, the American Express. What's the investment call there these days?
Speaker 8: Ben?
Speaker 3: What are investors thinking about MS?
Speaker 1: You know, MX is the super premium fashion of the
Speaker 1: highest spending sort of most financially sound customers. So that
Speaker 1: is a sort of a recession safe trade, if you will.
Speaker 1: So you know, when people are looking at the forward
Speaker 1: curve and they're seeing rate cuts, you know they're expecting
Speaker 1: a recession. Potentially they look at the AMS spender and
Speaker 1: think that this person will last the longest and have
Speaker 1: the sort of lowest level of charge offs through a
Speaker 1: potential recession. So that makes it very attractive. And additionally,
Speaker 1: MS has a ton of momentum in acquiring millennial and
Speaker 1: gen z high earning customers, which is the most valuable
Speaker 1: sort of wallet chair that's out there, and MX does
Speaker 1: it better than anyone else, so that also kind of
Speaker 1: makes them attractive to investors.
Speaker 4: What is the big competitive overview of kind of consumer finance?
Speaker 4: Are we using more credit, more debit, more venmo what
Speaker 4: a kind of the big trends there.
Speaker 1: Yeah, so there's been a huge growth in credit volume
Speaker 1: over the last couple of years, especially sort of in
Speaker 1: the post pandemic period. There's been even more of a
Speaker 1: secular shift away from cash as for the various sort
Speaker 1: of channels. Right, credit is really attractive to higher end consumers,
Speaker 1: people with more discretionary income, because that offers the huge
Speaker 1: valuable reward potential. And then if you step down to
Speaker 1: debit cards, there's some cash back, but for the most part,
Speaker 1: not a lot of rewards there, but there's some convenience.
Speaker 1: And then sort of the lower tier kind of fintech
Speaker 1: payments systems, you know, they offer they're sort of targeted
Speaker 1: at sort of youngers or gen Z lower spenders, and
Speaker 1: they are the people who are exploring things like buy now,
Speaker 1: pay later, which is sort of a way to give
Speaker 1: credit to people who don't really have a lot of
Speaker 1: credit history or substantial earnings.
Speaker 4: History thanks to Ben Elliott, Bloomberg Intelligence consumer finance analysts
Speaker 4: coming up a conversation with Geens Soroka, Executive director of
Speaker 4: the Port of Los Angeles, on why cargo volumes are
Speaker 4: picking up. You're listening to Bloomberg Intelligence on Bloomberg Radio,
Speaker 4: providing in depth research and data on two that companies and.
Speaker 3: One hundred and thirty industries.
Speaker 4: You can access Bloomberg Intelligence via Bigo in the terminal.
Speaker 4: I'm Paul Sweeney, and this is Bloomberg.
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 2: weekdays at ten am Eastern on Applecarplaying and broud Auto
Speaker 2: with the Bloomberg Business app. Listen on demand wherever you
Speaker 2: get your podcasts, or watch us live on YouTube.
Speaker 4: Let's turn out to the restaurant business. Restaurants are confronting
Speaker 4: a slow down in consumer spending. January same store sales
Speaker 4: fell across the restaurant industry, tough year of a year
Speaker 4: comparisons and cold weather.
Speaker 3: Hurt customer traffic.
Speaker 4: Co host Belly Lipschutz and I were joined by Michael Halen,
Speaker 4: Bloomberg Intelligence Senior Restaurant and Food service analyst.
Speaker 3: We asked them about some.
Speaker 4: Of the trends coming out of the pandemic and how
Speaker 4: much people are spending on restaurants these days.
Speaker 10: Yeah, you know, obviously there's a couple of tough years
Speaker 10: due to the pandemic, mainly for the full service restaurants,
Speaker 10: due to you know, limitations on hours and different regulations
Speaker 10: on indoor dining rooms. Also just apprehension by customers. But
Speaker 10: there was a pretty strong bounce back in restaurant sales
Speaker 10: in twenty twenty two, and then they kind of got
Speaker 10: hit with that margin pressure, right, twenty twenty three started
Speaker 10: off pretty strong in early twenty twenty three, or lapping Omicron,
Speaker 10: so the comparisons were very easy. So early twenty twenty
Speaker 10: three was very good. Sales started to slide in the
Speaker 10: second half of last year, and now that they're lapping
Speaker 10: those strong comps from a year ago. We saw some
Speaker 10: real weakness in January and so far in early February.
Speaker 9: And when I look at Michael, when I go to
Speaker 9: the fast food restaurants, when I do eat out ball,
Speaker 9: I'm a cheap guy. Prices are high. I go to
Speaker 9: Chipotle and it's cost me seventeen bucks. How do price
Speaker 9: hikes in expanding margins. How are those things playing out
Speaker 9: and how are those going to continue to play out
Speaker 9: in twenty twenty four given this uncertainty around consumers, maybe
Speaker 9: some of the spending.
Speaker 10: Yeah, you know, that's a great question. There was a
Speaker 10: lot of you know, Ruckus really online over the eighteen dollars,
Speaker 10: big mac meal and in some locations last week. So
Speaker 10: you know, this is something that we're looking at. And
Speaker 10: you know, same sort of sales were so weak in January.
Speaker 10: They were down over two percent for fast food, which
Speaker 10: we typically don't see unless we're in a recession. They
Speaker 10: were down seven point seven percent at casual dining. Investors
Speaker 10: are kind of looking past it, saying that the weather
Speaker 10: was really cold, but people still have to eat, right,
Speaker 10: and so so there's kind of some worry here for
Speaker 10: us because like some of the economic indicators we watch
Speaker 10: when you look under the hood aren't looking great. So
Speaker 10: credit card debt is at an all time high one
Speaker 10: point one trillion. Credit card rates are at an all
Speaker 10: time high at twenty one percent APRS. Delinquencies have been
Speaker 10: rising for auto loans as well as credit card loans,
Speaker 10: and they're now above the fifteen year average and pre
Speaker 10: pandemic level. So there is some concern, but right now
Speaker 10: there's just so many variables going on with the weather,
Speaker 10: with the tough comparison, and with these economic indicators to
Speaker 10: figure out exactly how much of this weakness is because
Speaker 10: of what right and so. But one thing we've seen
Speaker 10: is customers are dealing with the higher prices and with
Speaker 10: the higher inflation by putting it on their credit cards,
Speaker 10: which is not a sustainable situation.
Speaker 9: What are some of the names that you cover that
Speaker 9: if we do see the general consumers tightening spending, will
Speaker 9: be better positioned to continue to deliver sales.
Speaker 10: What we've seen one of the weakest segments has actually
Speaker 10: been fine dining. A lot of that has been just
Speaker 10: a pullback and spending. People have been buying less expensive lines,
Speaker 10: you know, cutting back maybe on appetizers. In a real
Speaker 10: economic slowdown, fast food and quick service tend to do
Speaker 10: better because they'll have value menu items, discountsable will be
Speaker 10: more prevalent, and so although you'll see a lot of
Speaker 10: low income consumers kind of trade down to the grocery store,
Speaker 10: the quick service change will see a lot of you know,
Speaker 10: middle and higher income consumers trade away from a higher
Speaker 10: price full service Asian and maybe dying at McDonald's a
Speaker 10: little bit more often.
Speaker 4: Hey, Michael talked to us about the labor situation in
Speaker 4: the restaurant business. I know, for a long time, like
Speaker 4: a lot of industries, you know, the restaurant industry had
Speaker 4: trouble getting labor.
Speaker 3: Where is it now?
Speaker 10: Full service is pretty much where it was prior to
Speaker 10: the pandemic, So you know, think of Chili's and Applebee's
Speaker 10: and most of those casual dining chains that we cover.
Speaker 10: Cheesecake Factory, they're fully staffed right now, so they've recovered
Speaker 10: pretty nicely. Quick service has been slower. Turnover remains a
Speaker 10: lot higher, which is crazy to say, because it's probably
Speaker 10: one hundred and forty percent for hourly turnover heading into
Speaker 10: the pandemic. Now it's it's probably about one hundred and
Speaker 10: seventy percent, So they're having a lot more of a
Speaker 10: difficult time holding onto employees. That being said, it's been
Speaker 10: improving and improved throughout the year. Last year, one of
Speaker 10: the toughest times to staff the store was that late
Speaker 10: night portion. But chains figured out it's supplying demand and
Speaker 10: they have to offer more a higher way to those
Speaker 10: employees to attract good workers, and they've been doing that,
Speaker 10: and so that last kind of part of the day
Speaker 10: that was really struggling to hire is starting to come
Speaker 10: back to. So it's getting better. It's not where it was.
Speaker 2: Two years ago.
Speaker 10: Two years ago, it is very difficult. You know, there's
Speaker 10: a lot of people concerned that restaurant workers would never
Speaker 10: come back, but a lot of them have and it's
Speaker 10: much better than it was.
Speaker 9: Michael to take the labor conversation and twisted just a bit.
Speaker 9: I was just in California for the last two weeks
Speaker 9: where minimum wage is going to be twenty boots in April. First,
Speaker 9: Oh went in and out twice, don't you worry. But
Speaker 9: so twenty dollars minimum wage. I'm seeing a lot of
Speaker 9: these self service kiosks getting rid of the kind of
Speaker 9: front of house, if you will, at some of these
Speaker 9: fast food chains. How does a higher minimum wage impact
Speaker 9: what these companies are going to do and impact their
Speaker 9: margins in turn?
Speaker 10: Yeah, I mean you hit the nail on the head.
Speaker 10: It's going to be more technology. And it's no coincidence
Speaker 10: that the companies that we cover that have the highest
Speaker 10: exposure to California. So that's Jack in the Box, that's Chapotle.
Speaker 10: They're leading the charge when it comes to automation technology.
Speaker 10: Right now, Jack in the Box is testing AI automated friars.
Speaker 10: Chipotle has an automated makeline that they're hoping to roll
Speaker 10: out in the coming years, as well as automated AI
Speaker 10: tortilla chip friars. Right, so, it's going to be more
Speaker 10: automation in the restaurant, but it takes time for that
Speaker 10: to be implemented because right now the cost for that
Speaker 10: automation technology is very high. Right but as the wage
Speaker 10: rates continue to rise and as the price of technology falls,
Speaker 10: which always does over time, eventually there's going to be
Speaker 10: an ROI and a lot of those fast food workers
Speaker 10: are going to be replaced by technology.
Speaker 4: Our thanks to Michael halein Bloomberg Intelligence Senior Restaurant and
Speaker 4: Food Service Analyst, we move next to the Port of
Speaker 4: Los Angeles, one of the world's busiest seaports in a
Speaker 4: leading gateway for international trade in North America. The Port
Speaker 4: of La recently reported the second biggest January on.
Speaker 3: Record for cargo volumes.
Speaker 4: For More, co hosts Emily Grafey and I were joined
Speaker 4: by Jean Soroka, executive director of the Port of Los Angeles.
Speaker 3: We started by asking Gene, how big this is going?
Speaker 11: Business is really good, We're running it about seventy five
Speaker 11: to eighty percent of full capacity at the Port of
Speaker 11: Los Angeles. Anything but normal though around the world, with
Speaker 11: issues in the Panama Canal, with respected drought in the
Speaker 11: Middle East, with concerns around safety and security, and broader
Speaker 11: looks at how this US economy is going to continue
Speaker 11: to propel itself thanks to the American consumer. So let's
Speaker 11: start off with where we're at right now, six consecutive
Speaker 11: months of growth, the second best January ever, up eighteen
Speaker 11: percent compared to last year, and our first quarter outlook
Speaker 11: is it about two point two million containers or a
Speaker 11: twenty percent year on year increase compared to Q one
Speaker 11: of last year.
Speaker 6: So how would you assess, then, the overall health of
Speaker 6: the global supply chain relative to what we saw during
Speaker 6: the pandemic, because, like Paul said, it seemed like everyone
Speaker 6: was suddenly talking about the supply chain and where are
Speaker 6: we relative to just a few years ago.
Speaker 11: Emily, I think we're in a lot better shape. We've
Speaker 11: learned a lot from what we saw then too, But
Speaker 11: we're front of mind now to so many people outside
Speaker 11: our general industry, whether it's us looking for our packages,
Speaker 11: what's on the store shelves, or just the general consciousness
Speaker 11: about how this port, supply chain and trade business impacts
Speaker 11: economies and jobs around the world. What we see in
Speaker 11: Los Angeles is that there are a couple things happening
Speaker 11: right now. The stability of that labor contract has given
Speaker 11: us about a four percentage point boost in market share,
Speaker 11: So some of that cargo that we lost during the
Speaker 11: protracted negotiations has started to come back, not all of it,
Speaker 11: much more work to do, but good trajectory now. With
Speaker 11: the Panama Canal suffering drought and the concerns of safety
Speaker 11: in the Middle East with respect to the Hohothy going
Speaker 11: after the ships and the cargo and oil tankers, you're
Speaker 11: starting to see more cargo shifted our way, not services
Speaker 11: being collapsed, not new vessels coming in, but higher levels
Speaker 11: of capacity and utilization, and importers and exporter are saying,
Speaker 11: I may not want to take that much time, but
Speaker 11: the bigger difference is the gap between cargo that's moving
Speaker 11: east and Gulf Coast versus the West Coast is wider
Speaker 11: from a freight cost perspective. That's important because we're right
Speaker 11: now in the middle of our annual contracting season for freight.
Speaker 4: All right, so you're again right on the Port of
Speaker 4: Los Angeles on the West coast. You probably have the
Speaker 4: best of you of anybody. What's it like now, what's
Speaker 4: your expectation for that important route of trade coming from
Speaker 4: China to your port?
Speaker 11: Paul, It's still our most dominant trading partner. Fifty three
Speaker 11: percent of Port of Los Angeles business is with China.
Speaker 8: Now.
Speaker 11: That's down from fifty seven percent at the end of
Speaker 11: year twenty twenty two, and it may drop into the
Speaker 11: mid forties as many supply chain executives are continuing with
Speaker 11: their China plus one strategy, looking at other locations to
Speaker 11: source and produce goods in. But still forty five fifty
Speaker 11: years of supply chain relationships exist. You don't tear that
Speaker 11: apart overnight.
Speaker 6: Just the other day, the White House said that they
Speaker 6: were concerned that more than two hundred ship to shore
Speaker 6: cranes at US ports are manufactured by China and can
Speaker 6: be serviced and programmed remotely, creating a cybersecurity vulnerability. What
Speaker 6: did you make of those comments. How legitimate are the
Speaker 6: White House's concerns.
Speaker 11: It's also very important to us. The Port of Los Angeles,
Speaker 11: Emily was the first in the nation to create a
Speaker 11: cyber security operations center back in twenty fourteen with the
Speaker 11: help of the Department of Homeland Security. Today that system
Speaker 11: is stopping more than sixty million cyber intrusion attempts per month.
Speaker 11: It also gave us awareness to create a cyber resilient center.
Speaker 11: Also one of the first in the world to bring
Speaker 11: in the private sector partners with us. That co helped
Speaker 11: with the IBM folks has now stopped to have a
Speaker 11: dozen cyber intrusion attempts to private sector interests that they
Speaker 11: were otherwise unaware of. This work must continue.
Speaker 4: So is your business, I mean it's a GDP business?
Speaker 4: Is that how you kind of plan it out here?
Speaker 4: And so do you get a sense of are your
Speaker 4: customers are they telling you? What are they telling me
Speaker 4: about their sense of the economy?
Speaker 11: Broadly speaking, most are upbeat. Seventy percent of our GDP
Speaker 11: is tied to you and me buying goods.
Speaker 2: Now.
Speaker 11: Although the consumer purchasing was down a little bit in January,
Speaker 11: it was not unexpected. Great sales for the holiday season
Speaker 11: nearly a trillion dollars, up three point eight percent last year.
Speaker 11: There was going to be a little bit of a
Speaker 11: lull in January, but the forward look is strong. The
Speaker 11: Atlanta Fed is currently estimating first quarter GDP around two
Speaker 11: point nine percent, healthier than some it expected, and fourth
Speaker 11: quarter GDP came in beyond expectations.
Speaker 2: Again.
Speaker 11: What we see in the forward look is an order
Speaker 11: cycle that runs about six months ahead of when we
Speaker 11: actually buy things in the store online. That inventory flow
Speaker 11: is a leading economic indicator. Appears good.
Speaker 4: So Geene, I'm the captain of this big monstership. I
Speaker 4: got my containers all over the place. At how they
Speaker 4: don't fall off? I have no idea. I come into
Speaker 4: your port. How long am I there before I get
Speaker 4: back on my way.
Speaker 11: I look at these vital statistics as I call of
Speaker 11: Paul every morning, and we're at or better than when
Speaker 11: we were pre COVID. The largest ships that come into
Speaker 11: the port of Los Angeles average twelve thousand containers on
Speaker 11: and off, best in the industry. Every call four and
Speaker 11: a half days is the amount of time a ship
Speaker 11: is in port working. That's right where it should be.
Speaker 4: Our thanks to Gene Soroka, executive director of the Port
Speaker 4: of Los Angeles. Coming up on the program, we'll discuss
Speaker 4: why President Biden's electric vehicle dreams are making life more
Speaker 4: difficult for US car makers.
Speaker 3: You're listening to.
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Speaker 4: Bloomberg Intelligence via b I go on the terminal. I'm
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Speaker 4: We take a look next at the home improvement retailer
Speaker 4: home Depot. This week, the company reported revenue that dropped
Speaker 4: for a fifth consecutive quarter. For More, co host Belly
Speaker 4: Lipscholtz and I spoke with Drew Redding, Bloomberg Intelligence US
Speaker 4: homebuilding analyst. I first asked for his take on Home
Speaker 4: Depot's earnings.
Speaker 8: Sure, so the three and a half percent decline in
Speaker 8: seamstore sales was pretty much free in line with what
Speaker 8: was expected. You have to keep in mind though, coming
Speaker 8: into the court the bar was pretty low for home depot.
Speaker 8: They continue to face the consumers who are pulling back
Speaker 8: in big ticket discretionary categories to think things like flooring, cabinets, countertops. Conversely,
Speaker 8: they're seeing rele of strength and some of the smaller
Speaker 8: scale projects, so there's big ticket projects are being deferred.
Speaker 8: We do think eventually they get completed, but that may
Speaker 8: be more of a twenty twenty five story. But coming
Speaker 8: into this quarter, the real debate was around how twenty
Speaker 8: twenty four was going to shape up. So they offered
Speaker 8: guidance suggesting that same store sales would fall about one percent,
Speaker 8: and given what we heard from a handful of their
Speaker 8: suppliers over the last couple of weeks, which we're calling
Speaker 8: for a flat market, I think people it called people
Speaker 8: a little bit off guard, ourselves included. We do think
Speaker 8: that the first half is going to be comparatively weaker
Speaker 8: than the second half as rates start to pull back,
Speaker 8: and we think you could maybe get a little bit
Speaker 8: bit of a boost from the housing market.
Speaker 9: Drew this may be a dumb question, but when I
Speaker 9: look at some of the consumer data that we've been seeing,
Speaker 9: we are seeing a rising ninety day credit card delinquencies.
Speaker 9: How do things like that? What does the normal spender
Speaker 9: at home depot look like? You're mentioning kind of a
Speaker 9: pullback on some of those bigger projects. What kind of
Speaker 9: demographic does home depot really see in terms of driving
Speaker 9: sales and kind of putting those numbers together.
Speaker 8: Yeah, so about eighty percent of home depots customers or
Speaker 8: current homeowners, they typically have higher incomes, so they are
Speaker 8: higher spenders and they're a little bit more resilient of
Speaker 8: a customer. I think where we're seeing the relative weakness
Speaker 8: is in some of the low end spending, which has
Speaker 8: kind of gone away on the DIY side. But you know,
Speaker 8: if we look big picture, what's happening in the home
Speaker 8: improvement market is we're seeing a reversion to more typical
Speaker 8: spending pattern. So if you think back to the pandemic,
Speaker 8: we had the share of PCEE that went towards household
Speaker 8: durables was at an all time record, and we've seen that
Speaker 8: moderate since really the first half of twenty twenty three.
Speaker 8: So we think that there's a bit more of a
Speaker 8: reversion that needs to take place or the remainder of
Speaker 8: this year, which is going to keep total industry sales muted.
Speaker 8: You know, But you talked about the consumer, you also
Speaker 8: have the consumer out there who's battling with the cumulative
Speaker 8: impact of massive inflation over the last couple of years. So,
Speaker 8: you know, while we look at that head headline number
Speaker 8: and we see that it's moderating, it's really the cumulative
Speaker 8: impact that's kind of pressuring spending in the category.
Speaker 4: Hey, Drew, what's the what do you think is a
Speaker 4: normalized top line growth rate for like a home depot.
Speaker 4: I'm looking you know, pre pandemic was kind of mid
Speaker 4: single digit grower, then of course exploded, you know during
Speaker 4: the pandemic with some you know, big double digit gains.
Speaker 4: What do you kind of model out here for top
Speaker 4: line growth?
Speaker 8: Yeah, I think I think in a normalized environment, which
Speaker 8: we think we get back to in twenty twenty five,
Speaker 8: is probably in the three to four percent range as
Speaker 8: a baseline. You know, there's a couple of industry factors
Speaker 8: that we think will support that. Like I mentioned, we
Speaker 8: think as rates start to moderate, perhaps as we get
Speaker 8: through this year, we think that you could start to
Speaker 8: see a boost from existing home sales. Remember, existing home
Speaker 8: sales are the lowest level more than twenty five years,
Speaker 8: and we know that people who move spend about twice
Speaker 8: as much on remodeling as those who don't. So while
Speaker 8: we don't see total housing turnover returning to you know,
Speaker 8: kind of that five and a half level anytime soon,
Speaker 8: we do think the fact that the have been so
Speaker 8: depressed does serve as a tail and as we move
Speaker 8: through the year. At the same time, you know, we've
Speaker 8: had over forty percent increases in home prices since the pandemic,
Speaker 8: so homeowtor's equity right now is at all time tighes.
Speaker 8: The average home has about three hundred thousand dollars in equity,
Speaker 8: So we think that's a source of pen of demand
Speaker 8: for big ticket projects that once again as rates start
Speaker 8: to moderate, people will get more comfortable with tapping that equity.
Speaker 9: And drew With that in mind, you mentioned some of
Speaker 9: those big purchases, bigger projects. How much of that was
Speaker 9: pulled forward though during the pandemic when people were buying homes,
Speaker 9: we saw a booming market around the US, and it
Speaker 9: did seem like cash being relatively free with the surplus
Speaker 9: spending and stimulus checks that people were putting money into
Speaker 9: home improvement.
Speaker 8: Yeah, great question, and I think that goes back to
Speaker 8: the share of personal consumption that was spent on home improvement.
Speaker 8: It was a lot of that stimulus money that was
Speaker 8: out there for everybody. In terms of the big ticket project,
Speaker 8: we think more of the pull forward was probably done
Speaker 8: in the DIY segment. That's really where you saw the
Speaker 8: boom early in the pandemic. That being said, we have
Speaker 8: seen contractor backlogs over the last couple of years be
Speaker 8: elevated compared to more traditional levels. So to some extent
Speaker 8: it has been in both the DIY and big ticket category.
Speaker 8: But we do think that the big ticket categories where
Speaker 8: we're likely to see more growth for home depot as
Speaker 8: they go after the professional contractor, as they leverage you know,
Speaker 8: the age investments consumers are making because of the age
Speaker 8: of the housing stock that penep equity they have in
Speaker 8: their home.
Speaker 4: Our thanks to Drew Reading Bloomberg Intelligence US Home Building Analyst,
Speaker 4: we move next to the auto industry. Recently, President Biden
Speaker 4: has been using his multi billion dollar Inflation Reduction Act
Speaker 4: to try and create a more US centric electric vehicle
Speaker 4: supply chain. One of the goals is to reduce China's
Speaker 4: influence over global metals markets, but US actions have only
Speaker 4: made life more difficult for its carmakers.
Speaker 3: From more On this.
Speaker 4: Co host Billy Lipscholtz and I were joined by Craig Trudell,
Speaker 4: Bloomberg Global Autos editor. He co wrote the Big Take
Speaker 4: column Biden's EV dream are a nightmare for Tesla and
Speaker 4: the US car industry. We first asked Craig for some
Speaker 4: context on what's happening.
Speaker 5: I think this is a really challenging thing that the
Speaker 5: Biden administration was trying to do right, they were trying
Speaker 5: to jump start the EV industry in the US. I
Speaker 5: would say, you know, you can give them high marks
Speaker 5: for what they've done in terms of the amount of
Speaker 5: manufacturing investment they've attracted. It's it's really been remarkable the
Speaker 5: response that we've seen there. On the other side of
Speaker 5: the equation, the demand side, I think, you know, the
Speaker 5: marks are way more mixed, and I think, you know,
Speaker 5: the challenges that we're going to see in the years
Speaker 5: to come, you know, assuming, of course, Ira, you know,
Speaker 5: stands up. If we see a change in the White
Speaker 5: House later this year. But whether or not manufacturers can
Speaker 5: sort of pull off what Biden you know, is asking
Speaker 5: of them, which is to really set up a EV
Speaker 5: and battery supply chain that is less reliant on China,
Speaker 5: and it eventually is just not reliant on China. And
Speaker 5: that's proven to be an extremely difficult task. And that's
Speaker 5: what we try to lay out today in ways that
Speaker 5: are you know, really it's a it's a complicated issue.
Speaker 5: You know, Tesla everyone thinks about, as you know, being
Speaker 5: a very sort of made in America car brand, and
Speaker 5: and you know, they sort of are recognized as one legitimately.
Speaker 5: But you know, when given the opportunity to import batteries
Speaker 5: because of the fact that the IRA you know, didn't
Speaker 5: really necessarily grow some teeth until the beginning of this year,
Speaker 5: we saw, you know, just in a matter of months,
Speaker 5: Tesla import two and a half billion dollars worth of
Speaker 5: EV batteries from China.
Speaker 9: Wow, and Craig, that's happening because it feels like every
Speaker 9: time we talk about GM for Tesla, a lot of
Speaker 9: these companies are losing money making their evs. So what
Speaker 9: was the point of the IRA if not to kind
Speaker 9: of streamline. I guess the kind of inputs of of
Speaker 9: these batteries.
Speaker 5: I think what you have here is a situation where
Speaker 5: you know, Joe Mansion was you know, the player who
Speaker 5: Washington really just had to sort of bend to his will,
Speaker 5: and he was really reluctant to you know, allow for
Speaker 5: electric vehicles to continue to get tax credits. He was
Speaker 5: opposed to them, and he said, okay, industry, well we'll
Speaker 5: give you these tax credits, but you build me as
Speaker 5: a supply chain that of course, you know, sort of
Speaker 5: didn't take into account sort of you know the complexities
Speaker 5: of the supply chain and the fact that China is
Speaker 5: just so dominant in this space and they've really sort of,
Speaker 5: you know, methodically, you know, for a time quietly, you know,
Speaker 5: built this, you know, staggeringly strong position in terms of
Speaker 5: you know, the control of you know, the inputs, whether
Speaker 5: it's you know, nickel and lithium graphite. You know, these
Speaker 5: inputs are going to be really really difficult to source,
Speaker 5: not only just you know, whether their mind in China,
Speaker 5: but whether they're sort of processed and refined, and you
Speaker 5: know the sort of cost difference that that the West
Speaker 5: is going to have to sort of overcome really just
Speaker 5: can't be you know, sort of overstated at.
Speaker 4: This And folks, if you want to see this article,
Speaker 4: it's fantastic article. Really deeply reporting great graphics makes it
Speaker 4: easy for me because I like the pictures. Bloomberg dot
Speaker 4: Com slash a big take is kind of where you
Speaker 4: find it.
Speaker 3: Big team effort.
Speaker 4: So you know, Craig, I see in your reporting here.
Speaker 4: In twenty twenty three, the IRA required that at least
Speaker 4: half of the value of battery components had to be
Speaker 4: assembled in North America and that forty percent of a
Speaker 4: raw materials had to be sourced from the US, And
Speaker 4: in twenty twenty seven, that raw material requirement is going
Speaker 4: to double to eighty percent. Those numbers can they be
Speaker 4: achieved in that timeframe?
Speaker 5: I think that's one of the things that you know,
Speaker 5: it sort of depends on which company you ask, And
Speaker 5: I think, you know, some of the concerns that the
Speaker 5: industry is having here is the fact that some of
Speaker 5: these raw materials the prices have really collapsed, and that
Speaker 5: you would sort of think, oh, that's a good thing
Speaker 5: for the auto companies, But if you're trying to build
Speaker 5: a supply chain in North America for these raw materials
Speaker 5: and the prices for them have absolutely, you know, sort
Speaker 5: of the bottom has come out. Think of lithium in particular,
Speaker 5: You've seen this dramatic drop in prices that significantly undermines
Speaker 5: the economics of those projects. And so I think the
Speaker 5: raw materials in particular are a real challenge. I think
Speaker 5: battery components will be less of a challenge, but even
Speaker 5: there it is a matter of you can't just sort
Speaker 5: of snap your fingers and open up a bunch of
Speaker 5: plants for these various components. It does take time, you know,
Speaker 5: to dig up the ground and put up these plants
Speaker 5: that are coming but are taking some time.
Speaker 9: And graig across the auto makers. I'm looking at the
Speaker 9: reporting again, seven of Tesla's twelve models sold in the
Speaker 9: US fully cleared the IRAS sourcing hurdles and qualified for
Speaker 9: the tax credit. What percentage of evs being sold in
Speaker 9: the US are clearing that hurdle?
Speaker 5: I think, because Tesla is still so dominant in the US,
Speaker 5: we're at a point where, you know, the evs that
Speaker 5: do the most volume are largely qualified at the moment.
Speaker 5: But I think the fact that those raw material requirements
Speaker 5: that kick in next year and then escalate in the
Speaker 5: years that follow. That's really where we're going to see
Speaker 5: even more of a sort of level of screws put
Speaker 5: on the industry. But I think, you know, the other
Speaker 5: carmaker that I think is particularly well positioned, I would
Speaker 5: just call out to General Motors. I think the fact
Speaker 5: that they have a localized supply chain four batteries, they
Speaker 5: have a joint venture with a Korean battery supplier. We're seeing,
Speaker 5: you know, more and more of those partnerships, you know,
Speaker 5: for the following suit. Stilantis, the maker of Jeep and
Speaker 5: Chrysler a similar deal where they're setting up battery plants
Speaker 5: in North America and sort of on and on. But
Speaker 5: those projects, I would say are much further behind where
Speaker 5: we have Tesla, which you know for years has been
Speaker 5: making batteries out Nevada with Panasonic, and GM, which has
Speaker 5: a partnership with LG.
Speaker 4: In us our Thanks to Craig Trudell, Blueborg Global Autos Editor.
Speaker 4: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
Speaker 4: providing research and data on two thousand companies and one
Speaker 4: hundred and thirty industries. You can access Bloomberg Intelligence via
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