Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: Terminal and the Bloomberg Business app. Morgan Stanley's Mike Wilson
Speaker 2: saying this, we believe equity markets have been trading poorly
Speaker 2: in April, primarily due to the repricing of fed cuts,
Speaker 2: with ten yere yields now well above our key four
Speaker 2: thirty five four forty target. Stock appreciation from here would
Speaker 2: largely have to be earned through earnings upside rather than
Speaker 2: multiple expansion. Mike and Polica says with us around the table, Mike,
Speaker 2: good morning to you. You're worrying how high is the
Speaker 2: bar or low for those tech fis through this week.
Speaker 3: Well, it's mixed, as you were saying, it's it's not
Speaker 3: all one trade anymore.
Speaker 4: It's sort of the Magnificent three or four.
Speaker 3: Some are falling by the wayside for fundamental reasons, some
Speaker 3: are falling by the wayside.
Speaker 4: For rate reasons.
Speaker 3: And look they've got they've got tougher comparisons now, so
Speaker 3: I think that always the case, right, It's not so
Speaker 3: much about the earnings results. It's about the reaction of
Speaker 3: the stock to the earnings results. And I think that's
Speaker 3: what I'm really fascinated to see how much goodness is
Speaker 3: already priced into even the winners, and there are some
Speaker 3: big winners in that group.
Speaker 4: I agree with you, Lisa.
Speaker 3: I think what's more interesting is what's going on away
Speaker 3: from those stocks that will that will inform us more about.
Speaker 4: What's actually happening in the economy.
Speaker 3: You know, what the expectations are around FED for example,
Speaker 3: and also some of the geopolitical risk, which I think
Speaker 3: you know that's not our number one concern, but it's
Speaker 3: also one of the reasons we're overweight energy.
Speaker 2: You said, we can learn something from the earnings themselves
Speaker 2: and how the stalk responds to them. What if we
Speaker 2: learned so far as we get deeper into any season, Well.
Speaker 3: It's about fifty to fifty, So fifty percent have been
Speaker 3: up to plus one, fifty percent have been down.
Speaker 4: That's worse than normal.
Speaker 3: This is in line with what we've been saying for
Speaker 3: quite a while now as we think now we're in
Speaker 3: a period.
Speaker 4: Of moultiple contraction.
Speaker 1: Right.
Speaker 3: If you think about the last six months, all that
Speaker 3: really happened was, you know, the Fed pivoted treasury. I
Speaker 3: would argue, sort of squeeze the bomb market. We had
Speaker 3: a duration rally into year end and that affected a
Speaker 3: huge multiple expansion. You know, it doesn't get a lot
Speaker 3: of press, but twenty twenty four estimates for the S
Speaker 3: and P five hundred have really gone up. Okay, they've
Speaker 3: been sort of flat over that six month period. It's
Speaker 3: all multiple expansion. So our call basically is that we
Speaker 3: first always thought seven cuts was silly. I think a
Speaker 3: lot of people agreed with that, and now we're down
Speaker 3: to one and a half. So why wouldn't multiples come
Speaker 3: down in that environment? And I think that's what we're
Speaker 3: facing now during earning season is you've got to really
Speaker 3: put up a serious beat and a revision.
Speaker 4: To the upside for the stock to go up.
Speaker 3: I'm very curious to see how that plays for the
Speaker 3: next two weeks.
Speaker 1: What we're seeing right now in the earnings is not
Speaker 1: a cohesive story. I mean, honestly, you're seeing some areas
Speaker 1: where it's cost cutting that's keeping margins afloat, in other
Speaker 1: areas where you see, you know, for example, demand for
Speaker 1: trucks in the US going gangbusters. Are you seeing any
Speaker 1: themes that you can kind of grab onto so far?
Speaker 3: The theme is that it's a very unbalanced economy, and
Speaker 3: that's the theme we've had.
Speaker 4: For a while.
Speaker 3: So post COVID has just been a very unpredictable environment
Speaker 3: for a lot of reasons.
Speaker 4: Some of those things we got really right.
Speaker 3: So most things we got really wrong, and I think
Speaker 3: we're trying to figure out kind of what the next
Speaker 3: stage is. Let's look at the last year as an example.
Speaker 3: So a year ago hard landing recession was the consensus
Speaker 3: view market overpriced that. Then we got a soft landing
Speaker 3: price in in two q Then we had a sort
Speaker 3: of a fiscal sustainability problem where growth got too hot
Speaker 3: and rates went up and we had a big correction.
Speaker 3: Then we went back to the soft landing and now
Speaker 3: we're in no landing. So this is our view at
Speaker 3: the beginning of the year, there's a third of a percent.
Speaker 3: There's a thirty three percent chance of all three of
Speaker 3: those happening soft landing, no landing, hard landing, and I
Speaker 3: think it's the same. So in other words, right now
Speaker 3: we're trying to price that no landing scenario, but I'm
Speaker 3: not confident that we're going to stay in that environment.
Speaker 4: And companies are a reflection of that.
Speaker 3: Right Some companies do better in that scenario, and that's
Speaker 3: why they're doing better things like energy and materials, financials.
Speaker 4: But is that sustainable.
Speaker 1: We're going to find out, you know, we said that
Speaker 1: we're going to see how much multiple expansion could continue
Speaker 1: and whether we see multiple contraction. The multiple expansion has
Speaker 1: been really concentrated in big tech.
Speaker 4: It has been really.
Speaker 1: Concentrated in some of the quality names that you like.
Speaker 1: It has not been concentrated in the Russell two thousand,
Speaker 1: which has not experienced that same kind of run. Do
Speaker 1: you start to like some of those areas because suddenly
Speaker 1: it is an economy that's okay, maybe supported by a
Speaker 1: couple rate cuts, and frankly, you haven't seen that multiple expansion.
Speaker 3: Well we did, I mean November December was one of
Speaker 3: the biggest short squeezes I've ever seen in the lower
Speaker 3: quality parts of the market. So we did absolutely see
Speaker 3: multiple expansion. Now we're giving some of that back, right,
Speaker 3: And that's our call, which is that I don't really
Speaker 3: want to go to the low quality world, Okay, and
Speaker 3: that includes small caps. Not all small cap companies are
Speaker 3: low quality, just be clear, but as a group, okay,
Speaker 3: Russell two thousand is a low quality index and that's
Speaker 3: why it's underperforming again because race are too high for them.
Speaker 4: Like our star. People talking about our star, Okay, Well.
Speaker 3: Our star is different depending on who you are and
Speaker 3: what kind of company you run. It's extremely variable, and
Speaker 3: the market's been really efficient Lisa in saying, look, rates
Speaker 3: are too high for a majority of the economy, whether
Speaker 3: it's consumers or small businesses. So we're sticking with that
Speaker 3: until rates really get cut. We think that the trade
Speaker 3: is still you got to go with self funding businesses
Speaker 3: that have idiosyncratic kind of growth opportunities are pricing power
Speaker 3: and just playing out again this year in space, A.
Speaker 1: Lot of people think about you as a bear because yesterday,
Speaker 1: for last year, I should say, you are really calling
Speaker 1: for some sort of downturn in the economy. Where are
Speaker 1: we in terms of that cycle, in terms of just
Speaker 1: how close we are to a downturn? Are you basically saying,
Speaker 1: you know what, this isn't something you can really call
Speaker 1: with any definitive conviction that you have to sort of
Speaker 1: just look at specific companies and stay away from that stuff.
Speaker 3: You know, it's me it's a humbling business. And I think,
Speaker 3: I mean seventy percent of the street I think was
Speaker 3: in the recession camp a year ago. Our economists were not,
Speaker 3: but a lot of people were in that camp and
Speaker 3: we had to reprice that out. So where we think
Speaker 3: we're still very much late cycle. I heard you all chatting.
Speaker 3: One of the questions we've had is why can't it
Speaker 3: be early cycle. Well, there's a lot of reasons why
Speaker 3: we don't think it's early cycle. Labor market's very tight,
Speaker 3: the old curve is still inverted. We don't have a
Speaker 3: lot of supply in the labor market. We have immigration
Speaker 3: maybe supporting that, but generally it's a tight labor market.
Speaker 3: You know, margins are still at record high levels. So
Speaker 3: all of the things that we would look at from
Speaker 3: an early cycle perspective are just not there. So we're
Speaker 3: still late cycle, and what does that mean. It means
Speaker 3: this can last for another two years, or it could
Speaker 3: be over tomorrow if we have another shock. So we're
Speaker 3: probably going to sider we're not going to be as
Speaker 3: aggressive trying to make that shock because we don't know
Speaker 3: what it is. We thought it was a regional banking
Speaker 3: crisis last year turned out to be not the case.
Speaker 3: The economy turned out to be stronger. I would also
Speaker 3: argue that we have an incredibly imbalanced policy mix, which
Speaker 3: has helped the economy to sustain itself. So economic data
Speaker 3: does not look like the earnings data to us. Okay,
Speaker 3: economic data is much stronger than the earnings data.
Speaker 4: Why is that? An enormous amount.
Speaker 3: Of fiscal support into the economy is keeping the economic
Speaker 3: data looking strong, which is preventing the FED from really
Speaker 3: cutting rates for an early cycle rotation. And that's we're
Speaker 3: just kind of stuck in that and we could be
Speaker 3: there for a while. I don't see that breaking. I
Speaker 3: don't see any discipline in Congress. We're spending more money
Speaker 3: this week with this bill, I mean, so that is
Speaker 3: where we are. The question is is that overpriced? And
Speaker 3: I think it is because should I pay a higher
Speaker 3: multiple for what I call low quality growth, government sort
Speaker 3: of driven growth. I would already know for some companies
Speaker 3: you can pay higre multiple because they're IDoc and credic
Speaker 3: to that. And that's what's happening. Companies that don't need
Speaker 3: government support are doing better. Companies that we're getting constrained
Speaker 3: by higher rates are underperforming.
Speaker 5: Let's talk about fiscal and the fact that it doesn't
Speaker 5: matter who wins the election, there's going to be more
Speaker 5: money coming out of Washington. It's one of your questions
Speaker 5: you ask in your note, how are you thinking about
Speaker 5: the election as a driver of markets this year? Is
Speaker 5: it too soon to start preparing for November?
Speaker 1: Yeah?
Speaker 3: I mean historic, and we put this in a note.
Speaker 3: I mean typically the volatility the market picks up two
Speaker 3: to three months before the election. My experience is that
Speaker 3: until we have the conventions and we really see the
Speaker 3: platforms at the stock level, and we don't see.
Speaker 4: A lot of action.
Speaker 3: Now, interestingly, this year, the market is rallied in the
Speaker 3: beginning of the year. Typically it doesn't do well in
Speaker 3: the first half and it does better in the second
Speaker 3: half as it becomes more clear. So is that going
Speaker 3: to reverse this year? We have a tougher second half maybe,
Speaker 3: But I agree with your first sort of position, which
Speaker 3: is I don't see a lot of difference between these
Speaker 3: two campaigns in terms of the fiscal and even the
Speaker 3: monetary mix. The one thing I would say is focus
Speaker 3: on the areas where the president can do things that
Speaker 3: are executive order okay, And the biggest one in my
Speaker 3: mind is immigration, and terrass is the second one. That's
Speaker 3: the second one. So terroris and immigration could be done
Speaker 3: without congressional voting. So that's where I think, because I'm
Speaker 3: not confident that we're going to get a sweep either way,
Speaker 3: that's probably the least likely outcome. It's probably ten percent chance.
Speaker 3: It's going to be very close. But to get one
Speaker 3: party as a sweep, I think it's going to be challenging.
Speaker 3: So the executive order lever, if you're thinking about Trump
Speaker 3: or Biden, that's where that's what the action is going
Speaker 3: to be.
Speaker 2: I just want to work that's through an extra step.
Speaker 2: You suggest that might be if we get a president Trump.
Speaker 2: Volume two to this supply site, Nevana that some people
Speaker 2: in the world of economics are embracing my be threat.
Speaker 4: Since I think that's exactly right.
Speaker 3: I would argue that there's a chance that maybe something
Speaker 3: is done prior to the election for political because this
Speaker 3: is a hot issue for the election, right, Immigration is
Speaker 3: a hot topic, and the question is do they try
Speaker 3: to curtail some of that inflow prior to the election.
Speaker 4: I have no idea, but we're going.
Speaker 3: To learn more about that, I think in the conventions
Speaker 3: in terms of how they're talking about it.
Speaker 2: So your point that mind, this could change quickly in
Speaker 2: the space of a couple of months. I'm just trying
Speaker 2: to work out how quickly that would shot upen the data,
Speaker 2: how quickly the market might respond to that change.
Speaker 3: Well, here's the real takeaway, John, I feel like there's
Speaker 3: been a lot of marking to market going on, right,
Speaker 3: So I would argue everybody's been wrong about the fundamental
Speaker 3: picture in many many ways over the last two years,
Speaker 3: including ourselves, Okay, and that marketing to market. All of
Speaker 3: a sudden, you mark yourself to market, Why are you
Speaker 3: any more confident you know what's going to happen next? Right,
Speaker 3: And that's where we have a problem with valuations is
Speaker 3: there seems to be this perceived certainty again being priced in.
Speaker 4: It's like I'm not certain at all. Maybe I'm the
Speaker 4: dummy in the room.
Speaker 3: I don't know, but I feel like there's a little
Speaker 3: bit of complacency around just knowing what's going to happen.
Speaker 4: By the way I send all bad.
Speaker 3: There could be some positive surprises, but those positive surprises
Speaker 3: may lead you to a different group of assets that
Speaker 3: you want to own. Okay, I mean I think bonds
Speaker 3: are just suspend a minute on bonds, so my goodness.
Speaker 3: I mean this is one where I literally can flip
Speaker 3: a coin and I would fit.
Speaker 4: Okay, that's it, you know, because I could.
Speaker 3: See rates higher from the standpoint of fiscal sustainability problems,
Speaker 3: we have a term premium increased like last last year.
Speaker 3: Or I could see things slow down again because rates
Speaker 3: are now higher, right, the wealthffect is kind of being
Speaker 3: priced out of the market, and maybe things slow again.
Speaker 3: Our house call is we're going back to sort of
Speaker 3: four fifteen. I think you just had a guest saying
Speaker 3: three seventy five. Yep, I mean three seventy five would
Speaker 3: argue that we're probably back into a soft landing or
Speaker 3: hard landing scenario. Four to fifteen is kind of more
Speaker 3: the things just kind of slow down a bit.
Speaker 2: Can I put you on the spot just a little bit?
Speaker 2: Is it easier to foresee than being one hundred basis
Speaker 2: points lower than being one hundred basis points higher?
Speaker 4: Or you actually ten more and split?
Speaker 3: Yeah, one hundreds big, okay? And those are the tails, right,
Speaker 3: So one hundred on the upside would be the market
Speaker 3: is really concerned about unding sustainability, almost like the UK okay,
Speaker 3: two years ago. And I think one hundred base of
Speaker 3: points lower from here is kind of a hard landing.
Speaker 4: Give me the next fifty.
Speaker 3: Yeah, so fifty, I'm I'm still leaning to higher, but
Speaker 3: our house call is lower, so you know, and I
Speaker 3: got to go with the.
Speaker 4: House call.
Speaker 6: There.
Speaker 4: But I mean, but the bond guys, I.
Speaker 3: Mean, that's their job, and so I gotta, I gotta,
Speaker 3: I gotta bet.
Speaker 4: With them, okay. And so that would be okay.
Speaker 3: So what happens in that scenario for stocks, Well, all
Speaker 3: of a sudden, our no landing scenario probably isn't the case,
Speaker 3: and we probably would downgrade energy, and we probably would
Speaker 3: go back to some of the things that were doing
Speaker 3: better last year. And so it's just I think you
Speaker 3: just got to keep a really flexible open mind that's
Speaker 3: what we try to do now with the with the
Speaker 3: stock picking. We haven't really talked much about index in
Speaker 3: the last four or five months because we're trying to
Speaker 3: focus on the relative value trades and we've got a
Speaker 3: lot of those right and hopefully, knock on wood, we
Speaker 3: can continue to do that.
Speaker 2: Stick with a Mike, you're gonna sty Clive Smike Wilson,
Speaker 2: that of mulch and Stanley.
Speaker 4: Matters with us.
Speaker 2: Now for more My congratulations because I think a lot
Speaker 2: of people have moved to your view of the world.
Speaker 2: You were talking about a mid cycle adjustment quite a
Speaker 2: while ago, and I think everyone else is caught up
Speaker 2: now this is no longer about the start of a
Speaker 2: cutting cycle and perhaps an adjustment mid cycle. Can you
Speaker 2: frame the difference and what led you towards that conclusion?
Speaker 7: Yeah, absolutely so. We have I think two historical examples
Speaker 7: of mid cycle adjustments. You had one in the mid
Speaker 7: nineteen nineties, you had one in twenty nineteen. And the
Speaker 7: logic there is the FED is cutting rates, not necessarily
Speaker 7: because we're in a recession, but maybe they're seeing some
Speaker 7: weakness in the economy that they're trying to get ahead of,
Speaker 7: or they're seeing that inflation's coming down substantially. I think
Speaker 7: this cycle was going to be all about inflation coming
Speaker 7: down and the FED being able to cut rates modestly
Speaker 7: in response to that. Certainly we're seeing that that get
Speaker 7: pushed back.
Speaker 4: But with a labor market where.
Speaker 7: It is, with growth as resilient as it is, with
Speaker 7: financial conditions as easy and accommodative as they are, there's
Speaker 7: really no reason for the FED to guide towards a
Speaker 7: full cutting cycle at this point in time pre pandemic.
Speaker 2: I can remember a phrase that Chairman Pound talked about
Speaker 2: the objective to extend the CINCO. It's not the objective now,
Speaker 2: and where are we in a so called cyco.
Speaker 6: Yeah.
Speaker 7: I think you've seen FED officials talking about risk management
Speaker 7: for a long time over the past three years. Risk
Speaker 7: management meant being hawkish raising grades in order to ensure
Speaker 7: that inflation doesn't become entrenched. I think three or four
Speaker 7: months ago we saw better balancing of those risks.
Speaker 4: As inflation was looking softer.
Speaker 7: And the FED became a little bit worried about growth.
Speaker 7: I think the past three months of stronger inflation prints
Speaker 7: have put inflation back to the forefront for the FED
Speaker 7: and extending the cycle at this point, I think does
Speaker 7: mean ensuring that inflation does not get entrenched, not cutting
Speaker 7: rates prematurely. We hear more FED officials talking about the
Speaker 7: risk that that's the bigger risk, cutting rates prematurely having
Speaker 7: to rehike later.
Speaker 1: I like Ben Bernike's idea of scenario analysis. I would
Speaker 1: like to have a sense of exactly how the FED
Speaker 1: would respond if certain things happen. Since it's been such
Speaker 1: an unpredictable cycle. How many hot inflation prints will it
Speaker 1: take before we start talking about no hikes this year
Speaker 1: and no more cuts this year? And how many we
Speaker 1: prints does it take for the FED to cut?
Speaker 7: Yeah, I think we're close to talking about no cuts.
Speaker 7: You know, our expectation is the FED only cuts once
Speaker 7: and it comes cut in December. Well, we also expect
Speaker 7: that you're going to see disinflation come back over the
Speaker 7: next several months. So even if you get disinflation, you know,
Speaker 7: three four months ahead, I think the FED is going
Speaker 7: to be a little bit more reluctant to cut rates
Speaker 7: because you know, they've seen a headfake from the inflation data.
Speaker 7: It's going to take a while to rebuild that confidence.
Speaker 7: I think if you take take a step back. You know,
Speaker 7: core PC inflation on Friday might be two seven or
Speaker 7: two eight. We have growth, which you know around two
Speaker 7: and a quarter percent. We have financial conditions that are easy.
Speaker 7: We have the labor market, you know, adding more than
Speaker 7: two hundred thousand jobs per month on average, with a
Speaker 7: historically low on employment rate. There's just not very compelling
Speaker 7: reasons to cut rates within that environment, and I think
Speaker 7: the FED is coming around to that view.
Speaker 1: How much are they basically also kind of tacitly admitting
Speaker 1: that the pivot last year really kind of worked against
Speaker 1: their goal of disinflation, that that might have actually contributed
Speaker 1: to the stickiness that we're seeing right now. Is some
Speaker 1: of the data.
Speaker 7: I think, you know, perhaps it's somewhat of a contry
Speaker 7: beating factor. I think a lot of this may be seasonal,
Speaker 7: So you do have some seasonal factors that boost.
Speaker 4: Inflation early in the year.
Speaker 7: But what that means is the disinflation we saw last
Speaker 7: year was overstated, and so overall inflation is just going to.
Speaker 4: Be more elevated than then we thought.
Speaker 7: I think financial conditions will help to boost growth as
Speaker 7: we look ahead, but I don't think that it's been
Speaker 7: a key factor for the stronger inflation prints of the
Speaker 7: first three months of the year.
Speaker 1: Mid cycle adjustment doesn't sound like we're near any kind
Speaker 1: of hard landing. And yet the different rolling cycles that
Speaker 1: we're seeing in a lot of these earnings reports and
Speaker 1: what people are talking about the two sided economy, it's
Speaker 1: very real. How do you play that out given the
Speaker 1: fact that if rates were made at this level, the
Speaker 1: lower tier, the lower half, frankly of the population is
Speaker 1: going to struggle all the much more so. And I'm
Speaker 1: talking about both companies and individuals.
Speaker 7: Yeah, I think from my perspective, that's returning to more
Speaker 7: normal conditions. You know, it is the reality of the
Speaker 7: US economy that you have delinquency rates that are more
Speaker 7: elevated for for lower income households, for for lower education households.
Speaker 7: So a lot of this is returning to a more
Speaker 7: normal pre code environment as that access savings gets drawn down.
Speaker 7: What we've seen in that environment still is robust consumer spending.
Speaker 7: We saw it with the retail sales report recently. We
Speaker 7: see GDP growth that looks quite solid. We see employment
Speaker 7: gains which are above two hundred thousand. We see households
Speaker 7: adding meaningful income growth with decelerating inflation. All that I
Speaker 7: think is pretty supportive for still solid growth for the
Speaker 7: US economy and something.
Speaker 4: That theft shouldn't be worried about.
Speaker 5: What about for twenty twenty five? How are you thinking
Speaker 5: you had twenty twenty five given the fact that we
Speaker 5: might have very different policies fiscal maybe immigration coming out
Speaker 5: of Washington.
Speaker 7: No doubt, And I think it's a key challenge to
Speaker 7: think that the Fed cut cut rates in December. So
Speaker 7: when we change the view and we have one rate
Speaker 7: cut in December, I think that that could be highly
Speaker 7: conditioned on the election outcome that we get. If you
Speaker 7: get an election outcome that has meaningful fiscal stimulus and
Speaker 7: has inflationary policies, whether it's their trade or immigration, the
Speaker 7: likelihood that the Fed cuts rates in.
Speaker 4: December is reduced.
Speaker 7: So I do think as we look about potential to
Speaker 7: cut rates, the Fed certainly will have to factor in
Speaker 7: economic policies that will impact inflation, the labor market, and growth.
Speaker 7: And if those things suggested that they shouldn't cut them.
Speaker 4: They're less likely to.
Speaker 2: Let's wrap it up with a cancer point. Andrew Honhorst
Speaker 2: of City on the program a little bit earlier this morning.
Speaker 2: He still thinks midyear only until recently you were looking
Speaker 2: for midyear as well. You push that back out to December.
Speaker 2: Can you walk me through how low the bomb might
Speaker 2: be to rate cut midyear. I'm just trying to work
Speaker 2: out how this market would respond. Let's say, in a
Speaker 2: few weeks time, get a really soft inflation print. Did
Speaker 2: the conversations of the last month just disappear and we
Speaker 2: start going back to what we're talking about two months ago?
Speaker 2: How does all that work?
Speaker 4: Yeah?
Speaker 7: I think to get a cut by June seems very
Speaker 7: unlike like at this point in time, absent a weakening
Speaker 7: in the growth environment.
Speaker 4: To get a cut by by July.
Speaker 7: You know, I think you need to see a pretty
Speaker 7: quick deceleration in the inflation data, because we've now had
Speaker 7: three inflation prints that were well above the FED subjective.
Speaker 7: We see three and six month in your lized rates,
Speaker 7: which I've been accelerating. It's unlikely you get core PC
Speaker 7: inflation down to two and a half percent year over
Speaker 7: year by that.
Speaker 4: Period in time.
Speaker 7: So I think you really need to see a swift
Speaker 7: in compelling and convincing several prints of weaker inflation data,
Speaker 7: probably coupled with some weakening of the labor What do.
Speaker 2: You see in the inflation mix right now that makes
Speaker 2: you think that's very unlikely.
Speaker 7: So when you look at things like trim mean and median,
Speaker 7: those things have remained elevated, telling you it's not all about.
Speaker 4: Outliers at this point in time.
Speaker 7: I would also highlight last week we got this new
Speaker 7: tenant and all tenant rent index data from the Cleveland
Speaker 7: Fedit it has a little bit of a lead, and
Speaker 7: the alternate index actually stabilized at elevated levels. And so
Speaker 7: that tells us at least through Q two, we're unlikely
Speaker 7: to see shelter inflation decelerate quickly. If that happens, we're
Speaker 7: unlikely to get the soft inflation the Fed needs.
Speaker 4: Matt.
Speaker 2: This was smart always to can't shut up the brilliant
Speaker 2: Matttersati that Deutsche Bank looking for the first rate cut
Speaker 2: to come in December and looking for that to be
Speaker 2: maybe some moderate adjustment in twenty twenty five, and what
Speaker 2: the team of at Deutsche Bank are cooling a mid
Speaker 2: cycle adjustment.
Speaker 8: VJ.
Speaker 4: We've got some time.
Speaker 2: With you on place to say the work through a
Speaker 2: lot of issues and the coaching question for us on
Speaker 2: this program over the last few weeks has been do
Speaker 2: we have an industry problem here or a test the problem?
Speaker 2: Which one is there?
Speaker 8: I think it's a little bit of both.
Speaker 6: I think in terms of industry, we have seen a
Speaker 6: very strong adoption of eb's the last two three years,
Speaker 6: and now you've gone to the first round of early
Speaker 6: adopters and evs, So now getting to the second ground
Speaker 6: is a little bit tougher as most of the low
Speaker 6: hanging food has been taken. So you are seeing broadly
Speaker 6: ev industry face of challenges, especially even in China significant
Speaker 6: price competition. But that said, on Tesla specifically, you have
Speaker 6: a fleet that needs refresh people where investors were looking
Speaker 6: for the model too, so that'll be the focus to
Speaker 6: earnings call if the models too is still on track
Speaker 6: per second half twenty five or do we see that
Speaker 6: get pushed out to twenty six, which in which case,
Speaker 6: you know twenty four and twenty twenty five, you don't
Speaker 6: have a lot of new more is coming to market,
Speaker 6: So so I would.
Speaker 8: Say a little bit of both. VJ.
Speaker 2: If we don't have growth, how do you value the
Speaker 2: growth company? It's a question that wels Fargo. We've tried
Speaker 2: to answer you've raised this question, so kind of valuations
Speaker 2: you put on that name?
Speaker 8: Yeah, I mean I think it's really a tale of
Speaker 8: two scenarios.
Speaker 6: One is definitely near term where you have challenging growth
Speaker 6: expectations because of a you know, a fleet that needs
Speaker 6: to reflesh.
Speaker 8: But longer term, you still have.
Speaker 6: The sicular tailwind that electrification is still very much on track,
Speaker 6: and we will see the global EV market grows significantly
Speaker 6: as you look out tons and twenty eight because that's
Speaker 6: where everybody is placing their chips.
Speaker 8: I mean, all the global auto ems.
Speaker 6: All global economies, everybody is pushing on the EV roadmap.
Speaker 8: So that's where the trend is. Near term, you have
Speaker 8: some challenges because.
Speaker 6: You're fishing a conundrum of lowering pricing, lowering costs to
Speaker 6: drive sales and are not there yet. The EV market
Speaker 6: still needs to make sure to bring costs down, bring
Speaker 6: asps down, and the Model two would have been a
Speaker 6: very welcome addition to that fleet, but it looks like
Speaker 6: there are some question marks around that.
Speaker 1: So given that, what gets us to one hundred and
Speaker 1: ninety five dollars a share from the current one hundred
Speaker 1: and forty two dollars a share on Tesla as you project.
Speaker 6: Yeah, I think a lot of the pullback has been
Speaker 6: given some of the recent trends in slowing EVSs, but
Speaker 6: also some doubt around the model to timeline, especially if
Speaker 6: it's still on second have twenty five or twenty six.
Speaker 6: I think the more clarity CEO, Elon Musk and Tesla
Speaker 6: can give to the street, the better chance you have
Speaker 6: for the stock to consolidate or move higher. So I
Speaker 6: think that's definitely what investors really focusing on. I think
Speaker 6: robot taxis are a good roadmap, but obviously there are
Speaker 6: some significant challenges around, you know, regulatory clients, you know,
Speaker 6: getting the standards there, getting nitsa to a poet, putting
Speaker 6: some you know, guidelines around what is accesible, what's not
Speaker 6: not acceptable, not a pilot eccepter.
Speaker 8: So it's still a roadmap that needs evolving.
Speaker 6: Might be we see something happening BET twenty twenty eight
Speaker 6: at the earliest Sonata. You know, the big focus has
Speaker 6: to be getting Model two back on track.
Speaker 8: So VJ.
Speaker 1: We were talking about this with our own Craig Trudell
Speaker 1: earlier this morning, about which Elon Musk would show up
Speaker 1: to the earnings call. How much does it matter to
Speaker 1: you his tone, whether he likes you guys, or whether
Speaker 1: he just excoriates you for boring questions.
Speaker 6: I think, you know, we have to disassociate the execution troum.
Speaker 6: You know, basically the valuation should be linked to the
Speaker 6: execution of the company. And so I think as Tesla
Speaker 6: has done an excellent job in kind of evangelizing evs
Speaker 6: and growing that whole market, being first to market, and
Speaker 6: they have a massive balance sheet, so all those are
Speaker 6: not issues. Now. The focus should be on getting the
Speaker 6: product roadmap back on track, you know, getting growth back
Speaker 6: on track. So I think that's where, you know, that's
Speaker 6: really what the tie valuation of Tesla stock is really
Speaker 6: the execution on the product loadmap and how that you know,
Speaker 6: how that top line margins evolved.
Speaker 5: Going out, so as it deals with this cost war,
Speaker 5: this price war in China, was it a mistake to
Speaker 5: get rid of the cheaper version twenty five thousand dollars Tesla?
Speaker 8: I think we are not there yet, right.
Speaker 6: I think there have been you know, press reports to
Speaker 6: that that model gets delayed.
Speaker 8: There have been you know.
Speaker 6: Twitter posts about not getting delayed, so we I'm sure
Speaker 6: that's where all the investor questions and focus on the
Speaker 6: call will be. It's much less focus on what learnings
Speaker 6: for the current quler looks like because estimates for the
Speaker 6: current quarter have come down very significant. So I don't think,
Speaker 6: you know any there will be much of any concern
Speaker 6: around what the numbers are for the court and where.
Speaker 8: The margins are.
Speaker 6: All the questions will be how does Tesla get through
Speaker 6: twenty twenty four to twenty five? Is a low cost
Speaker 6: model still on track extra So I think that's really
Speaker 6: where the focus will be. That's really where all the
Speaker 6: questions will be based as they plan.
Speaker 5: To roll out the ROBOTAXI in August. You went through
Speaker 5: a slew of issues that they have to deal with
Speaker 5: before August. I mean, this doesn't even have government approval yet.
Speaker 5: What do you need to hear from US today to
Speaker 5: make you think that, Okay, August, we can actually see
Speaker 5: this product.
Speaker 6: Yeah, I mean, I think seeing the product is it
Speaker 6: is really not a big challenge.
Speaker 8: I think we can have the product there. The real
Speaker 8: question would be, Okay, what's the execution on it? What's
Speaker 8: the performance? You know, what's the driver intervention levels?
Speaker 6: You know, what are the standards we are going to
Speaker 6: you know, be guided by kind of commercializing the robot taxi.
Speaker 8: How many miyers.
Speaker 6: Do we have, you know, what's customer feedback. So there
Speaker 6: is multiple challenges. You know, at this level, the autonomy
Speaker 6: that we haven't even got into yet. So I think
Speaker 6: there are significant challenges to that. And that's why we
Speaker 6: think any significant rollout will need not just a revamp
Speaker 6: an upgrade on the Tesla fest but also significant infrastructure
Speaker 6: upgrades as well. And so it's a route that everybody
Speaker 6: wants to see happen. You know, we have seen this
Speaker 6: multiple times before where where timelines get pushed out, And
Speaker 6: at this point, I think it's fair to assume that
Speaker 6: twenty seven twenty eight is where we think that there
Speaker 6: could be any chance of really seeing.
Speaker 8: Globo taxing on the road.
Speaker 6: That's not geofens, you know, having a little bit more
Speaker 6: flexibility on where you run.
Speaker 4: It, etc.
Speaker 6: At this point, it's still in the very early experimental stage.
Speaker 2: Je let's wrap things up by talking about leadership. Alon
Speaker 2: Musk wasn't always a polarizing figure. It's been highly successful.
Speaker 2: It's incredibly unique amount of success he's had across various industries.
Speaker 2: If you think about payments in the early days the
Speaker 2: time at PayPal. I go back to what he's doing
Speaker 2: right now, innovations in healthcare. It's unbelievable. At the same time,
Speaker 2: he's doing things with SpaceX and again with Tesla, and
Speaker 2: we can talk about sweater another day. But I think,
Speaker 2: in fact, think VJ more recently, the experience of Twitter
Speaker 2: has led to this increased polarization of the man himself.
Speaker 2: When you have conversations with clients about leadership, do they
Speaker 2: feel like he's isolate, isolating a certain portion of the
Speaker 2: consumer base.
Speaker 8: Yeah. I think.
Speaker 6: You know, when you look at geniuses, as you mentioned
Speaker 6: the list of accomplishments along, I think they always tend
Speaker 6: to be eccentric. And so that's exactly why we have to,
Speaker 6: you know, kind of compartmentalized the execution on the stock
Speaker 6: and how Tesla itself is doing from personalities. I mean,
Speaker 6: I know it's very tough to do that, but I
Speaker 6: think when you look at Tesla and you look at SpaceX,
Speaker 6: you know, you have to look.
Speaker 8: At how is that company curing? What's the roadmap?
Speaker 6: Is there something that drives you value valuations, what drives
Speaker 6: ecretionment this company? Except so, but obviously, you know, like
Speaker 6: you said, I mean a real genius got there because
Speaker 6: of their accomplishments, because you know, and none of them
Speaker 6: are seemed to be normal people. They all are eccentric
Speaker 6: and they all have their works, so I wouldn't go there.
Speaker 4: It's a double edged sword.
Speaker 2: It's very diplomatic j Well navigated feature Racash and mis zero.
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