WEBVTT - Trump Is Derailing, Perverting the Mission of the USPS: O'Brien 0:00:01.400 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.240 with my co host of Bonnie Quinn. Every business day, 0:00:06.240 --> 0:00:10.360 we bring you interviews from CEOs, market pros, and Bloomberg experts, 0:00:10.400 --> 0:00:13.600 along with essential market moving news. Find the Bloomberg Markets 0:00:13.600 --> 0:00:17.000 Podcast on Apple podcast or wherever you listen to podcasts, 0:00:17.000 --> 0:00:22.160 and on Bloomberg dot com. We says over for Congress, 0:00:22.200 --> 0:00:26.360 Nancy Pelosi has called back the House because of growing 0:00:26.360 --> 0:00:31.120 controversy surrounding the USPS, the United States Postal Service. Writing 0:00:31.360 --> 0:00:36.640 on this subject today in Bloomberg Opinion, Timothy O'Brien, senior 0:00:36.720 --> 0:00:39.720 columnist for Bloomberg, And in fact it wasn't today, Tim, 0:00:39.760 --> 0:00:41.360 but it has been recently, and it's not the first 0:00:41.360 --> 0:00:44.280 time you've written on this subject. What can Congress do 0:00:44.520 --> 0:00:48.960 to throw light on what the president is doing and 0:00:49.479 --> 0:00:53.720 rain in anything that's illegal? Um? Well, Van, yeah, I 0:00:53.720 --> 0:00:55.920 think I think I should do a lot to throw 0:00:56.040 --> 0:00:57.960 light on the problem. I'm not sure how much they 0:00:57.960 --> 0:01:01.280 can do to stop it. What's going on is mail 0:01:01.320 --> 0:01:04.600 carriers hours has been reduced, Post office hours have been reduced. 0:01:05.680 --> 0:01:08.760 UM large mail sorting machines are being taken out of 0:01:08.800 --> 0:01:12.720 commission in post office hubs and all of this is 0:01:12.760 --> 0:01:15.680 slowing down mail delivery that matters in an election year. 0:01:16.640 --> 0:01:20.840 Pardon me, because uh, there's there's a strong chance we're 0:01:20.840 --> 0:01:23.800 going to have a huge surgeon mail in voting uh 0:01:23.840 --> 0:01:27.319 this year because of the pandemic. And um, it's it's 0:01:27.360 --> 0:01:31.480 pretty clear that um, this is is in is an 0:01:31.520 --> 0:01:35.280 effort to weaponize the Postal Service to slow down mail 0:01:35.319 --> 0:01:39.679 in balloting, and the President is behind that. He's done 0:01:39.800 --> 0:01:42.360 very little uh to try to stop it. He's been 0:01:42.440 --> 0:01:44.720 questioned about it, he said he has no interest in 0:01:44.800 --> 0:01:47.120 changing what's going on in the Postal Service. In fact, 0:01:47.160 --> 0:01:50.000 he said he won't even release funds of the Postal 0:01:50.080 --> 0:01:54.920 Service that would allow to speed up its operations. Um Uh. 0:01:55.160 --> 0:01:58.640 Congress is holding hearings. Congress has asked the Inspector General 0:01:58.680 --> 0:02:02.120 at the Post Office to examine this. A number of 0:02:02.240 --> 0:02:06.840 state attorneys general are are coalescing around this and planning 0:02:07.280 --> 0:02:09.880 to sue the Trump administration of the Post Office to 0:02:09.960 --> 0:02:12.959 stop these practices, but that has to wend its way 0:02:12.960 --> 0:02:16.320 through the court. So the issue here is, um, how 0:02:16.400 --> 0:02:19.480 much can really be done in real time to course 0:02:19.560 --> 0:02:23.560 correct here so voters of both parties don't get their 0:02:23.639 --> 0:02:26.919 votes um taken away from them because the post Office 0:02:26.919 --> 0:02:30.600 can't deliver their balance. I didn't even know this was 0:02:30.680 --> 0:02:33.160 a thing until it happened him. Um, it just seems 0:02:33.200 --> 0:02:36.280 like every day there's something new here, is there? This 0:02:36.360 --> 0:02:38.160 kind of goes to the bigger question. I guess that 0:02:38.280 --> 0:02:41.720 some people are raising that if the president were to 0:02:42.040 --> 0:02:46.320 lose this election, that perhaps he would not be willing 0:02:46.360 --> 0:02:49.799 to really admit that, or or he would can can 0:02:49.880 --> 0:02:53.360 contest it? Is that a material risk in your perspective, 0:02:54.120 --> 0:02:56.240 it's a very material risk, And he said as much. 0:02:56.240 --> 0:02:59.480 You know, he said in recent press appearances that we 0:02:59.760 --> 0:03:01.960 will know the results on election night. We may not 0:03:02.080 --> 0:03:05.520 know it for weeks after election night, perhaps even months. 0:03:05.560 --> 0:03:08.320 I mean that we certainly may not know an election night, 0:03:08.360 --> 0:03:11.600 and we may not know shortly after election night. But 0:03:11.600 --> 0:03:16.120 but we will find out in relatively short order, and 0:03:16.200 --> 0:03:17.960 voters will just have to get used to the facts. 0:03:18.000 --> 0:03:20.720 Will take a little longer this year, but the President 0:03:20.800 --> 0:03:24.000 has already ceded the ground with the idea that the 0:03:24.080 --> 0:03:27.600 vote can't be trusted. He said that mail in balloting 0:03:27.680 --> 0:03:32.400 is riddled with fraud. That's just factually untrue. A majority 0:03:32.400 --> 0:03:36.400 of states have used it quite well for quite a 0:03:36.400 --> 0:03:40.120 long time, including Red states Republican states who stand by 0:03:40.120 --> 0:03:43.240 it as a process. So yeah, it's a material risk, 0:03:43.280 --> 0:03:46.240 and I think, like everything in the Trump era, he's 0:03:46.280 --> 0:03:50.800 he's pressing the limits of what we accept as norms 0:03:50.840 --> 0:03:57.160 around executive authority and presidential behavior and public institutions that 0:03:57.200 --> 0:04:00.160 are really challenging people to kind of wrestle these things 0:04:00.160 --> 0:04:02.840 to the ground with him. It's really interesting because it 0:04:02.960 --> 0:04:05.600 sort of puts paid to the idea that the president 0:04:05.640 --> 0:04:07.560 may not run now, or may pull out of the 0:04:07.600 --> 0:04:10.000 race if he thinks he's not going to win, or 0:04:10.240 --> 0:04:12.600 or or or this rhetoric that's going around that maybe 0:04:12.640 --> 0:04:14.360 he doesn't really want it, that he had his one 0:04:14.480 --> 0:04:17.360 term and he'll be finding something else. It seems like 0:04:17.440 --> 0:04:20.200 he really, really, really does want to win a second term. 0:04:20.360 --> 0:04:22.680 The other thing that's been pointed out to people in 0:04:22.720 --> 0:04:25.279 his campaign and to himself is that last time around 0:04:25.520 --> 0:04:30.360 Mielan balloting actually benefited him, and so even that isn't enough, 0:04:31.240 --> 0:04:34.240 you know, to to change his mind on what's going 0:04:34.279 --> 0:04:37.320 on here with the postal service. Now. His argument is 0:04:37.360 --> 0:04:39.520 that it's a money loser, and of course that's a 0:04:39.520 --> 0:04:44.039 winning argument for a capitalist who cares about money. How 0:04:44.680 --> 0:04:48.120 how do those who don't like what's going on defend 0:04:48.440 --> 0:04:53.160 the USPS. So it's the United States Postal Service, it's 0:04:53.200 --> 0:04:56.680 not the United States Postal business. It was mentioned in 0:04:56.720 --> 0:04:59.880 the in the Constitution as an organization that was meant 0:04:59.880 --> 0:05:02.560 to knit the country together and to make sure that 0:05:02.640 --> 0:05:05.960 Americans who lived in far fun places would always have 0:05:05.960 --> 0:05:09.159 a means of communication. Uh. And that's still true today. 0:05:09.200 --> 0:05:12.400 The Post Office loses a lot of money on traditional 0:05:12.440 --> 0:05:16.480 mail delivery because they have to deliver to remote rural communities. 0:05:16.920 --> 0:05:21.039 Seniors really rely on the service, and the post Office 0:05:21.080 --> 0:05:23.760 itself is not allowed to raise the price of stamps. 0:05:23.800 --> 0:05:26.240 That's that's set by a commission that decides what the 0:05:26.279 --> 0:05:29.960 affordable rate should be. But we also don't expect the 0:05:30.000 --> 0:05:32.480 Department of Defense to make a profit. In fact, the 0:05:32.520 --> 0:05:36.320 Department of Defense loses by that standard. The Department of 0:05:36.320 --> 0:05:39.160 Defense loses far more money annually than the post Office, 0:05:39.839 --> 0:05:45.360 roads and bridges, fire departments, police departments. Uh. The Intelligence 0:05:45.360 --> 0:05:48.320 services and the Diplomatic Corps and the White House itself 0:05:48.640 --> 0:05:52.880 are not for profit businesses their public services. Uh. That said, 0:05:53.800 --> 0:05:56.760 there's no question that the post offices operations could be 0:05:56.800 --> 0:05:59.760 streamlined and and and new thought and fresh thinking about 0:05:59.800 --> 0:06:02.800 how can do its job better is welcome. But it's 0:06:02.839 --> 0:06:06.800 a complete strong man to say this is about just 0:06:07.040 --> 0:06:10.359 making the post office a better business. It's very clear 0:06:10.440 --> 0:06:14.680 now that that this is about the post office mission 0:06:15.839 --> 0:06:19.560 being perverted and derailed in the service of a trench 0:06:19.600 --> 0:06:23.760 warfare approach to politics. Well, it's extraordinary. Tim O'Brien, thanks 0:06:23.800 --> 0:06:26.800 so much for joining us and providing some color on 0:06:26.920 --> 0:06:30.480 what is a developing story. One that's getting the interest 0:06:30.520 --> 0:06:33.320 in the of Congress right now is Speaker Pelos, who 0:06:33.360 --> 0:06:35.920 brings the house back. Timothy O'Brian, Senior Columns for Bloomberg 0:06:36.000 --> 0:06:39.279 Opinion joining us. Just a fascinating story. There's something new 0:06:39.560 --> 0:06:42.080 every day, it seems like. And it's uh the good 0:06:42.120 --> 0:06:45.560 folks of Bloomberg News and UH and Bloomberg Opinion keeping 0:06:45.640 --> 0:06:50.560 up on all of it, so we appreciate their help. Well, 0:06:50.560 --> 0:06:53.080 this market has been described as one that's being quote 0:06:53.120 --> 0:06:56.320 unquote backstopped by the US Federal Reservant for that matter, 0:06:56.360 --> 0:06:58.640 of central banks around the world. To get a sense 0:06:58.640 --> 0:07:01.680 of whether that is enough for this market going forward 0:07:01.720 --> 0:07:05.600 to welcome Nicholas, co founder Data Trek Research, Nick, thanks 0:07:05.640 --> 0:07:07.880 so much. For joining us here. So again i'd love 0:07:07.880 --> 0:07:10.440 to get your thirty foot view on what's kind of 0:07:10.480 --> 0:07:14.080 pushing this market higher. We obviously had that terrible pullback 0:07:14.440 --> 0:07:17.960 March April when the coronavirus hit, but since then with 0:07:18.080 --> 0:07:20.960 the Federal Reserve stepping in with fiscal stimulus and all 0:07:21.120 --> 0:07:23.520 the markets come roaring back, and love to get your 0:07:23.920 --> 0:07:26.480 thoughts right here right now as it relates to some 0:07:26.520 --> 0:07:30.240 of these riskier assets. Sure, the way we think about 0:07:30.240 --> 0:07:33.520 it at Data Trek is the market is discounting a 0:07:33.720 --> 0:07:36.960 very definite the bottom, not necessarily in the economy, but 0:07:37.040 --> 0:07:39.880 in corporate profits. So if you think about a forty 0:07:39.880 --> 0:07:42.480 two dollar a share earnings power number for the SMP 0:07:42.560 --> 0:07:46.240 in the back half of last year per quarter, two dollars, 0:07:46.800 --> 0:07:49.080 markets expecting we're going to get back to those levels 0:07:49.080 --> 0:07:51.480 in the next four quarters. So even though the economy 0:07:51.560 --> 0:07:53.520 is going to be sluggish, we are going to get 0:07:53.680 --> 0:07:57.360 very high levels of corporate profitability because of fiscal stimulus, 0:07:57.440 --> 0:08:00.840 because of monetary stimulus, and because of costing, we're going 0:08:00.880 --> 0:08:02.800 to get back to those numbers. And that's why the 0:08:02.840 --> 0:08:05.840 markets back to its old highs, because it doesn't care 0:08:05.920 --> 0:08:07.760 how we get that earnings number. It just cares that 0:08:07.800 --> 0:08:09.200 we do get it, and it has a very highly 0:08:09.200 --> 0:08:12.280 read confidence that we will. But Nick, it doesn't matter 0:08:12.360 --> 0:08:15.960 how much stimulus you give corporations or how lenient do 0:08:16.000 --> 0:08:18.560 you make the rules for them to get money to 0:08:18.640 --> 0:08:20.960 tie them over. If there isn't demand for their products 0:08:21.040 --> 0:08:25.080 from from customers who themselves are dropped, those earnings can't 0:08:25.080 --> 0:08:28.480 be there. Come they no very good point and that's 0:08:28.520 --> 0:08:31.280 why they change in the composition of the SMP is 0:08:31.320 --> 0:08:34.440 so important. We're actually looking at this for clients last night. 0:08:34.800 --> 0:08:38.680 You know, back in two thousand sixteen, technology was the SMP. 0:08:39.320 --> 0:08:42.319 The comp number now apples to Apples thirty three. And 0:08:42.400 --> 0:08:46.360 as we saw the second quarter earnings, you have a 0:08:46.400 --> 0:08:48.559 whole range of tychnical companies that are really hurting, but 0:08:48.640 --> 0:08:52.200 technology is doing extremely well. So the SMP five hundred 0:08:52.320 --> 0:08:55.520 is kind of a unique measure of corporate profitability because 0:08:55.559 --> 0:08:58.520 it is waiting those companies that have very high that 0:08:58.600 --> 0:09:02.360 was a profitability even to um showing high levels of 0:09:02.440 --> 0:09:05.760 cash flow. It values them very highly. So the F 0:09:05.800 --> 0:09:07.559 and P is not perhaps the best measure, but it's 0:09:07.559 --> 0:09:09.880 the one most folks follow, and the earnings are there 0:09:09.960 --> 0:09:12.600 for the technology sector and others that aren't as affected. 0:09:13.800 --> 0:09:18.559 So Nick, it appears that this next next round of 0:09:18.559 --> 0:09:21.439 fiscal stimulus, you know, we didn't get it, you know, 0:09:21.760 --> 0:09:24.319 before the recess. Now there's some talk about perhaps will 0:09:24.360 --> 0:09:27.040 get something in September. How critical is it for the 0:09:27.160 --> 0:09:31.280 market to get a meaningful piece of fiscal stimulus? Uh, 0:09:31.440 --> 0:09:35.079 in the relatively near term. I mean on a scale 0:09:35.160 --> 0:09:37.720 of one to ten, it's probably a fifteen or sixteen. 0:09:38.320 --> 0:09:41.840 Um it's super super critical, you know, And to Bonny's 0:09:41.880 --> 0:09:47.320 point earlier, it's it underpins that ability for aggregate earnings 0:09:47.480 --> 0:09:50.000 to improve. You know, without that, you don't get that 0:09:50.080 --> 0:09:53.079 part of the story. Look, I mean, you know, looking 0:09:53.120 --> 0:09:55.400 at past cycles, you know, every cycle bottom is a 0:09:55.400 --> 0:09:58.600 little bit different, and the biggest difference is exactly what's 0:09:58.600 --> 0:10:01.400 going to make us come off the bottom this time around? 0:10:01.480 --> 0:10:03.520 It the whole is so deep that the market saying 0:10:04.480 --> 0:10:06.959 politicians have to provide the stimulus, they have no choice 0:10:06.960 --> 0:10:09.600 as an election year, and so our uncertainty about future 0:10:09.600 --> 0:10:13.360 earnings is actually lower than traditional bottom cycle moments when 0:10:13.400 --> 0:10:17.559 there isn't that level of support. So Nick, you know, 0:10:17.679 --> 0:10:20.360 what's the biggest risk here to this to this market rally? 0:10:23.080 --> 0:10:26.079 You know, it's it's it's a great question, um. You know, 0:10:26.400 --> 0:10:29.599 to us, the biggest risk is is a hybrid of 0:10:29.800 --> 0:10:33.040 the policy political issue and the earnings issue. You know, 0:10:33.160 --> 0:10:35.920 we think back to two thousand eight, for example, really 0:10:36.000 --> 0:10:39.120 horrible quarter for UM, for the for the market, and 0:10:39.200 --> 0:10:41.440 it came in part because there was a huge change 0:10:41.480 --> 0:10:44.319 of government in Washington during the eight elections and we 0:10:44.440 --> 0:10:47.760 had a real power vacuum for several months during a 0:10:47.880 --> 0:10:50.160 period of you know, in the middle of the financial crisis. 0:10:50.840 --> 0:10:53.680 My biggest concern is we just get that's a similar 0:10:53.760 --> 0:10:56.440 kind of power vacuum around the election. It's not necessarily 0:10:56.480 --> 0:10:59.480 because of anything untoward that happens in the election, but 0:10:59.640 --> 0:11:02.200 just millions in charge in DC for a few months, 0:11:02.320 --> 0:11:05.040 just when we get into perhaps a second wave and 0:11:05.600 --> 0:11:07.559 real concerns about the state of the economy in the 0:11:07.679 --> 0:11:10.400 first half of next year. So my biggest concern is 0:11:10.480 --> 0:11:12.920 we get a power vacuum in Washington in the matter 0:11:13.080 --> 0:11:15.959 month of the year and you end up with not 0:11:16.080 --> 0:11:19.440 so much confidence around those corporations. As we discussed. Alright, 0:11:19.480 --> 0:11:22.120 So Nick, if where do you think where do you 0:11:22.200 --> 0:11:24.439 think investors should be looking in this market? Given the 0:11:24.520 --> 0:11:27.160 move we've had given that it's been. You know, the 0:11:27.240 --> 0:11:30.160 breath of this market isn't what most technicians or even 0:11:30.200 --> 0:11:32.920 fundamental analysts would like to see. Where do you see 0:11:32.960 --> 0:11:35.400 opportunities here? You know, do you take a look across 0:11:35.480 --> 0:11:39.000 some of the risk assets. You know, right now we 0:11:39.080 --> 0:11:43.280 are favoring cyclicals um selectively. So I'm talking about industrials 0:11:43.320 --> 0:11:46.360 and energy first and Foremost industrials have the most ardens 0:11:46.440 --> 0:11:49.640 leverage going into meaning they generate the most out of 0:11:49.679 --> 0:11:53.720 incremental profits from upside surprise and revenues, and energy has 0:11:53.800 --> 0:11:56.520 the biggest potential upside. On the revenue side, you have 0:11:56.559 --> 0:11:58.719 a profitability to be kind of shaky just because of 0:11:58.760 --> 0:12:01.679 commodity pricing improved of it. So circle goals to the 0:12:01.679 --> 0:12:03.720 place we're recommending people to put in current on money. 0:12:03.800 --> 0:12:05.640 It's going to be a hard way to make money, though. 0:12:06.000 --> 0:12:08.640 We think circle goals will outperform over the back half 0:12:08.720 --> 0:12:11.040 of the year, but it'll probably happen over ten random 0:12:11.160 --> 0:12:13.439 days where they're up two percents in the markets. Flat 0:12:13.880 --> 0:12:15.520 and a tough way to make money, but that's the 0:12:15.520 --> 0:12:18.319 way to outperform. We don't like the financials though. The 0:12:18.360 --> 0:12:21.280 financials are just stuck in their own private health. Yeah, 0:12:21.400 --> 0:12:23.040 that's a great way to put it, right. I mean, 0:12:23.120 --> 0:12:25.480 even Warren Buffett Is is deciding that he doesn't care 0:12:25.480 --> 0:12:28.319 about the financials anymore. It's really really interesting. Did you 0:12:28.440 --> 0:12:33.079 learn anything for the thirteen F filings? Nick, No? No 0:12:33.360 --> 0:12:36.280 from Buffets No. I mean it's it is. It's always 0:12:36.320 --> 0:12:38.400 fascinating to watch him because he's just so good at 0:12:38.480 --> 0:12:42.480 what he does. But no, not really, you it's and 0:12:42.600 --> 0:12:44.880 just more broadly from the hedge funds and what they 0:12:44.920 --> 0:12:47.959 were doing or how hedge funds made money. So, for example, 0:12:48.000 --> 0:12:50.400 I was dropped by Chris Rockell spying just a whole 0:12:50.559 --> 0:12:53.240 heap of Ali Baba and like literally that's all he did. 0:12:53.600 --> 0:12:56.640 He just made that one, if I can say, ballsy trade, 0:12:56.880 --> 0:13:00.240 and you know obviously it's paying off. Yeah. No, I 0:13:00.320 --> 0:13:03.040 mean Baba's boba is an interesting one. Evaluation is so 0:13:03.240 --> 0:13:06.400 cheap relative and China tech generally is so cheap relative 0:13:06.440 --> 0:13:08.400 to US tech that you kind of want to think 0:13:08.400 --> 0:13:10.480 there's a catch up trade. And we're certainly seeing some 0:13:10.559 --> 0:13:12.440 of the catch up trade in the broader Chinese market 0:13:12.480 --> 0:13:16.079 today with the stimulus last night. Are you seeing Nick 0:13:16.120 --> 0:13:18.880 so t extent? You're looking at more cyclical names is 0:13:18.920 --> 0:13:20.679 that suggests you're going to fund that with some of 0:13:20.720 --> 0:13:24.800 the tech names that have a performed Yes. I mean 0:13:24.880 --> 0:13:26.560 the way the way we think about it is if 0:13:26.600 --> 0:13:28.400 you if you want to underweight one sector, it's got 0:13:28.480 --> 0:13:30.559 to be financials. There's just nothing going on there, and 0:13:30.600 --> 0:13:33.199 then you can dumbell it out between the industrial's energy 0:13:33.280 --> 0:13:35.800 and the tech and have a reasonable shot of that 0:13:35.920 --> 0:13:40.240 performing that. The banks are just just in a horrible space. Nick. 0:13:40.360 --> 0:13:42.520 We will catch up with you again very soon and 0:13:42.880 --> 0:13:44.800 take the temperature of the banks and the cyclicals and 0:13:44.960 --> 0:13:47.480 lots lots of more. This market is going nowhere as 0:13:47.679 --> 0:13:49.599 as it seems anyway, it's going to just continue to 0:13:49.600 --> 0:13:52.760 go and hire Nichols as co founder of data Check Research. 0:13:52.920 --> 0:13:57.199 Fantastic notes every day, really and get in touch with 0:13:57.480 --> 0:14:00.120 Nick if if you want to subscribe to the our 0:14:00.240 --> 0:14:03.520 research once again, our thanks to Nick Cholas. I don't 0:14:03.520 --> 0:14:05.319 want to bring you a headline across the Bloomberg. Just 0:14:05.360 --> 0:14:08.880 a few moments ago, New York City gyms can open 0:14:09.240 --> 0:14:11.880 August twenty four, which is one week from today, with 0:14:12.280 --> 0:14:15.959 thirty three percent capacity, so third capacity. Yeah, and in 0:14:16.080 --> 0:14:18.400 fact it's more than New York City. It's it's it's 0:14:18.480 --> 0:14:20.480 New York State Gym's, so gym's all over the state 0:14:20.520 --> 0:14:24.120 can open August as long as people wear masks and 0:14:24.600 --> 0:14:27.400 they are not full beyond thirty three percent capacity, which 0:14:27.640 --> 0:14:30.840 was so beginners or people who haven't come to the 0:14:30.920 --> 0:14:33.360 gym in a long time quite happy for fewer people 0:14:33.400 --> 0:14:35.560 to be in the gym. Yeah. Absolutely, that's not to 0:14:35.640 --> 0:14:38.520 suggest that I myself will be going back. That might 0:14:38.640 --> 0:14:41.400 not be for coronavirus reasons, that might be for other reasons. 0:14:43.920 --> 0:14:48.840 New research suggests glaring divergences between a m D and Intel, 0:14:49.160 --> 0:14:52.440 something that maybe didn't seems so obvious before. Let's bring 0:14:52.480 --> 0:14:55.320 in a strus and senior semiconductor and harder analyst for 0:14:55.360 --> 0:14:58.440 Bloomberg Intelligence to tell us about this new research. And 0:14:58.560 --> 0:15:01.480 and you know there were are rivals. But what does 0:15:01.480 --> 0:15:03.680 this new research tell us about A m D and 0:15:03.760 --> 0:15:08.120 intell how they do their business and their products. Good 0:15:08.160 --> 0:15:10.840 morning morning, Paul, Thank you for having me. So we've 0:15:10.920 --> 0:15:14.280 done some work. That study that suggests that there's a 0:15:14.360 --> 0:15:19.760 structural landscape shift going on in the microposter industry across 0:15:19.920 --> 0:15:24.120 PCs and across servers between mb and Intel. M D 0:15:24.360 --> 0:15:28.120 appears to be on the front foot and will continue 0:15:28.160 --> 0:15:31.920 to gain share in our view through twenty and one, 0:15:32.720 --> 0:15:35.120 and in the data center their share could as much 0:15:35.160 --> 0:15:38.120 as triple from sort of the five percent range to 0:15:38.200 --> 0:15:42.240 the fi percent range. UM and Intel, on the other hand, 0:15:43.080 --> 0:15:47.000 will continue to lose share. Um Intel has a wider 0:15:47.120 --> 0:15:51.320 variety of products and certainly is larger, but that may 0:15:51.360 --> 0:15:54.200 not help it at all over the next couple of years, 0:15:54.280 --> 0:15:56.880 particularly as the cloud becomes a bigger piece of the 0:15:56.960 --> 0:16:01.520 pie and more powerful piece of the pie. So, you know, 0:16:01.680 --> 0:16:04.480 you look at the evaluations, and you look at how 0:16:04.600 --> 0:16:07.520 the stocks have performed here to date. And while it 0:16:07.640 --> 0:16:09.880 might suggest, you know, getting a lot of calls from 0:16:09.920 --> 0:16:13.160 clients about okay, is this you know, another set up 0:16:13.200 --> 0:16:17.680 for long Intel shorty m D for example, but fundamentals 0:16:17.720 --> 0:16:22.480 are suggesting exactly exactly the opposite. So on, you know, 0:16:22.640 --> 0:16:25.640 to this tech lay person, when I think chips, I 0:16:25.720 --> 0:16:29.640 think Intel. What's happened to Intel in terms of you know, 0:16:29.760 --> 0:16:32.040 losing share here? They seem to have lost kind of 0:16:32.080 --> 0:16:35.640 their you know there, I guess their new product Mojo, 0:16:35.720 --> 0:16:37.640 their technology Mojo. What's what do you think is at 0:16:37.640 --> 0:16:41.160 the route there? You know, you can attribute it to 0:16:41.720 --> 0:16:43.840 a bunch of different factors. For I mean, if you 0:16:43.960 --> 0:16:49.160 look at their technology transitions transitions from our transistor shrinkage perspective, 0:16:49.760 --> 0:16:52.240 they were late to full key n animeter, they're late 0:16:52.320 --> 0:16:57.200 to ten animeter and now seven animeters delayed. Now considered that, 0:16:57.520 --> 0:17:00.320 you know, the technology shrinkage isn't the be all. Lend 0:17:00.360 --> 0:17:04.000 All and More's law is in fact slowing. But smaller 0:17:04.080 --> 0:17:06.879 the transistors, more the transistors on the chip, more the 0:17:06.960 --> 0:17:11.480 transistors on the chip, chip is more powerful, uh, quite simplistically, 0:17:11.840 --> 0:17:14.119 and at the at the same time, more transistors on 0:17:14.200 --> 0:17:17.520 the chip produces the cost for transistion purely because of scaling. 0:17:18.080 --> 0:17:21.639 And if you keep prices same or you reduce it 0:17:21.680 --> 0:17:24.440 at a lower rate, you gross margins also can expand. 0:17:25.000 --> 0:17:28.320 But m D has certainly taken the upper hand in 0:17:28.440 --> 0:17:30.840 this and is as much as a node or node 0:17:30.920 --> 0:17:34.960 and a half ahead of Intel, and Intel's sort of 0:17:35.119 --> 0:17:39.320 slow in its transitions. It has a wider ice cream shop, 0:17:39.359 --> 0:17:42.480 if you may, you know it has a wider variety 0:17:42.520 --> 0:17:45.920 of flavors, wider variety of toppings and sauces and stuff 0:17:46.000 --> 0:17:48.280 that go with it. But at the end of the day, 0:17:48.440 --> 0:17:51.240 you know, you still have to have a quality venilla, strawberry, 0:17:51.280 --> 0:17:55.480 and chocolate in order to build a more fitting ices 0:17:55.480 --> 0:17:59.320 Sunday for your clients. I'm loving these analogies. And so 0:18:00.040 --> 0:18:05.879 what do customers want? Do they want the maybe a 0:18:05.960 --> 0:18:09.439 little bit more old fashioned flavor is you know, at 0:18:09.480 --> 0:18:13.520 a good price point that are very very reliable, you know, 0:18:13.760 --> 0:18:15.680 or do they want the new stuff? I mean, people 0:18:15.760 --> 0:18:17.959 were quite happy to wait for Apple to catch up 0:18:17.960 --> 0:18:20.359 with other people on on their software and so on. 0:18:20.680 --> 0:18:24.560 They didn't demand that app will be first on everything. Yeah, 0:18:24.640 --> 0:18:26.280 that's a that's a great point. So one of the 0:18:27.200 --> 0:18:30.040 that's actually a fantastic question because the cloud has upended, 0:18:30.800 --> 0:18:32.920 upended the demand for the ice cream, if you may. 0:18:33.400 --> 0:18:37.840 If you look at the variety of computing workloads that 0:18:37.960 --> 0:18:41.159 the cloud has brought to bear, everything has become large. 0:18:41.280 --> 0:18:45.560 Everything has now has scale. So you want the specialized 0:18:45.600 --> 0:18:48.720 ice cream Sunday um and the demand for that is 0:18:48.840 --> 0:18:52.679 high relative to you know, corporate I demand scale, if 0:18:52.720 --> 0:18:56.320 you may, and they vanillas, strawberry and chocolate. So if 0:18:56.359 --> 0:18:58.320 you look at what the m D has to offer, 0:18:58.760 --> 0:19:02.000 maybe it doesn't have all the flavors um in the 0:19:02.320 --> 0:19:06.920 in the ice cream shop, and maybe it's applicability to cloun. 0:19:07.000 --> 0:19:10.520 The workloads, if you may, is predominantly in the Minila 0:19:10.640 --> 0:19:14.800 chocolate and strawberry at a better place. No one listening 0:19:14.840 --> 0:19:16.760 to this segment is going to have any idea what 0:19:16.840 --> 0:19:19.240 we're talking about at this point. What about the cones? 0:19:19.440 --> 0:19:23.760 What's the cones on? But the but the ice cream 0:19:23.800 --> 0:19:28.280 machine at Intel is broken, right, So that's the that's 0:19:28.320 --> 0:19:30.840 the that's the key part. At the end of the day, 0:19:31.040 --> 0:19:33.200 three years from now, five years from now, you have 0:19:33.400 --> 0:19:36.480 to be able to turn these out upun intended UM 0:19:36.600 --> 0:19:40.320 at a better UM, with better quality, and at a 0:19:40.400 --> 0:19:44.440 better price point UM. As a result, when you build 0:19:44.480 --> 0:19:47.960 these massive servers and you know Facebook and Amazon, Microsoft 0:19:48.000 --> 0:19:50.840 are buying the servers ten thousand at a clip or 0:19:50.960 --> 0:19:54.399 fifty at a clip, you have to have better performance 0:19:54.880 --> 0:19:59.080 and better pricing. And I think the applicability of m 0:19:59.160 --> 0:20:03.120 D is in ceasing, and the applicability of Intel products 0:20:03.440 --> 0:20:05.800 is right over the next couple of years is decreasing. 0:20:06.320 --> 0:20:08.600 On INTRONI Boston, thanks so much for joining us on 0:20:08.680 --> 0:20:12.200 Introney Boston, senior semi conductor and harder analysts, part time 0:20:12.280 --> 0:20:15.360 ice cream analyst from Blueberg Intelligence joining us here talking 0:20:15.400 --> 0:20:18.720 to us about the ostensibly the semi conductor, you know, 0:20:18.840 --> 0:20:21.120 the chip business. But I kind of, uh, kind of went. 0:20:21.680 --> 0:20:23.560 I took a different little route there with his analogy, 0:20:23.600 --> 0:20:25.399 but that works. So we got h A M D 0:20:25.640 --> 0:20:28.680 kind of hitting on all cylinders. Intel from our product perspective, 0:20:28.800 --> 0:20:33.639 some concern that's per on its research. Sally Bakewell of 0:20:33.680 --> 0:20:37.000 Bloomberg News had a story several days ago, really fascinating. 0:20:37.280 --> 0:20:41.359 Basically the gist does stimulus has helped Amazon and Visa 0:20:41.440 --> 0:20:45.200 borrow at record low rates, yet small companies faced tighter 0:20:45.440 --> 0:20:49.399 conditions threatening the recovery to dig deep on that store 0:20:49.440 --> 0:20:53.240 and the phenomena. Were welcome to have Ted Kaneig, President 0:20:53.280 --> 0:20:57.040 and CEO of Monroe Capital, UH nine point three billion 0:20:57.119 --> 0:21:00.960 dollars under under management. Ted, thanks for joining us here, 0:21:01.320 --> 0:21:04.240 so give us a sense of kind of the the 0:21:04.400 --> 0:21:09.200 mid market company out there. Is it easy or difficult 0:21:09.280 --> 0:21:12.160 for them to access capital here to try to make 0:21:12.240 --> 0:21:14.960 it through the pandemic, much less to find growth capital? 0:21:17.040 --> 0:21:20.400 Thanks for asking. It's tough. Um. You know, we we specialize. 0:21:20.440 --> 0:21:22.800 We have five hundred and eight middle market companies in 0:21:22.840 --> 0:21:28.040 our portfolio that we lend money to, everything from million 0:21:28.119 --> 0:21:31.720 or revenue up to about five million revenue. These companies 0:21:31.760 --> 0:21:34.359 are not viewed as investment grade, so they don't have 0:21:34.480 --> 0:21:37.760 the ability to go into the marketplace and issue bonds 0:21:37.920 --> 0:21:40.720 or high yield debt that the government has been backing. 0:21:41.119 --> 0:21:43.680 So these companies have really been on their own and 0:21:44.040 --> 0:21:47.520 uh left to their own devices. They rely on the 0:21:47.600 --> 0:21:51.760 asset value or the enterprise value of of their own 0:21:51.800 --> 0:21:54.600 companies in order to borrow money. And once they've borrowed 0:21:55.200 --> 0:21:58.639 capital that the banks believe, you know, as an amount 0:21:58.720 --> 0:22:02.840 sufficient to cover their assets, whether it's accounts, receivable, inventory, equipment, 0:22:03.520 --> 0:22:06.040 or real estate, they don't really have any other options. 0:22:06.160 --> 0:22:09.840