1 00:00:02,920 --> 00:00:10,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,840 --> 00:00:15,040 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:15,040 --> 00:00:18,040 Speaker 1: Eastern on Affo, Cardplay and Android Auto with the Bloomberg 4 00:00:18,079 --> 00:00:21,400 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:24,480 Speaker 1: or watch us live on YouTube. 6 00:00:25,200 --> 00:00:26,800 Speaker 2: One of the stocks in the news you were right 7 00:00:26,840 --> 00:00:30,440 Speaker 2: and a thick of earnings is Facebook. The kids call 8 00:00:30,480 --> 00:00:33,199 Speaker 2: it meta. It's not about ten percent today. They put 9 00:00:33,200 --> 00:00:35,280 Speaker 2: out some numbers last night after the closed revenue a 10 00:00:35,320 --> 00:00:38,199 Speaker 2: little bit slower than expected, and then they ramping up 11 00:00:38,479 --> 00:00:42,279 Speaker 2: spending on artificial intelligence, and that's setting the stock back 12 00:00:42,320 --> 00:00:44,879 Speaker 2: a little bit. Here, let's get some perspective on Facebook, 13 00:00:44,920 --> 00:00:48,080 Speaker 2: and nobody better there than David Kirkpatrick. He is the 14 00:00:48,080 --> 00:00:50,919 Speaker 2: founder of Techomedy and he's also the author of The 15 00:00:50,960 --> 00:00:54,760 Speaker 2: Facebook Effect In My Mind, the definitive book on Facebook 16 00:00:55,000 --> 00:00:58,280 Speaker 2: when it just kind of bursts onto the public consciousness. David, 17 00:00:58,320 --> 00:01:00,880 Speaker 2: thanks so much for joining us here. What were your 18 00:01:00,920 --> 00:01:05,360 Speaker 2: takeaways from I guess their results, the conference call last night, 19 00:01:05,640 --> 00:01:08,680 Speaker 2: Mark Zuckerber's comments about the investments required for AI. 20 00:01:08,880 --> 00:01:09,919 Speaker 3: How do you put it all together? 21 00:01:10,720 --> 00:01:13,119 Speaker 4: Well, first of all, their results were stellar. You can't 22 00:01:13,120 --> 00:01:16,040 Speaker 4: say anything other than that they are making great growth 23 00:01:16,319 --> 00:01:20,440 Speaker 4: and profit. The problem, such as there is a problem, 24 00:01:21,040 --> 00:01:24,600 Speaker 4: is that they are spending so much money on capital costs, 25 00:01:25,000 --> 00:01:29,039 Speaker 4: mostly connected to artificial intelligence, and the question of what 26 00:01:29,080 --> 00:01:32,120 Speaker 4: the returns on that will be, I think is legitimately 27 00:01:32,520 --> 00:01:36,200 Speaker 4: on investors' minds, and that, probably more than any other factor, 28 00:01:36,680 --> 00:01:39,720 Speaker 4: explains the fairly dramatic drop in the stock. 29 00:01:40,440 --> 00:01:42,960 Speaker 5: How about for you, though, David, I mean, are you questioning, 30 00:01:43,480 --> 00:01:45,959 Speaker 5: you know, just how good of an investment this might be, 31 00:01:46,120 --> 00:01:48,880 Speaker 5: or you think it's this is perhaps like a you know, 32 00:01:48,960 --> 00:01:51,559 Speaker 5: it will be a significant revenue driver at some point. 33 00:01:52,880 --> 00:01:53,800 Speaker 6: It's a great question. 34 00:01:53,840 --> 00:01:56,040 Speaker 4: Well, first of all, you've got to look at this company, 35 00:01:56,120 --> 00:01:59,600 Speaker 4: of all the tech companies, has just skyrocketed in the 36 00:01:59,680 --> 00:02:02,560 Speaker 4: last year or so, so you know, this is a 37 00:02:02,680 --> 00:02:05,840 Speaker 4: very highly valued stock compared to what it was, and 38 00:02:05,920 --> 00:02:09,280 Speaker 4: I think given the extraordinary run up, a little bit. 39 00:02:09,120 --> 00:02:10,800 Speaker 6: Of a correction is hardly a shock. 40 00:02:11,400 --> 00:02:16,799 Speaker 4: So probably you could say it's not at all problematic 41 00:02:16,880 --> 00:02:18,799 Speaker 4: that the stock has pulled back a little bit. From 42 00:02:18,800 --> 00:02:22,040 Speaker 4: that perspective, I think the most interesting thing. I'm actually 43 00:02:22,040 --> 00:02:24,600 Speaker 4: here at the Council on Foreign Relations having just attended 44 00:02:24,639 --> 00:02:27,520 Speaker 4: a meeting that was very heavily focused on energy, and 45 00:02:27,919 --> 00:02:31,480 Speaker 4: you know, even Zuckerberg in his remarks yesterday, was talking 46 00:02:31,560 --> 00:02:34,560 Speaker 4: about the energy costs of AI are going to be 47 00:02:34,720 --> 00:02:38,120 Speaker 4: one of the significant capital expenditures they're having to deal with, 48 00:02:38,280 --> 00:02:40,919 Speaker 4: so they have to build their own renewable energy infrastructure 49 00:02:40,919 --> 00:02:43,240 Speaker 4: in many instances these days, and this is true of 50 00:02:43,280 --> 00:02:46,480 Speaker 4: all these big companies. The thing that I'm thinking about 51 00:02:46,600 --> 00:02:50,600 Speaker 4: right now is whether, in some sense, because of the 52 00:02:50,600 --> 00:02:54,560 Speaker 4: sheer scale of the investments that are having to be 53 00:02:54,639 --> 00:02:56,839 Speaker 4: made in data centers and the energy. 54 00:02:56,560 --> 00:02:58,919 Speaker 6: Associated with them, that these. 55 00:02:58,760 --> 00:03:02,160 Speaker 4: Companies are shifting to in the long run a fundamentally 56 00:03:02,160 --> 00:03:04,760 Speaker 4: different business model that's a little bit more like a 57 00:03:04,880 --> 00:03:08,560 Speaker 4: utility where they're just going to be facing these ongoing 58 00:03:08,680 --> 00:03:12,480 Speaker 4: gigantic costs just to stay abreast with one another. I 59 00:03:12,520 --> 00:03:14,560 Speaker 4: don't think we know the answer to that yet, but 60 00:03:14,639 --> 00:03:16,680 Speaker 4: it could very well be starting to happen. 61 00:03:16,800 --> 00:03:20,320 Speaker 5: I gotta say, though, when you're looking at the estimates 62 00:03:20,320 --> 00:03:23,080 Speaker 5: for the CAPEX here, to me, it doesn't look like 63 00:03:23,120 --> 00:03:26,399 Speaker 5: it's all that different from what they had previously estimated. 64 00:03:26,440 --> 00:03:29,480 Speaker 5: So they now think capex this capital expenditure is going 65 00:03:29,520 --> 00:03:31,160 Speaker 5: to be in the range of thirty five to forty 66 00:03:31,200 --> 00:03:34,480 Speaker 5: billion dollars before thirty to thirty seven. 67 00:03:34,920 --> 00:03:35,240 Speaker 7: I don't know. 68 00:03:35,320 --> 00:03:37,080 Speaker 5: That sounds pretty similar to me, is it not? 69 00:03:37,880 --> 00:03:39,960 Speaker 4: It is similar, and you know, I think you know, 70 00:03:40,320 --> 00:03:42,360 Speaker 4: markets tend to overreact, there's no question. 71 00:03:42,600 --> 00:03:44,960 Speaker 6: I mean, I think that what people were reacting to in. 72 00:03:44,960 --> 00:03:49,280 Speaker 4: Zuckerberg's call yesterday was more a tone that he was 73 00:03:49,840 --> 00:03:53,960 Speaker 4: conveying that the payoff for some of these expenditures maybe 74 00:03:54,000 --> 00:03:58,360 Speaker 4: a little longer than people expected. They don't face any 75 00:03:58,400 --> 00:04:01,720 Speaker 4: fundamental problem in the short term. So in that sense, 76 00:04:01,720 --> 00:04:05,160 Speaker 4: you're right, And in fact, I think Meta has done 77 00:04:05,200 --> 00:04:08,520 Speaker 4: an unusually good job of taking advantage of AI in 78 00:04:08,640 --> 00:04:11,400 Speaker 4: the recent year or two in that they are doing 79 00:04:11,440 --> 00:04:13,800 Speaker 4: a better job targeting advertising with AI. 80 00:04:14,240 --> 00:04:15,880 Speaker 6: That's a concrete benefit. 81 00:04:17,040 --> 00:04:19,400 Speaker 4: The thing that's also interesting, though to me, if I 82 00:04:19,440 --> 00:04:22,120 Speaker 4: were an investor, that I would be somewhat concerned about, 83 00:04:22,680 --> 00:04:25,960 Speaker 4: is that the Meta AI product, which they're just rolling 84 00:04:25,960 --> 00:04:29,000 Speaker 4: out to their customers or their users across a lot 85 00:04:29,000 --> 00:04:33,080 Speaker 4: of their services, effectively is a way of declaring that 86 00:04:33,120 --> 00:04:36,720 Speaker 4: they're competing head to head with Google, because they're basically 87 00:04:36,760 --> 00:04:41,400 Speaker 4: starting to do what is effectively search inside Instagram, inside 88 00:04:41,440 --> 00:04:45,760 Speaker 4: Facebook using their meta AI product. So you've got to 89 00:04:46,120 --> 00:04:48,440 Speaker 4: that's a different business model. If they go down that 90 00:04:48,600 --> 00:04:53,159 Speaker 4: road too far, they still have an extraordinary ability to 91 00:04:53,160 --> 00:04:57,240 Speaker 4: target advertising that is superior to pretty much anybody else, 92 00:04:57,240 --> 00:04:59,440 Speaker 4: and that's going to guarantee a lot of profit for 93 00:04:59,480 --> 00:05:00,200 Speaker 4: the long term. 94 00:05:00,680 --> 00:05:04,800 Speaker 2: David, where is the metaverse these days in terms of 95 00:05:04,839 --> 00:05:06,720 Speaker 2: mister Zuckerberg's the zeitgeist. 96 00:05:07,720 --> 00:05:10,720 Speaker 4: Well, in his zeitgeist, it's very prominent. I don't think 97 00:05:10,760 --> 00:05:13,640 Speaker 4: it's really high in the zeitgeist of much of anybody else. 98 00:05:14,000 --> 00:05:16,880 Speaker 4: I mean, it's so prominent he renamed his company. I 99 00:05:16,880 --> 00:05:19,640 Speaker 4: wouldn't be surprised if he regrets that now. But he 100 00:05:19,720 --> 00:05:22,640 Speaker 4: got out of a tight spot with Francis Hougan at 101 00:05:22,680 --> 00:05:26,200 Speaker 4: the moment by doing that. I don't think the metaverse 102 00:05:26,240 --> 00:05:28,200 Speaker 4: is nearly such a big deal as you would think 103 00:05:28,240 --> 00:05:30,560 Speaker 4: listening to him, and I don't think any other company 104 00:05:30,560 --> 00:05:32,839 Speaker 4: thinks it's that big of a deal in any kind 105 00:05:32,839 --> 00:05:35,680 Speaker 4: of short term. The degree to which it could be 106 00:05:35,720 --> 00:05:38,680 Speaker 4: a big deal long term is unknown. We know that 107 00:05:38,760 --> 00:05:42,200 Speaker 4: AI is changing everything now. We have no reason to 108 00:05:42,240 --> 00:05:47,440 Speaker 4: think that metaverse issues are going to change everything anytime soon. 109 00:05:48,279 --> 00:05:51,680 Speaker 5: Not that I would think that. Zacharbergo to commented on this, 110 00:05:51,760 --> 00:05:53,440 Speaker 5: but I'm sure, he's got to be thinking, you know, 111 00:05:53,520 --> 00:05:56,560 Speaker 5: what if TikTok gets banned and potentially what a boon 112 00:05:56,640 --> 00:05:59,520 Speaker 5: that would be for Instagram and the reals product. I mean, 113 00:05:59,720 --> 00:06:01,760 Speaker 5: how much you think is that getting priced into the 114 00:06:01,760 --> 00:06:02,560 Speaker 5: stock right now? 115 00:06:03,600 --> 00:06:04,799 Speaker 6: Probably not at all. 116 00:06:05,440 --> 00:06:08,200 Speaker 4: There's also things that aren't being priced in, like extreme 117 00:06:08,360 --> 00:06:11,520 Speaker 4: regulatory pushback in Europe that's really changing the way that 118 00:06:11,720 --> 00:06:15,120 Speaker 4: Meta is able to target users in advertising across all 119 00:06:15,160 --> 00:06:18,240 Speaker 4: of its product lines. So there's big shifts happening. It's 120 00:06:18,320 --> 00:06:21,360 Speaker 4: very hard to know where these companies are headed. But yes, 121 00:06:21,440 --> 00:06:24,520 Speaker 4: if TikTok really were banned, which frankly I do not expect, 122 00:06:25,320 --> 00:06:28,280 Speaker 4: that would be fantastically great news for this company, and 123 00:06:28,600 --> 00:06:30,880 Speaker 4: one would want to, you know, go along on them 124 00:06:30,920 --> 00:06:34,400 Speaker 4: if you thought that's really likely. So yeah, there's so 125 00:06:34,480 --> 00:06:38,960 Speaker 4: many shifting parts in this equation it is astonishing. 126 00:06:38,600 --> 00:06:41,960 Speaker 2: All right, David Busy busy week for tech earnings. Also 127 00:06:42,040 --> 00:06:44,800 Speaker 2: Microsoft and Alphabet. Let's just go to Alphabet because that's 128 00:06:44,880 --> 00:06:48,560 Speaker 2: kind of Dove's tails on kind of the digital advertising 129 00:06:48,640 --> 00:06:52,240 Speaker 2: theme that we started last night with Facebook. How are 130 00:06:52,240 --> 00:06:55,080 Speaker 2: they are good friends at Google slash Alphabet? 131 00:06:55,120 --> 00:06:56,600 Speaker 3: How are they doing? What do you expect here with 132 00:06:56,600 --> 00:06:57,400 Speaker 3: their earnings, well. 133 00:06:57,320 --> 00:07:00,600 Speaker 4: I think I think again, earnings from the standpoint of 134 00:07:00,640 --> 00:07:04,880 Speaker 4: the ongoing business will be good. The question again will arise, 135 00:07:05,000 --> 00:07:07,799 Speaker 4: how much are they spending on AI and data center 136 00:07:07,880 --> 00:07:12,520 Speaker 4: infrastructure and what's the chronology of the likely payoff? And 137 00:07:12,560 --> 00:07:16,200 Speaker 4: you're seeing concerns being raised by analysts that the number 138 00:07:16,560 --> 00:07:19,920 Speaker 4: of investment is going to be higher and the possible 139 00:07:20,040 --> 00:07:21,560 Speaker 4: long term returns, just like. 140 00:07:21,560 --> 00:07:23,320 Speaker 6: With META, could be longer. 141 00:07:24,200 --> 00:07:28,600 Speaker 4: But these businesses are thriving for the most part overall. 142 00:07:28,680 --> 00:07:31,480 Speaker 4: I think Microsoft in particular, which is also coming up, 143 00:07:31,880 --> 00:07:34,840 Speaker 4: is a company that just can't really do anything wrong 144 00:07:34,880 --> 00:07:38,240 Speaker 4: from the standpoint of investors, and I think they but 145 00:07:38,360 --> 00:07:41,480 Speaker 4: they too are going to be spending even more on 146 00:07:41,720 --> 00:07:45,640 Speaker 4: AI infrastructure and it's becoming almost like an energy investment 147 00:07:45,720 --> 00:07:48,920 Speaker 4: as well as a data center and server investment. 148 00:07:49,200 --> 00:07:51,200 Speaker 5: So then it sounds like, though there has to be 149 00:07:51,280 --> 00:07:53,880 Speaker 5: an investor's mind at least, there is a ceiling for 150 00:07:54,280 --> 00:07:57,920 Speaker 5: how much investment in AI is too much. It sounds 151 00:07:57,960 --> 00:07:59,640 Speaker 5: like that there is a bit of a threshole than. 152 00:07:59,600 --> 00:08:02,760 Speaker 6: To find let's figure out what the ceiling is. I 153 00:08:02,760 --> 00:08:03,440 Speaker 6: have no clue. 154 00:08:03,520 --> 00:08:06,440 Speaker 4: Nobody really knows what's happening with AI. It's a frenzy. 155 00:08:06,880 --> 00:08:11,400 Speaker 4: Everybody's piling in rightly so, but the exact terms of 156 00:08:11,520 --> 00:08:15,080 Speaker 4: long term competition are effectively unknown. So to say the 157 00:08:15,120 --> 00:08:17,600 Speaker 4: ceiling is X or the ceiling is why it's pretty 158 00:08:17,600 --> 00:08:18,040 Speaker 4: hard to. 159 00:08:17,920 --> 00:08:21,680 Speaker 2: Do, all right, David, So stepping back here, who do 160 00:08:21,680 --> 00:08:25,000 Speaker 2: you think among is is a. 161 00:08:25,200 --> 00:08:26,680 Speaker 3: How real is AI to you? 162 00:08:26,840 --> 00:08:27,960 Speaker 2: I mean, I think that a lot of people are 163 00:08:27,960 --> 00:08:29,800 Speaker 2: trying to get a sense of is this just big 164 00:08:29,880 --> 00:08:31,680 Speaker 2: data we were talking about four or five years ago, 165 00:08:31,840 --> 00:08:34,360 Speaker 2: or is this something fundamentally different. 166 00:08:35,520 --> 00:08:37,760 Speaker 6: Well, it is something fundamentally different. 167 00:08:38,320 --> 00:08:41,240 Speaker 4: I think that's widely believed at this point, and I 168 00:08:41,320 --> 00:08:44,880 Speaker 4: believe it. But again, the way it's going to manifest 169 00:08:44,880 --> 00:08:49,439 Speaker 4: itself in business terms is extremely hard to predict. I 170 00:08:49,480 --> 00:08:54,040 Speaker 4: know for myself, I am surprisingly often using chat GPT 171 00:08:54,200 --> 00:08:56,880 Speaker 4: instead of Google, and I'm getting results that I really 172 00:08:56,920 --> 00:08:59,480 Speaker 4: can use and I think many people are finding that. 173 00:09:00,320 --> 00:09:03,520 Speaker 4: So this is changing the nature of these businesses in 174 00:09:03,559 --> 00:09:06,280 Speaker 4: a fundamental way. And I think if it's if Meta, 175 00:09:06,360 --> 00:09:11,000 Speaker 4: for example, successfully deploys meta AI across all its products 176 00:09:11,000 --> 00:09:13,160 Speaker 4: and just while you're in the middle of using Instagram 177 00:09:13,559 --> 00:09:16,600 Speaker 4: or Facebook, you can do a search using their their 178 00:09:17,160 --> 00:09:19,960 Speaker 4: AI tool that you would have otherwise had to leave 179 00:09:20,080 --> 00:09:21,200 Speaker 4: metas product. 180 00:09:20,920 --> 00:09:21,920 Speaker 6: To go to Google to do. 181 00:09:22,679 --> 00:09:26,560 Speaker 4: That's a strategic benefit for them, So it is worth 182 00:09:26,600 --> 00:09:30,200 Speaker 4: making those investments. But you know, when you're talking about 183 00:09:30,280 --> 00:09:34,840 Speaker 4: annual capital expenditures of forty billion dollars, you know it's 184 00:09:34,880 --> 00:09:37,040 Speaker 4: hard to know what is it? Should it be forty five? 185 00:09:37,160 --> 00:09:38,280 Speaker 4: Should it be thirty five? 186 00:09:38,600 --> 00:09:40,520 Speaker 6: Look? I wish I knew. 187 00:09:41,720 --> 00:09:43,120 Speaker 3: David, Thanks so much for joining us. 188 00:09:43,240 --> 00:09:45,920 Speaker 2: As always, always appreciate getting your perspective on all things tech. 189 00:09:46,200 --> 00:09:50,480 Speaker 2: David Kirkpatrick, founder of tech Ominie and also the author 190 00:09:50,520 --> 00:09:53,320 Speaker 2: of the book The Seminal Book I Think on Facebook 191 00:09:53,360 --> 00:09:54,400 Speaker 2: is the Facebook Effect. 192 00:09:54,440 --> 00:09:59,720 Speaker 1: There you're listening to the Bloomberg Intelligence Podcast. Catch us 193 00:09:59,760 --> 00:10:01,920 Speaker 1: Live I have week days at ten am Eastern on 194 00:10:02,040 --> 00:10:05,400 Speaker 1: applecar Play and Android Auto with the Bloomberg Business Act. 195 00:10:05,559 --> 00:10:08,439 Speaker 1: You can also listen live on Amazon Alexa from our 196 00:10:08,440 --> 00:10:12,839 Speaker 1: flagship New York station Just Say Alexa playing Bloomberg eleven thirty. 197 00:10:13,960 --> 00:10:16,720 Speaker 2: Big economic data point coming out today GDP plus some 198 00:10:16,720 --> 00:10:18,880 Speaker 2: inflation data coming out spooking the markets a little bit. Here, 199 00:10:18,880 --> 00:10:21,120 Speaker 2: I'm looking at the yield curb the two year treasury 200 00:10:21,440 --> 00:10:24,960 Speaker 2: seeing right at five percent, big move up seven basis points, 201 00:10:25,200 --> 00:10:27,400 Speaker 2: and that kind of feeds into Like I'm looking at 202 00:10:27,440 --> 00:10:30,080 Speaker 2: the thirty year fixed mortgage, it's now back up to 203 00:10:30,120 --> 00:10:32,600 Speaker 2: seven point two four percent. 204 00:10:32,880 --> 00:10:35,520 Speaker 5: Better believe it's going to be higher next week, assuming 205 00:10:35,679 --> 00:10:38,000 Speaker 5: you know that the trend right now still holds. And 206 00:10:38,040 --> 00:10:40,319 Speaker 5: I'm sure you know Powell next week probably gonna have 207 00:10:40,360 --> 00:10:43,280 Speaker 5: to rip up the script say something a bit more hawkish. Yep, 208 00:10:43,400 --> 00:10:45,240 Speaker 5: we're gonna have Ibra Jersey come in and tell us 209 00:10:45,280 --> 00:10:48,200 Speaker 5: all about it now. So Ira Jersey joining us on 210 00:10:48,440 --> 00:10:51,560 Speaker 5: Zoom from Princeton, New Jersey, where we definitely need to 211 00:10:51,559 --> 00:10:52,560 Speaker 5: host our next show from. 212 00:10:52,640 --> 00:10:54,240 Speaker 3: We will do that at some point. 213 00:10:54,400 --> 00:10:57,880 Speaker 5: So IRA's archiefus Interest Rate Strategies at Bloomberg Intelligence. Thanks 214 00:10:57,920 --> 00:10:58,440 Speaker 5: for joining us. 215 00:10:58,480 --> 00:10:58,720 Speaker 3: Ira. 216 00:10:59,280 --> 00:11:02,360 Speaker 5: We've been looking at these GDP numbers and obviously the 217 00:11:02,400 --> 00:11:05,160 Speaker 5: inflation print really seems to be driving the market action today. 218 00:11:05,200 --> 00:11:06,160 Speaker 5: Tell us what you're looking at. 219 00:11:07,200 --> 00:11:10,240 Speaker 7: Yeah, So obviously that inflation print just implies that the 220 00:11:10,480 --> 00:11:12,640 Speaker 7: monthly number that we get tomorrow is going to be 221 00:11:13,679 --> 00:11:16,959 Speaker 7: is going to be much higher than economists are expecting, 222 00:11:17,000 --> 00:11:20,119 Speaker 7: and that is a big driver. You know, when inflations 223 00:11:20,200 --> 00:11:23,520 Speaker 7: is high, that the market has to continue to reprice 224 00:11:24,520 --> 00:11:27,520 Speaker 7: the expectations of when and if the Federal Reserve is 225 00:11:27,520 --> 00:11:30,480 Speaker 7: going to actually cut interest rates, And the market now 226 00:11:30,600 --> 00:11:34,000 Speaker 7: is much more symmetric in thinking not only yes, it's 227 00:11:34,040 --> 00:11:36,280 Speaker 7: like fifty percent chance that they're going to cut interest rates, 228 00:11:36,280 --> 00:11:39,560 Speaker 7: but there's actually a growing chance that's being priced into 229 00:11:39,640 --> 00:11:42,440 Speaker 7: markets that the Fed's next move may actually be an 230 00:11:42,480 --> 00:11:47,400 Speaker 7: interest rate increase, right, a hike at some point. I 231 00:11:47,480 --> 00:11:50,840 Speaker 7: personally think that that's a relatively low probability, still probably 232 00:11:50,880 --> 00:11:53,840 Speaker 7: lower than what the market's pricing. But on hold is 233 00:11:54,480 --> 00:11:57,960 Speaker 7: I think a growing default scenario for the next nine 234 00:11:58,000 --> 00:12:01,080 Speaker 7: to twelve months for the Fed because inflation is just 235 00:12:01,120 --> 00:12:03,079 Speaker 7: too high. It's way above their comfort level. 236 00:12:03,600 --> 00:12:06,959 Speaker 2: So, you know, Ira, I guess one of the questions is, here, 237 00:12:07,160 --> 00:12:10,040 Speaker 2: did the FED in j Powell back in December when 238 00:12:10,040 --> 00:12:12,160 Speaker 2: it kind of had that Fed pivot started talking a 239 00:12:12,160 --> 00:12:14,760 Speaker 2: little bit more dubbish in hindsight? 240 00:12:14,880 --> 00:12:18,040 Speaker 7: Was that a mistake? Well, it was a mistake because 241 00:12:18,040 --> 00:12:20,080 Speaker 7: their forecasts were wrong, right Like, at the end of 242 00:12:20,080 --> 00:12:24,000 Speaker 7: the day, the FED makes forecasts just like everyone makes forecasts, 243 00:12:24,000 --> 00:12:27,800 Speaker 7: and their forecasts for how quickly inflation was going to 244 00:12:27,840 --> 00:12:31,760 Speaker 7: slow down was incorrect. And you know we, I mean 245 00:12:31,800 --> 00:12:33,679 Speaker 7: we were incorrect too, and we were among the more 246 00:12:33,720 --> 00:12:39,400 Speaker 7: hawkish or less dubvish, probably strategists on the street. You know. 247 00:12:39,440 --> 00:12:42,960 Speaker 7: The issue that's come up is that when you looked 248 00:12:42,960 --> 00:12:45,080 Speaker 7: at the survey data, a lot of the survey data 249 00:12:45,120 --> 00:12:47,840 Speaker 7: back in December and even in January and February, it 250 00:12:48,000 --> 00:12:50,640 Speaker 7: was pointing toward a slow down in the economy. So 251 00:12:50,679 --> 00:12:54,720 Speaker 7: a lot of the traditional indicators for economic activity, like ism, 252 00:12:54,800 --> 00:12:57,959 Speaker 7: new orders, like some of the consumer confidence surveys, they 253 00:12:58,000 --> 00:13:02,440 Speaker 7: were all pointing to a potential slowdown. But and even 254 00:13:02,440 --> 00:13:05,440 Speaker 7: though those have rebounded just a little bit, the hard data, 255 00:13:05,520 --> 00:13:09,760 Speaker 7: so things like retail sales, personal consumption, spending, the jobs 256 00:13:09,840 --> 00:13:13,439 Speaker 7: data obviously is probably among the most important and visible 257 00:13:13,760 --> 00:13:16,760 Speaker 7: of these numbers, those have all been reasonably robust. So 258 00:13:16,800 --> 00:13:19,640 Speaker 7: there's this disconnect between what people are saying and what 259 00:13:19,679 --> 00:13:21,960 Speaker 7: people are doing. And I think that that's really been 260 00:13:22,000 --> 00:13:25,400 Speaker 7: a challenge for forecasters who rely on these surveys for 261 00:13:25,400 --> 00:13:29,160 Speaker 7: forward looking indicators and they just haven't been realized. So, 262 00:13:30,120 --> 00:13:32,720 Speaker 7: you know, so they made a bad forecast, so therefore 263 00:13:32,720 --> 00:13:35,520 Speaker 7: they made a bad pivot, and now they have to 264 00:13:35,600 --> 00:13:37,800 Speaker 7: kind of take some of that back. And that's exactly 265 00:13:37,800 --> 00:13:39,560 Speaker 7: what you've heard out of a lot of the FED 266 00:13:39,600 --> 00:13:42,520 Speaker 7: speakers the last couple of weeks during the quiet period now, 267 00:13:42,720 --> 00:13:44,800 Speaker 7: so you're not going to hear anything from FED speakers 268 00:13:44,880 --> 00:13:48,040 Speaker 7: until next Wednesday. But when you go back and you 269 00:13:48,080 --> 00:13:49,720 Speaker 7: listen to what Jay Powell said and a lot of 270 00:13:49,720 --> 00:13:53,600 Speaker 7: the other speakers, you know they're going to probably continue 271 00:13:53,640 --> 00:13:56,520 Speaker 7: to say, like, look at unless inflation goes down more 272 00:13:56,559 --> 00:13:59,720 Speaker 7: significantly and substantially, we're going to keep interest rates on hold, 273 00:13:59,760 --> 00:14:02,960 Speaker 7: and think that that's probably what Japowe will say next week. 274 00:14:03,080 --> 00:14:05,719 Speaker 5: So it sounds like you think, then, Ira that this 275 00:14:06,160 --> 00:14:09,040 Speaker 5: you know, print that we got today, the robust inflation 276 00:14:09,120 --> 00:14:11,440 Speaker 5: prints that we've gotten to start this year, who knows 277 00:14:11,440 --> 00:14:14,280 Speaker 5: what we'll see tomorrow, doesn't seem to really change the 278 00:14:14,360 --> 00:14:16,960 Speaker 5: narrative a whole lot. That the economy is still proving, 279 00:14:17,800 --> 00:14:20,200 Speaker 5: you know, to run really strong. Doesn't seem like interest 280 00:14:20,240 --> 00:14:23,160 Speaker 5: rates are really denting that a whole lot, And that's 281 00:14:23,200 --> 00:14:25,240 Speaker 5: still the narrative that they're going to go with. Or 282 00:14:25,280 --> 00:14:27,120 Speaker 5: do you think that anything has changed here? 283 00:14:28,400 --> 00:14:30,600 Speaker 7: Yeah, I don't think very much has changed. You know, 284 00:14:30,720 --> 00:14:34,760 Speaker 7: interest rate sensitive sectors have certainly been affected by interest 285 00:14:34,840 --> 00:14:38,360 Speaker 7: rate hikes, But what's happened over the last fifteen to 286 00:14:38,360 --> 00:14:43,560 Speaker 7: twenty years is that we've shifted away, firstly from interest 287 00:14:43,600 --> 00:14:46,760 Speaker 7: rate sensitive growth to non interest rate sensitive growth. So 288 00:14:46,840 --> 00:14:49,400 Speaker 7: things like the services sector. When you dig into the 289 00:14:49,440 --> 00:14:53,200 Speaker 7: details of today's GDP report, you see that on a 290 00:14:53,200 --> 00:14:57,880 Speaker 7: seasonally adjusted annualized basis, the retail the services sector so 291 00:14:58,040 --> 00:15:02,200 Speaker 7: a four percent growth, whereas the durable goods sector so 292 00:15:02,320 --> 00:15:05,600 Speaker 7: a negative one percent growth. Right, So, so and durable 293 00:15:05,640 --> 00:15:07,920 Speaker 7: goods where things like autos, right, so, auto sales have 294 00:15:07,920 --> 00:15:11,240 Speaker 7: slowed down substantially. Part of that's on price, you know, 295 00:15:11,280 --> 00:15:15,080 Speaker 7: certainly prices have gone up, but that's also credit availability. Right. 296 00:15:15,160 --> 00:15:18,440 Speaker 7: Large purchases like automobiles and houses you tend to buy, 297 00:15:18,600 --> 00:15:21,000 Speaker 7: tend to be purchased on credit of some form or another, 298 00:15:21,440 --> 00:15:24,920 Speaker 7: and so those are very sensitive to these higher interest rates, 299 00:15:25,120 --> 00:15:28,560 Speaker 7: where whereas service sector, the service sector just isn't you know, 300 00:15:28,640 --> 00:15:32,920 Speaker 7: services aren't a you know, services spending have more to 301 00:15:32,960 --> 00:15:36,080 Speaker 7: do with wages, how much disposable cash you have as 302 00:15:36,080 --> 00:15:38,880 Speaker 7: opposed to as opposed to you know, you're not going 303 00:15:38,960 --> 00:15:41,320 Speaker 7: to probably go out and go to the movies and 304 00:15:41,360 --> 00:15:44,120 Speaker 7: then you know finance that over ten years, Right, that's 305 00:15:44,160 --> 00:15:46,840 Speaker 7: just not something you're gonna do. You're gonna spend. But 306 00:15:46,840 --> 00:15:48,400 Speaker 7: but if you have. You know, if you get a 307 00:15:48,400 --> 00:15:51,280 Speaker 7: pay raise, you might go to that an extra movie 308 00:15:51,280 --> 00:15:53,800 Speaker 7: every month. And that's basically what you're seeing in the data. 309 00:15:54,120 --> 00:15:56,200 Speaker 7: And if those trends continue, then you can wind up 310 00:15:56,240 --> 00:15:59,960 Speaker 7: having an okay economy and the Federal Reserve, you know, 311 00:16:00,160 --> 00:16:02,080 Speaker 7: might not have to move interest rates very much at all. 312 00:16:02,200 --> 00:16:04,400 Speaker 5: Well then what can they do about inflation? Then? If 313 00:16:04,480 --> 00:16:09,560 Speaker 5: our economy is just structurally more resistant to higher interest rates? 314 00:16:10,800 --> 00:16:12,320 Speaker 7: Yeah, well, there's not much you could do. You could 315 00:16:12,320 --> 00:16:15,120 Speaker 7: either raise interest rates a lot more, and you know, 316 00:16:15,160 --> 00:16:18,400 Speaker 7: that would probably ultimately be recessionary because you'd wind up 317 00:16:18,400 --> 00:16:21,320 Speaker 7: with a recession in housing, a recession maybe in the 318 00:16:21,360 --> 00:16:24,280 Speaker 7: auto sector and some of the other interest rates sensitive sectors, 319 00:16:24,320 --> 00:16:27,480 Speaker 7: and that could to start ultimately to bring down the 320 00:16:27,600 --> 00:16:30,600 Speaker 7: entire economy. Or you know, you could do things that 321 00:16:30,600 --> 00:16:34,160 Speaker 7: are politically unpopular, things like raising taxes for example, just 322 00:16:34,200 --> 00:16:37,640 Speaker 7: reduce the ability for the household sector to spend money. 323 00:16:38,720 --> 00:16:42,600 Speaker 7: Or and this is something that I think a mistake 324 00:16:42,640 --> 00:16:45,680 Speaker 7: that the Federal Reserve made. The Federal Reserve could come 325 00:16:45,720 --> 00:16:47,600 Speaker 7: out and just say like, hey, we're not worried about 326 00:16:47,840 --> 00:16:50,960 Speaker 7: two and a half three percent inflation anymore. You know, 327 00:16:51,440 --> 00:16:54,200 Speaker 7: that's fine, and if you go back to the nineteen nineties, 328 00:16:54,200 --> 00:16:57,000 Speaker 7: for example, like we were running at around two and 329 00:16:57,040 --> 00:17:01,000 Speaker 7: a half to three percent pc deflator, So you know, 330 00:17:01,080 --> 00:17:03,240 Speaker 7: why not pivot back to that, you know, I think 331 00:17:03,240 --> 00:17:06,400 Speaker 7: the mistake that the FED made was having a hard 332 00:17:06,440 --> 00:17:09,720 Speaker 7: target of two percent on inflation as opposed to something 333 00:17:09,800 --> 00:17:12,320 Speaker 7: just a little bit more flexible. And the fact is 334 00:17:12,359 --> 00:17:15,400 Speaker 7: that inflation's not increasing, right, Inflation is not going up anymore, 335 00:17:15,520 --> 00:17:18,080 Speaker 7: it's just not coming down. And because it's not coming down, 336 00:17:18,800 --> 00:17:21,119 Speaker 7: it's they're not reaching their two percent target. And I 337 00:17:21,160 --> 00:17:23,480 Speaker 7: think that's where the disconnect really has come. 338 00:17:23,840 --> 00:17:25,560 Speaker 2: All right, Ira, thank you so much for joining us 339 00:17:25,560 --> 00:17:29,320 Speaker 2: our Jersey chief US interest rate stratag just Bloomberg Intelligence 340 00:17:29,600 --> 00:17:33,080 Speaker 2: joining us from the Princeton campus down via zoom there. 341 00:17:33,119 --> 00:17:34,280 Speaker 3: So interesting to see. 342 00:17:34,280 --> 00:17:38,560 Speaker 2: So the GDP print again the takeaway, as I understand 343 00:17:38,640 --> 00:17:42,439 Speaker 2: from you, Molly, the headline very disappointing, but if you 344 00:17:42,440 --> 00:17:43,880 Speaker 2: dig underneath it a little bit less. 345 00:17:43,720 --> 00:17:46,879 Speaker 5: So yeah, exactly, I think, you know, one of the 346 00:17:46,920 --> 00:17:51,200 Speaker 5: parts of the headline that was disappointing was the fact 347 00:17:51,240 --> 00:17:54,800 Speaker 5: that trade subtracted from growth, as in higher imports relative 348 00:17:54,840 --> 00:17:57,960 Speaker 5: to exports. But higher imports also mean that there's a 349 00:17:57,960 --> 00:18:00,200 Speaker 5: lot of demand. The idea is just that we're we're 350 00:18:00,200 --> 00:18:03,120 Speaker 5: seeing it from outside the country rather than producing it here. 351 00:18:03,240 --> 00:18:06,280 Speaker 5: So I think that still bodes well for the story 352 00:18:06,320 --> 00:18:09,320 Speaker 5: of the consumer and the health of the consumer, and 353 00:18:09,359 --> 00:18:12,160 Speaker 5: that demanding the economy is still strong, and obviously that's 354 00:18:12,160 --> 00:18:16,720 Speaker 5: still making inflation not go away. 355 00:18:17,119 --> 00:18:21,000 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 356 00:18:21,080 --> 00:18:24,160 Speaker 1: weekdays at ten am Eastern on Apple Car playing Android 357 00:18:24,200 --> 00:18:27,280 Speaker 1: Otto with the Bloomberg Business App. Listen on demand wherever 358 00:18:27,359 --> 00:18:30,960 Speaker 1: you get your podcasts, or watch us live on YouTube. 359 00:18:31,720 --> 00:18:34,240 Speaker 2: Molly Smith, she's sitting in for Alex Steel this week 360 00:18:34,240 --> 00:18:34,879 Speaker 2: on Paul Sweeney. 361 00:18:34,880 --> 00:18:36,840 Speaker 3: We're live here on Bloomberg Interrector Brooker's. 362 00:18:36,520 --> 00:18:38,560 Speaker 2: Studio, streaming live on YouTube, so you can head over 363 00:18:38,600 --> 00:18:41,560 Speaker 2: to YouTube dot com and search Bloomberg Podcasts and that's 364 00:18:41,600 --> 00:18:44,160 Speaker 2: where you will find us. We had that GDP print 365 00:18:44,280 --> 00:18:48,040 Speaker 2: that came out this morning, significantly weaker on the surface 366 00:18:48,280 --> 00:18:51,600 Speaker 2: than the forecast and showing a pretty market decline from 367 00:18:51,600 --> 00:18:54,320 Speaker 2: the last month as well, and that's kind of having 368 00:18:54,359 --> 00:18:56,199 Speaker 2: an impact on the market sins. John Tucker is just 369 00:18:56,240 --> 00:19:00,679 Speaker 2: reporting yields up, stock prices down. Let's get perspective here. 370 00:19:00,720 --> 00:19:02,639 Speaker 2: We can do that with Barry Ridholts. He's host of 371 00:19:02,680 --> 00:19:05,600 Speaker 2: Masters in Business on Bloomberg Radium. It's also the founder 372 00:19:05,680 --> 00:19:09,159 Speaker 2: rid Holt's Wealth management. Hey, Barry, So we get the 373 00:19:09,200 --> 00:19:11,600 Speaker 2: economic data, it kind of freaks people out as it 374 00:19:11,600 --> 00:19:14,520 Speaker 2: relates to where this economy is going a what did 375 00:19:14,560 --> 00:19:16,760 Speaker 2: you read into the economic data that came out today, 376 00:19:16,760 --> 00:19:20,119 Speaker 2: both on GDP and inflation and maybe how the market's 377 00:19:20,160 --> 00:19:20,800 Speaker 2: reacting to it. 378 00:19:22,000 --> 00:19:25,880 Speaker 8: Yeah, So I always love I always love the attempt 379 00:19:25,960 --> 00:19:30,080 Speaker 8: to impose rationality on what is essentially a free for all. 380 00:19:31,240 --> 00:19:34,919 Speaker 8: We've we've had the FED crank up rates five hundred 381 00:19:34,920 --> 00:19:39,119 Speaker 8: and twenty five point basis points from zero, and we 382 00:19:39,280 --> 00:19:44,679 Speaker 8: continue to hear the phrase long and variable lags on 383 00:19:44,960 --> 00:19:49,399 Speaker 8: the growth side. And at a certain point you have 384 00:19:49,480 --> 00:19:52,640 Speaker 8: to assume the root. You know, the chickens come home 385 00:19:52,680 --> 00:19:56,960 Speaker 8: to roost, and this is the natural impact of the 386 00:19:57,119 --> 00:20:00,959 Speaker 8: higher cost of credit, higher rates. We've already seen housing 387 00:20:01,040 --> 00:20:04,880 Speaker 8: slow because there's no real supply around, but now you're 388 00:20:04,880 --> 00:20:08,400 Speaker 8: seeing an impact things like automobile sales. Remember went through 389 00:20:08,440 --> 00:20:11,880 Speaker 8: a big period where you couldn't get cars easily. Now 390 00:20:11,920 --> 00:20:14,960 Speaker 8: that's behind us, and car sales are starting to slow down. 391 00:20:15,680 --> 00:20:20,240 Speaker 8: Gasoline sales are starting to slow down. You have to 392 00:20:20,359 --> 00:20:23,639 Speaker 8: lay this right at the feet of the FED. And 393 00:20:23,760 --> 00:20:27,320 Speaker 8: yet at the same time, when we take apart the 394 00:20:27,359 --> 00:20:33,040 Speaker 8: inflation data, you know, the FED BLS data includes renewals 395 00:20:33,560 --> 00:20:37,119 Speaker 8: as well as someone moving into a new house or apartment. 396 00:20:38,200 --> 00:20:41,560 Speaker 8: If your lease renews, if you just renew your lease 397 00:20:42,400 --> 00:20:44,639 Speaker 8: that was set in motion two years ago when you 398 00:20:44,680 --> 00:20:49,000 Speaker 8: did your priorly lease, the FED has nothing. What's over 399 00:20:49,040 --> 00:20:50,560 Speaker 8: to do with rates, have nothing to do with it. 400 00:20:50,960 --> 00:20:54,200 Speaker 8: But two years ago lea that lease had a heavy 401 00:20:55,080 --> 00:20:57,880 Speaker 8: high number built into it. Back that out and you're 402 00:20:57,920 --> 00:21:00,440 Speaker 8: at the two percent inflation target for the FED. 403 00:21:01,240 --> 00:21:03,080 Speaker 5: I think there's got to be more to it though 404 00:21:03,119 --> 00:21:05,359 Speaker 5: than housing right now though, no, Barry, I mean, it 405 00:21:05,440 --> 00:21:09,400 Speaker 5: sounds like there's so many other broader services costs right 406 00:21:09,440 --> 00:21:11,879 Speaker 5: now that are so expensive. I mean one of them 407 00:21:12,040 --> 00:21:16,639 Speaker 5: that was in the GDP report was financial services and insurance. 408 00:21:16,680 --> 00:21:18,359 Speaker 5: I mean we talk a lot about in this show, 409 00:21:18,440 --> 00:21:22,280 Speaker 5: especially homeowners insurance, car insurance. I mean, those are things 410 00:21:22,280 --> 00:21:23,639 Speaker 5: you can't really avoid. 411 00:21:24,480 --> 00:21:27,159 Speaker 8: That's right, But you have to look at what's driving 412 00:21:27,880 --> 00:21:32,199 Speaker 8: those prices higher. Is it monetary policy? Is it you know, 413 00:21:32,320 --> 00:21:35,400 Speaker 8: pent up demand? Look at what's been going on in 414 00:21:35,440 --> 00:21:41,359 Speaker 8: Florida with both homeowners and automobiles, it's very difficult to 415 00:21:41,359 --> 00:21:44,960 Speaker 8: get insurance. And you have to turn around and say, 416 00:21:45,280 --> 00:21:47,400 Speaker 8: you have all these cars that have gotten flooded out 417 00:21:47,440 --> 00:21:51,120 Speaker 8: from repeated hurricanes and repeated flooding events. You have all 418 00:21:51,160 --> 00:21:55,240 Speaker 8: these homeowners who live right on the water. This isn't 419 00:21:55,320 --> 00:21:59,600 Speaker 8: These are prices going up, but you have an externality 420 00:21:59,680 --> 00:22:05,639 Speaker 8: driving it. It's not inflation, it's global warming and climate change. 421 00:22:06,119 --> 00:22:10,479 Speaker 8: And just maybe Florida is a crazy example, because you know, 422 00:22:10,560 --> 00:22:14,120 Speaker 8: Florida is Florida. But when we look around and look 423 00:22:14,119 --> 00:22:17,600 Speaker 8: at the things that are going higher, like healthcare and 424 00:22:17,600 --> 00:22:21,400 Speaker 8: the cost of education that's been in the backdrop for 425 00:22:21,520 --> 00:22:25,679 Speaker 8: twenty five years and has been the most expensive side 426 00:22:25,680 --> 00:22:30,000 Speaker 8: of the services thing, insurance is a very specific reaction 427 00:22:30,560 --> 00:22:34,200 Speaker 8: to an externality and not what we think of. Hey, 428 00:22:34,240 --> 00:22:37,360 Speaker 8: if the FED raises rates to ten percent, are they 429 00:22:37,359 --> 00:22:41,240 Speaker 8: going to make the cost of waterfront homeowner's insurance any 430 00:22:41,359 --> 00:22:45,600 Speaker 8: cheaper in Florida? Or when you have all these cars 431 00:22:46,160 --> 00:22:50,639 Speaker 8: flooded out or being destroyed in places by weather, the 432 00:22:50,680 --> 00:22:53,440 Speaker 8: FED has zero impact on that. You have to put 433 00:22:53,440 --> 00:22:56,680 Speaker 8: that into a different context than usual inflation. 434 00:22:58,080 --> 00:23:00,760 Speaker 2: So barring with today's pullback, you know, we got the 435 00:23:00,840 --> 00:23:02,680 Speaker 2: S and P off about you know, five percent from 436 00:23:02,720 --> 00:23:05,920 Speaker 2: its highs. That feels like it's just a healthy kind 437 00:23:05,920 --> 00:23:11,000 Speaker 2: of pullback in what may be an otherwise upwardly trajecting market. 438 00:23:11,440 --> 00:23:13,120 Speaker 3: Is that how you view it? Is there anything else 439 00:23:13,119 --> 00:23:13,640 Speaker 3: going on here? 440 00:23:14,200 --> 00:23:16,840 Speaker 8: You read my mind? Paul. Look, look, we finished the 441 00:23:16,880 --> 00:23:20,080 Speaker 8: first quarter with the Nasdaq one hundred up eight point 442 00:23:20,119 --> 00:23:23,120 Speaker 8: five percent and the S and P five hundred up 443 00:23:23,200 --> 00:23:27,359 Speaker 8: ten point two percent. That's a good year forget quarter 444 00:23:27,480 --> 00:23:30,720 Speaker 8: that's on average eight to ten percent is what you 445 00:23:30,760 --> 00:23:34,560 Speaker 8: should rationally expect from equity market. So a little bit 446 00:23:34,640 --> 00:23:37,920 Speaker 8: of a pullback is healthy. Let me also point out, 447 00:23:39,040 --> 00:23:42,880 Speaker 8: even though we have very strong earnings and revenue numbers, 448 00:23:43,359 --> 00:23:45,879 Speaker 8: a lot of it was built into the expectations and 449 00:23:45,920 --> 00:23:49,800 Speaker 8: they're a little disappointing compared to Q four. So look, 450 00:23:49,840 --> 00:23:52,159 Speaker 8: what are we about. A quarter way through, about one 451 00:23:52,240 --> 00:23:56,600 Speaker 8: hundred and forty companies have reported plus four point five 452 00:23:56,640 --> 00:24:00,680 Speaker 8: percent on profits and plus about ball parking. This because 453 00:24:00,720 --> 00:24:04,000 Speaker 8: as the numbers come out, the shifts, but plus three 454 00:24:04,040 --> 00:24:08,080 Speaker 8: point five percent on revenues go back to Q four. 455 00:24:08,880 --> 00:24:12,399 Speaker 8: And as good as these numbers sound, it was plus 456 00:24:12,440 --> 00:24:15,600 Speaker 8: six point eight percent on earnings and plus nearly four 457 00:24:15,680 --> 00:24:21,000 Speaker 8: percent on revenues, as it almost makes Q one look 458 00:24:21,040 --> 00:24:24,400 Speaker 8: a little disappointing. I also suspect a lot of these 459 00:24:24,440 --> 00:24:28,520 Speaker 8: strong numbers have been built into expectations, and so it's 460 00:24:28,560 --> 00:24:31,720 Speaker 8: never the actual numbers but how the market reacts to 461 00:24:31,720 --> 00:24:33,200 Speaker 8: those numbers that are so revealing. 462 00:24:33,520 --> 00:24:37,680 Speaker 5: Well, market reaction today has been rough, and we've got 463 00:24:37,720 --> 00:24:41,000 Speaker 5: now like the traders bets for the timing of the 464 00:24:41,040 --> 00:24:44,440 Speaker 5: first FED cut fully priced for the first meeting now 465 00:24:44,480 --> 00:24:47,120 Speaker 5: out to December. I mean, remember, not too long ago 466 00:24:47,160 --> 00:24:48,840 Speaker 5: people thought that first cut was going to be coming 467 00:24:48,920 --> 00:24:52,480 Speaker 5: last month. So tell us a little bit about the 468 00:24:52,480 --> 00:24:55,000 Speaker 5: the environment for the for rate cuts here, and I 469 00:24:55,000 --> 00:24:57,199 Speaker 5: mean also that possibility if we don't get one at 470 00:24:57,200 --> 00:24:58,360 Speaker 5: all in twenty twenty four. 471 00:24:58,760 --> 00:25:02,359 Speaker 8: Right, my, this is a little bit one part analysis, 472 00:25:02,440 --> 00:25:07,400 Speaker 8: one part wishful thinking. From reading everything Jerome Palell has 473 00:25:07,400 --> 00:25:10,680 Speaker 8: been saying and talking about and just looking at the 474 00:25:10,840 --> 00:25:14,280 Speaker 8: arc of the data that's been coming in, I suspect 475 00:25:14,320 --> 00:25:19,160 Speaker 8: the FED very much recognizes that the economy is beginning 476 00:25:19,200 --> 00:25:23,520 Speaker 8: to slow, not dramatically, but a little bit, and they're 477 00:25:23,640 --> 00:25:26,760 Speaker 8: now at the point where they're looking for an excuse 478 00:25:27,240 --> 00:25:31,200 Speaker 8: to take rates down marginally more than half of people, 479 00:25:31,320 --> 00:25:34,040 Speaker 8: So about half of the homes out single family homes 480 00:25:34,040 --> 00:25:38,400 Speaker 8: don't have mortgages, but of those that do, half are 481 00:25:39,040 --> 00:25:42,320 Speaker 8: four percent or less and something like sixty five percent 482 00:25:42,640 --> 00:25:45,639 Speaker 8: are at five percent or less. So these people have 483 00:25:45,760 --> 00:25:50,040 Speaker 8: golden handcuff with their mortgages. That's why there's no supply 484 00:25:51,160 --> 00:25:54,080 Speaker 8: or such limited supply of homes out there, and that's 485 00:25:54,240 --> 00:25:58,440 Speaker 8: the biggest single component in the inflation numbers. I suspect J. 486 00:25:58,600 --> 00:26:02,240 Speaker 8: Powell understands that the sort of paradox we've been living 487 00:26:02,280 --> 00:26:06,960 Speaker 8: with is that if the FED lower's rates, which will 488 00:26:07,040 --> 00:26:10,600 Speaker 8: ultimately bring mortgage rates down, you'll see a whole lot 489 00:26:10,680 --> 00:26:14,000 Speaker 8: more supply hit the market, and that could have an impact, 490 00:26:14,200 --> 00:26:18,760 Speaker 8: especially in the rental market, of driving that aspect of 491 00:26:18,840 --> 00:26:24,080 Speaker 8: either PCE or CPI inflation lower seems kind of counterintuitive 492 00:26:24,480 --> 00:26:28,840 Speaker 8: for lower inflation reduce FMC rates, but that's the odd 493 00:26:28,880 --> 00:26:32,879 Speaker 8: situation we find ourselves in after underbuilding single family homes 494 00:26:32,880 --> 00:26:34,879 Speaker 8: for a decade post GFC. 495 00:26:36,119 --> 00:26:39,199 Speaker 2: Hey, Barry, you know mothers is you know, referencing the 496 00:26:39,200 --> 00:26:42,000 Speaker 2: Werp function, how the market was discounting maybe six rate 497 00:26:42,080 --> 00:26:43,919 Speaker 2: huts cuts some beginning of the year, and here we 498 00:26:43,960 --> 00:26:47,240 Speaker 2: are now down to like one. Is that unusual for 499 00:26:47,320 --> 00:26:51,360 Speaker 2: the market to get it so wrong or change. 500 00:26:51,080 --> 00:26:53,200 Speaker 3: Its bets in such a short period of time? Does 501 00:26:53,200 --> 00:26:54,080 Speaker 3: that typically happen? 502 00:26:54,760 --> 00:26:57,880 Speaker 8: But one of my old time favorite authors is William Goldman, 503 00:26:58,040 --> 00:27:00,919 Speaker 8: who wrote Marathon Man at the print says Bride, and 504 00:27:00,960 --> 00:27:04,840 Speaker 8: he won Academy Awards for the screenplay for Butch Cassidy 505 00:27:05,119 --> 00:27:07,960 Speaker 8: and The Sun Dancer Kid. He used to very famously 506 00:27:08,000 --> 00:27:12,200 Speaker 8: say nobody knows anything, and that when you're looking out forward, 507 00:27:12,720 --> 00:27:17,720 Speaker 8: look at the track record of economists, of the Fed themselves, 508 00:27:18,000 --> 00:27:22,560 Speaker 8: and of people who are forecasting, including the market, when 509 00:27:22,680 --> 00:27:24,840 Speaker 8: rate cuts are going to happen, where rates are going 510 00:27:24,880 --> 00:27:30,040 Speaker 8: to go. It's been so consistently wrong for so long. 511 00:27:30,640 --> 00:27:33,520 Speaker 8: I mean, look at the dot plot is hilariously wrong. 512 00:27:34,000 --> 00:27:37,960 Speaker 8: At a certain point you have to ask yourself, why 513 00:27:38,000 --> 00:27:41,399 Speaker 8: are we paying any attention to these forecasts. I know 514 00:27:41,480 --> 00:27:43,879 Speaker 8: it's a necessary evil, and it's all part of how 515 00:27:43,960 --> 00:27:47,040 Speaker 8: we do our jobs. I think we have to dramatically 516 00:27:47,080 --> 00:27:50,080 Speaker 8: lower the weight we put on these sorts of forecasts. 517 00:27:51,040 --> 00:27:55,000 Speaker 8: You know, occasionally even a blind squirrel finds a nuts, 518 00:27:55,000 --> 00:27:59,240 Speaker 8: so sometimes somebody gets it right. But when you take 519 00:27:59,280 --> 00:28:04,040 Speaker 8: the average when look at the overall consensus. Not only 520 00:28:04,080 --> 00:28:07,480 Speaker 8: were we expecting was the market pricing in rate cuts 521 00:28:07,840 --> 00:28:10,200 Speaker 8: last year, because perhaps because they. 522 00:28:10,119 --> 00:28:11,400 Speaker 3: Were pricing in a recession. 523 00:28:13,160 --> 00:28:17,080 Speaker 8: But look how wrong they were on the round of increases, 524 00:28:17,400 --> 00:28:21,000 Speaker 8: how quickly it came, how far it went. Of all 525 00:28:21,040 --> 00:28:25,480 Speaker 8: the many things that the human genius can do, predicting 526 00:28:25,680 --> 00:28:28,600 Speaker 8: things like FED funds rate just ain't one. 527 00:28:28,480 --> 00:28:31,400 Speaker 5: Of them real quickly for you here, Barry. So next 528 00:28:31,400 --> 00:28:34,480 Speaker 5: week Fed's going to be presumably holding interest rates. We're 529 00:28:34,480 --> 00:28:37,240 Speaker 5: not getting any new forecasts thirty seconds, which we look 530 00:28:37,240 --> 00:28:37,560 Speaker 5: out for. 531 00:28:39,240 --> 00:28:41,320 Speaker 8: I mean, I want to see how we continue to 532 00:28:41,360 --> 00:28:46,880 Speaker 8: do earnings wise. We're running a pretty reasonable beat rate, 533 00:28:47,040 --> 00:28:51,720 Speaker 8: although obviously the better companies, the better earnings come out earlier. 534 00:28:52,680 --> 00:28:55,600 Speaker 8: It's that it's the components of inflation. And I want 535 00:28:55,600 --> 00:28:59,560 Speaker 8: to keep an eye on consumer spending. That'll let us 536 00:28:59,600 --> 00:29:02,440 Speaker 8: know if the FED has kept us too tight for 537 00:29:02,520 --> 00:29:05,080 Speaker 8: too long and it's really beginning to bite into the economy. 538 00:29:05,520 --> 00:29:07,200 Speaker 2: All right, Barry, thank you so much for joining us. 539 00:29:07,200 --> 00:29:09,920 Speaker 2: As always, Barry red Hooltz. He is the host of 540 00:29:10,000 --> 00:29:13,280 Speaker 2: Masters in Business on Bloomberg Radio. Highly recommend you check 541 00:29:13,320 --> 00:29:16,800 Speaker 2: out that podcast. He gets phenomenal guests week after week 542 00:29:16,800 --> 00:29:19,920 Speaker 2: after week, and a lot of smart discussion about investing 543 00:29:20,000 --> 00:29:21,280 Speaker 2: and about these markets. 544 00:29:21,480 --> 00:29:22,480 Speaker 3: Oh and he's got a day job. 545 00:29:22,520 --> 00:29:25,200 Speaker 2: He's the founder of Ordholts Wealth Management, so we appreciate 546 00:29:25,200 --> 00:29:26,680 Speaker 2: getting a few minutes of his time. 547 00:29:28,040 --> 00:29:31,920 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 548 00:29:32,000 --> 00:29:35,520 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 549 00:29:35,560 --> 00:29:38,360 Speaker 1: Auto with the Bloomberg Business App. You can also listen 550 00:29:38,440 --> 00:29:41,560 Speaker 1: live on Amazon Alexa from our flagship New York station, 551 00:29:41,920 --> 00:29:44,640 Speaker 1: Just Say Alexa playing Bloomberg eleven thirty. 552 00:29:46,080 --> 00:29:47,239 Speaker 3: James Abatte joints us. 553 00:29:47,240 --> 00:29:49,960 Speaker 2: He's a managing director a chief investment officer at Center 554 00:29:50,040 --> 00:29:53,480 Speaker 2: Asset Management. Joining us from New York via zoom. 555 00:29:54,120 --> 00:29:55,680 Speaker 3: James, thanks so much for joining us here. 556 00:29:55,760 --> 00:29:58,680 Speaker 2: What did you take away from the economic data we 557 00:29:58,680 --> 00:30:00,720 Speaker 2: saw this morning and what it may be mean for 558 00:30:00,840 --> 00:30:01,600 Speaker 2: the Federal Reserve? 559 00:30:02,840 --> 00:30:06,680 Speaker 9: Well, when you look at today's release of annualized GDP 560 00:30:07,480 --> 00:30:11,000 Speaker 9: of one point six percent, it was much well within expectations, 561 00:30:11,560 --> 00:30:15,120 Speaker 9: and it was combined with a higher inflation reading with 562 00:30:15,400 --> 00:30:19,120 Speaker 9: the PCE coming into three point seven percent. Now we 563 00:30:19,240 --> 00:30:23,760 Speaker 9: may see you know, some offset to that tomorrow with 564 00:30:24,240 --> 00:30:29,800 Speaker 9: the with PPI numbers impacting the flator, which is the 565 00:30:29,800 --> 00:30:35,479 Speaker 9: Fed's preferred metric in terms of its two percent price target. 566 00:30:35,520 --> 00:30:38,000 Speaker 9: But the bottom line is that when you look at 567 00:30:38,000 --> 00:30:41,160 Speaker 9: equities and the fact that we see no safe harbor 568 00:30:41,200 --> 00:30:43,920 Speaker 9: in the equity markets today is that the margin of 569 00:30:43,960 --> 00:30:48,440 Speaker 9: safety for markets, and US markets in particular, is that 570 00:30:48,480 --> 00:30:52,320 Speaker 9: the expectations have been that the FED would be reducing 571 00:30:52,400 --> 00:30:55,600 Speaker 9: rates at least two or three times through the end 572 00:30:55,640 --> 00:31:00,360 Speaker 9: of the year, and we would see the economy move 573 00:31:00,840 --> 00:31:04,440 Speaker 9: strongly ahead to support what we have in terms of 574 00:31:04,520 --> 00:31:08,240 Speaker 9: double digit earnings expectations for the S and P five hundred. 575 00:31:08,520 --> 00:31:10,880 Speaker 9: So neither of the data points that came out today 576 00:31:11,200 --> 00:31:16,320 Speaker 9: are consistent with either of those pillars that's been holding 577 00:31:16,400 --> 00:31:21,200 Speaker 9: up the market since the rally began in October twenty 578 00:31:21,240 --> 00:31:21,720 Speaker 9: twenty three. 579 00:31:22,160 --> 00:31:24,640 Speaker 5: Right, that's the PCEE data coming out tomorrow that you 580 00:31:24,720 --> 00:31:27,200 Speaker 5: are just referring to. So we'll get a look at 581 00:31:27,200 --> 00:31:31,680 Speaker 5: the March inflation data there. But coming back to this 582 00:31:32,400 --> 00:31:36,120 Speaker 5: GDP report today, I mean, when you're looking at the 583 00:31:36,160 --> 00:31:40,480 Speaker 5: service level of slower growth and higher inflation, doesn't really 584 00:31:40,520 --> 00:31:42,719 Speaker 5: sound like that soft landing story that we've all been 585 00:31:42,760 --> 00:31:43,200 Speaker 5: betting on. 586 00:31:43,320 --> 00:31:46,440 Speaker 9: Huh, Well, not everybody's been betting on that. 587 00:31:46,600 --> 00:31:48,560 Speaker 6: I think you know. 588 00:31:48,680 --> 00:31:51,800 Speaker 9: Our view has been that when you look at the 589 00:31:51,880 --> 00:31:56,720 Speaker 9: major economic indicators, there has been somewhat of a disconnect, 590 00:31:56,920 --> 00:32:02,640 Speaker 9: meaning that the market was highly dependent upon both interest 591 00:32:02,680 --> 00:32:08,960 Speaker 9: rates declining and earnings expectations, which were consistent with a 592 00:32:09,040 --> 00:32:11,480 Speaker 9: booming economy. So if you just want to look at 593 00:32:11,560 --> 00:32:15,880 Speaker 9: top down indicators that would give some indications of economic activity, 594 00:32:16,360 --> 00:32:21,840 Speaker 9: I mean, ism, indicase or leading economic indicators, they remain 595 00:32:21,920 --> 00:32:26,120 Speaker 9: in kind of flatish or recessionary type levels. They seem 596 00:32:26,160 --> 00:32:29,200 Speaker 9: to be bouncing or pivoting higher, but not yet to 597 00:32:29,400 --> 00:32:34,720 Speaker 9: any type of booming economic recovery. So from that perspective, 598 00:32:34,760 --> 00:32:37,720 Speaker 9: when you look at what's happening from an earnings perspective, 599 00:32:38,640 --> 00:32:42,360 Speaker 9: you've got essentially flatish sales growth. Still, you've got profit 600 00:32:42,440 --> 00:32:45,440 Speaker 9: margins across the S and P five hundred stable but 601 00:32:46,440 --> 00:32:50,600 Speaker 9: with labor costs continuing to be pressure, potential for a 602 00:32:50,680 --> 00:32:54,440 Speaker 9: degradation of profit margins. And when you can look at 603 00:32:54,480 --> 00:32:57,640 Speaker 9: what expectations are embedded in the S and P five hundred, 604 00:32:58,200 --> 00:33:02,640 Speaker 9: it's essentially mid single digit's revenue growth with double digit 605 00:33:02,840 --> 00:33:05,840 Speaker 9: earnings growth. Now, how you get to that two times 606 00:33:05,880 --> 00:33:10,400 Speaker 9: operating leverage. When sales growth is relatively mnemic. Outside of 607 00:33:10,960 --> 00:33:15,360 Speaker 9: things that are tied towards AI and profit margins, declining 608 00:33:15,720 --> 00:33:19,920 Speaker 9: doesn't really reconcile with essentially the expectations that are embedded 609 00:33:20,000 --> 00:33:23,400 Speaker 9: in earnings expectations as well as some of the top 610 00:33:23,440 --> 00:33:28,080 Speaker 9: down indicators is mentioned via the manufacturing statistics like the PMIS, 611 00:33:28,400 --> 00:33:30,440 Speaker 9: as well as leading economic indicators. 612 00:33:31,040 --> 00:33:32,200 Speaker 3: I'll tell you where to make money. 613 00:33:32,520 --> 00:33:36,080 Speaker 2: Chipotle Mexican grill sas a four percent today all time high. 614 00:33:36,280 --> 00:33:38,720 Speaker 2: People are still buying their tacos and burritos. 615 00:33:38,760 --> 00:33:41,440 Speaker 5: It's because they're not letting the employees eat the chicken. 616 00:33:41,520 --> 00:33:44,000 Speaker 3: I know, that's exactly right. We talked about that earlier. 617 00:33:44,160 --> 00:33:46,080 Speaker 2: So James, how about in a fixed income space here, 618 00:33:46,120 --> 00:33:48,680 Speaker 2: I can get five percent sitting into your treasuries. 619 00:33:49,360 --> 00:33:51,040 Speaker 3: Is that a fair trade? Or should I go out 620 00:33:51,040 --> 00:33:52,640 Speaker 3: and maybe take some credit risk here? 621 00:33:53,720 --> 00:33:53,760 Speaker 4: No? 622 00:33:54,080 --> 00:33:57,720 Speaker 9: I think if you look at premiums and credit premiums 623 00:33:57,720 --> 00:34:03,240 Speaker 9: are high yield premiums in particular are consistent with the 624 00:34:03,280 --> 00:34:05,960 Speaker 9: equity risk premium. And the equity risk premium is nothing 625 00:34:06,000 --> 00:34:12,040 Speaker 9: more than the anticipated return of stocks versus the risk 626 00:34:12,080 --> 00:34:15,400 Speaker 9: re alternative, which is as you mentioned. You know yielding 627 00:34:15,440 --> 00:34:18,960 Speaker 9: five percent right now. So you know our view at 628 00:34:19,000 --> 00:34:21,080 Speaker 9: this point in terms of the market. Why we've been 629 00:34:21,400 --> 00:34:25,360 Speaker 9: very defensive, have re implemented hedges in our American Select 630 00:34:25,360 --> 00:34:28,440 Speaker 9: Equity Fund is the fact that the way we calculate 631 00:34:28,880 --> 00:34:33,239 Speaker 9: a forward equity risk premium, it's at the level that 632 00:34:33,320 --> 00:34:37,919 Speaker 9: we last witnessed in early two thousand and I hate 633 00:34:37,960 --> 00:34:40,520 Speaker 9: to say it, right before the crash of nineteen eighty seven. 634 00:34:40,960 --> 00:34:45,319 Speaker 9: So both credit premiums and equity risk premiums leave no 635 00:34:45,520 --> 00:34:50,479 Speaker 9: margin of safety, which is something that either leads to 636 00:34:50,600 --> 00:34:55,200 Speaker 9: a flat equity market or potentially some type of major 637 00:34:55,320 --> 00:34:59,800 Speaker 9: drawdown if there's the implementation or instigation of some type. 638 00:34:59,560 --> 00:35:03,239 Speaker 5: Of cattle Looking at the two year yield coming up 639 00:35:03,239 --> 00:35:05,799 Speaker 5: on five percent on the day, got to think if 640 00:35:05,840 --> 00:35:07,960 Speaker 5: maybe you know, you didn't hash in on it when 641 00:35:07,960 --> 00:35:10,680 Speaker 5: it was five point two in October, maybe a little 642 00:35:10,680 --> 00:35:12,600 Speaker 5: bit of a second chance here? Is this a good level? 643 00:35:13,760 --> 00:35:13,960 Speaker 7: Yeah? 644 00:35:14,000 --> 00:35:18,520 Speaker 9: I think that's very important because the expectations are that, 645 00:35:18,719 --> 00:35:21,680 Speaker 9: you know, the FED, even if they do see continuing 646 00:35:22,080 --> 00:35:25,839 Speaker 9: economic weakness, or maybe there is some type of financial 647 00:35:26,000 --> 00:35:30,759 Speaker 9: event in regional banks, or even the further escalation of 648 00:35:30,800 --> 00:35:33,400 Speaker 9: some kind of geopolitical crisis, which would really be the 649 00:35:33,440 --> 00:35:37,880 Speaker 9: only cover that the FED would have to reduce interest rates. 650 00:35:39,040 --> 00:35:41,280 Speaker 9: I would tell people that, you know, if you're relying 651 00:35:41,360 --> 00:35:45,160 Speaker 9: upon a reduction in interest rates from these levels, be 652 00:35:45,239 --> 00:35:47,239 Speaker 9: careful what you wish for. Bec When you look at 653 00:35:47,600 --> 00:35:51,840 Speaker 9: market draw downs over many periods of time, some of 654 00:35:51,920 --> 00:35:54,399 Speaker 9: the most significant market draw downs happen when the FED 655 00:35:54,440 --> 00:35:57,640 Speaker 9: is aggressively easing in response to a crisis. And our 656 00:35:57,719 --> 00:35:59,560 Speaker 9: view going into the year was that the Fed was 657 00:35:59,600 --> 00:36:03,600 Speaker 9: not going to reduce rates unless there was actually the 658 00:36:03,640 --> 00:36:07,960 Speaker 9: introduction of a slower economic environment or a crisis. So 659 00:36:08,120 --> 00:36:10,520 Speaker 9: to lock in, you know, a five point two percent 660 00:36:10,600 --> 00:36:13,680 Speaker 9: yield at this point in time, I think, is you know, 661 00:36:13,719 --> 00:36:17,799 Speaker 9: a wise choice VISA VI other investment alternatives right now, 662 00:36:17,960 --> 00:36:21,640 Speaker 9: particularly since the premium that you're being paid for owning 663 00:36:21,680 --> 00:36:25,799 Speaker 9: equities as well as owning credit is an essence zero. 664 00:36:26,480 --> 00:36:28,680 Speaker 3: All right, James, thanks so much for joining us there. 665 00:36:28,760 --> 00:36:31,640 Speaker 2: James Abode, Managing director and chief investment officer for Center 666 00:36:31,680 --> 00:36:36,799 Speaker 2: Asset Management. Decidedly conservative outlook there, and that is being 667 00:36:36,840 --> 00:36:39,120 Speaker 2: born out today with the market down. 668 00:36:39,480 --> 00:36:39,799 Speaker 3: I don't know. 669 00:36:39,840 --> 00:36:41,239 Speaker 2: I guess you could look at today's data and say, 670 00:36:41,239 --> 00:36:43,719 Speaker 2: all right, economy slowing down. Maybe the FED will in 671 00:36:43,800 --> 00:36:46,720 Speaker 2: fact cut rates. They're not worried about an overheating economy, 672 00:36:46,719 --> 00:36:48,600 Speaker 2: but you did have that inflation for in that kind of. 673 00:36:49,560 --> 00:36:52,200 Speaker 5: That really is just taking the entire story today. And 674 00:36:52,400 --> 00:36:54,640 Speaker 5: you know, as we've been saying, some of these underlying 675 00:36:54,680 --> 00:36:58,320 Speaker 5: measures of growth underneath the GDP figure still pretty strong, 676 00:36:58,400 --> 00:37:01,000 Speaker 5: so I'm sure the Fed will definitely a tune to 677 00:37:01,080 --> 00:37:01,960 Speaker 5: some of those as well. 678 00:37:04,520 --> 00:37:08,400 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 679 00:37:08,480 --> 00:37:12,000 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 680 00:37:12,040 --> 00:37:14,800 Speaker 1: Auto with the Bloomberg Business app. You can also listen 681 00:37:14,920 --> 00:37:18,000 Speaker 1: live on Amazon Alexa from our flagship New York station 682 00:37:18,400 --> 00:37:21,160 Speaker 1: Just Say Alexa, playing Bloomberg eleven thirty. 683 00:37:22,280 --> 00:37:25,880 Speaker 2: It is earning season in full, fast and furious. They 684 00:37:25,920 --> 00:37:27,919 Speaker 2: are coming a good print coming out of a large 685 00:37:27,960 --> 00:37:33,280 Speaker 2: farmer company, astro Zenica, just early early this morning moving 686 00:37:33,320 --> 00:37:35,680 Speaker 2: matstock here and we are fortunate right now to check 687 00:37:35,680 --> 00:37:39,720 Speaker 2: in with Pascal Sorio. He is the CEO of Astrosenica. 688 00:37:39,840 --> 00:37:42,680 Speaker 2: He is in London, joining us via zoom Patrick. Thanks 689 00:37:42,719 --> 00:37:45,000 Speaker 2: so much, Pascal, Thanks so much for taking the time. 690 00:37:45,000 --> 00:37:47,439 Speaker 2: We really appreciate getting a few minutes of your time. 691 00:37:47,480 --> 00:37:50,000 Speaker 2: You guys reported numbers this morning. What are the key 692 00:37:50,120 --> 00:37:53,799 Speaker 2: takeaways from your most recent quarter for your investors? 693 00:37:55,080 --> 00:37:57,440 Speaker 10: Hugbar, thank you so much for having me. Yes, we 694 00:37:57,560 --> 00:38:00,320 Speaker 10: had a tremendous out of the year. Like Shittys sales, 695 00:38:00,360 --> 00:38:03,560 Speaker 10: our revenue I should say, grow by nineteen percent. But 696 00:38:03,640 --> 00:38:07,640 Speaker 10: the exciting piece was that every portfolio of products grew 697 00:38:07,760 --> 00:38:11,600 Speaker 10: very strongly. Oncology plus twenty six percent to five billions 698 00:38:11,600 --> 00:38:16,840 Speaker 10: for the quarter, cardiovascular twenty three percent, rare disease sixteen 699 00:38:16,880 --> 00:38:21,560 Speaker 10: percent growth, ge geographies grew nineteen percent in the US 700 00:38:21,640 --> 00:38:25,520 Speaker 10: and Europe. The most remarkable was forty percent growth in 701 00:38:25,600 --> 00:38:30,040 Speaker 10: the emerging markets outside of China, and China itself is 702 00:38:30,040 --> 00:38:34,320 Speaker 10: returning to grows. So really a very very strong start 703 00:38:34,320 --> 00:38:38,279 Speaker 10: of the year. And beyond the financials, our portfolio pipeline 704 00:38:38,360 --> 00:38:41,359 Speaker 10: is making a tremendous progress, and we started new face 705 00:38:41,440 --> 00:38:45,799 Speaker 10: rituals and we announced very positive results in particular in oncology, 706 00:38:45,840 --> 00:38:48,399 Speaker 10: which we present to the ASCO in Chicago very soon. 707 00:38:49,000 --> 00:38:51,319 Speaker 5: Yeah, you've got an investor day coming up next month, 708 00:38:51,360 --> 00:38:53,120 Speaker 5: and it seems like like you just said you're going 709 00:38:53,160 --> 00:38:55,960 Speaker 5: to discuss the pipeline, including the timing of future treatment 710 00:38:56,400 --> 00:38:59,239 Speaker 5: and their revenue potential. So can you give us a 711 00:38:59,239 --> 00:39:01,319 Speaker 5: little seat peak for some of us who can't wait. 712 00:39:02,440 --> 00:39:06,840 Speaker 10: Yes, exactly, Actually, Marti, thank you for that question. What 713 00:39:06,960 --> 00:39:10,320 Speaker 10: we're going to try and show to investors is that 714 00:39:10,360 --> 00:39:13,719 Speaker 10: we can be a strong growth company not only for 715 00:39:13,760 --> 00:39:17,440 Speaker 10: the next seven hs to twenty thirty, but even beyond that. 716 00:39:18,560 --> 00:39:21,560 Speaker 10: And so the growth over the next period of time 717 00:39:21,600 --> 00:39:24,359 Speaker 10: to twenty and thirty is going to be driven by 718 00:39:24,400 --> 00:39:26,239 Speaker 10: what we have in our hands today and what is 719 00:39:26,280 --> 00:39:28,959 Speaker 10: going to come out of our first three pipeline very soon. 720 00:39:29,560 --> 00:39:33,560 Speaker 10: So we're going to add pact attention to investors of 721 00:39:33,920 --> 00:39:37,759 Speaker 10: investors to the major growth drivers. We're going to show 722 00:39:37,800 --> 00:39:42,920 Speaker 10: them where consensus is actually underestimating some of our products 723 00:39:42,920 --> 00:39:45,080 Speaker 10: and the opportunities we have in our pipeline. We have 724 00:39:45,120 --> 00:39:47,840 Speaker 10: a very large pipeline of new projects and some of 725 00:39:47,880 --> 00:39:51,760 Speaker 10: those areunderestimated. Beyond that, we will also want we also 726 00:39:51,760 --> 00:39:55,080 Speaker 10: want to show investors what our strategies and what our 727 00:39:55,120 --> 00:39:58,120 Speaker 10: plans are for the long term. We've been investing in 728 00:39:58,440 --> 00:40:01,319 Speaker 10: new platforms, new technology which we believe will shave the 729 00:40:01,360 --> 00:40:05,160 Speaker 10: future of medicine in cancer, immune diseases, and beyond form 730 00:40:05,200 --> 00:40:10,000 Speaker 10: stand search therapis ginsrapis, antibody, drug conjure gates, radio conjugates. 731 00:40:10,680 --> 00:40:13,600 Speaker 10: So really this is our goal show people that we 732 00:40:14,160 --> 00:40:18,920 Speaker 10: are focused on today but also tomorrow to twenty thirty 733 00:40:19,040 --> 00:40:21,480 Speaker 10: and a long term. 734 00:40:21,719 --> 00:40:24,120 Speaker 2: The CEO we're speaking with, Pascal Sorio, the CEO of 735 00:40:24,120 --> 00:40:27,000 Speaker 2: Astra Zennic. I'm looking at the stock here. A z 736 00:40:27,280 --> 00:40:29,200 Speaker 2: N is the ticket. It's a big company, two hundred 737 00:40:29,200 --> 00:40:31,279 Speaker 2: and thirty billion dollar market cap. Stock is up six 738 00:40:31,680 --> 00:40:33,840 Speaker 2: percent today on the back of those strong earnings, up 739 00:40:33,880 --> 00:40:34,640 Speaker 2: twelve percent. 740 00:40:34,400 --> 00:40:34,919 Speaker 3: Year to date. 741 00:40:35,160 --> 00:40:37,640 Speaker 2: Pascal, I always joke to people and I say, in 742 00:40:37,680 --> 00:40:39,520 Speaker 2: my next life, I want to come back as a 743 00:40:39,520 --> 00:40:42,360 Speaker 2: healthcare mn A banker, because it seems like every Monday 744 00:40:42,400 --> 00:40:45,920 Speaker 2: we come in and pharmaceutical company A is buying pharmaceutical 745 00:40:45,920 --> 00:40:50,480 Speaker 2: company B or biotechnology company C. How does MNA growth 746 00:40:50,560 --> 00:40:53,800 Speaker 2: via acquisition fit in with your growth strategy vis A 747 00:40:53,920 --> 00:40:57,120 Speaker 2: V organic growth that comes from your own in house 748 00:40:57,200 --> 00:40:57,480 Speaker 2: R and D. 749 00:40:59,000 --> 00:41:03,840 Speaker 10: Yeah, thanks, thanks, another great question. We identified a number 750 00:41:03,840 --> 00:41:07,359 Speaker 10: of years ago the technology platforms of the future, as 751 00:41:07,400 --> 00:41:09,359 Speaker 10: I said a minute ago, So if you look at 752 00:41:09,400 --> 00:41:12,280 Speaker 10: seal therapy, for instance, we have our own internal efforts 753 00:41:12,640 --> 00:41:18,280 Speaker 10: and we've been complimenting this with acquisitions or licensing agreements. Particular, 754 00:41:18,400 --> 00:41:21,920 Speaker 10: we bought a cell therapy company and that is bringing 755 00:41:21,960 --> 00:41:25,600 Speaker 10: us technologies but also products, and we've been putting all 756 00:41:25,640 --> 00:41:30,080 Speaker 10: of this together to actually build a portfolio of products 757 00:41:30,120 --> 00:41:34,680 Speaker 10: in cells therapy, engine therapy, in aultiboty, drug conjugates, and beyond. 758 00:41:35,920 --> 00:41:41,640 Speaker 10: So we target mead small to mid size Burton acquisitions. 759 00:41:41,719 --> 00:41:45,920 Speaker 10: That really has been our strategy, so we can integrate 760 00:41:45,960 --> 00:41:49,160 Speaker 10: them much better and then we can add value along 761 00:41:49,200 --> 00:41:50,120 Speaker 10: the way before. 762 00:41:49,840 --> 00:41:52,960 Speaker 5: We launch Pascal. What can you tell us about drug 763 00:41:53,040 --> 00:41:55,880 Speaker 5: prices right now? I mean, this is such a sensitive 764 00:41:55,920 --> 00:41:59,480 Speaker 5: topic here in the US, especially in an election near 765 00:41:59,640 --> 00:42:01,759 Speaker 5: something that's really close to the heart of so many 766 00:42:01,800 --> 00:42:04,880 Speaker 5: consumers and voters. I mean, how can can you tell 767 00:42:04,920 --> 00:42:07,520 Speaker 5: us a little bit about the pricing strategy? And you know, 768 00:42:07,520 --> 00:42:10,160 Speaker 5: are people able to afford a lot of these medications? 769 00:42:11,920 --> 00:42:14,040 Speaker 10: Yeah, you know, it's important for us of all to 770 00:42:14,120 --> 00:42:18,120 Speaker 10: remember that in the United States, of course, you know, 771 00:42:18,239 --> 00:42:20,279 Speaker 10: price is an issue like everywhere in the world, but 772 00:42:20,680 --> 00:42:23,880 Speaker 10: in the United States, patients have access to innovative medicines 773 00:42:23,920 --> 00:42:27,320 Speaker 10: that can save their lives much faster than in Europe 774 00:42:27,480 --> 00:42:30,960 Speaker 10: or in other parts of the world. Innovation is rewarded 775 00:42:31,000 --> 00:42:35,440 Speaker 10: and access is much faster now. Price is definitely a consideration. 776 00:42:35,560 --> 00:42:40,839 Speaker 10: Of course, the IRA, of course has some challenges and 777 00:42:40,880 --> 00:42:45,640 Speaker 10: some issues we are trying to work to addrese but 778 00:42:45,640 --> 00:42:48,200 Speaker 10: there is also a big benefit for patients, which is 779 00:42:48,239 --> 00:42:51,640 Speaker 10: that starting in twenty twenty five, there will be a 780 00:42:51,680 --> 00:42:54,480 Speaker 10: copy cup. Patients will not pay more than two thousand 781 00:42:54,560 --> 00:42:58,960 Speaker 10: dollars a year who are on medical PATHYP products, and 782 00:42:59,040 --> 00:43:01,880 Speaker 10: this year it's too three five hundred and six hundred 783 00:43:01,880 --> 00:43:05,280 Speaker 10: dollars as of max. So ultimately, if you're a MEDICA patient, 784 00:43:05,400 --> 00:43:07,520 Speaker 10: you will not pay more than two thousand dollars a 785 00:43:07,640 --> 00:43:10,279 Speaker 10: year for your medicines, regardless of how many medicines you 786 00:43:10,360 --> 00:43:13,000 Speaker 10: have and how much the cost. So that will be 787 00:43:13,400 --> 00:43:17,120 Speaker 10: really an enormous progress for patients. And of course some 788 00:43:17,200 --> 00:43:22,279 Speaker 10: of these rebates that are discounts that are required to 789 00:43:22,560 --> 00:43:26,680 Speaker 10: compensate for for this, we will be paying. But suddenly 790 00:43:26,719 --> 00:43:29,400 Speaker 10: we see that as a big improvement for patients and 791 00:43:29,840 --> 00:43:33,920 Speaker 10: hopefully also an incremental revenue for us, because patients will 792 00:43:33,960 --> 00:43:36,279 Speaker 10: be able to afford their medicines and take them and 793 00:43:36,320 --> 00:43:39,359 Speaker 10: stay on them longer. So you know, win win, really 794 00:43:39,360 --> 00:43:43,280 Speaker 10: better for patients and hopefully better for the industry as well. 795 00:43:43,480 --> 00:43:46,200 Speaker 2: The PASCAL I'm looking at the on the Bloomberg terminal, 796 00:43:46,239 --> 00:43:48,840 Speaker 2: the PGeo function which shows me kind of your revenue 797 00:43:48,840 --> 00:43:51,160 Speaker 2: by segment, and I see that oncology is your biggest 798 00:43:51,320 --> 00:43:53,960 Speaker 2: revenue line there about thirty seven percent of total revenue. 799 00:43:53,960 --> 00:43:58,160 Speaker 2: What are the opportunities there in your oncology business. I 800 00:43:58,200 --> 00:44:01,319 Speaker 2: know it's a competitive business, but you have in the pipeline. 801 00:44:01,600 --> 00:44:03,759 Speaker 2: What do you have to bring to market? How do 802 00:44:03,760 --> 00:44:05,080 Speaker 2: you think about that business? 803 00:44:06,000 --> 00:44:09,440 Speaker 10: Yeah, ourcology portfolio of products go by twenty six percent 804 00:44:09,480 --> 00:44:13,120 Speaker 10: in the first quarter to five billion dollars five billion 805 00:44:13,160 --> 00:44:15,120 Speaker 10: dollars in a quarter. So we are on a very 806 00:44:15,160 --> 00:44:19,200 Speaker 10: strong trajectory driven by a number of products that we 807 00:44:19,280 --> 00:44:24,120 Speaker 10: have in a portfolio for lung cancer, briacet cancer, prostate cancer, 808 00:44:24,239 --> 00:44:27,560 Speaker 10: or variant cancer. And there's more to come. And the 809 00:44:27,600 --> 00:44:32,880 Speaker 10: future of oncology really is about combination therapy, combination of 810 00:44:33,000 --> 00:44:36,080 Speaker 10: antibody drug conjugates, as I said before, those products that 811 00:44:36,200 --> 00:44:40,440 Speaker 10: target the tumor cells and deliver a toxin at the 812 00:44:40,560 --> 00:44:44,080 Speaker 10: site of the tumor cell and essentially kill the tumor 813 00:44:44,160 --> 00:44:48,560 Speaker 10: cells without affecting the helcy cells around and combining this 814 00:44:48,719 --> 00:44:53,600 Speaker 10: with immuno oncology products and then in long run adding 815 00:44:54,239 --> 00:44:57,200 Speaker 10: cell therapy to this. So there's an enormous amount of 816 00:44:57,200 --> 00:45:00,800 Speaker 10: innovation that's going on in cancer. The clogy of cancer. 817 00:45:00,880 --> 00:45:05,160 Speaker 10: He's being improved very rapidly and as a result, new 818 00:45:05,200 --> 00:45:08,440 Speaker 10: medicines are coming up. There are still cancers, unfortunately that 819 00:45:08,560 --> 00:45:12,920 Speaker 10: are difficult to treat. But one of the other aspects 820 00:45:12,960 --> 00:45:16,600 Speaker 10: of cancer that is very important is diagnosing patients early 821 00:45:17,080 --> 00:45:19,640 Speaker 10: so you can intercept the disease early. If you look 822 00:45:19,640 --> 00:45:24,960 Speaker 10: at breast cancer, mamographies have really helped diagnose breast cancer 823 00:45:25,040 --> 00:45:28,360 Speaker 10: very early and survival right at five years is ninety 824 00:45:28,480 --> 00:45:32,239 Speaker 10: nine percent when patients are diagnosed early. Lung cancer is 825 00:45:32,239 --> 00:45:35,319 Speaker 10: the opposite diagnos too late. So there are no technologies 826 00:45:35,320 --> 00:45:39,240 Speaker 10: that will enable to patients and doctors to diagnose cancer 827 00:45:39,320 --> 00:45:41,400 Speaker 10: very early and treat it only. So the combination of 828 00:45:41,440 --> 00:45:45,920 Speaker 10: these plus new treatments gives us hope that there is 829 00:45:45,960 --> 00:45:49,280 Speaker 10: a possibility that in the near future we could actually 830 00:45:50,080 --> 00:45:53,000 Speaker 10: turn cancer, cure cancer, or turn it to a chronic 831 00:45:53,040 --> 00:45:54,640 Speaker 10: condition that people can live with. 832 00:45:55,680 --> 00:45:59,000 Speaker 2: Pascal thirty seconds left here one of our readers rights, 833 00:45:59,040 --> 00:46:01,680 Speaker 2: and it says on if your May twenty first investor day. 834 00:46:01,920 --> 00:46:04,120 Speaker 2: Are you going to give a big sales target for 835 00:46:04,120 --> 00:46:04,720 Speaker 2: twenty thirty? 836 00:46:07,000 --> 00:46:09,480 Speaker 10: I think I will have to invite people to our 837 00:46:09,520 --> 00:46:13,600 Speaker 10: meeting and Cambridge in the UK, we've even you know, 838 00:46:13,760 --> 00:46:17,560 Speaker 10: offered to offer them at lunch, so I won't disclose 839 00:46:17,600 --> 00:46:21,640 Speaker 10: that today, but they we suddenly will show people our 840 00:46:21,719 --> 00:46:24,680 Speaker 10: strategy and why we believe we can be a gross 841 00:46:24,680 --> 00:46:27,239 Speaker 10: company and what would be the gross drivers. But I 842 00:46:27,239 --> 00:46:29,640 Speaker 10: can't say today whether we will be disclosing your target 843 00:46:29,719 --> 00:46:30,400 Speaker 10: at that point. 844 00:46:30,440 --> 00:46:32,200 Speaker 2: All right, Pascal, thank you so much for joining us. 845 00:46:32,239 --> 00:46:34,879 Speaker 2: Really appreciate you sparing a few minutes of your time today. 846 00:46:34,880 --> 00:46:39,120 Speaker 2: Pascal Sorio, he's the CEO of Astra Zeneca, joining us 847 00:46:39,200 --> 00:46:40,239 Speaker 2: from London via zoom. 848 00:46:40,480 --> 00:46:42,680 Speaker 3: The company reported strong numbers this morning. 849 00:46:43,560 --> 00:46:48,040 Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify, 850 00:46:48,280 --> 00:46:51,480 Speaker 1: and anywhere else you get your podcasts. Listen live each 851 00:46:51,480 --> 00:46:54,840 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com, 852 00:46:54,960 --> 00:46:58,359 Speaker 1: Behart Radio app, tune In, and the Bloomberg Business app. 853 00:46:58,520 --> 00:47:00,880 Speaker 1: You can also watch us live. I have every weekday 854 00:47:00,880 --> 00:47:03,479 Speaker 1: on YouTube and always on the Bloomberg terminal. 855 00:47:07,120 --> 00:47:07,160 Speaker 8: M