Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Business
Speaker 1: Wait inside from the reporters and editors who bring you
Speaker 1: America's most trusted business magazine, plus global business, finance and
Speaker 1: tech news. The Bloomberg Business Week podcast with Carol Messer
Speaker 1: and Tim Stenebeck from Bloomberg Radio.
Speaker 2: One other name that is on our radar and stock
Speaker 2: shares of Alphabet down about two point three percent. It's
Speaker 2: been on our mind all this week. You remember on
Speaker 2: Monday the stock dropped about four and a half percent
Speaker 2: amid renewed fears about Google's AI offerings, and that after
Speaker 2: a research note from Milius research analyst Ben Wrightss, who
Speaker 2: noted that problems with AI tools may fuel the perception
Speaker 2: that Google is an unreliable source for AI his words,
Speaker 2: and create an opening for competitors. Ben Writs is also
Speaker 2: specifically highlighting the possibility of users growing concerned.
Speaker 3: About Google's bias.
Speaker 2: Our Ed Ludlows Booth with Ben Rightsis earlier this week
Speaker 2: about his note and concerns on Google's AI strategy.
Speaker 3: Check it out.
Speaker 4: You want to make sure they don't have a bud
Speaker 4: light moment, and we're not sure yet. I don't want
Speaker 4: to weigh in on the merits of what they did
Speaker 4: or the debate. It's just real simple. When you alienate
Speaker 4: a part of the population and they believe that you
Speaker 4: may not be a source of truth, that's not good
Speaker 4: for business in their business.
Speaker 5: That was Ben rightsis speaking to our own ed Ludlow
Speaker 5: earlier this week, Alphabet CEO Sunder Pachai responding to the
Speaker 5: concerns as stock is now done nearly six percent so
Speaker 5: far this week. Thunder Pachai is saying in an email
Speaker 5: to employees, quote, we have been arguing that search behavior
Speaker 5: is about to change with new AI infused futures. This,
Speaker 5: once intigestion is changed by itself, creates opportunities for competitors,
Speaker 5: but even have a meaningful portion of user growth. Continued
Speaker 5: about Google's hallucinations and bias. Excuse me? That was from
Speaker 5: rightsis I should say under Pachaise say, no AI is perfect,
Speaker 5: especially as this submerging stage of the industry's development, But
Speaker 5: we know the bar is high for us and we'll
Speaker 5: keep at it for however long it takes.
Speaker 2: This has been and we're just trying to keep track
Speaker 2: of it because there's been a back and forth going
Speaker 2: on all week here, So let's get to it. We
Speaker 2: knew we had to get to the bottom of the
Speaker 2: concerns and what is going on in Alphabet and its
Speaker 2: key Google unit. So with us is the co host
Speaker 2: of Bloomberg Technology and BTV Ed Ludlow. He's in our
Speaker 2: San Francisco bureau, and also with us as Bloomberg News
Speaker 2: Technology reporter, Davey Alba in New York City.
Speaker 3: And I want to start with you.
Speaker 2: At the heart of this is Gemini, formerly barred Google's
Speaker 2: flagship AI products. Step back for us, the criticism from
Speaker 2: the analyst, the chief concerns. You talked with him, and
Speaker 2: then let's get into Sondar Pachai's response.
Speaker 6: Sure, and by the way, not just Tim, you know,
Speaker 6: I speaking to a lot of people that the investor
Speaker 6: concern is right that Gemini is the poster for Google
Speaker 6: and it's public facing AI tools and competence. But the
Speaker 6: deeper concern is that that AI technology is going to
Speaker 6: spread and underpin all of the things we know Google
Speaker 6: for search, YouTube in the long run, and those are
Speaker 6: the bread and butter businesses. And that's a concern, right,
Speaker 6: It's an issue of trust and what I find extraordinary
Speaker 6: about this story. I applaud you and commend you guys
Speaker 6: for being so thorough on explaining what happened. But investors
Speaker 6: do have short memories. If you go back to exactly
Speaker 6: one year ago, what happened. Google released Barred and in
Speaker 6: that demonstration video, it was asked about the Hubble telescope.
Speaker 6: You may remember, I believe I came on the show
Speaker 6: with you and talked about it, and it gave an
Speaker 6: incorrect answer, and what played out was downward pressure on
Speaker 6: the stock significant We're seeing the same thing play out
Speaker 6: this week. Trust has been damaged and that's hurting the shehes.
Speaker 5: And ed what do you make of Sunder Pitcha's response
Speaker 5: the way he tried to handle this yesterday at the company.
Speaker 6: Yeah, I mean it's a pretty direct and frank admission.
Speaker 6: You know that. Verbatim, he said that the answers given
Speaker 6: by the text and image generation side of Gemini insulted
Speaker 6: and offended people, and it was unacceptable. What I'm interested
Speaker 6: to hear from Davey is that he said they've got
Speaker 6: teams out working around this on this around the clock, right, Well,
Speaker 6: how do you fix it?
Speaker 3: Well?
Speaker 7: And let's so.
Speaker 2: Davey come on in your story with with your Bloomberg colleagues,
Speaker 2: digs into internally what's been going on at Google, specifically
Speaker 2: around its ambitious AI strategy. I mean, February was supposed
Speaker 2: to be a pretty good month from them, but it
Speaker 2: hasn't played out. Tell us what's been going on behind
Speaker 2: the scenes.
Speaker 8: Yeah, you know, you're right. February was supposed to be
Speaker 8: a banner month for Google and it's AI products. It
Speaker 8: released a bunch of updates, including some impressive new upgrades
Speaker 8: to Gemini, an open source model called Gemma, and you know,
Speaker 8: more context windows so you can kind of querry the
Speaker 8: AI for longer text and video. But you know, this
Speaker 8: controversy has been playing out all week, and our reporting
Speaker 8: found that the way Google rolled out this technology included
Speaker 8: a technical fix that would transform the crop that you
Speaker 8: would actually send to Google and kind of force some
Speaker 8: outputs that would try to mitigate the inherent biases of AI,
Speaker 8: given that it's trained on such a corpus of data
Speaker 8: that does preference you know, sort of Western images and stereotypes,
Speaker 8: and and so Google basically over corrected in releasing Gemini.
Speaker 8: And now you know the company is trying to work
Speaker 8: hard to fix it. But I in my opinion, this
Speaker 8: is going to be a long journey for them. They
Speaker 8: will have to really take a look at how they
Speaker 8: built this product from the ground up and try to
Speaker 8: see what fixes they can make to the fundamental product
Speaker 8: rather than kind of a band aid fix that they
Speaker 8: rolled out.
Speaker 5: Well, I want to throw it back to ed just
Speaker 5: for a second here to help contextualize where Gemini is
Speaker 5: slash was when it comes to lms that are out there,
Speaker 5: like where does it compare to open ais and other
Speaker 5: ones that meta platforms perhaps are working on, and either
Speaker 5: ones from other companies as well.
Speaker 6: Well, Look, I would I think Davey would agree that
Speaker 6: the way Alphabet and Google Alphabet, the parirent of Google,
Speaker 6: have rolled out first Barred and now Gemini the kind
Speaker 6: of all encompassing generative AI tool, has been more careful
Speaker 6: and in different stages than others have rolled out their chatbots.
Speaker 6: You know, they did it with limited beta access at first,
Speaker 6: opening it up to a wider audience. I do think
Speaker 6: it's important tim to remember kind of what happened to
Speaker 6: set this all off, which is basically Gemini was asked
Speaker 6: what was worse, Hitler or Elon Musk and that's a
Speaker 6: very layman's and short answer. But the response that the
Speaker 6: Gemini bot gave was it's hard to say, and so
Speaker 6: that is what spurred the debate online. The problem being
Speaker 6: the root of your question is we are twelve months
Speaker 6: on from the general release and so that's worrying, right,
Speaker 6: because if you go back in history, Google is at
Speaker 6: the advent of the R and D that went into
Speaker 6: early AI. Fast forward to the first twelve months of commercialization,
Speaker 6: and that response on that specific question has got a
Speaker 6: lot of people saying, well, how on earth could Google,
Speaker 6: of all companies, allowed it to get to this stage, right.
Speaker 2: And you know, Davey considering that Google you right, you
Speaker 2: guys write in your story that's on the bloomberd today
Speaker 2: that Google pioneered some of the techniques that.
Speaker 3: Are today at the heart of the AI boom.
Speaker 2: So it's kind of ironic, But come on in on
Speaker 2: some of what we just heard from ed in terms
Speaker 2: of what's been going on and what they're finding out
Speaker 2: some of the issues.
Speaker 8: Yeah, you know, this is a problem for all large
Speaker 8: scale AI systems, not just Google. This is something that
Speaker 8: open AI faces and you know metas LM faces. The
Speaker 8: fact is that these AI systems are trained on all
Speaker 8: of the Internet's data basically, and if you think about
Speaker 8: what's on the Internet, a lot of it is kind
Speaker 8: of garbage. And so the way that the AI mirrors
Speaker 8: what it's trained on is a huge problem and one
Speaker 8: that these companies don't have a an elegant fix for.
Speaker 8: So it ads right. Google has been absolutely way more
Speaker 8: careful than some of its other peers in rolling out
Speaker 8: its products. It usually does so in experimental stages first,
Speaker 8: But the problem is that there is no other way
Speaker 8: to train these AI systems, and so so when you
Speaker 8: have this fundamental issue of the AI kind of being problematic,
Speaker 8: what they can do is apply sort of hard coded
Speaker 8: fixes on it, technical fixes, and in this case, our
Speaker 8: reporting found, you know, they may have gone a little
Speaker 8: too far, which is how you get these absurd answers
Speaker 8: of like who is worse Elon Musker or Hitler, And
Speaker 8: it's like, oh, waffling, like we can't say one way
Speaker 8: or the other.
Speaker 2: So guys, we got about a minute left and let
Speaker 2: me go to you first, So how should we And
Speaker 2: I'm thinking about the Bloomberg audience of investors trying to say, well,
Speaker 2: wait a minute, is.
Speaker 3: This a really big issue.
Speaker 2: This is just part of a bigger, broader story as
Speaker 2: we wait our way through this new world of AI, Like,
Speaker 2: what is it?
Speaker 7: Yeah, it's hard for me to answer.
Speaker 6: I'll go with investors vote with their feet, right, And
Speaker 6: the negative share reaction this week was not as severe
Speaker 6: as the negative reaction one year ago in that example
Speaker 6: of Bard making a mistake. You just have to continue
Speaker 6: to see how investors interpret the get picture. How does
Speaker 6: Gemini Gemini relate to its core businesses and either improve
Speaker 6: them or cause more concern?
Speaker 2: Davie saving twenty five seconds for you your thoughts forward,
Speaker 2: you know, as you continue to report this out.
Speaker 8: Yeah, I'm curious to see what fixes Google will have
Speaker 8: going forward. The CEO of DeepMind, Demissabis, had just said
Speaker 8: this week that he intends for this feature to go
Speaker 8: back online within the next couple of weeks. And I
Speaker 8: think if they don't have anything more than kind of
Speaker 8: the band aid fix that we saw, then you know what,
Speaker 8: investors will probably take note and vote accordingly.
Speaker 2: Investors not shy when there's any kind of AI angle
Speaker 2: that that disappoints guys.
Speaker 3: This is exactly what we wanted to do.
Speaker 2: A deep dive on this which has been over the
Speaker 2: news throughout the week, co host to Bloomberg Technology Ed Ludlow,
Speaker 2: and of course our thanks to Bloomberg News tech reporter
Speaker 2: Davy Alba.
Speaker 1: You're listening to the Bloomberg Business Week podcast Can't Just
Speaker 1: Look five weekday afternoons from two to five pm Eastern
Speaker 1: Listen on Apple car Play and then Brout Auto with
Speaker 1: a Bloomberg Business app or want us Live on YouTube.
Speaker 2: Well shares of the power generation company energ Energy hitting
Speaker 2: a record high today inter day before dropping back this
Speaker 2: following its latest quarterly update, the company reaffirming its twenty
Speaker 2: twenty four guidance and an upbeat forecast for twenty twenty
Speaker 2: four adjusted EBITA. So we continue to get some news
Speaker 2: and earnings reports, including on some of the energy names.
Speaker 5: Yeah, and it's important to follow, of course, because Bloomberg
Speaker 5: News recently reported how the US power grid is struggling
Speaker 5: to maintain an even flow of electricity and putting homes
Speaker 5: at risk. It was a big take a couple of
Speaker 5: weeks ago. We covered it here on the program. So
Speaker 5: with more on some of the trend shaping the electricity
Speaker 5: sector as an investment play, We're joined by Timothy Kramer,
Speaker 5: the CEO at CNIC Funds. It's home to the cnic
Speaker 5: ice US Carbon Neutral Power Futures Index ETF, which has
Speaker 5: about four million dollars in assets in the fund. That's,
Speaker 5: according to Bloomberg, down about twelve percent since the beginning
Speaker 5: training in May of last year, down about four percent
Speaker 5: year to date. Tim joins us from Houston. Tim, good
Speaker 5: to have you on the program today. Talk a little
Speaker 5: bit about who this is for. Carol and I did
Speaker 5: some digging in the Bloomberg terminal and it was it
Speaker 5: was a bit tough to make sense of what exactly
Speaker 5: is in the ETF and what it tracks, So give
Speaker 5: us the details here, sure.
Speaker 9: So what's in the ETF is electricity future So ICE
Speaker 9: the Intercontinental Exchange has the futures listed. So just like
Speaker 9: you've got crude oil futures, goal futures, et cetera, you've
Speaker 9: got these futures on electricity. And so what the index
Speaker 9: then the ETF has in it is it takes an
Speaker 9: average of six of the major power trading hubs in
Speaker 9: the US and it takes those futures and then it
Speaker 9: weights them according to what the electricity consumption is in
Speaker 9: the US.
Speaker 3: So who is this for? I'm curious about you.
Speaker 2: Guys have about a little bit more than four million
Speaker 2: dollars in assets under management.
Speaker 3: Who do you target with this?
Speaker 8: Who?
Speaker 2: What kind of exposure is an investor looking for by
Speaker 2: tapping into this ETF?
Speaker 9: Sure, So electricity is the most consumed commodity in the
Speaker 9: US on a retail notional basis, but up until now
Speaker 9: it hasn't been in any ETF, any index, any mutual fund, nothing.
Speaker 9: So right now, if you take a look, modern portfolio
Speaker 9: theory says that you should have somewhere between five and
Speaker 9: fifteen percent of your aun allocated to commodities, and that's
Speaker 9: for portfolio diversification and for inflation protection. So if you
Speaker 9: take a look, pensions and endowments typically have about three
Speaker 9: percent right now allocation, and there's like over eight hundred
Speaker 9: billion dollars tied with the Bloomberg Commodity Index and other
Speaker 9: other commodity indexes. So this is geared towards a few
Speaker 9: different types of audiences. The first would be we'll say
Speaker 9: model portfolio. So if you take a look, a lot
Speaker 9: of the major platforms have been pushing a sixty forty portfolio,
Speaker 9: so sixty percent equity forty percent debt, and now they're
Speaker 9: trying to find tune that a bit, and so they're
Speaker 9: pushing like a sixty thirty five to five with the
Speaker 9: five being commodities. And so if you look back over
Speaker 9: the past three, five and seven years, on an absolute
Speaker 9: basis and on a risk adjusted basis, the sixty thirty
Speaker 9: five to five has been beating the sixty forty. But
Speaker 9: if you do a sixty thirty five three to two,
Speaker 9: three in commods and two in electricity, it beats everything
Speaker 9: on an absolute and a risk adjusted basis. So we
Speaker 9: think a model portfolio for investors would make sense. And
Speaker 9: then for the pensions and endowments, this gives you inflation
Speaker 9: protection because CPI is two point five percent electricity month
Speaker 9: in and month out right, and this person the index
Speaker 9: is eighty percent related to inflation.
Speaker 5: I saw Carol furiously writing down every number you just
Speaker 5: mentioned that, Timothy, Hey, So I do have to ask though,
Speaker 5: in terms of exposure to commodities. There are lot of
Speaker 5: different ways to get exposure to commodities. So somebody watching
Speaker 5: could be saying, okay, well, you know, I could buy
Speaker 5: this etf or I could buy I could buy crude
Speaker 5: I could buy natural gas, I could buy coal. These
Speaker 5: are all things that are used in the US to
Speaker 5: generate power. Why not just go directly to the source
Speaker 5: in terms of how that power is generator? I mean
Speaker 5: they could buy equity, you know, equity in companies that
Speaker 5: are solar companies.
Speaker 9: So in terms of going to the actual source, we'll
Speaker 9: go with what the occrude natural gas that you mentioned first.
Speaker 9: The US has a stated goal of being eighty five
Speaker 9: percent renewable generation by twenty thirty and one hundred percent
Speaker 9: carbon free by twenty thirty five, and so you're seeing
Speaker 9: less and less reliance on fossil fuels and more on
Speaker 9: other types of generation, and that creates a number of problems.
Speaker 9: And so you get direct exposure to the electricity as
Speaker 9: a commodity with this particular product. That's the first thing.
Speaker 9: And then if you do the equities, well, you know,
Speaker 9: you don't know if they'd hedge their exposure or not,
Speaker 9: and they can have accounting irregularities and they got to
Speaker 9: cover management and overhead. So you're not really getting the
Speaker 9: clean direct exposure to the commodity itself as if you
Speaker 9: as if you played the index or the ETI talk to.
Speaker 2: Us about flows over four million in assets under management.
Speaker 2: What kind of flows have you seen in and out
Speaker 2: as of late?
Speaker 9: So right now, we've got interest from some of the
Speaker 9: platforms and from family offices, and we have seen some
Speaker 9: people that have been treading this in terms of their
Speaker 9: view on natural gas and or absolute price levels on commodities.
Speaker 9: And I will point out that what happens is we
Speaker 9: had probably the warmest winter January February of twenty four
Speaker 9: that you know, we've ever had, and so that's kind
Speaker 9: of depressed the price of this a little bit. And
Speaker 9: so that was due to winel Nino phenomena. But we
Speaker 9: are looking now for this summer for law Nina to
Speaker 9: be a very hot and very dry summer. So we're
Speaker 9: seeing interest in this pickback up for people that are
Speaker 9: looking to try to profit or participate on that.
Speaker 2: So Tim, is that it like you in terms of participation,
Speaker 2: you're kind of relying on the weather in terms of
Speaker 2: interest into the ETF. I'm just curious about what's the
Speaker 2: strategy for getting AUM a little bit higher here?
Speaker 9: Sure, So to get the AUM hire, we're having conversations
Speaker 9: with the exact same pensions and endowments that we talked
Speaker 9: about and we're also having the conversations with some of
Speaker 9: the platforms about getting onto the model portfolios and getting
Speaker 9: this more available to some of the retail investors.
Speaker 5: Interested in your thoughts just on infrastructure and on the grid,
Speaker 5: since you're so involved in this space, Tim, I mean,
Speaker 5: there's been so much reporting, especially in your home state
Speaker 5: in Texas after that grid failure a couple of years
Speaker 5: ago during that really huge cold snap in the are
Speaker 5: US grids up to snuff to handle increasing power consumption
Speaker 5: as we do shift and start using more and more electricity.
Speaker 9: The short answer is no. The easy way to describe
Speaker 9: that is there's an article that came out the other
Speaker 9: day that talks about completion rate, and so approximately eight
Speaker 9: point seven percent of everything that goes into the development
Speaker 9: queue gets built. So there's a lot of things that
Speaker 9: are trying to get built as we're going towards that
Speaker 9: one hundred percent renewable, but it's very difficult to get
Speaker 9: them permitted and it takes a longer period of time
Speaker 9: to do it. It's up from between two to three
Speaker 9: years and now it ranges between four and seven years.
Speaker 9: So the fact that it's difficult to get the stuff
Speaker 9: permitted and it is taking longer to build. You need
Speaker 9: to combine that with the fact that's you've got higher
Speaker 9: expenses and so you know, higher interest rates, higher labor costs,
Speaker 9: and things like that just make it more prohibitively expensive
Speaker 9: to get the grid to where it needs to be
Speaker 9: for the stability factor that you're referencing.
Speaker 3: I am curious when you look at the electricity market.
Speaker 2: I mean, we talk a lot about AI right and
Speaker 2: machine learning and the amount of power that's going to
Speaker 2: be needed. We talked about the autonomous vehicles, the amount
Speaker 2: of power needed just inside the vehicle to make it
Speaker 2: all happen if it's autonomous. In terms of the fundamentals,
Speaker 2: the factors, the macro factors, what do you see tim
Speaker 2: as the biggest factors impacting demand raising it over the
Speaker 2: next couple of years.
Speaker 9: You nailed it right. So a couple of sound bites
Speaker 9: will be a Google search takes one wat of power,
Speaker 9: an AI search takes one hundred wants and it takes
Speaker 9: one thousand watts to train that. So the AI right
Speaker 9: there tells you kind of what the demand is. You
Speaker 9: guys talk about bitcoin. You've got it scrolling across your
Speaker 9: screens and so when you look at bitcoin, forty percent
Speaker 9: of all bitcoin in the world is mined in the
Speaker 9: US and seventy percent of bitcoin's expense is electricity. And
Speaker 9: then just the proliferation of data centers, the electricity demand
Speaker 9: due to data centers alone for data centers should be
Speaker 9: growing at about ten percent a year through like twenty thirty.
Speaker 9: So just for what you talked about technology reasons, just
Speaker 9: a massive name that we think is understated.
Speaker 2: Biggest risk though to this strategy for you and just
Speaker 2: got about twenty seconds here, sure.
Speaker 9: I mean the biggest risk is we think from a
Speaker 9: long term fundamental play that this looks good. The biggest
Speaker 9: risk is just short term if we don't get you know,
Speaker 9: demand due to weather. Yeah, I can depress prices a
Speaker 9: little bit, but other than that, from a long term perspective,
Speaker 9: we did all.
Speaker 3: Right, got it?
Speaker 2: Run tim great to get some time. Timothy Kramer our
Speaker 2: CEFCN I S Funds.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Listen live
Speaker 1: each weekdays starting at two pm Eastern on Apple car
Speaker 1: Play and ANDROYD Auto with the Bloomberg Business ad. You
Speaker 1: can also listen live on Amazon Alexa from our flagship
Speaker 1: New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 2: Yes, indeed, folks, he is in from the West Coast,
Speaker 2: in from the state of California. He's also in charge
Speaker 2: of investing for the largest teachers retirement systems, second largest
Speaker 2: public pension here in the United States, which provides benefits
Speaker 2: to California nearly did we say, one million public school
Speaker 2: educators in their families. We're talking about the California State
Speaker 2: Teachers Retirement System also known as COLSTERS, which by the way,
Speaker 2: is also the largest educator only pension fund in the world,
Speaker 2: and as of the end of last month, the investment
Speaker 2: portfolio had more than three hundred and twenty five billion
Speaker 2: in assets under management.
Speaker 3: That's a nice little amount too many.
Speaker 5: What of responsibility, I'd say, Chris Allman is who we're
Speaker 5: talking about. He's chief investment officer of cal STIRS. He's
Speaker 5: back with us here in the Bloomberg Interactive Brokers studios.
Speaker 5: So Chris, it's good to see you. We're going to
Speaker 5: talk about your future plans in a second. But you
Speaker 5: shared with us an incredible stat just moments ago that
Speaker 5: California teachers live longer than any other profession in California, which.
Speaker 7: Is sort of any profession in the USA, any actroy
Speaker 7: table think about it, that makes you talk about California.
Speaker 7: They're all college educated, they're typically non smokers. They live
Speaker 7: in California, so they have healthier lifestyles, eating habits, and
Speaker 7: they're seventy two percent women and live longer than men.
Speaker 7: So we have over four hundred teachers that are retired
Speaker 7: over one hundred.
Speaker 5: Years old, which I mean right, yeah, that means they're
Speaker 5: dipping into their pension plans for longer than Oh yeah.
Speaker 7: Longevity is a big challenge for me.
Speaker 5: That's so interesting to hear. I mean, and what was
Speaker 5: the stat about the teachers over one hundred?
Speaker 7: Four hundred more? I think right now we're about four
Speaker 7: hundred and fifty teachers that are over one hundred years old.
Speaker 7: We write them a happy birthday card. At one hundred,
Speaker 7: I kind of cringe a little bit because it's like, wow,
Speaker 7: you know, we got a card back from a teacher
Speaker 7: that was one hundred, very legible, writing thrilled about her
Speaker 7: daughter that was eighty, her granddaughter that was sixty, and
Speaker 7: telling us that our great guyanddaughter was a teacher and
Speaker 7: thinking about retiring.
Speaker 3: I think I'm going to move to California and become
Speaker 3: a teacher.
Speaker 7: It's too late now, Yeah, you gotta start when you're young.
Speaker 2: So let's talk about though the investment environment, something we
Speaker 2: always like to do. You guys have to you know,
Speaker 2: guarantee that they're going to be the money there for
Speaker 2: those who tap into this fund and this retirement fund.
Speaker 2: How do you continue to think about it in today's environment,
Speaker 2: and what's the smartest strategy and how first doesn't shift
Speaker 2: Chris based on you know, we're day to day the
Speaker 2: gyrations we obsess over it.
Speaker 3: You've got to think longer term, bigger, broader to make.
Speaker 7: Sure you're at Bloomberg because of the focused capital and
Speaker 7: the long term. A conference that we're part of in
Speaker 7: a group that we're really trying to help. The key
Speaker 7: is to think long term. So I've got a thirty
Speaker 7: year horizon. I think long term. We make I always
Speaker 7: say we're a giant cruise ship out on the ocean.
Speaker 7: We're not going to ever go to port. We're always
Speaker 7: out in rough weather or smooth weather, and what we're
Speaker 7: doing is making subtle course corrections. So I'm listening to
Speaker 7: you guys every day on my car to work back home.
Speaker 7: I'm a diehard listener to Bloomberg Radio, and I am
Speaker 7: paying attention to the nuances in the market, but I
Speaker 7: am not making giant corrections to that portfolio. It's long term.
Speaker 7: You've got to have a thought that it's a marathon,
Speaker 7: and every year is just one pace in a marathon
Speaker 7: when you're a mile in a marathon.
Speaker 1: So when you.
Speaker 2: Listen to either conversations from the investor from the investing
Speaker 2: space or when you listen to Bloomberg, what is it
Speaker 2: that makes you sit up a little straight and say, oh,
Speaker 2: that's an interesting trend or that's something significant that could
Speaker 2: be a longer term investment play.
Speaker 7: Carol, the old adage of don't fight the Fed. I'm
Speaker 7: listening to what the Fed's saying today, what Jim Williams,
Speaker 7: who's from Sacramento is saying, you know what, the New
Speaker 7: York Fed. Listening to them first and foremost and paying
Speaker 7: attention to their directions, but then the other overall trends
Speaker 7: within the US market and the global markets, because it's
Speaker 7: not just the US Central Bank we have to pay
Speaker 7: attention to.
Speaker 3: But global central bankers there Oh yeah.
Speaker 7: No, because it we are a truly global portfolio. We
Speaker 7: have a home country bias to the USA. It's over
Speaker 7: half of the market and it's about seventy five percent
Speaker 7: of our portfolio. But it still is interest rates first.
Speaker 7: And you're really listening to whether people are greedy or fearful.
Speaker 7: And the old Warren Buffett adage is still true. If
Speaker 7: people are fearful, then that's time to be greedy. If
Speaker 7: they're greedy like now, it's time to be a little fearful.
Speaker 5: So when can you get greedy again? When are people
Speaker 5: going to be fearful?
Speaker 7: That's always a tough question. You know, it's the consumer
Speaker 7: right now is really in a bad mood. But what
Speaker 7: surprises me. They're flying on planes. All the airports are jammed,
Speaker 7: they're going to restaurants, they're you know, the the lower
Speaker 7: end consumer is struggling. But we hit a soft landing.
Speaker 7: We're doing okay, and the markets are repeating record highs.
Speaker 5: You've you've you've said, we've landed the plane.
Speaker 7: Yep, look at that.
Speaker 5: We hit a soft landing.
Speaker 3: Well it's kind of interesting.
Speaker 5: So you think we got to call here?
Speaker 3: Okay, okay, okay.
Speaker 7: I said it. I said it. Apparel. Back in December,
Speaker 7: we hit the soft landing. It's done done. Inflation is
Speaker 7: not totally under control. It's going to jump up to
Speaker 7: three and fours and then back to two's. We're going
Speaker 7: to be in a higher inflation environment. But that doesn't
Speaker 7: mean the Fed is going to ease I think, well,
Speaker 7: does the market right?
Speaker 3: So does the Fed even need to cut rates?
Speaker 7: They? I think for the markets sake they need to
Speaker 7: come off, but maybe not more than three cuts in
Speaker 7: this year at most. They do not need to ease back.
Speaker 7: Real interest rates are probably around three percent. That's what
Speaker 7: the FED is say.
Speaker 3: Off landing. You're saying to maintain that's off landing.
Speaker 7: They're gonna have, I think, to maintain it. Yeah. The economy,
Speaker 7: you know, we hear every week about some companies with
Speaker 7: job cuts. Employment though in other sectors is strong. A
Speaker 7: lot of enthusiasmopsous say about the productivity games we'll see
Speaker 7: in an AI. Those things have to play out over time,
Speaker 7: and the FED shouldn't rush because inflation is sticky and
Speaker 7: it's going to be difficult to maintain.
Speaker 5: Hey, I want to talk a little bit about how
Speaker 5: you buy and what you buy because you have a
Speaker 5: real passive bias in addition to a US bias. So
Speaker 5: you said seventy five percent of the portfolio is US focused.
Speaker 5: How much that is equities? And of those equities, what
Speaker 5: are you buying?
Speaker 7: The key to us is we're about forty eight percent
Speaker 7: are global equity. Most over half of that's in the USA.
Speaker 7: We are passive in others. We own the Russell three
Speaker 7: thousand and index from Microsoft all the way down to
Speaker 7: the bottom stock and we're going to hold that, so
Speaker 7: we own the Magnificent seven. Those are amongst our top
Speaker 7: largest holdings. But we still have fixed income, we have
Speaker 7: real estate, we have private equity. We're broadly to versided,
Speaker 7: we have infrastructure, we have some inflation sensitive assets. So
Speaker 7: it's a very diverse sided portfolio, but a blend of
Speaker 7: public and private holdings.
Speaker 3: What's been your.
Speaker 2: Biggest change since you kind of tend to write, set
Speaker 2: a strategy and let it stick. You're not kind of
Speaker 2: moving in and out every day. That's not what you
Speaker 2: guys do. Is there anything though in the last six
Speaker 2: to twelve months that's been something new or new.
Speaker 3: You know, kind of just playing around with it a
Speaker 3: little bit.
Speaker 7: You guys have talked about private credit and the concern
Speaker 7: about private credit. The money going in. If anything, we're
Speaker 7: still invested, but we've slowed down. The advantage to private
Speaker 7: credit is when rates are rising, being a variable rate,
Speaker 7: it's going to climb with it. Well, now rates are
Speaker 7: peaked and now they're going to start easing off, so
Speaker 7: there's no reason to rush in a nice alternative to
Speaker 7: general fixed income and trading bonds in this market has been.
Speaker 3: Tough, but tempering back a little bit.
Speaker 7: Just pacing ourselves, I think, a bit more discretionary and
Speaker 7: paying attention. Anytime you have like this kind of an
Speaker 7: environment where you're gonna have some stress coming up in
Speaker 7: the year in terms of people that can't pay, then
Speaker 7: you want to have to do your credit analysis and
Speaker 7: pay attention to your exposures.
Speaker 5: So Chris, we got to talk about your your plans
Speaker 5: because you said last month that you were stepping down
Speaker 5: after twenty four years at Calstairs. Why now, what's next?
Speaker 7: Hey, age, I've been there long enough time to retire,
Speaker 7: slow down, do some bike riding, and then just do
Speaker 7: a few other things. I have a real passion about
Speaker 7: climate change and talking to US and non US investors
Speaker 7: about that. I think that the energy transition we have
Speaker 7: to go through calstirs we say fifteen years, I'm telling
Speaker 7: people it's seven years. Twenty thirty sounds like a long time.
Speaker 7: What the transition that we really have to move away
Speaker 7: from hydrocarbons is our source of electricity, propulsion, manufacturing, agriculture,
Speaker 7: and we have to find other alternative sources. We need
Speaker 7: more energy around the whole world, and we need different energy.
Speaker 2: I don't disagree. It's become though, a political firestorm in
Speaker 2: terms of so I don't know. Do you think that's
Speaker 2: going to continue to kind of slow that process down,
Speaker 2: that shift away from fossil Oh, this is.
Speaker 7: A hard change. Think back to when we move from
Speaker 7: blackberries to iPhones. Everybody jumped on them. Number one. They
Speaker 7: were a huge investment and they were free because the
Speaker 7: telephone company embedded the cost to you. Everybody moved instantly.
Speaker 7: This transition is not going to be free, it's not
Speaker 7: necessarily more efficient. It's a change, and it's probably going
Speaker 7: to be a little bit expensive, So Carol, Therefore, you're
Speaker 7: going to see fits and starts. You're going to see
Speaker 7: people who've devoted their life in the industry to traditional
Speaker 7: methods hanging on onto those. We still have coal plants
Speaker 7: around the world for goodness sake, but mother Nature is
Speaker 7: going to teach us all a very harsh lesson right
Speaker 7: on the TV screens. You know, there are big brush
Speaker 7: fires in the middle of winter in Texas, and then
Speaker 7: they're gonna have snow. And you know La had a hurricane,
Speaker 7: an earthquake and then a fire. You know we're gonna
Speaker 7: have these extremes.
Speaker 2: We look forward to the work you do on that.
Speaker 2: Come back when you want to talk more about that,
Speaker 2: Chris Allman. We've always appreciated the conversations with you, Chief
Speaker 2: Investment Officer of Costers joining us in studio, Chris, thank you, Mac.
Speaker 7: A journal.
Speaker 4: How about you let me drive?
Speaker 6: No, no, no, no, all right, please, I'll gravels Wait, I
Speaker 6: want to drive.
Speaker 5: It's a good question.
Speaker 1: This is the drive to the.
Speaker 3: Globe, doing well by around each.
Speaker 2: Other down on Blueberg Radio, all right, everybody well, Our
Speaker 2: next guest says it's time to party like it's nineteen
Speaker 2: ninety nine. That's because he says, there is quote no
Speaker 2: doubt that twenty twenty four is shaping up to be
Speaker 2: the best year since nineteen ninety nine.
Speaker 3: So that'll take you a few decades back.
Speaker 5: I went back a few decades using Bloomberg data, and
Speaker 5: I found the Nasdaq one hundred that year was up
Speaker 5: a cool one and two percent. But Carol, we all
Speaker 5: know what happened after.
Speaker 3: That, Yeah, exactly, the tech sell off in a big
Speaker 3: the dot.
Speaker 7: Com boom, the bubble burst.
Speaker 2: All right, So let's get to it. Let's drive to
Speaker 2: the clothes with Louis Navalier. He's chairman, founder and CIO
Speaker 2: of the company that bears his name. He joins us
Speaker 2: from Florida.
Speaker 3: Louis, it's been a while. Nice to have you here.
Speaker 2: You know, I'm not I say this to folks with
Speaker 2: utmost respect because you've seen a few investment cycles.
Speaker 3: So how do you describe the cycle that we're in?
Speaker 3: Is there more?
Speaker 2: We were just talking with Chris Allman talking about fear
Speaker 2: versus greed. He thinks there's a lot of greed in
Speaker 2: this market.
Speaker 3: How do you see it.
Speaker 10: Well, there's a lot agreed because they AI stocks are
Speaker 10: ten percent of global market capitalization, but the two leading
Speaker 10: hardware AI stocks have over two hundred percent sales growth,
Speaker 10: So that's justified in my opinion. I mean, the software
Speaker 10: has ways to catch up and to be monetized. But
Speaker 10: you know, Nvidia's super microcomputer are worth their capitalizations and
Speaker 10: they do not trade it very high multiples. When you
Speaker 10: look out to fiscal twenty twenty five, I mean super
Speaker 10: micros under eighteen times forecasts earnings. Nivida is a little higher,
Speaker 10: but it's it's a monopoly.
Speaker 2: These are all these are all names that you would
Speaker 2: own it by. I'm kind of obsessed with super Micro too.
Speaker 2: I mean the stacks up one hundred and eighty nine
Speaker 2: percent this year. It's not kind of a name that
Speaker 2: we talk about a lot, but we are talking a
Speaker 2: lot about it because of its significance, it's gains, its moves,
Speaker 2: and it's fundamentals. But these are names you've owned, owned
Speaker 2: for a long time, or just been piling money into it.
Speaker 10: As of late, those are our two largest holdings. Navidia
Speaker 10: I've had for over five years. It's my second time
Speaker 10: back in Navidia, dig it out temporarily. Super Micro we've
Speaker 10: had for over two years, and our biggest holdings after
Speaker 10: that would be Nova nor disc Eli, Lilly the weight
Speaker 10: loss drugs. Those are capturing a lot of market share.
Speaker 10: I will admit that even though we're seeing a lot
Speaker 10: of breath in small caps since an early January effect
Speaker 10: late last year that it's still narrow. My opinion is
Speaker 10: only three of the seven of the Magnificent seven had
Speaker 10: really spectacular results and money is now moving and super
Speaker 10: Micro's beneficiary of that, and so it was a Nova
Speaker 10: Noor disc in Lily.
Speaker 5: Talk to us a little bit about areas that you've
Speaker 5: missed in recent years, because you're in a pretty good
Speaker 5: position having owned in video, super Micro, Nova nor Disc
Speaker 5: and Eli Lilly, what were some missteps in recent years
Speaker 5: if you could go back in time.
Speaker 10: Meta. I missed Meta because it's a high beta stock
Speaker 10: and it went higher on short covering. And the way
Speaker 10: my system works is we look for high alpha, low deviation,
Speaker 10: So anytime we get a high bay of stock, it
Speaker 10: doesn't quite fit our model. So there will be some
Speaker 10: extraordinary stocks running that we will miss, you know, I'll
Speaker 10: be honest with you. Google is hard to figure out
Speaker 10: because the guidance is poor. Amazon's a little easier to
Speaker 10: figure out. Lately it's mostly cloud computing. But the retail
Speaker 10: society is finally going to make some money, we think,
Speaker 10: And but you know, Meta is the big one we missed.
Speaker 3: Do you like it now?
Speaker 10: It ranks high on our quant criteria, but my fundamental criteria,
Speaker 10: I'm not too crazy about it. The texts are funny.
Speaker 10: You know, the more people they lay off, the more
Speaker 10: the stocks rally. And you already have googling of people.
Speaker 3: Because the year or years of what is it efficiency.
Speaker 7: Yeah, so you got Apple with the Apple car today.
Speaker 10: Of course you broke that news yesterday. You've got Amazon
Speaker 10: becoming more efficient a lot of their delivery. They're trying
Speaker 10: to sub out because it's not cost effective to have
Speaker 10: a tube of toothpaste delivered to your house, so they
Speaker 10: they're figuring that one out. But yeah, the meta is
Speaker 10: laying off people. So maybe it is the AI revolution.
Speaker 10: Maybe they will they will just be a company and
Speaker 10: with some drune, some robots. You know, we'll find out.
Speaker 10: But you know that we're not near that bubble that
Speaker 10: we had in March of two thousand, that was pretty
Speaker 10: bad back then. I don't have a multiple problem. You know.
Speaker 10: My average multiple in large cap is barely eighteen times
Speaker 10: this year's estimate earnings, and I got a lot of
Speaker 10: earnings growth. A small cap it's well under ten times
Speaker 10: this year's estimate earnings with even more earnings growth, So
Speaker 10: I don't really have a multiple problem or evaluation problem
Speaker 10: at this time. Obviously we would like the FED to
Speaker 10: start putting rates.
Speaker 2: Is that why you think it's time to party like
Speaker 2: it's nineteen ninety nine, because you don't have a problem,
Speaker 2: whether it's large caps or small caps Louis with the
Speaker 2: valuations that are out there and the multiples.
Speaker 10: I think the main reason is we have very easy
Speaker 10: year of year comparisons on the next two quarters, and
Speaker 10: we just had easier comparisons in the fourth quarter, and
Speaker 10: you saw, you know, seventy six percent of the stocks it'sant
Speaker 10: be beat the average surprises seven percent, I believe where
Speaker 10: the video is a grand finale, and so we got
Speaker 10: two more cores of good earnings. We got the FED
Speaker 10: joining the party, and let's face it, in a presidential
Speaker 10: election cycle, we tend to rally going into the election
Speaker 10: because we will be promised everything and anything. You know,
Speaker 10: there's now student loan relief. I thought the court ruled
Speaker 10: you couldn't do that, but they're going to get do
Speaker 10: it anyway. So you know, they're gonna tell us what
Speaker 10: we what we want to hear, and that helps both
Speaker 10: investor in consumer confidence and the US is so much
Speaker 10: better shape than the rest of the world. We're food
Speaker 10: and energy independent, and we got a strong currency, and
Speaker 10: we're an oasis for foreign capital. So the only thing
Speaker 10: to go wrong is, I guess if our definity gets
Speaker 10: too big. I mean, the leading candidates are both going
Speaker 10: to make the devisit big, So that's going to be
Speaker 10: interesting to watch.
Speaker 5: So louis, where would you put new money to work
Speaker 5: right now? Given that, arguably people would say, okay, parts
Speaker 5: of the market are high, though you argue that you
Speaker 5: know the tech names that you're in or not high.
Speaker 10: That sounds standing question. Well, earning season is over, so
Speaker 10: I go on every earning season locked and loaded, and
Speaker 10: I want to buy stocks on dips now because I
Speaker 10: don't have really news to drive my stocks to mid April.
Speaker 10: But I am buying stocks where analysts are upgrading and
Speaker 10: raising their estimates, and if the ounces start to cut,
Speaker 10: I'll get out of their way because I can't fight
Speaker 10: with the ans community. But what happens after earning season. We
Speaker 10: have a lot of mean reversion going on, and Citadella
Speaker 10: is pretty good at their mean reversion trading. So my
Speaker 10: view of the world is we have four months where
Speaker 10: the markets are efficient when earnings are coming out. That's
Speaker 10: earning season, and the other eight months we have mean reversion,
Speaker 10: So I just want to sell in the strength and
Speaker 10: buy in dips. I am bullish on energy going in
Speaker 10: through some we should get a seasonal surge just from
Speaker 10: the fact there's more people in North hemisphere in the
Speaker 10: Southern hemisphere. But if there's any hint that Trump might
Speaker 10: become president, probably will exit most of my energy stocks
Speaker 10: by September because you know he'll drill, dro drill and
Speaker 10: prices could fall.
Speaker 2: Interesting, interesting, broad macro. Does it matter that much to
Speaker 2: you who is in the White House? Just got about
Speaker 2: thirty seconds left here. You mentioned energy specifically for Trump,
Speaker 2: but more broadly it doesn't matter to.
Speaker 10: You, no, because what makes America great is our states
Speaker 10: compete with each other, period and as long as we
Speaker 10: have the states trying to steal business from each other,
Speaker 10: business will be good and America will prosper. And we
Speaker 10: have so much better demographics as well.
Speaker 2: All right, Really great to get some time with you, Louis.
Speaker 3: Thank you so much.
Speaker 2: Louis Navalier, who's chairman, founder in CIO of Navalier and Associates,
Speaker 2: joining us from Florida on this Wednesday.
Speaker 1: This is the Bloomberg Business Week Podcast, a little Apple, Spotify,
Speaker 1: and anywhere else you can get your podcast. Listen live
Speaker 1: weekday afternoons from two to five pm Eastern on Bloomberg
Speaker 1: dot com, the iHeartRadio app, tune In, and the Bloomberg
Speaker 1: Business App. You can also watch us live every weekday
Speaker 1: on YouTube and always on the Bloomberg terminal