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Speaker 2: Eco Go, folks. It's been busy here this morning. That
Speaker 2: gives you all the economic data that's released by the government.
Speaker 2: A lot of stuff here, jolts, factory orders, durable goods.
Speaker 2: I mean I heard about all this stuff in economics class.
Speaker 2: I didn't really know what it is, but I see
Speaker 2: the numbers here. Michael McKee, he knows what's going on.
Speaker 2: He does all the economic stuff for Bloomberg television, radio
Speaker 2: and everything else. Actually, Michael, of all the economic data here,
Speaker 2: what jumped out.
Speaker 3: Of you today? What do you think the Fed is
Speaker 3: going to focus on?
Speaker 4: Maybe today, well, if it's going to look at jolts,
Speaker 4: because it does show the labor market is in a
Speaker 4: looser state, where pretty much back to where we were
Speaker 4: pre pandemic in terms of the number of job openings.
Speaker 4: It was a drop, a bigger drop than expected from
Speaker 4: last month, but the prior month June was revised lower
Speaker 4: as well, and when you look at what we've seen
Speaker 4: in the time series, we've seen job openings in the
Speaker 4: seven million range for three of the last four months,
Speaker 4: so it's not a shock. It's not a major change
Speaker 4: in the overall outlook. These numbers are not necessarily super reliable.
Speaker 4: The quits rate, which people take as an evidence of
Speaker 4: how people feel about the labor market and whether they
Speaker 4: can continue to get jobs, still at two point one percent,
Speaker 4: where it's been for a long time, so it doesn't
Speaker 4: look like it's making major news today. Oddly enough, factory
Speaker 4: orders come in up five percent now, durable goods up
Speaker 4: as part of that, a revised nine point eight percent
Speaker 4: from nine point nine percent. We knew that, So what
Speaker 4: that's telling you with a five percent gain after a
Speaker 4: negative three point three percent the month before is non
Speaker 4: durable goods sales were pretty good, and that is good
Speaker 4: news for the idea that the Fed doesn't have to
Speaker 4: immediately cut rates or anything like that. Probably the most
Speaker 4: interesting number of the day, though, trade ballance. The trade
Speaker 4: balance at seventy eight point eight billion, widest the widest
Speaker 4: in two years, up from seventy three point zero and
Speaker 4: just a little bit lower than the forecast, but basically
Speaker 4: saying that we are importing a lot of stuff. Now,
Speaker 4: there could be two reasons for that. One, the economy
Speaker 4: is still in good shape and people want to buy.
Speaker 4: Or two, retailers are stocking up for the holiday season,
Speaker 4: which then becomes a question for your retail analysts of
Speaker 4: are they making a bad bet or not? Is the
Speaker 4: economy going to slower, Our consumer is going to stop spending,
Speaker 4: and we're going to be stuck with a.
Speaker 5: Lot of inventory. All right, So that's why it's an
Speaker 5: interesting number. Put that in your hat, shake it up.
Speaker 5: What a we what's the trajectory for the US economy?
Speaker 5: Based on what you've seen so.
Speaker 4: Far, it looks like the trajectory is pretty much the
Speaker 4: same as it was. That the economy has slowed, we're
Speaker 4: not seeing it fall off a cliff, and therefore the
Speaker 4: Fed is going to say we can cut rates, but
Speaker 4: we don't have to do an emergency great cut of
Speaker 4: fifty basis points or anything like that.
Speaker 5: We can do twenty five all right.
Speaker 3: Mike McKee, thank you so much for joining us.
Speaker 2: We appreciate getting your expertise there on a bunch of
Speaker 2: economic data crossing the tape here this morning.
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Speaker 2: Yesterday, Nvidia suffered a record two and seventy nine billion
Speaker 2: dollar route as AI worries sink stocks. They also got
Speaker 2: a DOJ anti trust probe, a lot of headwinds for
Speaker 2: that stock, a lot of issues for investors to figure
Speaker 2: out for in Vidia stock still up over one hundred
Speaker 2: percent year to date. Man Deep saying, he's the guy
Speaker 2: we talked about in video all the time. He's Bloomberg Intelligence,
Speaker 2: he's pretty smart. But the guy we really want to
Speaker 2: talk to you today is Justin Teresi, Anti Trust Litigation
Speaker 2: and Policy chanlest for Bloomberg Taligence. I've never met you before, Likewise,
Speaker 2: I did hire you, So I'm just going to go
Speaker 2: on Man Deep's recommendation. What's the DOJ saying here as
Speaker 2: it relates to Nvidia and how concerned should in Vidia
Speaker 2: and its shareholders be?
Speaker 6: Yeah, so I think the real takeaway here. The most
Speaker 6: important thing to keep in mind is the timing that's
Speaker 6: associated with this. So news broke a couple of months
Speaker 6: ago that DJ was looking into Navidia here and what
Speaker 6: we think there are a couple issues they might be
Speaker 6: interested in. One, market consolidation, maybe in the video is
Speaker 6: growing a little bit faster than the authorities would like
Speaker 6: to see. The other issue they might be interested in
Speaker 6: is one related to how they're selling their products. Are
Speaker 6: they tying things into anti competitive manner? Are they bundling
Speaker 6: products in such a way that it's really impossible for
Speaker 6: other folks to compete. But really, this development yesterday in
Speaker 6: terms of the subpoena really is something we were expecting.
Speaker 6: And that's because what it lays a formality upon this
Speaker 6: investigation that wasn't there before. Previously it was informal questionnaire.
Speaker 6: Now NAVIDI is really going to have to certify that
Speaker 6: the information it's handing over to DOJ is what they're
Speaker 6: looking for and a true and accurate depiction of what
Speaker 6: they want to know about.
Speaker 5: Is there a political element to this? I mean, everybody's
Speaker 5: got Nvidia in their four oh one K. Does the
Speaker 5: Harris campaign pick up the phone and say, couldn't you
Speaker 5: have waited till after November?
Speaker 6: I think that might be the question of the day
Speaker 6: with relation to this. So look, if I'm na Vidia's
Speaker 6: attorneys right now, what I'm trying to do is to
Speaker 6: delay responding to this as much as I possibly can,
Speaker 6: right because there is that element of an election coming
Speaker 6: up in November. Here, what does a new administration do
Speaker 6: with the investigation itself? How hard do they go? Are
Speaker 6: they more open to a settlement than the current regime
Speaker 6: might be? So that's really the name the name of
Speaker 6: the game here. I think you're spot on there. That
Speaker 6: really the.
Speaker 5: Teacher and the question for Vice President Harris for me
Speaker 5: is are you going to continue this aggressive anti trust
Speaker 5: behavior in a new administration? Potentially? Right? So, you know
Speaker 5: that becomes a real campaign issue, doesn't it.
Speaker 6: It does, and I think it has, right. I think
Speaker 6: we've seen that already with a lot of rhetoric coming
Speaker 6: from both the Harris camp and you know Trump camp
Speaker 6: with Jada Vance on the issue too, right. So I
Speaker 6: think moving ahead, we think there could be some softening
Speaker 6: perhaps in some ways, or more measured or deliberate approach
Speaker 6: to things. If Harris were to win the White House.
Speaker 6: But what we see from the Trump camp is Jade
Speaker 6: Vance does have that rather strong anti big tech mentality
Speaker 6: when we ever we talk about anti trust with him
Speaker 6: as a candidate. So really we're not quite sure what
Speaker 6: to make of the situation there. But delay is the
Speaker 6: name of the game. If I'm the video right now.
Speaker 2: When you talk to investors or we need to hear
Speaker 2: from the company, what do investors think about this risk?
Speaker 2: Is it just another big tech company facing some regulatory
Speaker 2: headwinds like we've seen for years.
Speaker 7: Yeah, I think in Nvidia now is part of that
Speaker 7: club that Amazon, Google, and Meta which have faced regulatory
Speaker 7: scrutiny over the years. And look, in the case of Google,
Speaker 7: it was fairly obvious that regulators doubled down on their
Speaker 7: distribution agreements that they had with Apple and Samsung to
Speaker 7: be the default search. So in this case, it would
Speaker 7: be interesting to see DOJ's approach. What is it that
Speaker 7: they really want to focus on in terms of how
Speaker 7: in Nvidia is distributing their chips to the hyperscalers and
Speaker 7: their largest customers, Because clearly in Vidia has a lot
Speaker 7: of interest from all types of customers. The market is undersupplied,
Speaker 7: so do they have an algorithm to say, Okay, I'm
Speaker 7: gonna distribute X number of chips to customer A and
Speaker 7: Y to customer B. And look it comes down to
Speaker 7: in videos, how they have their relationship with their customers
Speaker 7: and they can distribute the chips.
Speaker 2: Say why I know that's it seems like it's a
Speaker 2: market operating efficiently.
Speaker 3: But what do I know?
Speaker 2: But what I do know is the beauty of Bloomberg
Speaker 2: Intelligence as we bring together industry and company specific research
Speaker 2: analysis and Man Deep sing he's been doing it for
Speaker 2: years and Justin terrasa anti trust litigation policy analysts Bloomberg Intelligence,
Speaker 2: where you can bring these folks together, they can partner
Speaker 2: their research and to integrate their research and give you
Speaker 2: a really good view of what it means for some
Speaker 2: of these companies as they face some of this risk
Speaker 2: from the regulators. And again it's great to have that.
Speaker 2: It's part of Bloomberg Intelligence. B. I go on the terminal,
Speaker 2: Oh and guess.
Speaker 5: What videos shares seem to have bottomed out today?
Speaker 3: Exactly?
Speaker 2: All right, Man Deep seeing senior tech analyst, Justin Tracy,
Speaker 2: anti trust analyst, Bloomberg Intelligence in our studio breaking it
Speaker 2: down for it in video.
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Speaker 3: Let's got our next guest, Paul Carter.
Speaker 2: He's co founder managing partner of twin Focus, joining us
Speaker 2: from Boston, Massachusetts via zoom. Paul, what are you telling
Speaker 2: your clients these days as to where the best opportunities are.
Speaker 2: We've got the S and P five hundred, you know,
Speaker 2: up eighteen percent. I mean that's pretty darn solid, but
Speaker 2: yet I can still get a decent yield and to
Speaker 2: your treasury at three point eight percent.
Speaker 3: What are you telling your clients these days?
Speaker 8: Paul, John, thanks for having me. You know here at
Speaker 8: twin Focus, we've we've largely been invested according to our
Speaker 8: policy benchmarks all year. You know, the expectation has really
Speaker 8: been for soft landing, reasonable growth, low inflation, lower rates.
Speaker 8: You know, before today, before the jolt's number that just
Speaker 8: came out, the Fed funds were pricing in one hundred
Speaker 8: percent probability of a twenty five basis point rate cut
Speaker 8: in September, November, and December. With this most recent number,
Speaker 8: you know, bigger miss than expected, and it seems to
Speaker 8: be signaling, you know, greater job availability out there and
Speaker 8: kind of weaker job market. You've seen that that FED
Speaker 8: funds market respond with, you know, perhaps a greater chance
Speaker 8: of perhaps fifty basis points cut at this next meeting.
Speaker 8: Given all of this, you know, as mentioned, we've been
Speaker 8: focused on remaining fully invested, and we have been able
Speaker 8: to take advantage of the run in risk assets. But
Speaker 8: we're looking to diversify our risk more broadly, and you know,
Speaker 8: away from this, you know, purely the AI trade, if
Speaker 8: you will.
Speaker 5: All right, Paul and Paul, I think this is one
Speaker 5: of those moments where I'm supposed to throw confetti in
Speaker 5: the air. Sure the yield curve? Yes, this inverted? Oh wow,
Speaker 5: so two and ten's now well back, I spoke too soon,
Speaker 5: But anyway, do you attach? I mean, Paul, they used
Speaker 5: to tell me that inverted your curve preceeds recession. Well
Speaker 5: didn't happen? Do you put? What's your significance of this?
Speaker 5: Do you think you know? Attention to the old curve.
Speaker 8: We absolutely are focused on the yield curve. You know,
Speaker 8: there's there's perhaps a number of reasons why we didn't
Speaker 8: see a recession, you know, in part being this whole
Speaker 8: AI trade. You know, the productivity that we've seen in
Speaker 8: the economy and the forecasted productivity that we will see
Speaker 8: from AI that combined with a lot of the stimulus
Speaker 8: that was still waning and in effect after COVID that said,
Speaker 8: you know, a recession I think, you know, at some
Speaker 8: point is not completely off the table. You know, hopefully
Speaker 8: we're able to escape with justice soft landing, but we're
Speaker 8: nineteen years, eighteen, nineteen years into the business cycle here,
Speaker 8: so it wouldn't be surprising to see something at some point.
Speaker 8: You know, there is this talk of rate cuts become
Speaker 8: obviously more prominent with some weakness and inflation, but I
Speaker 8: think that, you know, it usually takes some time to
Speaker 8: see those rate cuts impact the econom so we may
Speaker 8: not see that until Q one, Q two next year.
Speaker 8: Until then, you know, the market's going to try to
Speaker 8: decide on the overall direction, and I think we're just
Speaker 8: going to continue to see a lot of volatility between
Speaker 8: now and then.
Speaker 2: Paul, in terms of maybe trying to temper some of
Speaker 2: that volatility, what do you guys, or how are you
Speaker 2: guys approaching the fixed income markets?
Speaker 3: Are you?
Speaker 2: You know, I'm content to sitting in a to your
Speaker 2: treasury three point eight percent, but some people might want
Speaker 2: to take some more credit risk.
Speaker 3: How do you think about fixed income opportunities today?
Speaker 8: Sure, so let's let's talk about credit and kind of
Speaker 8: safe treasury allocations. You know, we've largely been barbelled with
Speaker 8: perhaps a bit of an overweight towards the shorter end
Speaker 8: of the curve. So when rates were up fours and five,
Speaker 8: we were taking advantage of locking in some ten year money.
Speaker 8: Then you know, while it's compelling to sit in a
Speaker 8: three and a half or four percent short term treasury,
Speaker 8: you do have some reinvestment risk if you see, you know,
Speaker 8: rates come down. So we have been starting to nibble
Speaker 8: at some duration. On the credit side, you know, we've
Speaker 8: been less enamored with this whole private credit trade that
Speaker 8: everybody seems to have fallen in love with, and so
Speaker 8: we've been focused on really more idiosyncratic return streams or
Speaker 8: areas of the market that seem to be more capacity constrained.
Speaker 8: And they're harder to find today for sure, as there's
Speaker 8: a lot of money out there chasing, chasing various trades.
Speaker 5: So you see us softening in private equity. I think
Speaker 5: in your investment Noe, you quote the great Proverto Durant.
Speaker 8: No Moss, No Moss. Yeah, we've we've, like many institutional
Speaker 8: family office investors, over the past decade two decades, we've
Speaker 8: allocated significantly to private equity, which is which has served
Speaker 8: us fine. But we think going forward the market has
Speaker 8: completely changed and just there's just an enormous amount of
Speaker 8: market participants. Uh, there's just enormous amount of capital chasing,
Speaker 8: and we've found more compelling returns frankly in public markets,
Speaker 8: which you know, I would have never thought I'd say
Speaker 8: that five years ago. That's where we are today.
Speaker 2: Hey, Paul, thanks so much for joining us. Really appreciate
Speaker 2: getting a few minutes of your time.
Speaker 3: Paul Carter.
Speaker 2: He's co founder and manager partner Twin Focus. Up there
Speaker 2: in Boston.
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Speaker 1: just Say Alexa playing Bloomberg eleven thirty.
Speaker 3: Let's stick a look at Nordstrom.
Speaker 2: The Nordstrom family bids to take the chain private for
Speaker 2: three point eight billion dollars. Stock pretty much unched on
Speaker 2: the day, so not a big deal here for most shareholder.
Speaker 2: SOCCA is up twenty three percent year to date. It's
Speaker 2: got a market cap about three point seven billion dollars.
Speaker 2: You throw in the net debt, it's a little over
Speaker 2: seven billion dollars total enterprise value. Let's check in with
Speaker 2: Mary Ross Gilbert. He's Bloomberg Intelligence senior Acadanalysts covering the
Speaker 2: retail space.
Speaker 3: Mary Ross, thanks so much for joining. Make you sure
Speaker 3: what do you make of.
Speaker 2: What the Nordstrom family members are suggesting here? I know
Speaker 2: this has been in the news for a while, but
Speaker 2: where do we go from here?
Speaker 9: Yeah, so Nordstrom, the Nordstrom family has been wanting to
Speaker 9: take the company private for some time. Right, We've seen
Speaker 9: this iteration before, but this time partnering with the Mexican
Speaker 9: retailer El Puerto de Liverpool. They're they're in a good
Speaker 9: position in terms of coming up with the financing because
Speaker 9: they're going to pony up about one point two billion
Speaker 9: in cash in addition to rolling over, they're about ten
Speaker 9: percent steak in the stock. And of course the Nordstrom
Speaker 9: family combined they own about you know, a third of
Speaker 9: the shares, so you've got forty three percent wrapped up.
Speaker 9: They do need two thirds approvals. We just need to
Speaker 9: get another twenty three to twenty four percent on board.
Speaker 9: And you look at the price, there's really no premium here,
Speaker 9: and they're they're basically saying, well, if you look at
Speaker 9: the time that we proposed this transaction, which was back
Speaker 9: in March, the stock was trading much lower, somewhere around
Speaker 9: you know, seventeen, So this is really a premium to
Speaker 9: where the shares were then, and it's about a thirty
Speaker 9: five percent premium. But if you look at how the
Speaker 9: stock is traded over the last five years, it's pretty
Speaker 9: much close to the average price, and over the last
Speaker 9: ten years, it's at a steep discount, like forty one
Speaker 9: percent discount, you know, over the last ten years. So yeah,
Speaker 9: there's not a premium. Could another buyer step in here,
Speaker 9: it's possible, but trying to piece together a transaction could
Speaker 9: prove onerous and it's going to you know, involve debt,
Speaker 9: as we know. But not as much incremental debt. The
Speaker 9: company already has about two point six billion, so they'll
Speaker 9: probably have to bring on another one point eight billion
Speaker 9: UH to be able to complete this transaction, and of
Speaker 9: course the transaction is contingent upon that deal getting done.
Speaker 9: But with Shortstrom, what really stands out versus the other
Speaker 9: department stores. Of course, we know that the Macy's proposed
Speaker 9: buyout has con gone by the wayside at this point.
Speaker 9: With Nordstrom, you've got a fast growing off price segment
Speaker 9: and that's what's really exciting here. And their comp sales
Speaker 9: were up over four percent, their total growth was up
Speaker 9: nine percent in the second quarter. And if you look
Speaker 9: at their full line stores, this sort of traditional department store,
Speaker 9: they were up almost one percent on a comp basis,
Speaker 9: But if you look at their peers, they were all
Speaker 9: down anywhere from down three percent for Go Forward stores
Speaker 9: for Macy's to down five percent for Dillard's and Coals.
Speaker 9: So Nordstrom sure looks like they're in a better position.
Speaker 9: They're also much smaller, only ninety three stores versus you know,
Speaker 9: close to five hundred department stores over at Macy's, which
Speaker 9: of course that's why they're closing one fifty.
Speaker 5: So when you're a company and you have problems and
Speaker 5: you into deal making to try and solve those problems,
Speaker 5: what does that say, it's got a bit of minute left.
Speaker 9: Yeah, So in this case here, I think they they're
Speaker 9: employing a number of news strategies. Let's say with the
Speaker 9: full line store and with off price. I think they're
Speaker 9: off to a good track there and big expansion. You know,
Speaker 9: they're going to be opening like twenty two rack stores
Speaker 9: this year, and I think they're going to continue that
Speaker 9: pace going forward. So I think that the idea that
Speaker 9: they don't have to be under the quarterly lens of
Speaker 9: investors is probably a relief for them.
Speaker 2: Right all right, Mary Ross, thanks so much for joining us.
Speaker 2: Mary Ross Gilbert senior Eckery analysts covering the retail space
Speaker 2: for Bloomberg Intelligence. She's based out there in Los Angeles
Speaker 2: and Norstrom some of the family members offering twenty three
Speaker 2: dollars per sharing cash to take the retailer private for
Speaker 2: three point eight billion dollars.
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Speaker 2: We need some perspective on this markets after yesterday's sell off.
Speaker 2: I got a little bit of green on this screen
Speaker 2: here people trying to get a sense of how do
Speaker 2: you factor in what was a decent earnings cycle for
Speaker 2: most of the S and P five hundred plus what
Speaker 2: they feder reserve that is likely to.
Speaker 3: Begin cutting rates.
Speaker 2: How does that factor into the outlook here for risk assets?
Speaker 2: Margie Battel, she's got a lot of perspective, a lot
Speaker 2: of experience. She's a senior portfolio managed all Spring Global Investments.
Speaker 2: Joining us from Zoom on Zoom from Boston, and again,
Speaker 2: if you're in Boston.
Speaker 3: Our new home is ninety two nine FM in Boston.
Speaker 2: MARGI thanks so much for joining us here. How do
Speaker 2: you piece this all together?
Speaker 7: Here?
Speaker 2: We're pretty much through the earnings season and investor conferences
Speaker 2: are kicking in high gear here in September, September eighteenth,
Speaker 2: the FED is going to meet and presumably start lowering rid.
Speaker 3: So how do you put all that together and what
Speaker 3: comes out for you?
Speaker 1: Well?
Speaker 10: I think right now we're in a period of cross
Speaker 10: currents because the overall urns reports for the quarter were
Speaker 10: once again pretty good. However, we did have some slight
Speaker 10: weakness from expectations for some of the large tech companies
Speaker 10: in contrast to the previous quarters where they surprised on
Speaker 10: the upside. And since this group was so heavily over owned, frankly,
Speaker 10: it was really due for correction. And we've seen that
Speaker 10: over the last really since the end of July into yesterday,
Speaker 10: where you just had this cascade of all the texts
Speaker 10: going down and other economically sensitive sectors that have done
Speaker 10: really well. So I think it's just really adjusting, waffling around,
Speaker 10: waiting for the FED to once again come in and
Speaker 10: be on the lakeside, frankly, and I think now we
Speaker 10: have a news gap, So this is a seasonal slope
Speaker 10: period of the year, and I think that by the
Speaker 10: end of the year we should have a strong December,
Speaker 10: a strong rebound after the election really no matter who wins,
Speaker 10: because that's just really what happens in election years. So
Speaker 10: a little more waffling around, and then I think in
Speaker 10: maybe the stembers that you won't see the market moved up.
Speaker 5: I got to get this one. By the way, put
Speaker 5: your bond pat on for a second. Did you throw
Speaker 5: confetti in the air when the curve disinverted between twos
Speaker 5: and tens this morning?
Speaker 7: Well?
Speaker 10: Yes, it's really amazing how the curve has come down
Speaker 10: and we're just about flat now, which I think is
Speaker 10: a step and really to me. It says the market
Speaker 10: is making the adjustment to interest rates that the fedruar
Speaker 10: I should be doing, in other words, pushing down short
Speaker 10: rates short rates compared to long rates. So to see
Speaker 10: the two year come down so much over the course
Speaker 10: of this year compared to the ten year and have
Speaker 10: both of them really well under three eighty is pretty encouraging.
Speaker 10: It says that we are in the middle of a
Speaker 10: period of very very tight money. At all we need
Speaker 10: is the Fed to come in and provide some stabuilt.
Speaker 10: I think the Fed is really the one who's beyond
Speaker 10: the curve. The market's really doing what the Fed should
Speaker 10: be doing by bringing rates down and making putting a
Speaker 10: little bit of a floor under how big of a
Speaker 10: correction we'll have.
Speaker 2: So, Margie, are you a proponent of kind of moving
Speaker 2: away or de emphasizing or diversifying away from some of
Speaker 2: the big techniques into this diversification trade, if you will,
Speaker 2: the rotation into maybe some smaller caps, maybe some lower
Speaker 2: valued sectors. Is that something that interests you.
Speaker 10: I'm a little luke more about that, because you did
Speaker 10: have some of those sectors, like small caps, have a
Speaker 10: big jump up in price just because they had really
Speaker 10: gotten so out of whack compared to the rest of
Speaker 10: the market. But if you think we're in a period
Speaker 10: over the rest of the year of frankly slow economic growth,
Speaker 10: maybe a GDP of one percent, one and a half
Speaker 10: something like that, it's really hard to see how some
Speaker 10: of those more value the companies that have slow growth
Speaker 10: markets are really going to continue to shine. So I
Speaker 10: think you really have to get through this volatility period
Speaker 10: and then look for a companies that should have higher
Speaker 10: than average growth, higher than a GDP backdrop we say
Speaker 10: only one one and a half percent, So I think
Speaker 10: it's a short term move. The long term I still
Speaker 10: think will be with the larger companies that have a
Speaker 10: sustained growth path for cyclical growth.
Speaker 5: In video one on Waight forty ish, is that an
Speaker 5: entry port a point for investors? Your thoughts just on
Speaker 5: the tech space specific.
Speaker 10: To in vidia, Well, certainly you've had a huge correction there,
Speaker 10: and if you thought it was rather highly priced at
Speaker 10: one forty very high pe, certainly with a about a
Speaker 10: thirty percent or more adjustment and price, it looks much
Speaker 10: more fairly priced compared to its growth. So I would
Speaker 10: say that it's certainly better buy here than to sell
Speaker 10: at these levels.
Speaker 2: Fixed income, I see the best performance is in high yield.
Speaker 2: Is that something of interest you or is it spreads
Speaker 2: too tight?
Speaker 10: Well, spreads are tight. Double bees are a little over
Speaker 10: two basis points more than treasuries. Single bees maybe a
Speaker 10: little over three percentage points, which is narrow historically. However,
Speaker 10: defaults are very low. Defaults are on a hunder four percent,
Speaker 10: and if you look where we are in the credit cycle,
Speaker 10: the FED is now hopefully one of these days going
Speaker 10: to be on an easing cycle where short rates come down.
Speaker 10: So that says to me, that's a pretty good backdrop
Speaker 10: for high yield. The big negatives, of course, the yields
Speaker 10: aren't very high. You're looking at say six to seven
Speaker 10: and a half percent for most issues. But really, if
Speaker 10: you think the economy is going to be growing very slowly,
Speaker 10: which I do, one and a half percentage. Say, then
Speaker 10: that implies that the growth in the equity market over
Speaker 10: the balance of the year may well be load of
Speaker 10: in single digital return from here, which would really be
Speaker 10: about comparable with what you get from high old bonds.
Speaker 10: So we may actually have high old bonds running no
Speaker 10: I connect with equities over the next few months. So
Speaker 10: I think they're pretty good, especially if you are more
Speaker 10: looking for income. Rayland capital appreciation.
Speaker 2: All right, MARGI, thank you so much for joining us.
Speaker 2: Always appreciate getting your thoughts and perspective. Market Betel, Senior
Speaker 2: portfolio manager, all Spring Global Investments. Joining us from Boston
Speaker 2: on zoom.
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Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2: Interesting story across the Bloomberg terminal here at John Tucker.
Speaker 2: The Biden Harris Administration's big bet on Intel Corp. To
Speaker 2: lead a US chip making renaissance is in grave trouble
Speaker 2: as a result of the company's mounting financial struggles. Creating
Speaker 2: a potentially damaging setback for the country's most ambitious industrial
Speaker 2: policy in decades. I kind of forgot that. Five months
Speaker 2: ago President Biden traveled to Arizona to unfail a pit that.
Speaker 5: Was a big deal, a news conference, second standing there
Speaker 5: with mister Gilsinger.
Speaker 2: Yeah, twenty billion, and that is now in jeopardy. Perhaps,
Speaker 2: Mackenzie Hawkins joins this Bloomberg News technology reporter.
Speaker 3: She joins us. Mackenzie, you reported on this story.
Speaker 2: Here, give us the latest year on Intel and the
Speaker 2: ability of it to kind of fulfill its end of
Speaker 2: the agreement with.
Speaker 5: The US government.
Speaker 11: So thirty thousand foot perspective here. The US government has
Speaker 11: this thirty nine billion dollar program to issue grants to
Speaker 11: chip companies and convince them to do manufacturing on American soil,
Speaker 11: and Intel is supposed to be the biggest winner from
Speaker 11: that effort. The package that you referenced that Biden went
Speaker 11: to Arizona to announce was eight and a half billion
Speaker 11: dollars in grants and eleven billion dollars in loans. Putting
Speaker 11: aside the twenty five percent tax credits that Intel could
Speaker 11: maybe get on what could be one hundred billion dollars
Speaker 11: in US investments. So we're talking about massive, massive sums
Speaker 11: of money here, but all of those are preliminary, and
Speaker 11: right now the company is undergoing due diligence and hashing
Speaker 11: out the finer details of its accord with the Biden administration.
Speaker 11: That happens to be going on at the same time
Speaker 11: as Intel is in dire financial straits. The company had
Speaker 11: a pretty disastrous earnings report last month, sentence shares tanking
Speaker 11: the worst route that it's seen in decades, and now
Speaker 11: there are a lot of questions looming about whether Intel
Speaker 11: can actually pull off this big US manufacturing expansion, and
Speaker 11: given it centrality to what's called the Chips Act overall,
Speaker 11: whether the Biden administration will still be able to achieve
Speaker 11: its policy goals.
Speaker 5: Now I'm no politician, but if I'm going to head
Speaker 5: out to Arizona have a news conference as President of
Speaker 5: the United States, I would think that somebody on my
Speaker 5: staff has actually done the due diligence to make sure
Speaker 5: that Intel, who I'm having a news conference with, is
Speaker 5: actually going to be able to meet those milestones. Am
Speaker 5: I too cynical?
Speaker 7: Well?
Speaker 11: The Commerce Department, which is running the Chips Act, has
Speaker 11: actually set up this pretty intentional process from the outset
Speaker 11: telling companies, you apply for this money, we reach a
Speaker 11: preliminary memorandum of terms. That's what was announced for Intel
Speaker 11: and all of the companies that are part of the program,
Speaker 11: which includes some of the world's leading chip makers, Taiwan's
Speaker 11: TSMC and South Korea Samsung, And basically the government is
Speaker 11: agreeing to underwrite this program, but companies have to go
Speaker 11: through due diligence and a sort of private equity type model.
Speaker 11: After reaching that preliminary agreement, then they sign a final
Speaker 11: term sheet, and then they have to actually hit the
Speaker 11: milestones on their projects before they receive any money, and
Speaker 11: the government has the ability to claw back money if
Speaker 11: they hand it out. But the projects are never fully completed,
Speaker 11: so there are a lot of guardrails built in place
Speaker 11: to prevent the Biden administration or the next administration from
Speaker 11: actually handing out money to a company that may not
Speaker 11: be able to pull things off. If that ends up
Speaker 11: being the case with Intel.
Speaker 5: Intel's not even sharing all the information, is it.
Speaker 11: Well, they're going through a pretty contentious due diligence process
Speaker 11: right now. You know, the company and the Biden administrations
Speaker 11: say that they're working hard to reach a final agreement,
Speaker 11: but there are certain requests that government officials have made
Speaker 11: of Intel that the chip maker doesn't want to deliver on.
Speaker 11: I think the challenge for the administration is such a
Speaker 11: big part of vetting a project's commercial viability is knowing
Speaker 11: that they have customers that there will actually be demand
Speaker 11: for the chips that they intend to manufacture, and in
Speaker 11: Intel's case, the picture is a little bit bleak. The
Speaker 11: company has secured some potential commitments from firms including Broadcom,
Speaker 11: Media Tech, and Microsoft, but none of those have chosen
Speaker 11: to go to full production with Intel's facilities yet. Commerce
Speaker 11: Secretary Gina Raimongo encouraged leading AI chip makers in Nvidia
Speaker 11: and AMD to consider manufacturing at Intel's Ohio facility, which
Speaker 11: Pat Golsinger said could be the world's largest chip making
Speaker 11: factory if it's fully built out, and neither of them
Speaker 11: plans to do so. So this is putting the Biden
Speaker 11: administration in a bit of a difficult spot, and despite
Speaker 11: the fact that they haven't actually released any money yet,
Speaker 11: it could become potentially a huge political liability.
Speaker 2: What is the administration saying in terms of any backup plan?
Speaker 11: So we have to keep in mind that Intel is
Speaker 11: just one company that is supposed to benefit from the
Speaker 11: Chips Act. There were hundreds of companies that expressed interest
Speaker 11: in this money, and the Biden administration has announced investments
Speaker 11: in the preliminary agreement form of north of thirty billion
Speaker 11: dollars to around sixteen or seventeen firms in total, and
Speaker 11: that includes commitments from all of the world's top ship makers.
Speaker 11: Intel is one of them, but as I mentioned before,
Speaker 11: TSMC and Samsung are also planning on producing leading edge
Speaker 11: logic ships in the United States. Micron, one of the
Speaker 11: world's top memory chip makers, is building factories in Idaho
Speaker 11: and New York. So there are lots of companies that
Speaker 11: are part of this program. At the same time, Intel
Speaker 11: is uniquely important. The US wants to reach fifth or
Speaker 11: twenty five sorry, the US wants to reach twenty percent
Speaker 11: market share a fifth of the world's most advanced life
Speaker 11: chips by the end of the decade. Intel's factories are
Speaker 11: a crucial part of that effort, and the company is
Speaker 11: also supposed to be the sole intended beneficiary of this
Speaker 11: three and a half billion dollar program to make secure
Speaker 11: semiconductors for the Pentagon, So there is a backup plan,
Speaker 11: and so are there are other companies involved, but Intel matters.
Speaker 5: A lot, and presumably this is to create jobs, and
Speaker 5: it comes at a time when Intel's cutting around fifteen
Speaker 5: thousand jobs. Exactly right.
Speaker 2: I go, McKenzie, great reporting. Thank you so much for
Speaker 2: joining us. Mackenzie Hawkins, technology reporter for Bloomberg News, joining
Speaker 2: us from Washington, d C.
Speaker 3: Appreciate that.
Speaker 2: So Intel again, another day, another piece of bad news here.
Speaker 3: And it just seems like and.
Speaker 2: Again I don't follow the chip business day to day,
Speaker 2: but it just seems like the technology to some degree
Speaker 2: has passed by Intel and they missed kind of the
Speaker 2: AI wave or evolution, whereas Nvidia boit right right.
Speaker 5: Which in Vidia doesn't make chips, they just.
Speaker 3: Designed them exactly right and exactly my understanding.
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