Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
Speaker 1: Let's bringing Alison Williams. She's the pro on this. She's
Speaker 1: our senior analyst Bloomberg Intelligence covering the bank. She's also
Speaker 1: the co director of America's Research for Bloomberg Intelligence. So
Speaker 1: she's got a bunch of people that report to her
Speaker 1: rely on her for the management of that biz.
Speaker 3: So she's a busy person.
Speaker 1: We appreciate getting some time here in the Bloomberg in
Speaker 1: our active broker studio. Allison, let's start with Goldman Sachs here.
Speaker 1: You know, from my perspective, I haven't competing against these
Speaker 1: guys forever. Look at you know, really admiring the franchise.
Speaker 1: There a little bit of a miss here this quarter
Speaker 1: on the fix training, the fixed income, commodities and credit
Speaker 1: and all that kind of stuff.
Speaker 3: From your perspective, what happened so.
Speaker 4: I think, you know, obviously not benefiting from some of
Speaker 4: the areas of the other banks, And just to put
Speaker 4: that in context, so they missed on fixed they sort
Speaker 4: of made it up with equities and fees, but net
Speaker 4: the other banks posted big positive surprises. They have more
Speaker 4: momentum going on. Yes, Goldman probably benefited last year. Well,
Speaker 4: we're pretty sure they benefited last year from commodities, which
Speaker 4: is a business that they have a lot more relative
Speaker 4: strength than the other peers. But the bottom line is
Speaker 4: there's just less momentum in that business going forward. They
Speaker 4: earn more from the other banks reporting today from that
Speaker 4: business that's a negative. Bank of America is really the
Speaker 4: interesting one. They've been gaining share in equities and a
Speaker 4: fixed income and you know, part of that is some
Speaker 4: investments that they've made, but I think they're also benefiting
Speaker 4: from some of the troubles at Credit Sue. If you
Speaker 4: think about where Bank of America has some of their strengths,
Speaker 4: the securitization business, those spread type products, those were businesses
Speaker 4: that Credit Sweez is relative strong and and much of
Speaker 4: that business has sort of gone away from them, and
Speaker 4: perhaps going to Bank America.
Speaker 2: Is there a best fixed income trading business on the street.
Speaker 2: Is there a bank that's known for its fixed income trading? Like,
Speaker 2: if I have a multi billion dollar fund and I
Speaker 2: want to do work with one big firm, is there
Speaker 2: one I would obviously choose?
Speaker 4: JP Morgan.
Speaker 3: Yeah, okay, I was just oh, I would said Goldman opinion.
Speaker 4: Yeah, so you're thinking, so I guess that the reason
Speaker 4: why you're probably thinking more of Goldman. Goldman has you know,
Speaker 4: really strength with the hedge fund customers, the asset management customers,
Speaker 4: you know that that that research frequently deals with. I
Speaker 4: think JP Morgan has an additional leg up with the
Speaker 4: corporate UH type customers, and so I think, you know,
Speaker 4: they are the biggest in that business. Goldman has made,
Speaker 4: i mean some pretty remarkable market share gains in the years,
Speaker 4: which again might be why you're why are I just
Speaker 4: going to them? But JP Morgan is still the biggest
Speaker 4: of that business.
Speaker 1: So be ay, give me a sense of where they
Speaker 1: stack up against the JP Morgans. I guess, against the Goldmans,
Speaker 1: against the Morgan, Stanley's and some of those capital markets businesses,
Speaker 1: because again the guts of Bank of America on that
Speaker 1: side is Merrill Lynch. Where where are they now, you know,
Speaker 1: ten years on from this this merger, so.
Speaker 4: I think they've they've definitely had some fits and starts,
Speaker 4: and I think if you look at their business over
Speaker 4: the long term, it's it's not been it. You know,
Speaker 4: it doesn't have sort of the same volatility as some
Speaker 4: of the other bigger names that we're talking about, JP,
Speaker 4: Morgan and Goldman. You know, they've sort of kept that
Speaker 4: business relatively steady. You know, Bank of America and UBS
Speaker 4: as well, just you know, tend to be sort of
Speaker 4: quarter and quarter out generating sort of the same amounts
Speaker 4: of revenue. But in the you know, in the last
Speaker 4: couple of years, and I think you know, this has
Speaker 4: also been helped by some people exiting prime brokerage, right,
Speaker 4: they sort of stepped up one of their capital requirements
Speaker 4: and they figured, you know, we we're going to add
Speaker 4: some more balance sheet to this trading business. So they
Speaker 4: invested in prime brokerage. They invested in macro, which is
Speaker 4: rates and currencies. So, as I said, they're good at
Speaker 4: those credit spread securitization type businesses that Credit Sweep was
Speaker 4: good at, but they've made investments in the interest rate business,
Speaker 4: the currency's business, like that's sort of the business that
Speaker 4: we're relatively more bullish on, you know, this year and
Speaker 4: the years ahead, just because we think you have all
Speaker 4: these trillions of dollars still sitting on central bank balance sheets.
Speaker 4: There's going to be uncertainty. There's going to be you know,
Speaker 4: this is an unprecedented situation, and we think that the
Speaker 4: interest rate uncertainty extends.
Speaker 2: We're in for a world of volatility for well, we're
Speaker 2: in it already and it's got to continue with with
Speaker 2: all of those variables. In terms of the investment banking business,
Speaker 2: investment banking revenue, how do they do.
Speaker 4: So, you know, Goldman did a little bit better, All
Speaker 4: the banks did a little bit better. But you know,
Speaker 4: we're looking at twenty to twenty five percent declines and
Speaker 4: calling that a win because last year we're down fifty percent.
Speaker 4: But things are still weak there and you're starting to
Speaker 4: see these headlines about you know, cuts in the investment
Speaker 4: banking business. You know, the CEOs have the CEOs of
Speaker 4: the investment banks have talked about their clients, you know,
Speaker 4: still not really adjusting to the newer valuation. So you know,
Speaker 4: as we know, tech has had a few good months,
Speaker 4: but we're just not back to where we were, and
Speaker 4: some of those companies waiting to go public may not
Speaker 4: have adjusted their expectations. The other thing that the investment
Speaker 4: banks CEOs have said is, look, when the FED stops
Speaker 4: raising rates, we think that that could really put a
Speaker 4: flood of issuance. You know, that remains to be seen
Speaker 4: when that happens. Again, We're we're sort of in a
Speaker 4: pretty remarkable period where Jamie Diamond's interesting right, Like they
Speaker 4: talked about FED cuts are being baked into their interesting
Speaker 4: income guidance. But then he said everybody should prepare for
Speaker 4: higher rates for longer, and so you see that you're
Speaker 4: getting those contradicting messages.
Speaker 1: So, Allison, you've been following these companies for a long time.
Speaker 1: You've seen management teams come and go.
Speaker 3: How was the street?
Speaker 1: How were investors viewing David Solomon, the chairman and cy
Speaker 1: of Goldman Sex.
Speaker 4: I mean, I think for Solomon it's still a little
Speaker 4: bit weight. And see I know that there's you know
Speaker 4: a lot of the negative press and criticism have come
Speaker 4: around the consumer business. I would keep in mind that
Speaker 4: even though that's that's sort of being done away with
Speaker 4: under Solomon, it was really started underwind Fly. That was
Speaker 4: a huge deviation for Goldman. You know, parts of that
Speaker 4: business remain. You know, we're hearing a lot about this
Speaker 4: new Apple product on the deposit side of things, but
Speaker 4: the Marcus loans. You know, frankly, I don't think any
Speaker 4: investors really ever believed in that business. I always thought
Speaker 4: the strategy was sort of like a me too from
Speaker 4: like the nineties.
Speaker 2: I'm going to say I like that strategy. I know you,
Speaker 2: I know you have hated it forever, and Paul also
Speaker 2: has never understood the consumer. To me, it's just high
Speaker 2: end super luxury if you're doing your banking with Golden.
Speaker 4: But it's not going but it's it's the it's the
Speaker 4: strategy with which they went after these loans, which was
Speaker 4: competing on price. Well they failed, so I was the
Speaker 4: loan book, right, So they're still trying to go after
Speaker 4: those deposits. Yeah, they're trying to go after it with
Speaker 4: using the Apple premium brand.
Speaker 5: You know.
Speaker 4: They they're going after CDs with premium pricing in their market.
Speaker 1: And they always had this, not not the loans, and
Speaker 1: they always had and they still have. But one of
Speaker 1: their real selling points for decades has been you sell
Speaker 1: your company a will advise you take the fee there
Speaker 1: and then when you have that the proceeds in your pocket. Oh,
Speaker 1: let me introduce you to my private wealth manager in Dallas,
Speaker 1: Texas or in San Francisco, and he'll he or she
Speaker 1: will help you manage this money.
Speaker 3: We'll make fees there too. So they've always had that.
Speaker 3: But Marcus was more.
Speaker 4: Marcus was more, you know, let's broaden out. Let's broaden
Speaker 4: out the net, right, like, are we leaving all this
Speaker 4: white space behind? And you know, let's try to do
Speaker 4: a few different things there. You know, as we as
Speaker 4: we just discussed the deposits, I think is interesting and
Speaker 4: getting getting those customers in the door. But the credit
Speaker 4: card lending strategy was really like a price a pricing strategy,
Speaker 4: and that's you know, I don't know any bank where
Speaker 4: it's one over the long term.
Speaker 1: Eventually that all right, Morgan Stanley, before the open tomorrow
Speaker 1: is up what we have?
Speaker 4: So Morgan Stanley, Uh, people I think are going to
Speaker 4: be listening. I'm going to be listening to find out.
Speaker 4: You know, Andy c left Merrill. He's going over to
Speaker 4: City to be the head of their global wealth management.
Speaker 4: Is there going to be more competition in the us
Speaker 4: keeping mind, Morgan Stanley bought that's you know, Smith Barty business.
Speaker 4: They're a wealth powerhouse. Part of that came from city
Speaker 4: a long time ago. Equities trading, you know, has been
Speaker 4: generally been disappoint So that's not great for a city.
Speaker 4: I mean, that's not great for Morgan Stanley. Excuse me.
Speaker 4: We'll see how their fixed income holds up, all right, and.
Speaker 2: We'll see if anyone else says, you know, AI can
Speaker 2: reduce headcamps.
Speaker 3: Yes exactly. We like that because that was a good
Speaker 3: line from mois the morning Hand.
Speaker 1: Yeah, morning Hand on Top Live. So that was you know,
Speaker 1: if you're you know, working on wall streets, I think,
Speaker 1: oh great, now I got another. I gotta worry about
Speaker 1: these stupid machines taking over my job. All right, Allison Williams,
Speaker 1: as always, thank you so much for finding a few
Speaker 1: minutes in your busy scheduled to come in and get
Speaker 1: us up to date on some of these numbers coming
Speaker 1: out of Bank of America and Goldman Sachs. A little
Speaker 1: bit of a miss for Goldman Sacks. It doesn't happen
Speaker 1: very often, but so the stock's off just a little
Speaker 1: bit here. But we'll continue with these big banks, big
Speaker 1: investment banks reporting. We've got Morgan Stanley tomorrow before the
Speaker 1: open and Alison will be all over that and her team.
Speaker 6: You're listening to the team.
Speaker 5: Can's are live program Bloomberg Markets weekdays at ten am
Speaker 5: Eastern on Bloomberg dot Com, the iHeartRadio app and the
Speaker 5: Bloomberg Business App, or listen on demand wherever you get
Speaker 5: your podcast.
Speaker 1: If you're Fox, Fox Communications, Fox Corporation, Rupert Murdock all
Speaker 1: the Fox Network, You're in a little bit of a
Speaker 1: legal suit here with dominion voting systems and the potential
Speaker 1: risks there are pretty material, so believe it or not,
Speaker 1: Bloomberg Intelligence has a bunch of litigation analysts for just
Speaker 1: this type of analysis. Matt Sheltenham joins as Caesar, senior
Speaker 1: Litigation analyst at Bloomberg Intelligence, and I happen to know
Speaker 1: that he is in Vegas as we speak at the
Speaker 1: National Association of Broadcasters conference. It's my first question, Matt,
Speaker 1: most important, and this is important, so get it right.
Speaker 3: Where are you staying?
Speaker 7: I am at the Aria Hotel Nice.
Speaker 3: All right, that's new school, that's new school, very good.
Speaker 1: I'm a Bellagio guy, so you know, go to the
Speaker 1: high rollers crafts table.
Speaker 2: Where do they have the the fake Paris and the
Speaker 2: Venice Yeah, and all that stuff that's.
Speaker 3: Right there on the strip. Oh I thought it was
Speaker 3: Paris the hotel. No, Paris is the hotel? Oh I see?
Speaker 5: Yeah?
Speaker 1: And the Venetian is that and they are both awesome properties.
Speaker 1: All right, Matt, talk to us about Fox and Dominion
Speaker 1: voting Systems. What is the lawsuit and where are we now?
Speaker 7: Yeah, so we're at the very beginning of this, this
Speaker 7: lawsuit heading to trial. Now, this is a suit about
Speaker 7: Fox's election coverage over about a month from November into
Speaker 7: December after the election, when Dominion's name kept coming up
Speaker 7: in interviews that that Fox held and Dominions this voting
Speaker 7: software company. Its software was used in about thirty states
Speaker 7: during the election, and a number of allegations were made
Speaker 7: suggesting that Dominion had had kind of rigged the election.
Speaker 7: And so now this is a defamation claim brought against
Speaker 7: Fox News claiming that you basically have wiped out our
Speaker 7: business by these false statements that you made. And it
Speaker 7: seeks initially they saw one point six billion dollars in
Speaker 7: their complaint. I think that's come down a little bit
Speaker 7: but it's a big, big deal, a serious financial threat
Speaker 7: to the box.
Speaker 2: Why one point said, you know, when I sue somebody,
Speaker 2: typically it's for a million or so. Oh yeah, how
Speaker 2: do they get to one point six billion dollars?
Speaker 7: Yeah? So I think that's that's one of the most
Speaker 7: important things to watch going forward, is how credible is
Speaker 7: that number? Is that damage's number? And so they put
Speaker 7: one point six billion in their complaint, and as I said,
Speaker 7: I think it's come down a little bit. What they're
Speaker 7: looking at is one, what is our lost profits because
Speaker 7: of this? And two what is our lost value as
Speaker 7: an enterprise? And I think it's that second category that's
Speaker 7: going to be the focus here. They have an expert
Speaker 7: who comes in that says, when we look at our
Speaker 7: value as an enterprise over the next ten years, and
Speaker 7: we're basically so damaged as a business that you've wiped
Speaker 7: us out, we value that is at about nine hundred
Speaker 7: and twenty million dollars. Now Fox comes back and says,
Speaker 7: that's crazy. You you independently were valued as a company
Speaker 7: in twenty two for about three hundred million dollars and
Speaker 7: your business is actually doing better after the election. So
Speaker 7: I think I think dominion has a strong case about defamation.
Speaker 7: I don't know that it has a real strong case
Speaker 7: to get to that billion dollar figure. But one other
Speaker 7: footnote on that, though punitive damages are also in play here,
Speaker 7: the judge refused to take them off the table, and
Speaker 7: so it's not just that direct harm to the business.
Speaker 7: The jury has the ability to come in and effectively
Speaker 7: punish Fox. And sometimes punitive damages can go as much
Speaker 7: as five times the economic damages. So that's where you
Speaker 7: really get to big deal numbers.
Speaker 3: It gets you there.
Speaker 1: Yes, hey, Matt, if I'm Fox, why can I just
Speaker 1: claim First Amendment protection?
Speaker 7: Yeah, So that's what they've been doing. And they brought
Speaker 7: in Paul Clement, you know, the noted First Amendment Supreme
Speaker 7: Court lawyer, to defend them here, and and they tried
Speaker 7: that defense, but the court has mostly shot it down.
Speaker 7: That Fox, you know, Fox makes the First Amendment argument.
Speaker 7: This was the most important story of the day. The
Speaker 7: President of the United States is saying that the election
Speaker 7: was rigged. How can we not report on that? And
Speaker 7: and and so. But but the problem is there is real, no,
Speaker 7: there really is no defense in in in in the
Speaker 7: First Amendment that lets you air allegations that you know
Speaker 7: to be false or that you strongly believe to be false,
Speaker 7: and and so the so that the judge so far
Speaker 7: is pretty much said, now, we're not going.
Speaker 6: To go there.
Speaker 7: I already have decided these are false statements that you made.
Speaker 7: And so the only question in this trial now isn't
Speaker 7: the First Amendment. It's it's it's whether you knew they
Speaker 7: were false or whether you had a high probability to
Speaker 7: believe they were false.
Speaker 2: If television news can't make stuff up anymore than where
Speaker 2: are we as a country?
Speaker 3: Well, the first Amendment was for like mistakes.
Speaker 5: You know that.
Speaker 2: The The issue for me is do we get to
Speaker 2: see Rupert Murdoch, Do we get to see Alan John Hannity,
Speaker 2: Do we get to see Sean Hannity and Tucker Carlson testify.
Speaker 2: We've already seen some of their you know, SMS text
Speaker 2: messages and it didn't look good, right.
Speaker 7: Absolutely, And I think that right now, you know, I
Speaker 7: still think a settlement is a pretty good bet over
Speaker 7: the next couple of months before a jury actually announces
Speaker 7: its decision. But I wouldn't be at all surprised to
Speaker 7: see this trial advance pretty far. So I think it's
Speaker 7: more likely than not you are going to see those
Speaker 7: witnesses called to the stand. And I think Rupert Rupert
Speaker 7: Murdoch is pretty early on the list, potentially in the
Speaker 7: next couple of days.
Speaker 3: All Right, Matt, thank you so much for joining us.
Speaker 1: Matt Sheltenham, he's a senior litigation analysts Bloomberg Intelligence.
Speaker 3: He's in Vegas.
Speaker 1: Matt, make sure you go over to the high end
Speaker 1: crafts table Blajo use my name.
Speaker 3: They'll take care of you over there.
Speaker 1: So Matt Sheltenham, he covers all that in litigation stuff
Speaker 1: for Bloomberg Intelligence, so it's great to get his informed
Speaker 1: legal opinion when you get some of these big legal
Speaker 1: cases surrounding certain companies.
Speaker 5: You're listening to the tape Cat's are live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 5: tune it app, Bloomberg dot Com, and.
Speaker 6: The Bloomberg Business App.
Speaker 5: You can also listen live on Amazon Alexa from our
Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: Let's turn to real estate, commercial real estate, and when
Speaker 1: you want to do that, because you know people aren't
Speaker 1: coming back to the office. That's how it is, particularly
Speaker 1: here in Midtown Manhattan, but maybe it's different in other
Speaker 1: parts of the world. But Jeff Langbound joins us. He's
Speaker 1: a senior reat analyst with Bloomberg Intelligence. Jeff, talk to
Speaker 1: us about I'd love to get your view on commercial
Speaker 1: real estate, office real estate in particular, how do you
Speaker 1: think office real estate is going to evolve in this country,
Speaker 1: you know, over the next several years, because boy, it's
Speaker 1: changed since pre pandemic levels.
Speaker 6: Yeah.
Speaker 8: Right, Well, first I want to say that nobody may
Speaker 8: be buying equities broadly, but definitely nobody's buying reads right now.
Speaker 8: So that's that's something we're definitely keeping an eye on.
Speaker 8: So the office is definitely a very different environment than
Speaker 8: it was pre pandemic, and right now we are in
Speaker 8: a very long kind of figure it out period. I
Speaker 8: think where we're going to figure we're going to have
Speaker 8: to see how much how much space tenants need, if any,
Speaker 8: We're going to have to figure out what properties are
Speaker 8: actually worth, and then we're gonna have to figure out
Speaker 8: what can be refinanced once mortgages start coming due. So
Speaker 8: it's going to be a long period of time where
Speaker 8: we have to figure out what the office environment is
Speaker 8: going to look like.
Speaker 2: What does the I mean I'm assuming everybody refinanced at
Speaker 2: near zero when they could. So when does that wall
Speaker 2: of debt? When's the first wall come due for maturities?
Speaker 8: It's starting, it's it's this year. You know, there's there's
Speaker 8: a big chunk, big chunk coming of debt that was
Speaker 8: issued in the twenty eighteen timeframe. And like you said,
Speaker 8: not only are interest rates at lows, but asset values
Speaker 8: were at highs and cash flow. You know, everyone was
Speaker 8: projecting continuous rise and cash flows. So you have loan
Speaker 8: to values that you know are going to be elevated
Speaker 8: if you start marking values down. You have interest rates
Speaker 8: that you know, if it was floating debt has already
Speaker 8: risen and it's starting to present a problem. If it's
Speaker 8: not floating debt, then the refi is going to present
Speaker 8: a problem. So you know, but like I said, it's
Speaker 8: going to be a long term process to figure out
Speaker 8: how this is going to work because lenders don't want
Speaker 8: to take over office buildings that are you know, difficult
Speaker 8: to operate in this environment, and so landlords or borrowers
Speaker 8: are you know, kind of trying to figure out what
Speaker 8: they can can negotiate in order to get properties refinanced.
Speaker 1: So I'm just looking at the Bloomberg Property Reate Office
Speaker 1: Property Index. It peaked in October of twenty twenty, and
Speaker 1: it's now down sixty percent sixty zero percent from that
Speaker 1: peak in February of twenty twenty. And Jeff, I don't
Speaker 1: even feel like I can go in and buy the
Speaker 1: bottom here because, like you mentioned, A, I don't know
Speaker 1: don't know what my cash flows are going to because
Speaker 1: I don't know how much space my tenants are really
Speaker 1: going to need longer term, and too, I don't think
Speaker 1: I can finance it.
Speaker 3: At these rates.
Speaker 1: So, I mean, I don't see is this is this
Speaker 1: just the new normal and everybody's got to adjust.
Speaker 8: No, I don't think so. I think it's a little
Speaker 8: bit more nuanced than that.
Speaker 6: You know.
Speaker 8: So, the first wave of declining prices was you know, speculation,
Speaker 8: declining prices in the office rate Index and in the
Speaker 8: shares themselves was you know, speculation over how much property
Speaker 8: values were actually falling. You've gotten some pressure recently as
Speaker 8: the banks have started to struggle, where you know, there's
Speaker 8: real concern over the over the financing, But I don't
Speaker 8: think that it's a catch all for every property and
Speaker 8: every owner of properties. There's going to be a differentiation
Speaker 8: between quality. The owners of better quality assets are going
Speaker 8: to be able to attract tenants, uh, and the lower
Speaker 8: quality assets are going to need to find some alter
Speaker 8: use as a polite way of saying, they are obsolete
Speaker 8: as office buildings. And it's going to take some time
Speaker 8: for that to get worked out. And so you know,
Speaker 8: you may not want to buy the entire index, but
Speaker 8: there may be some names that have over corrected to
Speaker 8: figure out where the values actually are.
Speaker 3: Right, amazing stuff.
Speaker 1: We're gonna next time you're in New York, Jeff, let
Speaker 1: us know we're gonna get you in the studio here
Speaker 1: Jeff Langbaum Senior read analys for Bloomberg Intelligence, given the
Speaker 1: latest on this property index property market out there.
Speaker 5: You're listening to the team Can't Live program Bloomberg Markets
Speaker 5: weekdays at ten am Eastern on Bloomberg dot Com, the
Speaker 5: iHeartRadio app, and the Bloomberg Business App, or listen.
Speaker 6: On demand wherever you get your podcasts.
Speaker 1: Tesla's got some earnings coming up, and that's always something
Speaker 1: to pay attention to.
Speaker 3: A if you're Tesla shareholder or creditor. But this is
Speaker 3: if you're interested in this whole ev issue. Transition from that.
Speaker 1: I know Matt all Over, but Joe Levington Joints us
Speaker 1: he's a direct or Credit Research of Bloomberg Intelligency Joints.
Speaker 1: Here in our Bloomberg Interactive Broker Studio, Joe, you cover
Speaker 1: the debt of Tesla. What's the what's your view of
Speaker 1: kind of how the company's evolving here from you know,
Speaker 1: you've been following this company since the beginning. How do
Speaker 1: you view kind of where they are right now and
Speaker 1: kind of what their growth plans are?
Speaker 9: Sure Apoulo, Yeah, they really moved from the hunter to
Speaker 9: the hunt ad at this point. And really for them,
Speaker 9: they have a couple of strategic weapons that others don't.
Speaker 9: One is a dominant cost position. You know, if you
Speaker 9: think about their profitability, they're going to have about fourteen
Speaker 9: percent margins this year. If you look at their peer group,
Speaker 9: it's about eight percent. And so they can use that
Speaker 9: in terms of pricing, and you're seeing them cut prices aggressively.
Speaker 9: Some say it's because there's no demand, That's.
Speaker 3: What I say.
Speaker 1: But you're saying, but the other the bull case is
Speaker 1: it's from Hey, it's a position of strength. They've got
Speaker 1: the margin and they can drive market share and that's good.
Speaker 6: Yeah.
Speaker 9: I mean at the end of the day, whether you
Speaker 9: know it might be the looking at the at the
Speaker 9: same picture just slightly differently, the fact is that the
Speaker 9: grow thirty eight percent, right, and your peers are growing
Speaker 9: three or four percent.
Speaker 10: So whether you're say in.
Speaker 2: Terms of what top line sales, yeah.
Speaker 9: So you know, like one can say, hey, there there's
Speaker 9: not enough demand to hit their fifty percent, but relative
Speaker 9: to peers, they're blowing them away, and they have the
Speaker 9: ability to use that and scale on their margins and
Speaker 9: still gain share at the same time. So whether you
Speaker 9: look at it as hey, they're missing their fifty percent
Speaker 9: or hey, they're you know, doing much better than their peers,
Speaker 9: it's going in the right direction for them, certainly from
Speaker 9: a credit perspective, and because it has been that way,
Speaker 9: their balance sheet has a huge amount of cash and
Speaker 9: very little debt at this point, so they can continue
Speaker 9: to do that.
Speaker 2: I saw I saw a funny headline this morning Mercedes
Speaker 2: Benz aims to double EV sales this year, and at
Speaker 2: first I.
Speaker 3: Was like, wow, that's a big deal. But if you
Speaker 3: only sold like twenty five evs last year, it's not
Speaker 3: that difficult.
Speaker 2: Now Tesla were to double ev sales, that would be
Speaker 2: a major feat because what they're selling like, well, well,
Speaker 2: over a million cars a year.
Speaker 10: Now, that's totally right.
Speaker 9: And you know, you could go back and forth on
Speaker 9: whether fifty percent growth a year is doable or not.
Speaker 10: To me, that sounds like a very very aggressive scale.
Speaker 10: But what it's really telling you.
Speaker 2: Except for when you tell me that they have thirty
Speaker 2: eight percent growth and fourteen percent margins, I instantly think,
Speaker 2: well they could have margins and boost that to over
Speaker 2: fifty no problama for sure more.
Speaker 9: And I will tell you, Matt, like the real thing
Speaker 9: for them is kind of becoming the Toyota evs, meaning
Speaker 9: as you move your price point down, the amount of
Speaker 9: consumers that can afford your vehicles grows very, very significantly.
Speaker 9: And that's really where they're going is to become the
Speaker 9: affordable car, which was really you know, like master planned
Speaker 9: part one from Tesla.
Speaker 1: So the balance sheet, how does the credit market view Tesla?
Speaker 1: I mean, if they wanted to go raise more capital,
Speaker 1: could they do that at a reasonable rate?
Speaker 10: Spread oh, one.
Speaker 9: Hundred percent, when you know, it's amazing that in twenty
Speaker 9: eighteen Elon Musk is talking about being in manufacturing hell
Speaker 9: and just trying to survive. Today, they have over twenty
Speaker 9: two billion dollars of cash on hand, They've been upgraded
Speaker 9: seven times in the last two and a half years.
Speaker 9: I've never seen that happen for another automobial company.
Speaker 1: And look at the north of twenty percent ebitdam margins.
Speaker 1: I mean, that's I could lend against that exactly.
Speaker 9: So you know, like right now, you could probably do
Speaker 9: a green bond for ten years at under four and
Speaker 9: a half percent, so really a very.
Speaker 10: Cost efficient way.
Speaker 9: If they wanted to, say, build out a captive finance unit,
Speaker 9: which a lot of auto companies do as another revenue stream.
Speaker 2: Does it matter that they've had I mean, you're a
Speaker 2: credit guy, but Paul and I are too dumb and
Speaker 2: we just focus on the stock. So they had a
Speaker 2: drop in market cap from like one point two trillion
Speaker 2: down to six hundred billion, which sounds like, well, that's
Speaker 2: that's a horrible wipeout, But to be fair, you know,
Speaker 2: they're just back where they were two years ago. So
Speaker 2: they had an incredible climb during the pandem and then
Speaker 2: a drop back to normal levels.
Speaker 3: There's still a behemoth, oh for sure.
Speaker 9: And keep in mind how rates have extended during that
Speaker 9: period two and for companies that are long Greasian cash
Speaker 9: flow companies like them, when you have a big growth,
Speaker 9: you're going to have that in a up cycle in
Speaker 9: terms of breeds. But in that period Matt their CDs
Speaker 9: is outperformed. So what it's telling you is that from
Speaker 9: a risk perspective, people think that it actually has less
Speaker 9: risk than it did two years ago, even though the
Speaker 9: market cap is half the size.
Speaker 1: That's interesting, all right, So how about the other auto
Speaker 1: companies for GM, I mean all the other big public
Speaker 1: ones that on that have public debt outsetting that you cover.
Speaker 1: This industry is making this transition like we've never seen before.
Speaker 1: If I'm a creditor, how nervous am I'm about going
Speaker 1: from the traditional internal combustion engine, which I can model,
Speaker 1: I know what the profits are and I know what
Speaker 1: the growth is to this EV thing.
Speaker 2: And the other car makers make a ton of margin
Speaker 2: on the big ice cars, right, nothing on electrics.
Speaker 10: That's right.
Speaker 9: In fact, Ford, its model E business or its TV
Speaker 9: business is expected to lose three billion dollars this year,
Speaker 9: just to put that in perspective. But really for Tesla,
Speaker 9: lart a very unique place because they have these other companies,
Speaker 9: you know, in a very type grip. Obviously, any sort
Speaker 9: of pricing pressure that they put on them just means
Speaker 9: more opportunity for them and a tougher capability for Ford
Speaker 9: and GM. But what I would say Paul to your
Speaker 9: specific question is that if you're a creditor, you're probably
Speaker 9: not that scared of the situation, despite the fact that
Speaker 9: this evolution is very unique. And that's really because at
Speaker 9: the end of the day, the average bond in the
Speaker 9: sector is about three and a half years, and there'll
Speaker 9: still be plenty of ice engines sold over the next
Speaker 9: three and a half years to delay the bills.
Speaker 3: So the big car companies don't go out with ten
Speaker 3: year twenty year paper.
Speaker 6: No.
Speaker 9: Most of the debt, I would say about seventy five
Speaker 9: percent of the debt is attached to the captain finance companies,
Speaker 9: So if you think about the leaser alone, that's really
Speaker 9: where the debt is finance. There's very little at the
Speaker 9: manufacturing units because they're so cyclical. You really can't put
Speaker 9: much leverage on them.
Speaker 2: You wrote about Ferrari's tiny financial services unit. I always
Speaker 2: find this part of the business interesting because it's a
Speaker 2: little bit opaque to people focused on the manufacturers and
Speaker 2: especially the stock side. Who's in the best position in
Speaker 2: terms of a finance unit, Because as rates ries, you
Speaker 2: want to have a very strong finance unit, you do.
Speaker 9: And really it's the ones that have the best credit
Speaker 9: quality that are in the best position. So a company
Speaker 9: like a Toyota or Mercedes really or a BMW, they
Speaker 9: really stand out above the others. A company like Ford
Speaker 9: and I would say that they have as an operator
Speaker 9: are a very good operator.
Speaker 10: Their interest costs will go.
Speaker 9: Up about eight hundred million dollars this year just because
Speaker 9: of rates, and that is hard to pass through when
Speaker 9: your average car has increased about twenty five or thirty
Speaker 9: percent of the last couple of years.
Speaker 10: Affordability really is the word of the year for autos.
Speaker 2: I think of GS and Folkswagen, we probably talk about
Speaker 2: them the most. Is the biggest competitors to Tesla, right
Speaker 2: because Folkswagen has invested so much money in building out
Speaker 2: its evs general motors as well, seems like they're in
Speaker 2: a position to just explode in terms of EV sales.
Speaker 2: How do they look from credit quality perspective?
Speaker 9: Well, I'm a fan of Volkswagen, have ben it for
Speaker 9: a long time. I do think with both of those companies.
Speaker 9: One of the key differences between Volkswagen and in general
Speaker 9: motors versus the Tesla is the.
Speaker 10: Amount of products that they have.
Speaker 9: There's a reason why Tesla only has a handful of
Speaker 9: products and they scale the heck out of them as
Speaker 9: much as they can. Versus having a very wide broad range,
Speaker 9: you can't get the same scale and obviously you have
Speaker 9: to have more marketing on top of it. So again,
Speaker 9: from your cost position, you're much better off being in
Speaker 9: the Tesla spot than one of the other peers. Despite
Speaker 9: both of them being you know, like very very strong.
Speaker 3: Their size hurts them. As what you're saying it does.
Speaker 10: It does.
Speaker 1: Hey, if I'm buying a Ferrari or Lamborghini, I'm not
Speaker 1: finits in it. I'm just throwing down the AMEX.
Speaker 3: Right pretty much.
Speaker 10: Yeah, I don't think you even bring in the Amex
Speaker 10: just you know, like.
Speaker 2: I mean, I just walk in and you know, why
Speaker 2: do they have a financial services unit?
Speaker 3: What does Ferrari do with the financial services unit.
Speaker 9: Yeah, they have a very small one, just for for
Speaker 9: a few folks in the US. It's very different than
Speaker 9: let's say Porsche, which has a much, much bigger and
Speaker 9: more meaningful finance company. So there is a difference in
Speaker 9: customer between a Porsche owner and a Ferrari owner. If
Speaker 9: you're a Ferrari, you're like mister Sweeney or yourself, You're
Speaker 9: you're living large.
Speaker 3: I wish that were the case.
Speaker 1: Yeah, I can't imagine if I'm again, if I'm in
Speaker 1: the if I'm a Lamborghini Ferrari kind of buyer.
Speaker 3: Costs.
Speaker 2: I mean, you're looking at a base price of over
Speaker 2: four hundred thousand dollars, well over four hundred thousand dollars,
Speaker 2: and when you add options.
Speaker 1: You know, I was just aut in Carmel and there
Speaker 1: are invented doors parked on the street. That's I mean,
Speaker 1: it's just incredible. I would never take it out of
Speaker 1: the garage, but but that's that's the level of wealth out.
Speaker 3: There, all right.
Speaker 1: Joel, thanks so much for joining us. Joe Lovington, he's
Speaker 1: a director of credit research for Bloomberg Intelligence, joining us
Speaker 1: live here in the Bloomberg Interactive Broker studio. He doesn't
Speaker 1: mail it in, slash phone it in like other directors
Speaker 1: of research at BIS, so we appreciate.
Speaker 3: Him coming into the office. It's good stuff. Don't get
Speaker 3: him in trouble exactly. He gets in trouble all on
Speaker 3: his own.
Speaker 5: You're listening to the tape Catcher live program Bloomberg Markets
Speaker 5: weekdays at ten am Eastern on Bloomberg Radio, the tune
Speaker 5: in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 5: You can also listen live on Amazon Alexa from our
Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 4: Matt, here's the story.
Speaker 3: I have no idea what to do with. Here's the headline.
Speaker 3: Chat GPT, can dcode fed speak predict stock moves from headlines?
Speaker 3: Where are we going in the world?
Speaker 2: I thought it was a great story, but it does
Speaker 2: we do say in that story? Or Justina Lisa, as
Speaker 2: she wrote the story for us at Bloomberg News that,
Speaker 2: of course, there already are fairly intelligent algorithms out there
Speaker 2: that decode this kind of stuff every day, right, I mean,
Speaker 2: Bloomberg publishes stories that are intended for machines to consume,
Speaker 2: to read and then parse. So this is just I
Speaker 2: think from what I'm reading here a little bit of
Speaker 2: progress in terms of the ability of these AI programs.
Speaker 1: All right, Justina Lee, Bloomberg News, the reporter on this story,
Speaker 1: joins us now from our London studio. Justina, fascinating story
Speaker 1: you have here. Tell us kind of what's going on.
Speaker 11: Yeah, I mean, like every other field, finance has seen
Speaker 11: an avalanche of research about what chat GPT means for everyone,
Speaker 11: and we're starting to see some preliminary results here And
Speaker 11: this time my story is based on two academic papers.
Speaker 11: I mean, one argues that you could use chat GPT
Speaker 11: to classify if a sentence and a Federal Reserve statement
Speaker 11: is dubvish and or hawkish, and in this case they
Speaker 11: compare it to what a human analyst might classify. And
Speaker 11: in the other case, they asked chat GPT if a
Speaker 11: certain corporate news headline is good or bad for a stock,
Speaker 11: and then they found that that answer correlated with how
Speaker 11: the stock actually subsequently performed.
Speaker 2: So yeah, I thought the FED paper was interesting. They
Speaker 2: compare chat GPT's translation to that of Bryson. I guess
Speaker 2: like an intern at the FED. He's like a twenty
Speaker 2: four year old kid known for his intelligence and curiosity.
Speaker 2: Did did chat GPT beat Bryson or did Bryson do better?
Speaker 12: Well?
Speaker 11: In this case, they used Bryson as a benchmark. So
Speaker 11: the idea isn't necessarily that chat GPT is better than humans,
Speaker 11: but that chat GPT was better than prior technologies and
Speaker 11: coming close to human thought. And one amazing thing about
Speaker 11: chat GPT is not only can it classify if the
Speaker 11: sentence is devish or hawkish, it can even like explain
Speaker 11: why it classified the sentence that way. And in this
Speaker 11: particular case, they actually found that a lot of the
Speaker 11: time chat GPT's explanations were very similar to Bryson, who
Speaker 11: Google tells me is an actual research analyst at the
Speaker 11: Richmond FED. So the two explanations were actually pretty similar.
Speaker 3: So where does this technology go from here? Justina?
Speaker 1: I mean, is this something that is just over time
Speaker 1: every day it's the iterations are going to make it
Speaker 1: better and better.
Speaker 11: Yeah, I mean it does feel that way. I mean
Speaker 11: currently it's very commonplace in hedge funds to use machines
Speaker 11: to read earnings transcripts and tweets and headlines and to
Speaker 11: kind of incorporate those into trading models. But I think
Speaker 11: what all this research is telling us is that chat
Speaker 11: GPT is a lot better than the early generation of
Speaker 11: the technology in parsing nuance and context, and it can
Speaker 11: kind of understand a lot of financial news even if
Speaker 11: it hasn't been specifically trained for that purpose. So I
Speaker 11: think what this tells is this there's probably going to
Speaker 11: be even broader use of chat GPT for financial purposes,
Speaker 11: and also that it's going to get a lot better
Speaker 11: and a lot more accurate.
Speaker 2: What's the difference between chat GPT and the technology that
Speaker 2: you know, traders already use on a daily basis. You
Speaker 2: talk to any humans in this market and they'll tell
Speaker 2: you that the algorithms are taken over and it's just
Speaker 2: computers that are doing all the trading at very high
Speaker 2: frequencies often as well. So is chat GPT going to
Speaker 2: be able to replace those or are those computer models
Speaker 2: you know, made more specific to their jobs.
Speaker 12: Yeah.
Speaker 11: I think when it comes to you know, the first
Speaker 11: generation of this technology, it was very much based on
Speaker 11: understanding particular words and so sometimes it couldn't really understand
Speaker 11: the context very well. Whereas chat GPT uses this technology
Speaker 11: that kind of manages to understand and where the focus
Speaker 11: of a piece of textas But I think if you
Speaker 11: ask people who have been following this technology for years,
Speaker 11: they would say it's not necessarily a huge breakthrough if
Speaker 11: you're ready familiar with you know, for instance, Google's prior
Speaker 11: model called bert. But I think what kind of chat
Speaker 11: GPT has done is it's kind of opened up access
Speaker 11: to this tech that makes it potentially possible for a
Speaker 11: lot more financial firms to start doing this tech as well.
Speaker 1: Is there the expectation that there will be some commercialization
Speaker 1: of this type of technology so that if a hedge
Speaker 1: fund wants to do it, I can go to you know,
Speaker 1: chat Gptfinance dot com or something and you know, get
Speaker 1: it from Amazon or something.
Speaker 12: Yeah.
Speaker 11: I mean obviously currently any one of us can go
Speaker 11: on chat GPT and ask them to interpret a sentence
Speaker 11: for us. But if you really kind of want to
Speaker 11: use it on an industrial scale for a hedge fund,
Speaker 11: I think you do need to reach out to the
Speaker 11: firm for a license and something like that. And I
Speaker 11: think that is kind of something that a lot of
Speaker 11: Hetchman's are now considering, because then you know, chat GPD
Speaker 11: is not open source and so in a way you
Speaker 11: kind of need to give over your data to that software,
Speaker 11: and a lot of firms will be pondering whether they
Speaker 11: should do that or whether they should, you know, rely
Speaker 11: on their own internally developed models.
Speaker 2: What's the competition like right now, you mentioned Google's uh
Speaker 2: chat or whatever we call it, Google's GPT.
Speaker 3: What does GPT even stand for?
Speaker 11: It stands for I'm forgetting GP but T is transformer.
Speaker 3: I just nobody. I mean, it's funny.
Speaker 11: You know.
Speaker 2: Elon Musk was on Fox News and he said he
Speaker 2: wants to start his own called truth GPT, and I
Speaker 2: think he's trolling obviously.
Speaker 3: But why do we have to put GPT?
Speaker 2: I always wonder at the end of all these at
Speaker 2: least Bert doesn't do that. What are the other competitors
Speaker 2: to to open AI?
Speaker 11: I just googled it. By the way, it's general to
Speaker 11: pre trained transformer.
Speaker 10: No wonder, no wonder.
Speaker 11: Yes, yeah, I mean the last this major breakthrough is
Speaker 11: Bert from Google. I kind of mentioned this at the
Speaker 11: end of story more as a disclaimer. But Bloomberg now
Speaker 11: has NP you know, a GPT as well. And the
Speaker 11: significant thing about you know, Bloomberg's large language model is
Speaker 11: that is specifically trained for finance.
Speaker 2: But do we use. Have we licensed this from open ai?
Speaker 2: Is this our own chat GPT? That seems to be
Speaker 2: what everyone's doing, and I know they offer that with
Speaker 2: GPT for.
Speaker 11: Yeah, I think it's Bloomberg's own thing and it's very new.
Speaker 11: They release the academic paper on it, I think, just
Speaker 11: at the end of March.
Speaker 3: Interesting stuff.
Speaker 1: So I guess the word, you know, I think we're
Speaker 1: going to see more and more of academic support for
Speaker 1: this and maybe driving it forward because it just seems
Speaker 1: like it's.
Speaker 2: Well in Microsoft, which obviously is heavily invested in open ai,
Speaker 2: has been using it for being and now I all
Speaker 2: of a sudden find being being a lot more useful
Speaker 2: than Google.
Speaker 3: Yeah, I mean, that's that's Google's taking a hit on that.
Speaker 1: So Justina, what should we look for next from chat
Speaker 1: GPT in finance?
Speaker 11: Yeah, I mean there's been so many papers on this subject,
Speaker 11: you know. I've read one where the researchers started using
Speaker 11: chat GPT to even design an investing strategy, and they
Speaker 11: said that it was better than random, which is sort
Speaker 11: of a low bar, but at least there's that. But
Speaker 11: I think generally, you know, people have talked about how
Speaker 11: it could really jump start a lot of financial research
Speaker 11: is a very good at summarizing thing. So, if anything,
Speaker 11: it will speed up a lot of process good stuff.
Speaker 2: If it's better than a monkey throwing darts, that's actually
Speaker 2: a stretty high bar.
Speaker 1: That is Justina Lee. She's a market's quant reporter for
Speaker 1: Bloomberg News. She's based in London and she's got this
Speaker 1: great story out on the Bloomberg terminal. To check it
Speaker 1: out talking about chart GPT can de code fed speak.
Speaker 3: How about that?
Speaker 5: You're listening to the tape Cat's are live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 5: tune in app, Bloomberg dot Com.
Speaker 6: And the Bloomberg Business App.
Speaker 5: You can also and live on Amazon Alexa from our
Speaker 5: flagship New York station just Say Alexa playing Bloomberg eleven thirty.
Speaker 1: Apple Computer make it a big splash or continuing to
Speaker 1: increase their investments in India.
Speaker 3: They actually open their first door in India.
Speaker 10: I'm surprised.
Speaker 1: I would have thought they would have had a store there,
Speaker 1: but they opened their first door. And Tim Cook I
Speaker 1: saw some video of him in India greeting folks anaa
Speaker 1: Grana senior techanas Bloomberg Intelligence.
Speaker 3: He's been following Apple for a long time. So, Honurra,
Speaker 3: what's the.
Speaker 1: Strategy here for for Apple and India broadly defined?
Speaker 12: So, Paul, it's so when it comes to Apple in India, India,
Speaker 12: Apple doesn't have such high market share in India, and
Speaker 12: the reason for that is these phones are fairly expensive
Speaker 12: and flankbet you know, even ninety percent of don't even
Speaker 12: qualify for you know, Apples to be competing in that
Speaker 12: market because they are all sub three hundred dollars phones.
Speaker 12: But as you know, you and I've discussed in previous
Speaker 12: discussions that as this middle class becomes more rich, they
Speaker 12: are more inclined to buy a luxury product like Apple
Speaker 12: compared to a lower and smartphone.
Speaker 2: So I can't believe that this is their first store
Speaker 2: in India. I mean I feel like people, yeah, more
Speaker 2: well over a billion people, right, Honor rag and talk
Speaker 2: to us about the size of the rising middle class.
Speaker 3: What are we talking about in terms of numbers?
Speaker 12: Yeah, So, first and foremost, I mean, you can buy
Speaker 12: a you know, Apple phone in India through partners and
Speaker 12: through online channels. So it's not as if that an
Speaker 12: Indian consumer cannot buy it it was the first Apple
Speaker 12: loan store right there. So so making that distinction in
Speaker 12: terms of the market size, you know, this is a
Speaker 12: contribute over three hundred and fifty million people or somewhere
Speaker 12: in that range of mid middle class and extremely you
Speaker 12: know grow that that particular portion is growing at a
Speaker 12: much faster pace in terms of the purchasing power parity,
Speaker 12: largely thanks to a very large you know, technology boom
Speaker 12: and the software ecosystem with most of the you know,
Speaker 12: technology companies in the West have very large development centers
Speaker 12: in India. And it's those young people who are driving
Speaker 12: you know, the spending of luxury products, and I think
Speaker 12: that is the real big opportunity in our view.
Speaker 2: So it's I think it's over one point four billion
Speaker 2: people in total, right, three hundred fifty million in the
Speaker 2: middle class.
Speaker 3: That's more people than in all of America.
Speaker 2: And yes, and they care this, this giant middle class.
Speaker 2: They care about high tech products, right, they want this stuff.
Speaker 12: No, I agree, But you know, I would also say
Speaker 12: that they have been a lot more cost conscious about
Speaker 12: the products because if they can find a you know,
Speaker 12: Android product from Samsung or another firm or another company
Speaker 12: that is equally or better you know, they are not
Speaker 12: just bound by the brand itself. But you know, Apple
Speaker 12: is a luxury brand. It is somebody something that people
Speaker 12: aspire for. And I think, you know, Apple will build
Speaker 12: products in India, and I think that way, you know,
Speaker 12: it is possible down the road the products may be
Speaker 12: slightly cheaper if they are made in India.
Speaker 3: And they'll be building them there.
Speaker 2: Though I think, what's the output of iPhones out of
Speaker 2: India was like seven times more this year than they
Speaker 2: made two years ago.
Speaker 12: So Apple doesn't disclose that information, and you know you'll
Speaker 12: have to rely from a lot of media, you know, channels,
Speaker 12: but you know, we think it's still less than five percent,
Speaker 12: a lot less than that at this point because ninety
Speaker 12: eight percent of the phones as of last year were
Speaker 12: assembled in China. Now that is going to change over
Speaker 12: the next decade. But you know, one of the things
Speaker 12: I would say is if if a phone is built
Speaker 12: in India, I think in the long run, that would
Speaker 12: be more palatable for the Indian audience because it will
Speaker 12: not have export duties and other things that go with it.
Speaker 1: An maybe two or three iPhone upgrade cycles ago, Apple introduced,
Speaker 1: you know, a lower price model, specifically to appeal towards
Speaker 1: you know, some of these emerging markets that never really
Speaker 1: took off, do they do they still have that that
Speaker 1: they still want to attack them a market that way?
Speaker 1: Are they waiting for people.
Speaker 2: To just what's that cominie or the SE something the
Speaker 2: ion are which one is that?
Speaker 8: Yeah, it is the s C.
Speaker 12: But you know, Paul, if I look at the smartphone
Speaker 12: install based in India, it's let's say about six hundred
Speaker 12: million units out there. Ninety percent of them fall below
Speaker 12: the three hundred you know, dollars price band. So even
Speaker 12: the SE doesn't qualify for you know what you're saying,
Speaker 12: because even that falls into that you know, thirty five
Speaker 12: percent bucket or so, thirty five million unit bucket or so.
Speaker 12: And I think that really is going to change over
Speaker 12: time as this middle class becomes a little more affluent.
Speaker 12: You know. We think, for example, the current you know,
Speaker 12: revenue run rate in India is is is roughly around
Speaker 12: six billion just on the on the iPhone itself. We think,
Speaker 12: you know, that could grow at somewhere around sixteen seventeen
Speaker 12: percent over the next decade, you know, reaching about thirty
Speaker 12: billion by twenty thirty two.
Speaker 3: Some good numbers there, buddy, that's some you can make
Speaker 3: some money on that.
Speaker 1: Off of that on ur RANA do in the research
Speaker 1: analysis with the numbers on RANA Senior Techs for Bloomberg Intelligence.
Speaker 1: Of course, you can find all of Bloomberg Intelligence research
Speaker 1: really simple, b I, go boom.
Speaker 3: It gets you all there.
Speaker 1: Then you just click on industry, click on analysts, whatever
Speaker 1: you want to do, stick in a ticker symbol, and
Speaker 1: get all the research on their equity research, credit research.
Speaker 1: And as we learned today, we've got litigation research there.
Speaker 1: So if you want to bone up on some of
Speaker 1: the litigation against certain companies out there, like Fox and
Speaker 1: its defamation suit that it's going through starting today, that's
Speaker 1: where you get all that research.
Speaker 3: B I go on the.
Speaker 1: Bloomberg Terminal exclusively for Bloomberg Terminal customers.
Speaker 5: You're listening to the tape Kensur Live program Bloomberg Markets
Speaker 5: weekdays at ten am Eastern on Bloomberg Radio, the tune
Speaker 5: in app, Bloomberg dot Com, and.
Speaker 6: The Bloomberg Business app.
Speaker 5: You can also listen live on Amazon Alexa from our
Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: I was just showing Matt the Richmond Spider kind of
Speaker 1: little hand signal.
Speaker 3: And then you explain it to me. But I obviously
Speaker 3: get it, and you've got it. Okay, thank you. Some
Speaker 3: people don't, but you're on top of that stuff. All right,
Speaker 3: let's talk markets here.
Speaker 1: We're gonna welcome Karen pie In pie Pay parent Pay,
Speaker 1: thank you, I am pay, I am pay. Got you
Speaker 1: designed the Guggenheim thing and the pyramid in front of
Speaker 1: the oh the loose right, that's right, all right here,
Speaker 1: just so wordly, Karen Pay, head of portfolio management and
Speaker 1: Equities at Fiduciary Trust International. Karen, we're kind of getting
Speaker 1: into the thick of earning season. I'm gonna for like
Speaker 1: fifteen seconds. I'm gonna get away from the Fed. What
Speaker 1: are you looking for in earnings? How concerned are you
Speaker 1: about earnings risk in this market?
Speaker 13: It's a great question. So we've been saying that the
Speaker 13: markets should be shifting their attention to fundamentals as opposed
Speaker 13: to the FED, which continues too. Yes, but it continues
Speaker 13: to be a driving force and continues to be a
Speaker 13: theme in the market. But in terms of earnings, we
Speaker 13: are concerned that profit margins are going to get squeeze.
Speaker 13: You know, companies have been able to raise prices over
Speaker 13: the past year. They've done really a good job, especially
Speaker 13: the companies that have pricing power. But we are seeing
Speaker 13: that companies are going to struggle a little bit in
Speaker 13: terms of maintaining their their margins. And we are hearing
Speaker 13: about companies talking about cost cutting. And you know, even
Speaker 13: when we look at the banks earning, so far, margins
Speaker 13: have been held up, but they're doing so with the
Speaker 13: combination of better revenues, better better income interest income from
Speaker 13: the banks, but also there's a lot of discussions about
Speaker 13: cost reduction and cost containment. I think that will continue
Speaker 13: to be a theme this year.
Speaker 2: We heard someone today suggest lowering headcount by using AI
Speaker 2: on Wall Street. That's at one of the biggest banks
Speaker 2: in Charlotte.
Speaker 3: Right.
Speaker 2: So, in terms of the fed's impact, everyone seems to
Speaker 2: be pricing in, you know, one hike and then a pause. Okay,
Speaker 2: if you look at futures and options, you could see
Speaker 2: that they're pricing in cuts, but I don't think a
Speaker 2: lot of investors really buy that.
Speaker 10: What's your outlook?
Speaker 13: Sure, So, markets I think are backing in about eighty
Speaker 13: five percent probability of another increase in May. So, but
Speaker 13: I think, you know, there has been some expectation of
Speaker 13: rate cuts for this year that I think helped drive
Speaker 13: markets up during this first quarter. Our outlook is that
Speaker 13: we probably won't see that occur until maybe next year.
Speaker 13: And you know, my view is that inflation probably will
Speaker 13: be a bigger challenge for the FED. I think, you know,
Speaker 13: the label markets have been very strong so far, it's
Speaker 13: going to be a gradual grind lower and that means
Speaker 13: that inflation isn't going to come down as quickly as
Speaker 13: maybe the markets expect. And so as far as rate
Speaker 13: cuts go, I don't see that happening anytime soon.
Speaker 10: Karen.
Speaker 1: You know, I think what a lot of investors, you know,
Speaker 1: really for the last twelve thirteen years, they've been used
Speaker 1: to this technology that big tech companies leading the way,
Speaker 1: and that.
Speaker 3: Didn't work in twenty twenty two. It's kind of come back.
Speaker 1: Here in twenty three, here the big tech names are
Speaker 1: leading the way. How important is it for you and
Speaker 1: just as you look at the broader market for tech
Speaker 1: to be a leader, or can this market move higher
Speaker 1: if it's something else industrials or small cap or something
Speaker 1: like that, how do you think about leadership.
Speaker 13: Sure. Yeah, So I think that market's in the very
Speaker 13: short time period can sort of disconnect from fundamentals. So
Speaker 13: last year technology stocks didn't do well because they were
Speaker 13: fighting the tape, the FEDS tape in terms of rising
Speaker 13: interest rates. You know, it's the long duration trade that
Speaker 13: didn't work last year, given that technology companies have a
Speaker 13: lot of future growth that had to be discounted back
Speaker 13: at higher rates. Valuation is a big part of it,
Speaker 13: and I think that in this market we have to
Speaker 13: pay attention to valuation in the very short term, like
Speaker 13: what happened in the first quarter because of the shift
Speaker 13: and rate expectations. That helped some of the valuation recovery
Speaker 13: in the tech stocks. But from a fundamental standpoint, we
Speaker 13: are seeing, for example, companies talking about reducing CAPAC spending.
Speaker 13: Taiwan Semi actually just this week talked about reducing CAPAX.
Speaker 13: So we're sort of on the other side of a
Speaker 13: lot of the spend that happened during the pandemic when
Speaker 13: it comes to companies you know, going all digital, right
Speaker 13: so there was a lot of accelerated spending in technology.
Speaker 13: I think we're on the other side of that right now.
Speaker 13: So it's going to be difficult as a longer term
Speaker 13: trend to see sustainable rallies in technology until either the
Speaker 13: FED pivots where we start to see rate cuts, or
Speaker 13: until we start to see bottoming in terms of fundamentals
Speaker 13: and we start to see maybe some increases in growth
Speaker 13: expectations or capac spending.
Speaker 2: How do you feel about the consumer because a lot
Speaker 2: of tension has been paid to bank balances. You know,
Speaker 2: previously we were all concerned with how much money was
Speaker 2: in savings accounts and checking accounts just to gauge the
Speaker 2: health of the consumer his cup overfloweth right, But now
Speaker 2: we were all just looking at you know, deposit outflows
Speaker 2: to gauge the health of the banks. I think we've
Speaker 2: gotten back. We've put that banking issue in the rear
Speaker 2: view mirror, and now we're concerned about the consumer credit
Speaker 2: use and the possibility of a credit crunch.
Speaker 13: All great questions. So I think a lot of about
Speaker 13: cash flow, and you know, I think we just talked
Speaker 13: about CAPEX and companies are in a position where they
Speaker 13: probably have less cash flow. We saw that impact some
Speaker 13: of the you know, private equity world and some of
Speaker 13: the venture companies, which caused the problems that you know
Speaker 13: we saw at Silicon Valley Bank. In terms of the consumer,
Speaker 13: I think that consumers are also at a point where
Speaker 13: as you pointed out low savings rate right we also
Speaker 13: have a cliff that is happening in terms of the
Speaker 13: support that consumers see from the government, So there's not
Speaker 13: going to be those tailwinds for the consumer. I think
Speaker 13: the one positive for the consumer right now is that
Speaker 13: the labor market is still very strong, and so we're
Speaker 13: not expecting the consumer to createor here, but we do
Speaker 13: expect consumer spending to slow. I think it also takes
Speaker 13: a long time for behavior to change. So everyone's still
Speaker 13: kind of on a high from the reopening of the
Speaker 13: economy right now, and there's still a lot of spend
Speaker 13: on travel and restaurants, and we see all of that,
Speaker 13: but the lower income consumer is spending on credit card
Speaker 13: debt right now. The higher end consumer still has a
Speaker 13: wherewithal to spend. But we expect that the pressures will
Speaker 13: be coming forth in the next several quarters that there
Speaker 13: would be more pressure on the consumer.
Speaker 1: Karen, I see kind of it in your notes here.
Speaker 1: You have an ESG investing license now, Matt and I
Speaker 1: kind of share I think what is a growing skepticism
Speaker 1: of ESG investing. We're not like the state of Florida
Speaker 1: or anything, but you know, it's it's it's there, under
Speaker 1: the under the under the surface here. How do you
Speaker 1: guys at Fiduciary Trust think about ESG.
Speaker 13: Sure, it certainly is a topic of interest. I would
Speaker 13: say that a lot, a lot more of our clients
Speaker 13: were interested in ESG investing and impact investing. I think
Speaker 13: some of that maybe definitely last year took a little
Speaker 13: bit of a turn in terms of you know, ESG
Speaker 13: investing has been somewhat correlated to growth investing and correlated
Speaker 13: with technology. The way that we think about ESG investing
Speaker 13: is we actually do believe that when you look at
Speaker 13: the ESG factors like environmental factors, social factors and incorporate
Speaker 13: that into your thinking, incorporate that into your analysis, it
Speaker 13: actually should help yield longer term better results. And the
Speaker 13: reason for that, and you know, sort of kind of
Speaker 13: fold into our investment philosophy, is that we believe companies
Speaker 13: that are forward thinking and think about their business risks
Speaker 13: and to understand the trends that are occurring in the
Speaker 13: marketplace will be in a better position to handle those
Speaker 13: risks and to capture the opportunities when it comes to
Speaker 13: changing consumer behavior, changing consumer trends, and even some of
Speaker 13: the you know, risks that might be coming forth from
Speaker 13: a regulatory standpoint or just from what's happening from a
Speaker 13: business standpoint. So when you do it right, it can
Speaker 13: be very beneficial. I think the issue is that you
Speaker 13: do you know. I think what raises your question is
Speaker 13: are people labeling ESG investing accurately?
Speaker 12: You know?
Speaker 13: And I think it's important for investors to really understand
Speaker 13: what's underneath the ESG labels.
Speaker 3: Yeah.
Speaker 2: Well, I mean some people will put big integrated oil
Speaker 2: producers in their ESG basket, which I can understand. You
Speaker 2: can kind of do some mental gymnastics and justify it,
Speaker 2: but at the end of the day, I mean they're
Speaker 2: mining for hydrocarbons, right.
Speaker 13: Yeah, So it's important to really understand again, you know,
Speaker 13: to your point, what is in the portfolio, what is
Speaker 13: in the investment strategy? And ESG investing doesn't necessarily mean
Speaker 13: that you exclude fossil fuels or exclude energy stocks, but
Speaker 13: it's about finding the highest quality companies and to understand
Speaker 13: the level of admissions and work with clients and for
Speaker 13: those investors to understand what level of tolerance that they're
Speaker 13: willing to take and what the opportunities are.
Speaker 3: Karen, thank you so much for joining us. Really appreciate it.
Speaker 1: Karen Peg, head of Portfolio Management Equities for Fiduciary Trust International,
Speaker 1: joining us in the Bloomberg.
Speaker 3: INARCT Approper Studios. You get a gold star for showing up.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast.
Speaker 3: You can subscribe.
Speaker 2: I've been listening to interviews at Apple Podcasts or whatever
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 3: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney.
Speaker 1: Before the podcast, you can always catch us worldwide at
Speaker 1: Bloomberg Radio