Speaker 1: This is Bloomberg Business Week. I'm Karl Masser and I'm
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Speaker 1: pm Eastern Time on Bloomberg Radio or watch us on
Speaker 1: YouTube search Bloomberg Global News. It's the video watched around
Speaker 1: the world. I watched it many times, feeling the gravity
Speaker 1: of it. And this was watching former General Secretary Hu
Speaker 1: Jintao ushered off stage, watching President g for an unprecedented
Speaker 1: third term as China's top leader, really come in and
Speaker 1: really cement his position going forward and really what China
Speaker 1: is going to be about in the future. We've got
Speaker 1: a great voice with us to give us an idea
Speaker 1: of what China is going to be like in the future.
Speaker 1: We got Andy Brown with us. He's a partner at
Speaker 1: the Brunswick Group. He's with us right now in the
Speaker 1: Bloomberg Interactive Broker studio, and folks will hear a familiar
Speaker 1: voice because Andy joined us many many times while he
Speaker 1: was here at Bloomberg on the program. He's good to
Speaker 1: have you with us. How are you great to be back,
Speaker 1: Thanks so much for having me. Yeah, it's really great
Speaker 1: to have you back. So a victory for she. But
Speaker 1: look how the markets are reacting right now. Just give
Speaker 1: us your overview of what you've seen transpire over the
Speaker 1: last couple of weeks. So victory for Sea, absolute triumph.
Speaker 1: Gets his third term basically if he wants it, rule
Speaker 1: of a life, packs the polit bureau standing committee with
Speaker 1: his own people. People say he's the new Mao, not
Speaker 1: in the sense that he's about to unleash chaos on China.
Speaker 1: I mean he wants order, but in the sense of power,
Speaker 1: in the sense of prestige, in the sense of his
Speaker 1: place and history. In fact, he may actually have more
Speaker 1: leeway than Mao. Mao, after all, had to launch the
Speaker 1: cultural revolution to get control of the party. She has
Speaker 1: no rivals, no peers, and no success it. He's alone
Speaker 1: at the top. Now, what the markets are reacting to
Speaker 1: is the fact that This wasn't just a personal victory.
Speaker 1: It was a victory for his policies, the policies that
Speaker 1: have so alarmed investors, portfolio investors as well as global
Speaker 1: companies investing in China over the last several years. And
Speaker 1: we saw that certainly play out in the market. We
Speaker 1: keep talking about the NaSTA Golden Dragon China Index on
Speaker 1: track for probably its biggest drop ever. It's down about
Speaker 1: fift here. So how do how should investors after decades
Speaker 1: of thinking this is where companies wanted to be, to
Speaker 1: tap into um their citizen base, what a billion plus people?
Speaker 1: How should investors think about the Chinese market going forward?
Speaker 1: You know, it's so interesting. I I talked to I
Speaker 1: talked to business leaders now investing in China all the time.
Speaker 1: Just about everything they knew or thought they knew about
Speaker 1: China has turned outside down. They thought that the Chinese
Speaker 1: system was optimized for growth and development. In fact, it's
Speaker 1: now optimized for security. China is looking inwards. They thought
Speaker 1: that Don chall Ping's open door, open reform and opening
Speaker 1: policies would continue indefinitely. She's Don Chalping's open door has
Speaker 1: turned into Si jim Ping's fortress. China. They thought that
Speaker 1: policy making would be pragmatic and predictable. It's become ideological,
Speaker 1: almost random. They thought businesses thought that China would do
Speaker 1: everything it could to ensure a benign global environment that
Speaker 1: would facilitate China's economic rise. Wolf warrior diplomacy, ballistic missiles
Speaker 1: over Taiwan, uh An alignment with Putin's Russia ahead of
Speaker 1: the invasion of Ukraine has reversed all of that kind
Speaker 1: of thinking. It's a very very different China. I do
Speaker 1: think about do we look back I don't know any
Speaker 1: year from how five years or not years this was
Speaker 1: the beginning of the division of the world, or maybe
Speaker 1: that was starting already, Like how do we think about
Speaker 1: this in a world where globalization was supposed to be
Speaker 1: it all that we've seen a tremendous pushback. We have
Speaker 1: to recognize that She Jimping is building a very different China.
Speaker 1: He has a very different vision. It's a vision that
Speaker 1: prioritizes security over growth, and it comes from a fundamental
Speaker 1: place of insecurity. He believes that Chinese government believes the
Speaker 1: Party believes that they're in the early stages of a
Speaker 1: decades long struggle for supremacy against the United States that
Speaker 1: may actually lead to conflict. And so all of these
Speaker 1: policies that you see rolled out from you know, uh,
Speaker 1: the advance of the state, the assault on the private
Speaker 1: sector UM, COVID zero, populist policies aimed at wealth redistribution,
Speaker 1: forcing billionaires to disgorge the money, UM, a more assertive
Speaker 1: foreign policy. UM. So much of this has to do
Speaker 1: with hardening the economy for the for the for for
Speaker 1: the struggle that they feel is coming. So what does
Speaker 1: it mean for American companies that want to do business there, Apple, Nike, Disney, Tesla,
Speaker 1: just to name a few. I mean, they want access
Speaker 1: to this growing consumer base and this what well, what
Speaker 1: could end up being a wealthier consumer base. Right, So,
Speaker 1: so they have a dilemma. They're not they're not going
Speaker 1: to leave. I mean a few are leaving, right. We
Speaker 1: saw linked in Airbnb, UM, a couple of a few
Speaker 1: companies that weren't doing much in China, had big reputational risk,
Speaker 1: weren't weren't earning many much much much money. They've they've
Speaker 1: abandoned ship, they bailed. Most companies are staying, uh and
Speaker 1: they're hedging. Uh. You know, every CEO is being leaned
Speaker 1: on now by by their boards. What is your plan B?
Speaker 1: What is your plans? C? What you do if it
Speaker 1: all goes wrong? What do you do if if the
Speaker 1: Chinese invade uh, Taiwan. We saw this just the other
Speaker 1: day in the congressional hearings. You had politicians grilling you know,
Speaker 1: uh Jamie, Jamie Dimond, you know, uh, all of the
Speaker 1: the the you know, Brian Brian Moyne, Jane Phrase. It's like, okay, what,
Speaker 1: what's what's your plan? What would you do? You know, well,
Speaker 1: of course we would salute the flag and do what
Speaker 1: we're told to do. Right. And then somebody said to
Speaker 1: Jane Phraser, No, no, no, what what if you weren't
Speaker 1: told what you had to do? She said, well, we
Speaker 1: would probably still we would probably still pull out. Now
Speaker 1: this is this is a very different situation from Russia, right.
Speaker 1: I mean these companies that some of them are getting
Speaker 1: forty fifties six of their global revenues out of China.
Speaker 1: I want to get right back to Andy Brown, former
Speaker 1: Bloomberg colleague. He was editorial director of Bloomberg New Economy.
Speaker 1: He has partnered Brunswick Group and uh, you know, really
Speaker 1: looking at what's going on in the China space. He
Speaker 1: spent thirty years I think it was actually thirty five
Speaker 1: over in Asia. He was both China editor and columnist
Speaker 1: of the Wall Street Journal, UM and and he's here
Speaker 1: in our interactive broker studio. So I do wonder about
Speaker 1: President g with everything that happened over the weekend, Andy,
Speaker 1: who's there to question him? We always talk about it's
Speaker 1: important for our leaders to be questioned. So who's there?
Speaker 1: And as a result, if there is no one, what
Speaker 1: happens in terms of China and the Chinese economy? Carol,
Speaker 1: You don't need to be a sinologist to figure out
Speaker 1: where all this goes. Uh. You know, the longer he
Speaker 1: lingers in office, the more he's going to face this
Speaker 1: autocrat's dilemma. Right. So as the autocrat ages he or she,
Speaker 1: usually he becomes more isolated, more paranoid, doesn't know where
Speaker 1: the next threat is going to come from. And as
Speaker 1: a consequence of that, the tendency is to pack themselves
Speaker 1: around with yes men, with sickophants. He and these are
Speaker 1: not the people who are going to challenge the great leader.
Speaker 1: And as a result, course correction becomes quite a bit
Speaker 1: more difficult. Right, and for all its faults. For all
Speaker 1: its faults, democracy does have within it this capacity to shift. Course,
Speaker 1: we've seen it very very dramatical, right, ask Liz Trust Okay, uh,
Speaker 1: you know that does not that is not going to
Speaker 1: happen in in China. Ask ask you know global business
Speaker 1: people operating over there about COVID zero. It is absolutely
Speaker 1: clear that COVID zero doesn't survive O Macron, or it
Speaker 1: can survive O Macron, but at the expense of destroying
Speaker 1: the economy. Course correction is needed when not getting it,
Speaker 1: and I think that's one of the reasons why you're
Speaker 1: seeing the markets collapsing, the China markets collapsing today. Give
Speaker 1: us an understanding andy of surveillance in China and how
Speaker 1: the country he uses it to essentially stifle this cent
Speaker 1: because like you said, this is not the UK, This
Speaker 1: is not a prime minister who could last, you know,
Speaker 1: forty six days and then end up leaving because of
Speaker 1: the will of the people. The will of the people
Speaker 1: in many cases is not necessarily heard because it's cut
Speaker 1: off from the rest of the world. Well, high tech
Speaker 1: surveillance is a central feature of the security state that
Speaker 1: Shijimping is building, and we we've we've seen the extreme
Speaker 1: example of that in Shin John. Everybody is profiled facial recognition,
Speaker 1: gate recognition, you know apps, building the into the telephones
Speaker 1: and so on. What's kind of freaky about these COVID
Speaker 1: zero restrictions is this new additional layer of control and
Speaker 1: surveillance UH and border control that they've built into the system.
Speaker 1: I personally don't believe this is going away. Maybe they won't,
Speaker 1: maybe they won't practice it quite quite as extreme way.
Speaker 1: Didn't everybody have to sign up because of COVID Essentially
Speaker 1: beyond this app everybody everything, everybody has to I mean
Speaker 1: I was, I was in as you know I was.
Speaker 1: I was earlier this year in Beijing for the two
Speaker 1: Winter Olympics. I was in something called a closed loop bubble,
Speaker 1: essentially a series of protected corridors running through the whole city.
Speaker 1: This was an extraordinary arrangement. I can't imagine any other
Speaker 1: city in the world, let alone any capital city in
Speaker 1: the world, pulling this off. But they did. But what
Speaker 1: was what was what was so unnerving about it was
Speaker 1: how effortless this all seemed. This is the Chinese operating model,
Speaker 1: you know, an immense institutional capacity, unlimited numbers of people,
Speaker 1: huge I mean virtually bottomless sums of money, and all
Speaker 1: animated by this sort of mass mobilization, whole of government effort.
Speaker 1: That's the system that China operates on and which, by
Speaker 1: the way, it presents to the world as the efficient
Speaker 1: model for economic development. Now you point that in the
Speaker 1: right direction, alleviating poverty, and you get a great answer.
Speaker 1: You've got a great result, right, extreme poverty eliminated. You
Speaker 1: pointed in the wrong direction, for instance COVID zero or
Speaker 1: in sin jong uh, and you create a whole set
Speaker 1: of a whole set of problems. In a sense, our
Speaker 1: problems in the West is a lack of institutional capacity,
Speaker 1: lack of will, lack of ability to get things done.
Speaker 1: In China, one might say it's the opposite. The state
Speaker 1: has too much power and control. So what do you
Speaker 1: kind of watch out for over the next I don't know,
Speaker 1: six months, twelve months, as this, as we move away
Speaker 1: from what we got from over the last couple of
Speaker 1: weeks in terms of the news flow, what is it
Speaker 1: that you'll be keeping an eye on. You know, they
Speaker 1: don't want to tank the economy. I mean, let's let's
Speaker 1: be let's be serious, right, I mean and and having
Speaker 1: said that, you know, dictators packed themselves around with sycophants,
Speaker 1: and yes, man, I do have a lot of faith
Speaker 1: in the institutional, technical, technocratic capacity of the China. These
Speaker 1: states they've been the bureaucratic state has as has been
Speaker 1: a feature of the efficient bureaucratic state, has been the
Speaker 1: feature of Chinese governance for thousands of years, right, So
Speaker 1: you know, I do believe that they're going to hold
Speaker 1: things together. Um, A figure like Lee Chang, who could
Speaker 1: well be the next premier, is actually very well thought
Speaker 1: of by the foreign business community, by the international business community.
Speaker 1: He's run Drajiang province basically size of a small country
Speaker 1: in terms of the economy, ran Shanghai best city, best
Speaker 1: city in China. So I would be looking for signs
Speaker 1: that a they're going to try to figure out some
Speaker 1: endgame for COVID zero. It's not going to happen overnight.
Speaker 1: People are terrified and be something about property, and I
Speaker 1: think that is very much a problem that they could
Speaker 1: get under control. Andy Brown, thank you so much. Great
Speaker 1: to be here. Thank you so much, Carol. Thanks to him.
Speaker 1: Andy Brown Partner Brunswick Group and as we said, a
Speaker 1: former editorial director of Bloomberg New Economy. This is Bloomberg
Speaker 1: Business Week with Carol Master and Bloomberg Quick Takes Tim
Speaker 1: Stinovic on Bloomberg Radio. So we don't want to get
Speaker 1: to a Bloomberg Business Week's story found online and on
Speaker 1: the Bloomberg about the implosion of instant delivery startups that
Speaker 1: soared during the pandemic. We're going to actually zero in
Speaker 1: on one in life after Peak Pandemic. We got Jackie
Speaker 1: de Vallo's technology reporter for Bloomberg New She wrote the
Speaker 1: piece along with Brad Stone. She's joining from running studio
Speaker 1: in Washington, d C. We also got the editor of
Speaker 1: Bloomberg Business Week with us, Joel Webber. He's in the
Speaker 1: Bloomberg Interactive Broker's studio. Joel counted one to three, only
Speaker 1: four paragraphs until I find a reference to the nineteen
Speaker 1: nineties and Cosmo dot com in here, Because when I
Speaker 1: think of delivery implosion, I say, wait a second. We've
Speaker 1: seen this story before. Yeah, Um, we have, and but
Speaker 1: we haven't quite seen it like this. And you know
Speaker 1: the story that UM Brad and Jackie um. The company
Speaker 1: that Bread and Jackie focused on. UM it's called Go Puff,
Speaker 1: which finally I know why it's called Go Puff, you do. Um,
Speaker 1: We'll let Jackie kind of stick with one. We'll come
Speaker 1: back to what I'm sure. Um, but Go Buff has
Speaker 1: been sort of the example. Um and with the stories
Speaker 1: ultimately about of like this instant delivery thing that became
Speaker 1: supercharged with VC dollars. Um. And now as the economy
Speaker 1: is starting to you know, not do not go up
Speaker 1: and up and up, um, some places like instant delivery
Speaker 1: maybe feel uh like a lot of money went in there,
Speaker 1: and maybe there are owas not exactly what people had
Speaker 1: hoped um. And there are some echoes of some yesterday's
Speaker 1: in including a dot com era flame out called Cosmo
Speaker 1: dot Com. Um. But but Jackie talked to us about
Speaker 1: Go Puff because that company, um I've used if you
Speaker 1: need to get cop styrup for your kid in the
Speaker 1: middle of the night, turns out to be a pretty
Speaker 1: effective way to do that. But but maybe not to
Speaker 1: scale and go global, right, you know that's exactly it.
Speaker 1: I think what Puff really shows is that there was
Speaker 1: absolutely a demand for these kinds of service. Is when
Speaker 1: you're stuck at home, you're on the couch, you want
Speaker 1: some last minute ice cream or chips, even beer. Uh.
Speaker 1: They've been around for quite a while now since UH
Speaker 1: and they really kind of came off the off the
Speaker 1: ground after e commerce had started to become much more
Speaker 1: widely adopted. Amazon was kind of known for, you know,
Speaker 1: being the delivery giant back in the day, and when
Speaker 1: these two founders started the company, it was on the
Speaker 1: back of you know what about you know, in college
Speaker 1: campuses when you want you know, last minute packas a
Speaker 1: beer before a game or your tailgating, and it was
Speaker 1: really uh, you know, in a place where it made sense.
Speaker 1: You have a dense pocket of uh students who are
Speaker 1: willing to pay a dollar ninety five to get extra
Speaker 1: snacks delivered. And this was absolutely super charged once we
Speaker 1: got into the pandemic and delivery across the board was
Speaker 1: turno charged. And when you add in all of those
Speaker 1: billions of dollars of venture capital, becomes very easy to
Speaker 1: accept the reality that, you know what, maybe we can
Speaker 1: expand at rapid pace. But what we're seeing now and
Speaker 1: not just with go Puff, but a lot of the
Speaker 1: rapid delivery companies that sprouted during the pandemic, is that
Speaker 1: it's not a sustainable business in an inflationary environment. And
Speaker 1: when the economy is also starting to take a turn.
Speaker 1: Can we talk about the co founders and co c
Speaker 1: e O s of Go Puff and you know what
Speaker 1: their story was, because this is not their first attempt
Speaker 1: at a delivery company, even though they're not even thirty
Speaker 1: yet exactly and there they really are a fascinating pair.
Speaker 1: They're you know, very hard working in the sense that
Speaker 1: you know, they kind of started this in a really
Speaker 1: scrappy way. They didn't know a whole time about venture capital.
Speaker 1: They it was really a bootstraps kind of attempt at
Speaker 1: you know, building a company. They ran this themselves, bought
Speaker 1: the warehouse by themselves. They hired someone to you know,
Speaker 1: off Google to help them negotiate their first liquor license. UM.
Speaker 1: So their work ethic, I really, I think really speaks
Speaker 1: to um you know, coming out of an era where
Speaker 1: you have a delivery giant, you know, as the aspirational
Speaker 1: company that they were hoping to be one day and
Speaker 1: um but they also had a lot to learn. You know,
Speaker 1: they started doing these deliveries, um, you know, by themselves,
Speaker 1: with their own minivan, off their own money. And once
Speaker 1: you add in, you know, all the billions of venture
Speaker 1: capital cash. Um, it got a little bit out of control,
Speaker 1: and whether it was just expanding into too many cities
Speaker 1: in the US, international expansion, just the exuberance overall that
Speaker 1: permeated the company. UM. You know, it also shows that
Speaker 1: there's um, there's ways to kind of rein it back
Speaker 1: in and this was kind of a tough um bringing
Speaker 1: it back down to reality given the tech route just
Speaker 1: kind of you know, came out of nowhere earlier this spring,
Speaker 1: and you can see them trying to navigate the turbulence
Speaker 1: with the layoffs and you know, pivoting out of certain sectors.
Speaker 1: So we'll see where that takes them. You know, it's funny, Jackie.
Speaker 1: This week, we're going to spend a lot of time
Speaker 1: talking about valuation because of big tech earnings that are
Speaker 1: coming out and what's the reality And I feel like
Speaker 1: they had to have kind of a reality moment when
Speaker 1: they thought about their valuation yet the tech company, but
Speaker 1: maybe not like some other tech companies that demand higher valuations.
Speaker 1: That's absolutely right. At the end of the day, they're
Speaker 1: more like a retail company. They're not different and you
Speaker 1: know than um a convenience store just online, you're buying
Speaker 1: things at warehouse prices and selling them for a markup.
Speaker 1: But at the end of the day, you have a
Speaker 1: lot of overhead. This is a very asset heavy business.
Speaker 1: It's you know, many Amazon type warehouses everywhere, and those
Speaker 1: leases cost money, especially when you're expanding at the pace
Speaker 1: that that they were, and add in competition who's also
Speaker 1: buying to scoop up leases. Think about New York City.
Speaker 1: How many companies we had running around here. Um, and
Speaker 1: now that they've had to shut a few of those down, Um,
Speaker 1: you know that's still something that's they have to foot
Speaker 1: the bill for. Are okay? So we talked about some
Speaker 1: things that they've gotten into, like alcohol. Um, we talked
Speaker 1: about some things that they've gotten out of. Um, what
Speaker 1: have they not gotten into that they might yet? Jackie, Well,
Speaker 1: this is kind of the kicker, you know. It's uh
Speaker 1: it harkens back to uh, their start and it's called
Speaker 1: go Puff because they used to deliver hookah's and like
Speaker 1: hooka accessories to college students and it was exactly And
Speaker 1: the funny thing is, you know they claim that to
Speaker 1: be smokers themselves. Um. But you know, kind of bringing
Speaker 1: it back to where we are now, you're seeing Uber
Speaker 1: and door Dash facilitating orders for cannabis deliverate. It's a
Speaker 1: kind of a touchy thing here is still because it's
Speaker 1: at the federal level that hasn't been legalized obviously, but
Speaker 1: you're seeing many states kind of take steps to embrace
Speaker 1: weed and UM for companies that want to capture the
Speaker 1: delivery component. It's going to be a little tricky and
Speaker 1: door dash and uper still kind of inching around it
Speaker 1: in the US, but in Canada, you know, they're the
Speaker 1: ones that are offering it on their apps, and you know,
Speaker 1: whether it's someone else delivering or people can go pick
Speaker 1: it up, that app is now kind of like the
Speaker 1: center point for um, you know, transacting this kind of
Speaker 1: product that was kind of thought to be you know,
Speaker 1: off the off the radar for a long time. For
Speaker 1: a company like go Puff, it could actually uh you know,
Speaker 1: propose a poses a new opportunity to kind of tap
Speaker 1: into a much higher margin line of business. I mean,
Speaker 1: you know, I don't know what a weed order would
Speaker 1: go for it, but certainly seems to be a little
Speaker 1: bit more lucrative than you know, uh chips and you know, sodas.
Speaker 1: You've got the rest of everything exact, uh you know,
Speaker 1: giving way the goods here, but um, we're go puff
Speaker 1: one director said that we quoted it's our birthrate to
Speaker 1: sell it, right, Like it's so good. So we'll see
Speaker 1: if they go there or not, you know like DBD.
Speaker 1: All right, we're gonna leave with their great story. Um, Jackie,
Speaker 1: thank you so much. Jackie Deavlos. She is technology reporter
Speaker 1: at Bloomberg News from our nine one studio in Washington, DC.
Speaker 1: A story she wrote with our Bradstone and of course
Speaker 1: our thanks to Jill Weber, editor of Bloomberg Business Week.
Speaker 1: Here in our Interactive Broker studio, you're listening to Bloomberg
Speaker 1: Business Week with Carol Messer and Bloomberg Quick Takes Tim
Speaker 1: Stinovic on Bloomberg Radio. I'm just gonna tell you we're
Speaker 1: getting a reality check big time, courtesy of our Gina
Speaker 1: Martin Adams. We want to talk about a lot of things,
Speaker 1: and in particular, we want to talk about what's been
Speaker 1: really key growth engines for the S and P five hundred.
Speaker 1: We're talking about those megacap technology stocks which are entering
Speaker 1: the earning season. I love this story with diminished stature,
Speaker 1: so let's get into it with our Gina Martin Adams.
Speaker 1: She's Chief Equity Strategies at Bloomberg Intelligence here in our
Speaker 1: interactive broker studio. So we want to talk about everything, Um,
Speaker 1: I do want to do you want to touch on
Speaker 1: the broader macro or do you want to go Let's
Speaker 1: let's touch on broader macro for a second. Because of work.
Speaker 1: I mean, we're going to hear about broader macro from Apple,
Speaker 1: from Microsoft, from Alphabet, Amazon, and Meta platforms this week.
Speaker 1: I mean Meta is going to talk about it a lot.
Speaker 1: I bet afee what we saw with Snap. But Gina,
Speaker 1: just bring us up to speed on how you and
Speaker 1: the team are thinking about macro right now. Because we
Speaker 1: were talking about rates. Well, we heard from you know
Speaker 1: earlier a little earlier during the program, and um, you're
Speaker 1: saying that the era of low rates is over, at
Speaker 1: least in the short term. Yeah. I think that we
Speaker 1: need to put the pandemic in the past, right and
Speaker 1: I think that the the just the activity levels that
Speaker 1: we've experienced in recovery will also be over. Will not
Speaker 1: see that extraordinary surge and activity reflecting the shutdown that
Speaker 1: would happened just prior, but we'll probably normalize into a
Speaker 1: pace of growth and inflation that looks very different than
Speaker 1: the pace of growth and inflame inflation that we all
Speaker 1: have become accustomed to. This is not the Great Financial
Speaker 1: Crisis recovery. This is the pandemic recovery. And every recovery
Speaker 1: is very different, Every economic cycle is very different. If
Speaker 1: you think about the period of time just after the
Speaker 1: Great Financial Crisis where rates were abnormally low of central
Speaker 1: banks were infusing all the capital they could and with
Speaker 1: helicopter money on the economies around the world, that really
Speaker 1: reflected an environment of massive deleveraging in the financial sector.
Speaker 1: That environment is not necessary anymore. We've gone through massive
Speaker 1: deleveraging and financials. We've gone through massive deleveraging among US
Speaker 1: households and most global households frankly over the course of
Speaker 1: ten years. So we're set up very differently for a
Speaker 1: different type of cycle this time around. I actually think
Speaker 1: demand will remain significantly higher, will have faster growth in
Speaker 1: general GDP in economies ex China over the course of
Speaker 1: the next decade, will also have much greater supply constraints
Speaker 1: due to a combination of deglobalization as well as decarbonization efforts.
Speaker 1: The result of that is going to be faster inflation,
Speaker 1: which means to me, faster higher interest rates than what
Speaker 1: we became accustomed to in an environment where we were
Speaker 1: deleveraging really trying to combat or fight against deflation or
Speaker 1: disinflation for more than a decade. You know, you've been
Speaker 1: talking about this for a while, and something struck me
Speaker 1: on a conversation too on surveillance last week that just
Speaker 1: someone to who said, is going to be the norm
Speaker 1: because globalization, like that's a change, the federal funds rate
Speaker 1: is going to be the norm. I think that's what
Speaker 1: they were talking about, yes, And then they said part
Speaker 1: of it was the prospectivegainst globalization, the demographics that we're seeing,
Speaker 1: the aging demographics and developed societies, and also climate change,
Speaker 1: the cost of that. These are things that are structurally
Speaker 1: changing within our society. All right, So we covered macro.
Speaker 1: We've got about two now that it's talked to me
Speaker 1: about the big tech that are reporting what our expectations
Speaker 1: because we're going to get kind of evaluation reset this week,
Speaker 1: maybe to the upside and maybe the downside, and we
Speaker 1: could have it could go either way. Honestly, Carol, this
Speaker 1: is a really tricky one this season because expectations for
Speaker 1: these companies are very very low for the season itself.
Speaker 1: A third quarter beat seems very easy, yet expectations are
Speaker 1: very high for these companies going into three. So I
Speaker 1: think it really is a matter of what the market
Speaker 1: is going to focus on. Is the market going to
Speaker 1: focus on Okay, thank god, they didn't do as bad
Speaker 1: as we hoped they would that we thought they might
Speaker 1: do in third quarter, or is it going to be
Speaker 1: about the outlook? I think the companies are pretty savvy, frankly,
Speaker 1: so they'll probably not guide us in and maybe gut
Speaker 1: us for quarter ahead and keep the same beat third quarter,
Speaker 1: and therefore we have a little bit of relief. That
Speaker 1: seems to be basically what most of the companies are doing.
Speaker 1: They're not really touching the long term outlook. They're not
Speaker 1: giving us a ton of guidance into the long term
Speaker 1: because they don't have a lot of visibility into the
Speaker 1: long term. Instead, they're focused on the beat and then
Speaker 1: maybe what's what they see happening in the fourth quarter. Generally,
Speaker 1: what companies tend to be seeing is less bad than anticipated.
Speaker 1: It's not all great. There's no rosy commentary out there.
Speaker 1: It's just okay, you know what, it's we're kind of
Speaker 1: surviving here, and that seems to be okay after the
Speaker 1: market is corrected as much as it has. We've been
Speaker 1: talking throughout the program about what's going on in China,
Speaker 1: and I think of one company reporting this week that
Speaker 1: obviously is a huge stake in China. That's Apple from
Speaker 1: a production standpoint and also from a manufacturer, from manufacturing
Speaker 1: standpoint and from a sales standpoint. Um, what should we
Speaker 1: be listening for from Apple, not just when it comes
Speaker 1: to China, but when it comes to macro because they've
Speaker 1: got things everywhere. Yeah, I'm much more focused from them
Speaker 1: on the supplied side of things and how they're navigating
Speaker 1: the geopolitical relationship, the deterioration and the geopolitical relationship between
Speaker 1: the US and China. What do they see as the
Speaker 1: long term source of supply? Are they going to move
Speaker 1: away from in the world. Can they diversify their supply chain?
Speaker 1: This is an increasing risk to Apple specifically. Uh, there's
Speaker 1: plenty of other tech companies who have diversified out of
Speaker 1: Asia or started that process. Apple has actually been a
Speaker 1: little bit slow and a little bit reticent because they've
Speaker 1: had such good relationships in China. For so long. But
Speaker 1: there does appear to be some pretty big wind shifts
Speaker 1: at the geopolitical level, at the at the governmental level
Speaker 1: between the US and China that are going to force
Speaker 1: some change there. So how are they navigating that? Just
Speaker 1: fifteen seconds? Is there one, you know, are all big
Speaker 1: tech created equal or is there one that could report
Speaker 1: this week that could really change kind of sentiment or
Speaker 1: in terms that you think about strategy just quickly, all
Speaker 1: of them are really really equal. Microsoft, though, is very
Speaker 1: much on my radar. Microsoft is the one company that
Speaker 1: everybody has said, nobody's touching it. It's great, it's fantastic,
Speaker 1: everything's fantastic for Microsoft. So everybody else has had some
Speaker 1: bullets thrown out, then Microsoft has not. All right, Jina
Speaker 1: Martin Adams, thank you so much of Bloomberg Intelligence, BROC Journal. Yeah,
Speaker 1: but you let me drive, no no leaves. I want
Speaker 1: to drive. It's a good question, which is the drive
Speaker 1: to the closed for music radio? All right? Just about
Speaker 1: not in a half minutes left in today's trading session,
Speaker 1: and we've got quite a rally underway, as you heard
Speaker 1: from Charlie. We're just coming off our highs of the
Speaker 1: session that we are up by more than one percent
Speaker 1: about the SMP and the Dow Jones Industrial Average and
Speaker 1: tim we're seeing some pretty broad based buying when it
Speaker 1: comes to the SMP five we are, But what does
Speaker 1: it look like bigger picture? That's what we've been talking
Speaker 1: about for most of the day. For that, we turned
Speaker 1: to Ben Kirby, co head of investments in the managing
Speaker 1: director at Thornburg Investment Management. They've got about thirty eight
Speaker 1: billion dollars in assets under management. Ben joins us this
Speaker 1: afternoon on the phone from Santa Fe, New Mexico. Ben,
Speaker 1: how are you. I'm great, Thanks for having me on
Speaker 1: the show. Yeah, thanks for joining us. Okay, So we
Speaker 1: talked a little earlier about trying to understand whether or
Speaker 1: not we see the start of some sort of new rally,
Speaker 1: if it's a bear market rally, or if it's the
Speaker 1: start of a new bowl market. Um, what's your assessment. Yeah,
Speaker 1: there's a lot of a lot of factors going in
Speaker 1: both directions. So I think on the one hand, we're
Speaker 1: probably near peak hawkishness. You know, inflation is likely to
Speaker 1: uh to have been uh decelerating over you know, over
Speaker 1: these next few months. Um, And you know, there's there's
Speaker 1: been so many Google searches on on inflation has become
Speaker 1: sort of, you know, a topic that that everyone is
Speaker 1: is focused on, so probably near peak hawkishness. That being said,
Speaker 1: the other topic that's that's trending out there is recession.
Speaker 1: So you know, even as even as we're looking to
Speaker 1: probably be near near peak rates or at least peak
Speaker 1: expectation of rates, slowing, economic growth is kind of the
Speaker 1: offsetting force. So it'll be interesting to see how those
Speaker 1: those two forces interplay over the next few months. Are
Speaker 1: those indicators of the top when everybody's searching on inflation
Speaker 1: and recession? Can we read that as maybe, okay, yeah,
Speaker 1: everybody's worried. Everybody's nervous, and that's a sign of a top.
Speaker 1: I think it's an interesting of the bottom both actually right, So,
Speaker 1: you know, sentiment, it usually makes sense to h to
Speaker 1: lean a bit the opposite away from sentiment when it
Speaker 1: get extremes. So at this point, sentiment is it's pretty extreme.
Speaker 1: I mean, you know, when you look at the surveys
Speaker 1: of bulls versus bears, um, there's way more bears than
Speaker 1: there have been in a in a long time relative
Speaker 1: to bowls, So that at least augurs. I think for
Speaker 1: the potential for for a snap back. How sustainable that
Speaker 1: is as the economy slows again, That's that's kind of
Speaker 1: big question. How does the FED regain credibility? I think
Speaker 1: they've I think they've mostly done at this point. You know,
Speaker 1: they've they've been tough on the inflation uh rhetoric. The
Speaker 1: concern is that they're tightening into and already slowing economy.
Speaker 1: So I think they do risk um, you know, being
Speaker 1: behind the curve and and sort of you know, fighting
Speaker 1: fighting the battle that was really important you know, in
Speaker 1: the in the past six to twelve months. But as
Speaker 1: we look forward, you know, the war is the war
Speaker 1: changing a little bit? All right, Let's talk names because
Speaker 1: you know, there are a few funds that you actually
Speaker 1: are involved in terms of managing, and I one thing
Speaker 1: I wanted to ask you before we get to start,
Speaker 1: what strategies are out performing right now? What makes sense? Yeah,
Speaker 1: So we we have a lot of strategies are performing
Speaker 1: at Thornberg, you know over um you know, overall we
Speaker 1: have probably of our portfolios or four and five star
Speaker 1: um on on Morning Star. So you know that means
Speaker 1: kind of kind of top quartzile performance. I think what's
Speaker 1: outperforming broadly UM value investing is doing is doing a
Speaker 1: bit better. So you know, after a fifteen year hiatus
Speaker 1: of value investing really kind of being in being in hiding,
Speaker 1: you know, we're seeing a lot of the rotation out
Speaker 1: of higher growth sectors and into into more value sensitive
Speaker 1: sector So, you know, one of the portfolios that I
Speaker 1: co manages, the Thormburg Investment Income Builder, there's a global
Speaker 1: multi asset income oriented portfolio. It has more of a
Speaker 1: value bias. So you know, average stock is yielding five
Speaker 1: and a half percent, the bondary yielding about nine um,
Speaker 1: and the p on that portfolio is about eight times
Speaker 1: next year, that portfolio is out performing the vast majority
Speaker 1: of peers this year, but also over you know, three
Speaker 1: or five and ten year period. So I think it
Speaker 1: makes a lot of sense right now, as as we
Speaker 1: are in this tightening phase, as we are in this
Speaker 1: slowing economic environment, to be to be pretty pretty cautious
Speaker 1: UM and this this portfolio with you know, high dividend yield,
Speaker 1: I think, is it really a pretty good place to
Speaker 1: be positioned? Is that because I'm going back to the
Speaker 1: value versus growth debate here I mean, Carol forgiving. But
Speaker 1: every year we've heard that values coming back, right, But
Speaker 1: is this time different then? Because of the high rate
Speaker 1: environment that we're in. What we just talked about with
Speaker 1: Tina Martin Adams a few minutes ago, that we're kind
Speaker 1: of going back to the nineties when it comes to rates.
Speaker 1: I think every environment is a little bit different. But
Speaker 1: the fact that for the last decade, company that we're
Speaker 1: losing money have been able to continue accessing capital markets,
Speaker 1: either dead or equity capital markets. You know, you can
Speaker 1: you can have a product that sells at a negative
Speaker 1: growth growth margin and you can just isisue new shares
Speaker 1: and sort of keep that keep engine going until the
Speaker 1: Kassa capital gets expensive and the Cossa capital has gotten
Speaker 1: a lot more expensive, which means a lot of those
Speaker 1: those high flyers who are able to you know, live
Speaker 1: on on very cheap funding for a decade. Uh, they're
Speaker 1: not now having to come to cash. They now actually
Speaker 1: have to find a way to make a profit. And
Speaker 1: we're discovering that some of those business models might not
Speaker 1: hold up in a higher rate environment. Hey, I want
Speaker 1: to ask you, and I know you have a couple
Speaker 1: of names that you're interested in, but time on semi
Speaker 1: conductor manufacturing has been a big position for you guys
Speaker 1: with all the news out of China, are you are
Speaker 1: you having a rethink, kind of come to Jesus moment
Speaker 1: maybe on on semi or not yet just curious, you know,
Speaker 1: not not yet. In a holistic way, we have reduced
Speaker 1: the position size just because they have been such an
Speaker 1: now performer. You know, it got to be kind of
Speaker 1: a mid single digit percent of the portfolio, so we
Speaker 1: you know, we reduced it down to kind of a
Speaker 1: low single digit percent. It's it's a really tough tough
Speaker 1: question because I want Sammy is one of the most
Speaker 1: important companies in the world. They have majing, amazing competitive
Speaker 1: mantages um but the geopolitical definitely has the ability to
Speaker 1: keep that multiple down and and to kind of create
Speaker 1: that left tail risk that we have a hard time
Speaker 1: gauging if you had to pick. I know, you've got
Speaker 1: some energy names that you like. We just have about
Speaker 1: thirty seconds left here, Chesapeake Energy, Total Energies. You still
Speaker 1: like the energy sector just quickly we do. Capex has
Speaker 1: been low for a long time. There's there there's been
Speaker 1: a lot of under investment in energy, infrastructure and energy development.
Speaker 1: So we think having some exposure to that is interesting.
Speaker 1: These companies, especially a company like Total, is going to
Speaker 1: generate a lot of cash flow over the next two
Speaker 1: years and they're going to pay it back as dividends.
Speaker 1: It's a good place to uh to hide out. We think, Yeah,
Speaker 1: I just feel like this applied demand metrics will certainly
Speaker 1: be in the favor for Big Energy, which has been
Speaker 1: an out performer Pimisle for the last couple of years. Hey,
Speaker 1: Ben Kirby Um really appreciate this and really enjoyed it,
Speaker 1: co head of investments and managing director at Thornburg Investment Management,
Speaker 1: roughly thirty eight billion in ass it's under management, and
Speaker 1: he was joining us on the phone from Santa Fe,
Speaker 1: New Mexico. That was interesting. I'm gonna talk about value.
Speaker 1: That was really interesting, right, Like, is that conversation different
Speaker 1: now for this for years? Maybe? Right? Everything. Thanks for
Speaker 1: listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud,
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