Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am
Speaker 1: Eastern on Apple car Playing and broud Otto with the
Speaker 1: Bloomberg Business app. Listen on demand wherever you get your podcasts,
Speaker 1: or watch us live on YouTube.
Speaker 2: Looking at Boeing, Boeing burned through three point nine to
Speaker 2: three billion in cash in the first quarter. That's a
Speaker 2: less dramatic dream than analys had expected. That's accounting for
Speaker 2: the stock moving higher as the embattled planemaker continues to
Speaker 2: slow output to get a handle on its manufacturing issues.
Speaker 2: So I guess trying to really focus on quality as
Speaker 2: opposed to as opposed to quantity. George Ferguson, he's been
Speaker 2: helping us along the way here with this Boeing story.
Speaker 3: All along.
Speaker 2: He covers airspace, he covers the airlines for Bloomberg Intelligence.
Speaker 2: He also is enjoying our Princeton campus.
Speaker 4: With Hallie Lucis sate show from Princeton is coming is strong.
Speaker 3: Yeah, we're going to We're going down to Princeton.
Speaker 2: Absolutely, God forbid you take a train into the world's
Speaker 2: financial capital.
Speaker 3: George Ferguson doesn't have to do that. People come to George.
Speaker 3: George talk to us about what we saw from Boeing
Speaker 3: in their results. What were the key takeaways for you?
Speaker 5: So I think we saw it not a lot, not
Speaker 5: a lot of detail inside here about what matters most
Speaker 5: going ahead. We did see cash burn for one Q,
Speaker 5: like you said, you know, combined with capex free cash
Speaker 5: flow usage, well three point nine billion. CFO had sort
Speaker 5: of told us that we would see something between four
Speaker 5: and four and a half billion. That came in lighter
Speaker 5: than that. The markets, I think are a little bit
Speaker 5: happier about that, but you can't live here long, right.
Speaker 5: I guess the big takeaway here too, is that there's
Speaker 5: about seven billion dollars in cash and equivalence on the
Speaker 5: balance sheet that's dwindling pretty quickly. They paid four point
Speaker 5: four billion I think it was in debt during the quarter.
Speaker 5: So something has to happen, right. They want to they
Speaker 5: want to buy Spirit Aerosystems. I hear all kinds of
Speaker 5: conflicting reports, but essentially I think it's break. You know,
Speaker 5: there's a lot of challenges around negotiating getting Airbus out
Speaker 5: of Spirit Aerosystems. So Boeing can buy it. They've talked
Speaker 5: about using cash to buy Spirit or I guess debt maybe.
Speaker 5: I think it's a company doesn't want to add a
Speaker 5: lot more debt to their balance sheet. Spirits market cap
Speaker 5: around four billion, you only have seven billion left in
Speaker 5: the balance sheet. Something's got to happen. You got to
Speaker 5: raise some capital here. You can't do this soll cash
Speaker 5: or you got to use Boeing stock and just the
Speaker 5: numbers they're getting small, right, the cash numbers are getting small.
Speaker 5: You're running out a runway here. They need to come
Speaker 5: up with this plan with the FAA and how they're
Speaker 5: going to stabilize production, start building airplanes, start generating cash
Speaker 5: because you can't do this many quarters.
Speaker 4: So, George Lyne, do you think that there's a risk
Speaker 4: that we could be hearing about some kind of financing
Speaker 4: activity from Boeing coming up? I mean, like you just said,
Speaker 4: I mean it's I think it'd be kind of hard
Speaker 4: to envision them doing a debt sale right now. That
Speaker 4: sounds like a little bit of maybe a red flag
Speaker 4: to me. But if they would do, I don't know.
Speaker 4: The equity is not worth a whole lot, Like what
Speaker 4: do you do from here?
Speaker 5: Yeah, so agreed, I think you know, what I heard
Speaker 5: from you is that could be hard to do a
Speaker 5: debt deal here. I think so. I mean, I think
Speaker 5: they wouldn't let four point four billion get repaid without
Speaker 5: sort of plumbing the markets and thinking about whether they
Speaker 5: would do an issuance here. But I mean, you know,
Speaker 5: you wouldn't want to raise equity here. I feel like
Speaker 5: it'd be hard to raise debt. You got a lot
Speaker 5: of You got a lot of money wrapped up at
Speaker 5: inventory on the balance sheet. Airplanes that have already been
Speaker 5: built haven't been delivered to customers that they've done. They've
Speaker 5: shipped some of those in the last quarter, which is
Speaker 5: free up some cash. But I think you really got
Speaker 5: to get the manufacturing, you know, process going again and
Speaker 5: genering cash that way. I think that would get folks
Speaker 5: more comfortable about giving more debt or equity.
Speaker 3: I don't know I could get a debt deal done
Speaker 3: in this marketplace.
Speaker 4: You personally, Paul, I could go sell.
Speaker 3: Some Boeing debt back in the day, if I had
Speaker 3: my seat back, Maybe some investment debt. Sure, no problem,
Speaker 3: all right, George, talk to us about deliveries. Where are
Speaker 3: we today? I'm kind of focusing on the seven fifty seven.
Speaker 2: That's kind of the main beast is, as you've told
Speaker 2: us in the past, where are we all on you know, deliveries.
Speaker 3: Today and where do they want to get to? And
Speaker 3: you have confidence that they can get there.
Speaker 5: Yeah, So I think we don't necessarily know where we
Speaker 5: are on deliveries today. We're going to find that out,
Speaker 5: I hope on the earnings call here in a couple
Speaker 5: of minutes. Again, I think that a number of the
Speaker 5: airplanes they delivered in in uh March and in February,
Speaker 5: we're probably out of inventory that we're already built. So
Speaker 5: you know, what I'm getting back is what the real
Speaker 5: build rate is. I've heard numbers in the twenties ish
Speaker 5: where they want to be. They should be at thirty eight,
Speaker 5: and they right now a month in the seven thirties
Speaker 5: Evan breaking to forty two, you know, near the end
Speaker 5: of the year, had they not had this problem with
Speaker 5: the panel blowout in the Alaska Airlines. So what I
Speaker 5: think we heard from the CFO at the Bank of
Speaker 5: America event, you know, a conference earlier this quarter and
Speaker 5: one quarter sorry one Q was that they want to
Speaker 5: be at thirty eight by the end of the year.
Speaker 5: Look around thirty eight. I think they were doing okay financially.
Speaker 5: They need to be breaking up into the forties and fifties.
Speaker 5: That's going to make them a lot more healthy, that's
Speaker 5: going to make their supplier base a lot healthier. Spirit
Speaker 5: couldn't really survive down at that thirty ish, you know,
Speaker 5: thirty eight level of build rate. So again, I think
Speaker 5: where they where they want to be is up in
Speaker 5: you know, up in the forties and fifties, where Airbus is.
Speaker 5: Airbus is getting ready to break into the you know,
Speaker 5: fifties and sixties. They want to be up there, but
Speaker 5: they're I mean from a fifty rate, I think they're
Speaker 5: or a year and a half away at least right now.
Speaker 4: And of course Airbus has just been like riding this
Speaker 4: whole Boeing disaster wave quite nicely to their benefits. So
Speaker 4: going well for our friends abroad over there. But you
Speaker 4: started off, George by saying that, you know, there's not
Speaker 4: a whole lot to go off of here that you know.
Speaker 4: Of course, Boeing didn't provide earnings guidance for the year.
Speaker 4: We've got some management changes coming up sometime within the year.
Speaker 4: We know that CEO Dave Calhoun is going to step
Speaker 4: down by the end of twenty twenty four. Do you
Speaker 4: think we'll get a little bit more guidance on that
Speaker 4: on the earnings call?
Speaker 5: Not sure, right? I think that. I think that if
Speaker 5: we knew something about the next CEO, I think they
Speaker 5: probably would have even told us before the earnings call.
Speaker 5: That's such a huge overhang in this company right now, right,
Speaker 5: I imagine, you know, we got this announcement. What I mean,
Speaker 5: it seems like we move in dog years here at Boeing,
Speaker 5: right one day is like seven anymore? I don't know.
Speaker 5: I think we got this a month ago, a couple
Speaker 5: of weeks ago, you know. I imagine there's a lot
Speaker 5: of work going on the search right now and feeling
Speaker 5: out constituents as to whether or not the folks they
Speaker 5: identify are the right people. So, and I think as
Speaker 5: soon as they know what they that they have someone
Speaker 5: in place, they'd announce it, because again, it's such a
Speaker 5: huge overhang. I think they need to get someone in place,
Speaker 5: and they need to have their plan fleshed out and
Speaker 5: bring that to the marketplace as soon as possible. I
Speaker 5: think that's going to create again a lot more comfort
Speaker 5: with investors. So I don't think they would hold that back.
Speaker 5: And I don't think that Dave Calhoun's going to be
Speaker 5: the one that's going to announce it either, And so
Speaker 5: I don't think anybody on the call would be a
Speaker 5: person announcing it. But I could be wrong. But again,
Speaker 5: I don't know that they're anywhere on that right now.
Speaker 5: And that's super important.
Speaker 2: Hey, George, Boeing's customers, the big airlines, what are their
Speaker 2: needs these days?
Speaker 3: Do they need more aircraft?
Speaker 2: Like if Boeing was it fifty or sixty percent production,
Speaker 2: would there be demand there for that?
Speaker 5: They need more faster, you know, as soon as possible.
Speaker 5: I guess. Look, I think if you take United as
Speaker 5: you know, one of the core customers, you know, there's
Speaker 5: sort of a there's a demand to fleet refresh around
Speaker 5: the world. Right The new Max is fifteen twenty percent
Speaker 5: more efficient than the old seven thirty seven or the
Speaker 5: A three twenty. Airlines want that efficiency as soon as
Speaker 5: possible in their fleets. The market I think is going
Speaker 5: to is looking fairly competitive. It may not, you know,
Speaker 5: this summer may be a little bit less competitive than
Speaker 5: we expect to give in Boeing's problems and some of
Speaker 5: the geared turbofan problems at raytheon that knocks on airplanes
Speaker 5: out of service. But fuels rising, airlines want to be
Speaker 5: very competitive. They need the most fuel efficient aircraft, so
Speaker 5: they want them as soon as possible, And like in
Speaker 5: the United's case, almost everybody is increasing size right. Size
Speaker 5: of aircraft are rising because pilot's got twenty percent plus,
Speaker 5: you know, wage increases. You got to find a way
Speaker 5: to drive down costs. One of the things we heard
Speaker 5: out of Jet Blue yesterday they're looking for ways to
Speaker 5: drive down costs. One of the things you always do
Speaker 5: is increase aircraft size, and therefore you're flying more passengers
Speaker 5: for the same cost of that pilot up front. That
Speaker 5: helps you improve efficiencies. They all want it, so they're
Speaker 5: all trying to find bigger aircraft to fly with more seats.
Speaker 5: And so yes, airlines want airplanes as soon as possible.
Speaker 5: If you're a Boeing customer, what also really ticks you
Speaker 5: off is you look across the street at the folks
Speaker 5: flying the Airbus airplane and they probably have little to
Speaker 5: no interruption this summer in their schedules. You're worried about
Speaker 5: what deliveries you're going to get. And your ability to
Speaker 5: fly your schedule, and that hurts if you're the bowing customer. Right,
Speaker 5: the airbus customers.
Speaker 2: Are smiling all right, George, thanks so much again for
Speaker 2: giving us an update there on the aerospace airline industry.
Speaker 2: George Ferguson he covers all the airlines and airspace for
Speaker 2: Bloomberg Intelligence.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple card Play and
Speaker 1: Android Auto with the Bloomberg Business app. You can also
Speaker 1: listen live on Amazon Alexa from our flagship New York
Speaker 1: station Just say Alexa, playing Bloomberg eleven thirty.
Speaker 3: Right smack in the middle of earning season.
Speaker 2: I'll tell you that was a very very important earnings
Speaker 2: release and conference call last night for one Tesla, and.
Speaker 3: It looks like Elon Musk got the job done. The
Speaker 3: stocks up fifteen percent.
Speaker 2: Here today, let's break down what we did see from
Speaker 2: Tessa and what we did hear from mister Elon Musk.
Speaker 3: We'll check out with Steve Man.
Speaker 2: He's a global autos and industrials and analyst for Bloomberg Intelligence.
Speaker 2: He's down in Princeton, New Jersey. Very comfortable down in Princeton.
Speaker 2: He's not coming in to New York, he's not taking
Speaker 2: the train, He's done all that malarkey.
Speaker 4: But we love the studio guests. When we can get one.
Speaker 3: Yes and we need to go down to Princeton to
Speaker 3: our OFFICEA I got to show you that it is awesome.
Speaker 4: Especially with all of our BI friends, and that we
Speaker 4: should do a remote broadcast.
Speaker 3: We're going to do that. I'll put that in the books.
Speaker 2: We're going to great food and that's where we built
Speaker 2: BI from day one. Hey, Steve, thanks so much for
Speaker 2: joining us here. What are your takeaways from what we
Speaker 2: saw from UH Tesla and the results and what we
Speaker 2: heard from Elon Musk.
Speaker 4: Well, thanks, Paul.
Speaker 6: Uh.
Speaker 7: It's a sigh of relief. I think for a lot
Speaker 7: of investors. You know, if you look at the valuation
Speaker 7: of Tesla, there's actually two groups. You can actually break
Speaker 7: it down two groups investors. One who thinks is just
Speaker 7: a Tesla, is just an automotive company. The other really
Speaker 7: believes in the long term, the AI, the tons vehicle.
Speaker 7: I think yesterday's call and yesterday's announcement it sues a
Speaker 7: lot of the concerns that both parties had Yesterday especially
Speaker 7: with the announcement that they're going to pull forward, not
Speaker 7: just launch, but pull forward the The launch of the
Speaker 7: affordable EV.
Speaker 4: Is that something that you give a lot of credence
Speaker 4: to Steve because I feel like with Elon and with
Speaker 4: Tesla and the past, there have been these promises and
Speaker 4: you know, maybe not all of them have quite come
Speaker 4: to fruition.
Speaker 7: I think the you know, so, I think the affordable
Speaker 7: EV is is a real thing. You know, like you
Speaker 7: guys talked about earlier robo Taxi. I think there's still
Speaker 7: needs time for development. But if you look at the
Speaker 7: affordable EV actually kills two birds in one stone. You know,
Speaker 7: it actually increases a scale for Tesla, and you know,
Speaker 7: we're going to see revenue growth, we potentially see profit
Speaker 7: growth from that affordable EV. And that's exactly what the
Speaker 7: market needs. It's more affordable vehicles to increase penetration of
Speaker 7: EV's the other thing that's really important with this affordable
Speaker 7: EV launches. It actually helps Tesla increases reach globally because
Speaker 7: you know, you have a lot of emerging markets that
Speaker 7: you know a lot of people, a lot of consumers
Speaker 7: there cannot afford an expensive fifty thousand dollars vehicle forty
Speaker 7: thousand dollars vehicles, So up twenty thirty up thirty thousand
Speaker 7: vehicle is the right product for them to expand geographically.
Speaker 2: Steve, what do we know about the economics of such
Speaker 2: a new or lower cost vehicle? Can they produce that
Speaker 2: at a profitable basis on a per unit basis?
Speaker 7: Yeah, there's there's a couple of ways they can approach this.
Speaker 7: I think, you know, they can develop a totally new platform.
Speaker 7: But you know, in the other segments I've done with you,
Speaker 7: we've talked about vertical integration, and vertical integration has actually
Speaker 7: reduced the cost of you know, car production. So for them,
Speaker 7: you know, for TESTA, it's the only company that's profitable
Speaker 7: in producing evs. So the other option is actually think about,
Speaker 7: you know, what they can do with the three and
Speaker 7: the Y. You know, can they offer you know, lower trims,
Speaker 7: maybe even you know, you know, a smaller battery that's
Speaker 7: going to allow them to cut costs and also you know,
Speaker 7: make that available to the consumer at a lower price.
Speaker 4: So this obviously was the best part of the report.
Speaker 4: This is what the stock is rallying on right now.
Speaker 4: But you still had elsewhere in the earnings report, we
Speaker 4: had falling vehicle sales, we had worse than expected revenue
Speaker 4: and profit and a pretty significant cash burn figure. So
Speaker 4: I mean, Steve, are you totally optimistic here? What kind
Speaker 4: of concerns do you still have here?
Speaker 7: I've always said, you know, I think this year and
Speaker 7: even into next year, there's some bumps on the road.
Speaker 7: You know, cyber truck is still ramping up. It's a
Speaker 7: very difficult vehicle to build. They're still working on those issues.
Speaker 6: You know.
Speaker 7: We don't think the EV market actually, especially in the US,
Speaker 7: will pick back up until twenty twenty five, late twenty
Speaker 7: twenty five, in the twenty twenty six because the market
Speaker 7: really needs a lower cost, more affordable EV to entice
Speaker 7: kind of more new buyers into the market. So long term,
Speaker 7: long term, I'm very positive. I think I think this
Speaker 7: this company has done everything right in terms of you know,
Speaker 7: looking at AI, looking at AV. I still believe the
Speaker 7: e V, the the e V, uh, you know, shift
Speaker 7: has actually sailed. We're gonna have evs for the long terms.
Speaker 3: Uh.
Speaker 7: And I think that subscription based software based vehicle that
Speaker 7: they're trying to build is is the right move right
Speaker 7: strategy for the industry.
Speaker 2: Steve, what did the elon say or to what extent
Speaker 2: did he address just kind of the developments in China,
Speaker 2: how things are developing there from a competitive standpoint, a
Speaker 2: sales standpoint and all that.
Speaker 7: Yeah, it's uh, I actually see that. We'll continue to
Speaker 7: be bumpy.
Speaker 3: Uh.
Speaker 7: They probably likely to lose market share, continue to lose
Speaker 7: some market share there. But I think you know, Tesla
Speaker 7: is leveraging China, not just for sales, but it's a
Speaker 7: low cost manufat actoring base for the company. The Shanghai
Speaker 7: factory still pumps out a million vehicles, close to a
Speaker 7: million vehicles a year at a very low cost. They
Speaker 7: still are able to source battery from companies like c
Speaker 7: at L, the largest EV battery maker in the world,
Speaker 7: at a very attractive price given their volume. So, you know,
Speaker 7: China sales will probably slow. There's it's a hyper competitive market,
Speaker 7: shall me, which is a you know, a major cell
Speaker 7: phone maker in China. They're launching a vehicles that's also
Speaker 7: very affordable, so they're gonna see more competition in China.
Speaker 7: So but again, China is not just a sales for sales,
Speaker 7: it's a manufacturing, low cost manufacturing base.
Speaker 8: For them.
Speaker 4: So something else on the call, Steve that Elon had
Speaker 4: took a dig at the car makers that are pairing
Speaker 4: back on the EV production plans and going more to
Speaker 4: the gas electric hybrids instead. You didn't call them out,
Speaker 4: but GM and Ford are among those ones. And but
Speaker 4: it's that really where consumers are going more proportionally right now,
Speaker 4: more into the plug in hybrid space, or maybe non
Speaker 4: plug in hybrid, but just hybrids in general versus full
Speaker 4: on evs.
Speaker 7: Yeah, I think the consumer I think you know, we
Speaker 7: did a survey not so long ago. I think what
Speaker 7: we got from that survey was that I think the
Speaker 7: consumer needs to trial evs. They actually need to be
Speaker 7: educated on, you know, how to make EV works work
Speaker 7: in their daily life. So, you know, PHVs plug in
Speaker 7: hybrids hybrids is actually good transition into full evs.
Speaker 4: They alleviate some of.
Speaker 7: The concerns in terms of range, in terms of the
Speaker 7: lack of infrastructure that that we you know, that that's
Speaker 7: for the EV market right now. So PHIV and EV
Speaker 7: are a good transitional product, but it's not a long
Speaker 7: term product because if you look at some of the
Speaker 7: emission standards, it's continued to continue to be tighter and tighter.
Speaker 7: Eventually hybrids and phgvs are probably won't even meet the lower,
Speaker 7: the more stringent emission standards down you know, in the
Speaker 7: next decade.
Speaker 2: Steve thirty seconds. What's the call here on just Elon?
Speaker 2: Has he focused on Tesla?
Speaker 7: He has focused on task Site. There was a question
Speaker 7: last night on that and he reiterated that, you know,
Speaker 7: I mean this is his baby, you know, AI his baby,
Speaker 7: that's his that's his I want to say, that's his
Speaker 7: dream YEP is to make cars, robots and timeless. So
Speaker 7: he's he's laser focused on that.
Speaker 2: All right, good stuff, Steve Man, thanks so much for
Speaker 2: joining us as always Global Autos and Industrials research channels
Speaker 2: for Bloomberg Intelligence, joining us from Prince New Jersey via
Speaker 2: zoom here.
Speaker 3: And the investors certainly liked what they heard last night. Molly,
Speaker 3: oh my gosh.
Speaker 4: Yeah, that stock is ripping today, and how didn't Nora
Speaker 4: just send I mean it was down quite a bit
Speaker 4: on the year, so this is uh, I mean, remember,
Speaker 4: I mean the job cuts too have been like really
Speaker 4: quite something. In our colleagues, I'm out in San Francisco,
Speaker 4: Dana Hall and Ed Ludlow and all over that. So
Speaker 4: I think the marketing division that was the most recent
Speaker 4: one to go right that we've decided that ads are
Speaker 4: no longer worth it. Ye, people are just gonna buy
Speaker 4: the car.
Speaker 3: Word of mouth.
Speaker 2: Yeah it's yeah, it's word of mouth and it's the
Speaker 2: it's the strength of the brand out there.
Speaker 3: So the stock is up fourteen don't.
Speaker 4: Know if I really disagree with that.
Speaker 5: Yeah, I don't.
Speaker 3: Yeah, I don't you known, you know.
Speaker 2: So anyway, it's got a market cap of four and
Speaker 2: twenty five billion dollars, So we'll see how this plays out.
Speaker 3: So a good day for the shareholders of Tesla.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple Car playing Android
Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 3: Down Paul Sweeney. We're live on our Bloomberg Interactive Brooker's studio,
Speaker 3: and we're also.
Speaker 2: Streaming live on YouTube so that you can hit over
Speaker 2: to YouTube dot com search Bloomberg Podcast and that's where
Speaker 2: you find all right. Facebook kids call it.
Speaker 4: Meta heads the professionals Facebook for me.
Speaker 2: Stock's up forty percent, year to date, it's up one
Speaker 2: hundred and thirty percent over the last twelve months. When
Speaker 2: you see stock that's had that kind of performance.
Speaker 4: Since the bar high bai, I mean what else do?
Speaker 6: Yeah?
Speaker 2: And it means they better, they better really deliver on
Speaker 2: their earnings. And they're going to report earnings I think
Speaker 2: after the close tonight. So let's get a little preview.
Speaker 2: Man Deep saying Joints is here a senior technology channels
Speaker 2: for Bloomberg Intelligence, joining us here in studio as he does.
Speaker 2: He does not mail it in from home or from Princeton.
Speaker 2: He comes into the world.
Speaker 3: Capital of Big gold Star for that as opposed to
Speaker 3: his management team, which will leave that Man Deep, Stock's
Speaker 3: had a heck of a run here. What do they
Speaker 3: need to do here with their next earnings report?
Speaker 9: Just keep executing.
Speaker 8: I mean what they have done over the last eighteen
Speaker 8: months is one you know, really the focus on cost
Speaker 8: cuts and the eurof efficiency which was twenty twenty three
Speaker 8: has really paid.
Speaker 4: Off aka job cuts.
Speaker 8: I mean, look, I think you could argue with a
Speaker 8: lot of the tech companies their cost structure was bloated
Speaker 8: coming out of the pandemic because they overhired.
Speaker 9: Looking at the growth and so they had to course correct.
Speaker 8: In the case of Meta, I mean, this is a
Speaker 8: great business model, over fifty percent operating margin, and for
Speaker 8: good reason. I mean, the fixed costs are almost negligible
Speaker 8: after you know, you have the infrastructure of the scale
Speaker 8: of what Meta has created, you know, for their family
Speaker 8: of apps. And so the way I look at it
Speaker 8: is Instagram clearly still has a ton of runway. The
Speaker 8: blue app is losing engagement, but they have been able
Speaker 8: to make up for that with their reals product, and
Speaker 8: Reels was the equivalent of TikTok. Remember, TikTok really was
Speaker 8: a scary proposition for them in terms of taking away engagement.
Speaker 8: They managed to create a product that was comparable to TikTok.
Speaker 8: And now if the TikTok app is banned, that's actually
Speaker 8: a great positive because they're gonna get a lot of
Speaker 8: the creators come over from TikTok to Reels.
Speaker 4: Is that a lot of why the stock has had
Speaker 4: the run it's on right now because of the prospect
Speaker 4: of TikTok being banned or is it really more the
Speaker 4: Ai story.
Speaker 8: It's actually the execution that they have shown over the
Speaker 8: past twelve months, and as I mentioned cost cuts have
Speaker 8: played a big role because now their EPs expectations have
Speaker 8: gone up forty percent. So in their case for share
Speaker 8: earnings for share, it's not just multiple expansion, it's EPs.
Speaker 8: Growth expectations have also caught up. And I think in
Speaker 8: terms of the top line, they've been able to grow
Speaker 8: top line twenty five percent after laying off twenty five
Speaker 8: percent of the staff. So that tells you how much
Speaker 8: leverage there is in the business model. And look, their
Speaker 8: scale really is what differentiates Meta from like a Snap
Speaker 8: or a pinterest Snap and Pinterests are still struggling.
Speaker 9: With that pricing.
Speaker 8: Not so much for Meta because they have the best
Speaker 8: at targeting and that's what gets reflected in their numbers.
Speaker 2: All right, So you mentioned the TikTok issue, and again
Speaker 2: that legislation, the financial the Aid Package, ninety five billion
Speaker 2: dollar package signed into law by the President today.
Speaker 3: Part of it includes TikTok.
Speaker 2: So we spoke to Matt Shuttingholm, he's our litigation analyts
Speaker 2: for Bloomberg Intelligence yesterday.
Speaker 3: He says, this is going to court.
Speaker 2: When you talk to investors that invest in Meta YouTube,
Speaker 2: all the competitors to TikTok, is there feeling in the marketplace.
Speaker 3: How this might play out.
Speaker 8: Yeah, I think overall it's a net positive for both
Speaker 8: those companies, I mean, Meta and Alphabet YouTube because even
Speaker 8: if let's say the court overturns or decides, you know,
Speaker 8: the app needs to make some remedies and can still operate.
Speaker 8: I think TikTok has a tough problem in terms of
Speaker 8: retaining their creators. So it's one thing, you know, Yeah,
Speaker 8: you've got you know, viewers who come to your app
Speaker 8: for content, but ultimately it's the user generated content that's
Speaker 8: what makes TikTok unique. And if they lose those creators
Speaker 8: over to YouTube or to Instagram, then those creators aren't
Speaker 8: going to come back, even if the app can operate
Speaker 8: down the line. So in the case of Internet, it's
Speaker 8: all about engagement, and the way you maintain engagement is
Speaker 8: through unique content, in this case user generated content.
Speaker 9: So they can't afford to lose those creators.
Speaker 4: Definitely. Yeah, they drive a lot of views in the
Speaker 4: ad space for sure. I mean, I just taking a guess.
Speaker 4: I'm not on TikTok. I'm not that young, cool person,
Speaker 4: but I've heard.
Speaker 3: Our young and cool as opposed to John Tucker. I
Speaker 3: mean assumption that John Talker is not on TikTok, I
Speaker 3: haven't said anything.
Speaker 4: Well, as John John likes to fly through anonymously through
Speaker 4: this John.
Speaker 3: J YouTube guy.
Speaker 2: He goes on and he he You watch the like
Speaker 2: the professors who teach classes and stuff like that.
Speaker 3: You learn a lot of physics courses and you know, oh, that's.
Speaker 4: Really what YouTube was created for. Anyways, keeps moving with Meta.
Speaker 4: Thank you John for joining us today. Mandy coming back
Speaker 4: to Meta here. So we've been talking about this stock rally.
Speaker 4: It's added like close to almost four hundred billion dollars
Speaker 4: in market value on this run. But this stock compared
Speaker 4: to the peers that you were mentioning snap Pinterest, Reddit.
Speaker 5: This is cheap.
Speaker 4: How does that work? Tell us about this earnings multiple?
Speaker 4: And how that's why this stock is trading at a discount.
Speaker 8: Well, so large caps always trade at a slightly lower
Speaker 8: multiple than your small cap companies, and for good reason.
Speaker 8: You know, there's only so much runway you have as
Speaker 8: a company that already generates over one hundred and fifty
Speaker 8: billion dollars in annual revenue. So look, I think in
Speaker 8: the case of Meta, the sentiment yes can be positive
Speaker 8: if they deliver on not only their core business but
Speaker 8: also AI. So right now everyone is focused on what
Speaker 8: additional revenue you can generate from AI. And in the
Speaker 8: case of Meta, they were losing sixteen billion dollars a
Speaker 8: year on Metaverse. Now they seem to have made that
Speaker 8: pivot where they're more focused on AI. They've released a
Speaker 8: third version of their Lama model, which is what everyone
Speaker 8: is focused on.
Speaker 4: Myself, we have to ask what is the MAMA model?
Speaker 4: Please tell us.
Speaker 8: So in the world of generative AI, it's about having
Speaker 8: your own foundational model. Think of open AI as GPT.
Speaker 8: What powers chat GPT is an underlying foundational model where
Speaker 8: you have got a very large size model with you know,
Speaker 8: billions of parameters and weights, and that's what makes it intelligent.
Speaker 8: Now Meta has actually trained its own model using in
Speaker 8: video GPUs and that is comparable to GPT or you know,
Speaker 8: Google Gemini in terms of performance. So what it tells
Speaker 8: you is they're not dependent on anybody to deploy their
Speaker 8: technology or they don't need to partner. In fact, we
Speaker 8: did a survey at BI and Meta emerged as a
Speaker 8: contender for GENAI based search. So think of what chat
Speaker 8: GPT is doing or perplexity is doing. Meta actually is
Speaker 8: being used as a search platform now because they have
Speaker 8: rolled out Meta AI on whatsapppen on Instagram, and over
Speaker 8: time maybe they take share from Google Search.
Speaker 4: And that's what's called Lama.
Speaker 9: Lama is the model.
Speaker 8: We also know why that just harm That's cool, Silicon
Speaker 8: Valuay that Lama model can be used for all types
Speaker 8: of use cases.
Speaker 9: Search is just one of them.
Speaker 4: I'm clearly not an engineer.
Speaker 3: That's beyond me exactly.
Speaker 2: Fortunately, Man deepsins we get to chat with it. Thirty
Speaker 2: seconds left a metaverse.
Speaker 3: We're all on that. You mentioned that it was at
Speaker 3: a Runwright loss of sixteen billion.
Speaker 8: I mean, as long as they keep growing over twenty percent,
Speaker 8: market is forgiving. When it comes to losing four billion
Speaker 8: dollars a quarter, they don't care.
Speaker 3: And that's still the kind of that's still the and
Speaker 3: we don't have any more he's not backing away.
Speaker 9: If he's not backing away and we.
Speaker 8: Don't have any markers on what he's losing four billion
Speaker 8: dollars on, maybe he's subsidizing all the v are in
Speaker 8: the ar glasses that.
Speaker 9: People are buying, and that could be one way you
Speaker 9: justify that.
Speaker 4: I haven't seen what. I don't know if someone single
Speaker 4: person who's on the metaverse, I couldn't tell you a
Speaker 4: single thing about it.
Speaker 9: No, And I think ar glasses.
Speaker 8: I think some people I was talking to that Murray
Speaker 8: she owns one of the air glasses, and there's few
Speaker 8: people who what do you do with them?
Speaker 9: Well, you use it to consume content or to you know,
Speaker 9: just like convenience is laughing here.
Speaker 4: I think he's a use that. I also have no
Speaker 4: idea what's going on.
Speaker 8: You're the same boat as I.
Speaker 2: I'm all right, well just look, I think for the
Speaker 2: stock as long as they don't talk about it, yes,
Speaker 2: that that's good for the stock. Man Deep saying thank
Speaker 2: you for again explaining what's happening in the world of technology.
Speaker 2: Man Deep seeing one of the best tech animals on
Speaker 2: Wall Street, and he covers all the tech stuff I've
Speaker 2: got Anna rog Rana. Also they're doing it from a
Speaker 2: senior perspective. We got technology team all over the globe
Speaker 2: following technology in Asia, Europe.
Speaker 3: What is in Europe? And certainly the US man Deep seen.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live
Speaker 1: weekdays at ten am Eastern on Applecar Play and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 2: We're live here in on O Bloomberg Interactive, Brokers Studio,
Speaker 2: streaming live on YouTube as well to check in on
Speaker 2: bloom YouTube dot com and search Bloomberg Podcasts.
Speaker 3: Bloomberg News.
Speaker 2: Along with Morning Console, they have an ongoing poll where
Speaker 2: they do some polling data as it rates to the
Speaker 2: current political situation and key battleground states.
Speaker 4: That's the key part, right, It's been a really good series. Yeain,
Speaker 4: Gregory Cordy has been all over eighties, our Bloomberg News
Speaker 4: White House and political correspondent, and he's going to join
Speaker 4: us now. Gregory, what can you tell us about the
Speaker 4: big takeaways from this iteration of the poll.
Speaker 10: Yeah, So, as you said, we've been doing this every month.
Speaker 10: This is the seventh iteration of this poll in seven
Speaker 10: key battleground states, and for the first five months it
Speaker 10: was a pretty stable race with former President Trump with
Speaker 10: a slight lead over President Biden. Then after the State
Speaker 10: of the Union address, we got a little bit of
Speaker 10: good economic news and we saw last month President Biden
Speaker 10: pretty much bring it even he was winning or even
Speaker 10: in the ross belt states, the blue Wall states we
Speaker 10: call them of Michigan, Pennsylvania, and Wisconsin made it, gave
Speaker 10: him a fighting chance. But now we're seeing in this month,
Speaker 10: in the April poll sort of reversion back to the
Speaker 10: mean what we had been seeing all along with former
Speaker 10: President Trump having across these seven battle ground states a
Speaker 10: six point lead, and that's significant. Biden can't win this
Speaker 10: without getting at least those blue Wall states and probably
Speaker 10: another one. And he's now down in Pennsylvany within the
Speaker 10: margin of error, but significantly down in Wisconsin. Michigan. Interestingly,
Speaker 10: is this bright spot? And who would have known because
Speaker 10: there are a lot of concerns there about a large
Speaker 10: population of Muslim voters union workers, but he seems to
Speaker 10: be holding his own there.
Speaker 3: Gregory, what are the key drivers are key influencers in
Speaker 3: his poll? What what kind of moves the numbers around?
Speaker 10: It's really the economy and with that, you see that
Speaker 10: with any incumbent president, their numbers move up and down
Speaker 10: with the economy. And what we're seeing in this poll
Speaker 10: is deep pessimism about where we're going to be by
Speaker 10: the end of the year. You see here the numbers,
Speaker 10: UH majorities think that the inflation rate is going to
Speaker 10: be higher by the end of the year, that the
Speaker 10: economy overall is going to be worse, and UH also
Speaker 10: that interest rates are going to be higher by the
Speaker 10: end of the year. Now, these are are this, These
Speaker 10: are voters talking, and they're they're sort of giving us
Speaker 10: their perspective within this political framework where this this might
Speaker 10: differ a little bit from the University of Michigan survey
Speaker 10: when we're talking to consumers and and people making different
Speaker 10: kinds of decisions. But the fact that President Biden is
Speaker 10: so tied to the state of this economy and that
Speaker 10: people are pessimistic about the economy is not a good
Speaker 10: sign for the president.
Speaker 4: This is so fascinating to me as somebody who covers
Speaker 4: the economy, just like the I mean, this is something wait,
Speaker 4: you know, Gregory, we're no stranger to this, but just
Speaker 4: like the mismatch, and like where the economy is actually
Speaker 4: performing and how people actually perceive it to be performing.
Speaker 4: And it's so interesting to me that like this mismatch continues.
Speaker 4: Hear me, We're about to get a GDP report tomorrow
Speaker 4: that's gonna be is it tomorrow? Yeah, tomorrow, it's gonna
Speaker 4: be pretty pretty strong. I mean you're gonna have growth
Speaker 4: like what up in like you know, near the two
Speaker 4: and a half three percent area. The unemployment rate is
Speaker 4: below four percent. Yeah, inflation has been stalling. I guess
Speaker 4: when you say to me that, you know that. So
Speaker 4: a majority of swing state voters see the economy worsening.
Speaker 4: I just wonder, like what metric are they referring to?
Speaker 4: And I know that they're not looking at the economy
Speaker 4: based on like, oh, well, we think manufacturings this, but
Speaker 4: like what what what are they looking at? Is it
Speaker 4: really just inflation?
Speaker 10: Yeah, voters look at the economy differently than economists look
Speaker 10: at the infla economy. And one of the interesting things
Speaker 10: even in this poll, there's an inconsistency and it's a
Speaker 10: little inscrutable. But when you ask people about the national economy,
Speaker 10: two thirds of them to say it's bad. When you
Speaker 10: ask people about their local economy, a majority say it's
Speaker 10: actually pretty good. And so people are differentiating between their
Speaker 10: own personal economic situation and what they see in the
Speaker 10: economy writ large. Why is that it may be because
Speaker 10: of their king off of negative political coverage. It might
Speaker 10: be because we have this political polarization where when they're
Speaker 10: saying the economy is bad, they're really trying to make
Speaker 10: a statement about the president who they don't like. It
Speaker 10: may just be that the they view inflation as a
Speaker 10: national issue and inflation is high. Unemployment they might see
Speaker 10: as a local issue because they have a job and
Speaker 10: their neighbor has a job, and so they might see
Speaker 10: as local issue, and so therefore their local economy is
Speaker 10: doing well. There's a lot to parse out there, but
Speaker 10: certainly people are giving us mixed signals about the state
Speaker 10: of economy.
Speaker 3: And what do you think the Biden administration needs to do?
Speaker 2: Perhaps differently, going to Molly's point about saying, hey, the
Speaker 2: economy is in pretty darn good shape.
Speaker 3: Here's what we've done. How do you think they should
Speaker 3: be messaging this?
Speaker 10: They have been trying with that message for months now,
Speaker 10: and it's been a tough message to get across. At
Speaker 10: one point, they tried to take this pejorative label of
Speaker 10: the economy that Republicans try to brand it with of Bidenomics,
Speaker 10: and turn that into a positive. That did not work.
Speaker 10: They did not change the public perception of Bidenomics, they
Speaker 10: moved a little bit away from that messaging. Right now,
Speaker 10: they can talk all they want about the Infrastructure Bill,
Speaker 10: the Inflation Reduction Act, the Chips Act, all these things
Speaker 10: that we know we've been tracking is starting to make
Speaker 10: a difference, and we'll make a difference in manufacturing on
Speaker 10: sharing a lot of technology. But those aren't really resonating
Speaker 10: with people. People don't really connect with bills being passed.
Speaker 10: They want to see actual stuff getting done, and some
Speaker 10: of that is on a longer time ramps. So maybe
Speaker 10: it's just giving it time. We have six more now.
Speaker 10: But the problem for Biden is that now the second
Speaker 10: quarter of an election year is really when people start
Speaker 10: to make up their minds about the economy, really sort
Speaker 10: of solidify how they think the economy is, and they're
Speaker 10: going to carry that with them into November.
Speaker 4: And another problem with all this too gregory and that
Speaker 4: you point out in the story, is that it really
Speaker 4: doesn't matter, like for whatever reason that the economy is
Speaker 4: performing the way it is, but voter's perception is that
Speaker 4: if it's doing poorly, you put that blame on the president,
Speaker 4: whether it's you know, deserves to be there or not.
Speaker 4: So you know, Biden tried shifting that a bit, you know,
Speaker 4: saying the inflation stuff is stemming from you know, Russia's
Speaker 4: invasion of Ukraine. That message didn't really sit Can he
Speaker 4: really shift the blame elsewhere anymore?
Speaker 10: Yeah, we asked that's a very specific question. In this
Speaker 10: iteration of the poll. We asked who is responsible for
Speaker 10: the economy? And the number one answer, of course, it's
Speaker 10: the president. There is some political polarization there. Republicans are
Speaker 10: more willing to hold him accountable than Democrats. Democrats are
Speaker 10: more likely to say, well, you know, Congress also plays
Speaker 10: a role, the Fed plays a role, Wall Street corporations
Speaker 10: all role. For Republicans, they want to put this entirely
Speaker 10: at the feet of the president. So the issue is
Speaker 10: going to be how to independency, How those swing voters
Speaker 10: see it. Do they give Biden a little bit of
Speaker 10: a pass given that this post pandemic economy has had
Speaker 10: a whole bunch of struggles that may or may not
Speaker 10: be outside the president's control. That's the debate that we're
Speaker 10: going to have to have in the next six months
Speaker 10: or so.
Speaker 3: Gregory, how aware do you think the White House is
Speaker 3: of polling data like this than you so much.
Speaker 10: I don't necessarily want to get into every conversation that
Speaker 10: I have with the White House and the Biden campaign
Speaker 10: on this, but suffice it to say they're very aware.
Speaker 10: You know, the public messaging is going to be. We
Speaker 10: don't dictate policy by the way polls are from day
Speaker 10: to day. But look, they look particularly at these polls.
Speaker 10: You'll see a lot of poles out there that have
Speaker 10: the national number, the popular vote number, and that's actually
Speaker 10: pretty even. Trump and Biden are pretty much neck and
Speaker 10: neck in those national numbers. But because of the way
Speaker 10: the electoral college is constructed, it's these seven states that
Speaker 10: are most likely going to decide this and that's where
Speaker 10: that six point differential makes a difference. And so they're
Speaker 10: looking not just the national numbers. They would obviously like
Speaker 10: to see an upward trend in the national numbers, but
Speaker 10: they're looking state by state by state to see where
Speaker 10: they're doing, where they're up, where they're down. And this
Speaker 10: is going to be especially important going in the summer
Speaker 10: and fall into where they deploy the resources, where they
Speaker 10: spend money on ads, where they put volunteers on the ground,
Speaker 10: where they knock on doors, where they do they get
Speaker 10: out on the vote efforts, and this is going to
Speaker 10: be a very shifting campaign over the next six months.
Speaker 10: We're going to see both the Trump and Biden campaigns
Speaker 10: look at these polls and decide where the poy of
Speaker 10: their resources because this is actually an awfully small chessboard.
Speaker 10: This is not a fifty state campaign. This is a
Speaker 10: seven state campaign and maybe even smaller than that at
Speaker 10: this point.
Speaker 2: And Gregor, is there any reason to think in your
Speaker 2: polling data, do you say anything about the president former
Speaker 2: President Trump's legal issues being a weight on him?
Speaker 3: Doesn't appear to be.
Speaker 10: We asked that, not this month, but the previous month.
Speaker 10: We asked whether people would change their minds if the
Speaker 10: president's convicted on anything, and a majority said that they
Speaker 10: would not vote for Trump if you were convicted on something.
Speaker 10: Now we'll see if he were to be convicted whether
Speaker 10: people might change their minds and discount these Obviously, President
Speaker 10: Trump is out there every day trying to dismiss these
Speaker 10: as partisan political persecutions of him, So we'll have to
Speaker 10: see whether an actual conviction changes that dynamic at all.
Speaker 10: People really aren't differentiating between these cases at all. The
Speaker 10: Alvin Bragg case that's going on Manhattan. Now, the two
Speaker 10: federal cases and the Georgia case. People kind of throw
Speaker 10: them all in the same bucket, and so we'll just
Speaker 10: have to see if there's an actual conviction. How people
Speaker 10: process that information.
Speaker 4: It certainly is a lot to keep track of from
Speaker 4: a voter's perspective, So I can't necessarily say I blame
Speaker 4: them if you do lump them altogether. Something else you
Speaker 4: touched on in this version of the survey, Gregory, is
Speaker 4: abortion and how important that will be in deciding the
Speaker 4: next president. How did that one rank versus the economy.
Speaker 10: This poll was in the field when we had that
Speaker 10: Arizona Supreme Court decision that upheld a nineteenth century abortion
Speaker 10: restriction law that was in effect up until Roe v. Wade,
Speaker 10: the Supreme Court case in nineteen seventy three, and so
Speaker 10: we're reverting back to the pre row law in Arizona.
Speaker 10: Very controversial, obviously, and we do see an uptick of
Speaker 10: voters saying that abortion is a very important issue for them,
Speaker 10: and especially obviously among democratic women, among independent women a
Speaker 10: little less so. But suburban women is the key demographic
Speaker 10: that we all look at. An uptick there and especially
Speaker 10: in Arizona. Now the question is going to be whether
Speaker 10: these are people who already those votes were baked in,
Speaker 10: Those were votes that President Biden was already going to get.
Speaker 10: It may help him, though in terms of enthusiasm. There
Speaker 10: seems to be an enthusiasm gap here, and so Joe Biden,
Speaker 10: even if he's not winning any new voters on the
Speaker 10: abortion issue, he needs that issue to really motivate those
Speaker 10: Democratic voters to show up in November, because there might
Speaker 10: be a lot of reasons why they they Otherwise, Mike
Speaker 10: decide to set this one out all.
Speaker 3: Right, Gregy, thank you so much for joining us. Appreciate
Speaker 3: your reporting.
Speaker 2: Gregory Cordy, white House and political correspondent for Bloomberg News,
Speaker 2: joining us from Washington, DCU.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Applecardplay and Android Auto
Speaker 1: with the Bloomberg Business. You can also listen live on
Speaker 1: Amazon Alexa from our flagship New York station, Just say Alexa,
Speaker 1: playing Bloomberg eleven thirty.
Speaker 2: Mollie Smith, she's sitting here for Alex Steele this week,
Speaker 2: who's on vacation On Paul Sweeney. You're live here in
Speaker 2: our Bloomberg Interactive Brooker Studio or streaming live on YouTube.
Speaker 3: That's the video.
Speaker 2: So go over to YouTube dot com and search Bloomberg
Speaker 2: Podcast and that's where you will find us.
Speaker 3: You know, Molly.
Speaker 2: One of the most amazing stories to me in financial
Speaker 2: services over the last decade or so has been the
Speaker 2: growth of ETFs.
Speaker 4: Huge just can're.
Speaker 2: Amazed at the fun flows to ETFs and it makes
Speaker 2: a lot of sense.
Speaker 3: And fortunately we have people like Eric.
Speaker 2: Pauchunis at Bloomberg Intelligence who keeps us update on what's
Speaker 2: going on there. But we wanted to talk to one
Speaker 2: of the practitioners in the business. Jennifer Grancio joins us.
Speaker 2: She's global head of distribution at TCW. Little firm on
Speaker 2: the West coast, huge firm on the West face and
Speaker 2: they're into the ETF business.
Speaker 3: Jennifer, thanks for joining us here in our studio.
Speaker 2: What is the TCW ETF business? Tell us kind of
Speaker 2: how you guys are in that business.
Speaker 6: Happy to you, great to be here. So from a
Speaker 6: TCW perspective, a lot of people think of us as
Speaker 6: you know, the core of the fixed income portfolio, which
Speaker 6: we are for many investors with the TCW or met
Speaker 6: West funds, and now we're growing the equity business as well,
Speaker 6: so a lot of that will be ETFs, and we
Speaker 6: also were going to do ETFs in the fixed income space.
Speaker 4: When you say you do ETFs, are you the one
Speaker 4: that you're like deciding what goes into each one or
Speaker 4: like tell us, like what your role is in this marketplace?
Speaker 4: Yeah for sure.
Speaker 6: So so from an equity perspective at TCW, we have
Speaker 6: some great core strategies we run in mutual funds and
Speaker 6: SMA through the end to number one acquisition, and then
Speaker 6: also we're converting a couple of legacy TCW active mutual funds.
Speaker 6: We're going to have a very impressive range of megatrend
Speaker 6: thematic products for clients. And if you think about why
Speaker 6: and what's the role and why does the world need that.
Speaker 6: There's a lot of index ETF option out there. A
Speaker 6: lot of people are very indexed in their portfolios, which
Speaker 6: has this real concentration bias now in large tech, and
Speaker 6: so we're offering the market a range of ETFs on
Speaker 6: energy and power transformation, reshoring of supply chains, artificial intelligence
Speaker 6: that let you take some money out of the core
Speaker 6: and really go after outperformance in alpha in portfolio.
Speaker 3: So by definition are those active ETFs.
Speaker 6: They are very concentrated portfolios and active. And if you
Speaker 6: think about the markets, money's not free anymore. Rates you're
Speaker 6: much higher. So we think the next ten twenty years
Speaker 6: are our great market for active managers that can outperform.
Speaker 6: So all of these ETFs on the thematic side will
Speaker 6: be active. Yeah, so let's talk about some of those themes.
Speaker 6: I mean you had mentioned, you know, related to energy
Speaker 6: transition supply chains. What are some of the ones that
Speaker 6: you guys are really paying a lot of attention to
Speaker 6: right now. Yeah, I mean, those are two big ones,
Speaker 6: and they're not small, tactical, narrow trends. They're huge. They're
Speaker 6: going to be here for many decades. And so one
Speaker 6: of the ETFs is net Z and etz and that's
Speaker 6: about energy and power transformation. And so if you think
Speaker 6: about that, we are going to need to more than
Speaker 6: double our power and energy in the next twenty years.
Speaker 6: So think about that, more than double. And so companies
Speaker 6: that are at the forefront of how we service the
Speaker 6: need and demand and kind of monster demand we have
Speaker 6: for power, as well as companies that are more efficient,
Speaker 6: have a huge opportunity to outperform and so that's a
Speaker 6: big theme. And now in that theme, we own companies
Speaker 6: that are energy better, energy producers. We own Vertive, which
Speaker 6: cools data centers. We own waste and garbage companies that
Speaker 6: are finding ways to create natural gas and energy out
Speaker 6: of landfill.
Speaker 1: Well.
Speaker 6: So it's a very diverse portfolio and very complementary and
Speaker 6: different than what you might hold in an index fund.
Speaker 2: When I started my equity research business way way back
Speaker 2: in the day, it starts within eight you know, back
Speaker 2: in the eighties, it covered railroads. Really, we wrote the
Speaker 2: first research report on Consolidated Railroad, which the company which
Speaker 2: the government, US government was privatizing via an IPO. We
Speaker 2: wrote about two hundred page report on that owned that.
Speaker 4: Stock for you, you want to give us a nice
Speaker 4: summary of that right now.
Speaker 3: Yeah, it was a great cost cutting thing. Taking railroad
Speaker 3: crews from five to two tripled your margins.
Speaker 6: And that's and the other big trend is supply the
Speaker 6: supply chain.
Speaker 3: That's it.
Speaker 2: So I know you've got an ETF on a railroads.
Speaker 2: That's why I bring it up. Is that again I
Speaker 2: think about the railroads in supply chain. I guess we
Speaker 2: all got really smart about supply Chaine and the delicate
Speaker 2: nature of supply chains during the pandemic.
Speaker 3: How do you guys think about that.
Speaker 6: Yeah, So the sort of reassuring of supply chains and
Speaker 6: manufacturing to America and North America is again it's a
Speaker 6: monster trend. It started during COVID. So if I'm deer
Speaker 6: and I'm trying to make a tractor and my bolt
Speaker 6: is made in Asia, i couldn't get my bolt. It
Speaker 6: was really bad for business. So we're seeing that trend
Speaker 6: already having started. And then on top of that, we've
Speaker 6: now got geopolitical issues that make us more nervous about
Speaker 6: doing things like semiconductors outside of the US. So again huge,
Speaker 6: very broad multisector trend. And what we own in sup
Speaker 6: or the reshoring of supply chain ETF is all the
Speaker 6: way from railroads, So how are we going to transport
Speaker 6: things if we're manufacturing all over North America. It's fantastic
Speaker 6: for railroads and they've been undervalued. So that's a big
Speaker 6: performance opportunity. And early in the cycle where I think
Speaker 6: we have three trillion of committed projects of new manufacturing,
Speaker 6: more than we've ever had in the US. Early in
Speaker 6: the cycle, we invest a lot in what we call
Speaker 6: picks and shovels, so Martin, Marrietta, Vulcan companies that make materials.
Speaker 6: So as we build all of these factors factories, pardon me,
Speaker 6: and then we own a lot of semiconductor names as well,
Speaker 6: because all of these factors are going to have AI
Speaker 6: and rows and they have much higher demand for content
Speaker 6: from a semiconductor perspective.
Speaker 4: I wanted to ask you about the AI theme next.
Speaker 4: That's certainly got to be a big one of these
Speaker 4: thematic trends that you're focusing on. So how are you
Speaker 4: positioning around AI right now?
Speaker 6: Yeah, So in the case of AI, it's in those
Speaker 6: two portfolios to some extent. And then we have a
Speaker 6: mutual fund at TCW which we're converting to an ETF,
Speaker 6: So watch the space for that.
Speaker 4: And the advantage of that is it just like you know,
Speaker 4: I guess, because ETFs tend to be a bit cheaper
Speaker 4: for like a more consumer friendly product. Is that the idea?
Speaker 6: Yeah, in this case it's an active fund, so it's
Speaker 6: not a sort of a cheap index fund. But the argument,
Speaker 6: and I think you see a lot of active managers
Speaker 6: converting where it makes sense, is that the market likes CTFs,
Speaker 6: It likes the ability to click through and see the
Speaker 6: underlying holdings on the website, It likes the tax advantages
Speaker 6: of an ETF, And so in the case of these
Speaker 6: mega trends, we see the market in general buying ETFs,
Speaker 6: not funds. So we have a very long track record
Speaker 6: on the TCW Artificial Intelligence Fund and we're converting it
Speaker 6: to an ETF and a little bit like what we
Speaker 6: talked about in the case of net Z and sub,
Speaker 6: the AI fund has an ability to invest in different
Speaker 6: things as we move through time.
Speaker 4: So it's not all big tech.
Speaker 6: It's also systems and enablers and hardware that is going
Speaker 6: to grow aggressively as all these companies are doing more
Speaker 6: in AI.
Speaker 3: So it's safe to say, you, guys at tc there'll
Speaker 3: be a big believers in AI. We are, okay, because
Speaker 3: I was.
Speaker 2: I guess my skeptical self SI and analyst nature is like,
Speaker 2: where did this come from?
Speaker 3: Is this just big data from three or four years ago?
Speaker 3: Is this just big tech?
Speaker 2: Is growing as a percentage of GDP of twenty years ago?
Speaker 2: What's new about AI?
Speaker 6: I think we're in We're in the next evolution of
Speaker 6: training systems, asking systems questions with all these models and
Speaker 6: natural language models asking questions in a way that we
Speaker 6: just get faster and faster and better output. And so
Speaker 6: that's really that's good for everyone. And so it'll start slowly,
Speaker 6: but as more people learn to get that leverage, I
Speaker 6: think we're going to see is it going to see
Speaker 6: a boom?
Speaker 3: Yep?
Speaker 2: And it's you know, we hear every company in the
Speaker 2: S and PT on their confer without it on their
Speaker 2: conference call talking about you know, AI and how it's
Speaker 2: getting to be critical to their business. Jennifer Grancio, thanks
Speaker 2: so much for joining us. Jennifer is a global head
Speaker 2: of distribution for TCW. We appreciate her coming into our
Speaker 2: Bloomberg Interactor Proper Studio in New York City.
Speaker 1: This is the Bloomberg Intelligence Podcast, available on apples, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com,
Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app.
Speaker 1: You can also watch us live every weekday on YouTube
Speaker 1: and always on the Bloomberg terminal