Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Business Week, Insight from the reporters and
Speaker 2: editors that bring you America's most trusted business magazine, plus.
Speaker 3: Global business, finance and tech news.
Speaker 2: The Bloomberg Business Week Podcast with Carol Masser and Tim
Speaker 2: Stenovek on Bloomberg Radio.
Speaker 4: The European capitals reactive as shock to President Trump's abrupt
Speaker 4: turn against Ukrainian President Voldimir Zelenski, seeking simultaneously to reassure
Speaker 4: Kiev that it has the continents backing while trying to
Speaker 4: appeal to Washington now, President Trump yesterday embraced the Kremlins narrative,
Speaker 4: denouncing Zelenski as a dictator his word. Trump warned in
Speaker 4: a social media post that the Ukrainian leader had better
Speaker 4: move fast to reach a deal with Russia or he's
Speaker 4: not going to have a country left. Meantime, one more
Speaker 4: thing to layer on top of this, the US signal
Speaker 4: that sanctions really for Russia could be on the table
Speaker 4: and talks over the world in Ukraine. Earlier today on Bloomberg,
Speaker 4: US Treasury Secretary Scott Besson said that the US is
Speaker 4: prepared to either ramp up or take down penalties based
Speaker 4: on the Kremlin's willingness to negotiate.
Speaker 5: He also talked about what the.
Speaker 4: Administration seems to say is a misstep by the Ukrainian president.
Speaker 6: I think President Vilensky unfortunately escalated and has put some
Speaker 6: daylight between the escalator that a lot of his remarks
Speaker 6: in Munich I thought were inappropriate. President Zelensky, when I
Speaker 6: met with him, assured me that he'd be the signing
Speaker 6: the minerals deal in Munich.
Speaker 2: He has not.
Speaker 6: And look the real purpose here, and I think it's
Speaker 6: turned into this media circus that President Trump had a
Speaker 6: very elegant plan, and it was bring the Ukrainians closer
Speaker 6: to the US. Let's do this economic deal. And the
Speaker 6: even Karl Rove in the Wall Street Journal this morning
Speaker 6: approves of it that the US, with greater economic interest
Speaker 6: in Ukraine, provides a security shield. So the sequencing of
Speaker 6: what was going to happen was bring the Ukrainians closer
Speaker 6: to the US through economic ties, convince the American people
Speaker 6: and the American public, get them onside, and then tell
Speaker 6: the Russians go to the negotiating table with a very
Speaker 6: fulsome message that if we need to, we will take sanctions.
Speaker 7: Up, Well, what about tapping the Russian frozen assets and
Speaker 7: three hundred billion dollars? Would you force your European counterparts
Speaker 7: to not just have them frozen, but actually tap them.
Speaker 7: Trump talks about repaying the American taxpayer. Shouldn't Russia be
Speaker 7: a part of that?
Speaker 6: Well, what's happening now is they are being tapped. So
Speaker 6: the returns from interest, the returns from the freezed asset pile,
Speaker 6: is going to pay the Europeans. What's very important to
Speaker 6: understand here is everything the US has done to date,
Speaker 6: the American people, the American taxpayer is grant Europeans roughly
Speaker 6: half of what they've done are loans, and the runoff
Speaker 6: from the frozen assets is being used to repay European loans.
Speaker 8: Have you communicated that to the Europeans? The europe sent
Speaker 8: with them?
Speaker 6: What's that?
Speaker 8: Have you communicate to the Europeans that you're absent with them?
Speaker 6: I think Vice President vents that are a pretty good
Speaker 6: job in Unich.
Speaker 8: Do you think they understand that the United States is
Speaker 8: running a deficit of north of six percent, close to
Speaker 8: seven percent, and that the budget for defense is north
Speaker 8: of eight hundred billion dollars. Do they think do you
Speaker 8: think they understand the gravity of the moment in the
Speaker 8: United States the US perspective.
Speaker 6: Look, I think that they understand that President Trump during
Speaker 6: his first term this term, Vice President Vance and the
Speaker 6: entire security apparatus had told them that many of the
Speaker 6: countries are deficient in their NATO spending and they need to.
Speaker 9: Come up all right.
Speaker 4: That, of course, was US Treasury Secretary Scott Besson earlier
Speaker 4: on Bloomberg Surveillance on Bloomberg Radio and TV along with
Speaker 4: Jonathan Faraoh, Ann Marie Hordern and Lisa Bramo as the
Speaker 4: co hosts of Bloomberg Surveillance will monitoring all of this
Speaker 4: continue to report on the Russia Ukraine war and what
Speaker 4: an end might look like is Bloomberg News International Affairs
Speaker 4: communist Mark Champion he joins us now from London.
Speaker 5: Mark, good to have you here with us.
Speaker 4: The US Treasury Secretary said, the President is committed to
Speaker 4: ending this conflict very quickly. It's now three years old
Speaker 4: and still going. There are two players in that war,
Speaker 4: and yet Ukraine seems to increasingly be cut out. Is
Speaker 4: that a fair assessment?
Speaker 5: Absolutely?
Speaker 3: I mean, you can.
Speaker 10: Ending wars is easy if one side surrenders, it capitulates
Speaker 10: and the other side gets what they want. And the
Speaker 10: reason that this war hasn't come to a settlement yet
Speaker 10: is it the two sides remain really far apart, with
Speaker 10: President Putin still making demands. Reportedly, for example, in Riad,
Speaker 10: the demand Russian demand was repeated that NATO should go
Speaker 10: back to its nineteen ninety seven borders, So that mean
Speaker 10: Poland et cetera would have to leave NATO. So these
Speaker 10: are still very sort of extensive demands on NATO let
Speaker 10: alone Ukraine, and the Ukrainians obviously have been fighting a
Speaker 10: war to prevent that because they understand that it would
Speaker 10: mean that they no longer had a state, an independent state,
Speaker 10: and the Russians have been clear that that is their intent.
Speaker 10: So it is it's very difficult unless one side capitulates.
Speaker 10: And I think what President Trump has basically done is
Speaker 10: to identify that he has a lot of leverage with
Speaker 10: one side because it's very dependent on American support and
Speaker 10: financing and weapons, and very much less leverage with the other.
Speaker 10: Is also I think identified that there's a lot more
Speaker 10: to be gained, you know, by cutting a deal with
Speaker 10: the Russians, they have more more to offer larger economy,
Speaker 10: all that sort of thing. And you know, he did
Speaker 10: make this proposal to the Ukrainians. It was, in fact,
Speaker 10: originally Zelensky's idea. What the Treasury Sectorary omitted to say
Speaker 10: in his interview was that the actual when he Zelensky
Speaker 10: got the actual details of the US proposal, what it
Speaker 10: says is that the Ukraine should hand over fifty of
Speaker 10: all its natural resources, infrastructure, ports, et cetera, fifty revenues
Speaker 10: to the US in perpetuity. And there was nothing in
Speaker 10: the deal about security guarantees, and that the kinds of
Speaker 10: things that Zelensky was trying to get. So it's you know,
Speaker 10: it was a deal that was clearly designed to be rejected.
Speaker 3: Mark.
Speaker 9: One thing that I think is notable about this entire
Speaker 9: conversation is the role of a Treasury secretary being part
Speaker 9: of this negotiation. How should we think about that?
Speaker 11: Well, I mean, actually, American Treasury secretaries are unique in
Speaker 11: the world in the sense that one of the most
Speaker 11: powerful foreign policy tools and weapons of coercion that the
Speaker 11: United States has is the Treasury and its sanctions apparatus.
Speaker 11: And they are extremely powerful, and it makes a lot
Speaker 11: of sense that they should be involved you know, the
Speaker 11: Secretary talked about lifting sanctions. Of course, both the EU
Speaker 11: and the US have imposed sanctions on Russia. But essentially
Speaker 11: if the US were to lift sanctions, that would be
Speaker 11: the end of it, because the EU simply doesn't have
Speaker 11: the kinds of you know, depth of enforcement personnel and
Speaker 11: expertise that the US has. It doesn't have the US
Speaker 11: dollar as a point of leverage, and it has no
Speaker 11: experience whatsoever with enforcing secondary sanctions.
Speaker 10: So you know, it doesn't surprise me at all that
Speaker 10: he's involved.
Speaker 4: I think what's also fascinating and intriguing about your column
Speaker 4: is that this isn't about an end of the war,
Speaker 4: but about the United States and President Trump negotiating a
Speaker 4: reset with Russia. Again your view, But is it because
Speaker 4: explain that, I guess I want to ask you. And
Speaker 4: then is it because there is so much more potentially
Speaker 4: that the US has to gain? Is it business interests?
Speaker 4: Is it geopolitically? Is it in terms of maybe keeping
Speaker 4: nuclear war at bay?
Speaker 5: Is that it? And if so, is that such a
Speaker 5: bad thing?
Speaker 10: Well so, the Secretary of State Marco Rubio, after the
Speaker 10: re meeting said very clearly that you know, there was
Speaker 10: enormous opportunities to be had both geopolitical and economic for
Speaker 10: the United States in securing this deal. And what I
Speaker 10: was trying to say is that if you look at this,
Speaker 10: you know, the Trump administration's approach in terms of them
Speaker 10: trying to get what the Europeans want and the Ukrainians want,
Speaker 10: which is the best possible deal to you know, retain
Speaker 10: Ukraine's status as a sovereign state, retain as much land
Speaker 10: as it can, etc. If that is the goal, then
Speaker 10: nothing that President Trump has done makes sense because he
Speaker 10: handed over some of the most important demands that the
Speaker 10: Russians have made before talks have even begun, and in fact,
Speaker 10: in read setting up teams to begin talks on a
Speaker 10: ceasefire was just one of the outcomes and not the
Speaker 10: one that was first listed. You know. The first one
Speaker 10: that was listed was to restore diplomatic relation and economic
Speaker 10: relations between Russia and the US. That's also why Ukraine
Speaker 10: and europe were not at the table, because it wasn't
Speaker 10: a deal that was primarily about them. The difficulty for
Speaker 10: Ukraine and for the Europeans is that, you know, once
Speaker 10: that once that's understood, then Ukraine and its ceasefire they
Speaker 10: become just a lesser tool in a wider deal, and
Speaker 10: they are both you know, something that the US you know,
Speaker 10: has some leverage with over Russia because Russia wants, you know,
Speaker 10: control over Ukraine. But it's also if Ukraine stands in
Speaker 10: a way and won't give the you know, won't agree
Speaker 10: to a deal and to the terms that are being imposed,
Speaker 10: then it becomes the obstacle to the wider agreement that
Speaker 10: President Trump is looking for. So it just makes a
Speaker 10: lot more sense to me if you look at it
Speaker 10: in those terms.
Speaker 9: Mark, just about a minute left, what was this say?
Speaker 9: Ignore that you think it's sent to the world and
Speaker 9: sent to the US that the president yesterday called Zelensky
Speaker 9: a quote dictator.
Speaker 10: Very much. You know, again, in terms of that framing,
Speaker 10: what he has identified is that Zilynsky and Ukraine are
Speaker 10: the problem at this point as far as he's concerned.
Speaker 10: So he is adopting the sort of Kremlin narrative in
Speaker 10: order to try and undermine Zilensky and weaken him and uh,
Speaker 10: you know, make make him understand that he has to
Speaker 10: play ball or things will only get worse.
Speaker 5: Unbelievable.
Speaker 4: Yeah, just interesting, Mark, Thank you so much. Glad we
Speaker 4: could chat with you about your column Today. Mark Champion,
Speaker 4: his international affairs columnist for our Bloomberg Opinion team, joining
Speaker 4: us from London again.
Speaker 5: You can check out his column.
Speaker 4: You can find it on the Bloomberg Terminal and at
Speaker 4: Bloomberg dot com Slash Opinions.
Speaker 2: You were listening to the Bloomberg Business Week podcast. Catch
Speaker 2: us live weekday afternoons from two to five pm Eastern.
Speaker 2: Listen on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 2: or watch us live on YouTube.
Speaker 9: Not an update either for sales or the giant retailer.
Speaker 9: Walmart shares down around eight percent at one point earlier
Speaker 9: in the session, the most in more than a year,
Speaker 9: after it forecasts lower than expected profit for the full year,
Speaker 9: signaling that even the world's largest retailer is not immune
Speaker 9: to risks in the broader economic environment.
Speaker 4: That's right, Walmart's CFO acknowledging quote uncertainties related to consumer behavior,
Speaker 4: something we were just kind of talking about with our
Speaker 4: own Jody Laurie. Uncertainty is related to consumer behavior and
Speaker 4: global economic and geopolitical conditions. That from the Walmart CFO.
Speaker 4: Keep in mind this comes just days after retail sales
Speaker 4: signaled and abrupt pullback by consumers. So let's get to
Speaker 4: it with more on Walmart's business what it may say
Speaker 4: about the US consumer spending environment. With us is at
Speaker 4: Emily Cohen. She's Bloomberg News Consumer team leader right here
Speaker 4: in studio.
Speaker 5: So Emily walk us.
Speaker 4: Through this latest update on Walmart and wy investors are
Speaker 4: so concerned.
Speaker 12: Yeah, so it wasn't all together a bad report. Fourth
Speaker 12: quarter sales were actually strong. Stock is down though on
Speaker 12: a lower than expected profit guidance for the full year,
Speaker 12: and you nailed it. The theme of the call with
Speaker 12: analysts today was uncertainty. We just heard that word over
Speaker 12: and over and over again, and that's a consumer sentiment.
Speaker 12: That's tariffs, that's everything we're reading about in the news,
Speaker 12: just making it really hard for these companies to project
Speaker 12: what's going to happen.
Speaker 9: Is that the issue though, it's that it's difficult to project.
Speaker 9: They don't know what's going to happen. But because of that,
Speaker 9: they're just setting out the worst case scenario here.
Speaker 12: Yeah, I mean, this wasn't worst case for by any means.
Speaker 12: Like Walmart has historically given conservative outlook to start the year.
Speaker 12: Last year, they actually offered the same exact outlook three
Speaker 12: to four percent, so it's it's definitely in line. It's conservative.
Speaker 12: We read analysts Bobby Griffin say they're taking a conservative
Speaker 12: approach on near term investments. We saw the cost of
Speaker 12: the acquisition of Visio up here. That's still hitting the
Speaker 12: bottom line for Walmart this year. So what typically happens
Speaker 12: with Walmart as they raise their guidance early on in
Speaker 12: the year. So it's not worst case scenario.
Speaker 4: Because when they start the year with a cautious outlook, right,
Speaker 4: and then raise as we go along.
Speaker 12: It's sort of like in line with expectations. But expectations
Speaker 12: are really high for Walmart. Their last year was their
Speaker 12: strongest stock performance since nineteen ninety eight. The stock is
Speaker 12: up seventy seven percent, although that will be lower over
Speaker 12: the last twelve months after close today, So expectations are
Speaker 12: really high.
Speaker 4: And well, I think what's also interesting is, I remember
Speaker 4: was it I feel like in the last quarter of
Speaker 4: last year we were increasingly talking about and Walmart pointed
Speaker 4: out that their consumer is also a higher end consumer.
Speaker 4: So when we are trying to get if their higher
Speaker 4: end consumer is even maybe pulling back or they're concerned
Speaker 4: about that, you know, that does make you wonder about
Speaker 4: consumer spending overall. They're having potentially a tougher time, then
Speaker 4: you can assume everybody's having a tougher time for sure.
Speaker 12: So I mean one of the areas that the biggest
Speaker 12: area of growth for them right now in those last
Speaker 12: quarter was those people from those higher income households, households
Speaker 12: that are making one hundred thousand dollars or more. So
Speaker 12: that makes me wonder where are they gaining that market
Speaker 12: share from who's losing those those customers? And that's what
Speaker 12: we'll be looking for. This is the start of big
Speaker 12: box earning seasons. We have Target coming up, Costco Home Depot.
Speaker 12: We'll be trying to decipher that a little bit more.
Speaker 9: Do we know how Target, or rather how Walmart would
Speaker 9: be affected by tariffs? They get certainly some food from Mexico.
Speaker 9: I mean, you walk into a Walmart, it's going to
Speaker 9: be hard to find something in there that's not from China.
Speaker 9: Yeahs the what's the way that they're.
Speaker 12: Impacting Yeah, Yeah, A lot of produces coming from Mexico.
Speaker 12: A lot of general merchandise is coming from China. And
Speaker 12: this isn't new to them either. I mean China tariffs
Speaker 12: last time around with Trump hit them as well. But yeah,
Speaker 12: they are definitely exposed to China, as are a lot
Speaker 12: of their competitors.
Speaker 4: Emily, I always think about you know, Walmart, They're just
Speaker 4: they're massive, right, the world's largest, And you know there's
Speaker 4: certain retailers that when something comes out of them, even
Speaker 4: if historically they're cautious at the beginning, it does make
Speaker 4: a stop and think.
Speaker 5: But as you said, it's just the beginning of the
Speaker 5: big box.
Speaker 4: Is there something Target might say or who is it
Speaker 4: that might say something that.
Speaker 5: Says all right?
Speaker 4: So maybe this is just the Walmart the way they operate,
Speaker 4: and we'll get things better.
Speaker 9: You know.
Speaker 4: Is there someone that can help shape the narrative here
Speaker 4: around retail?
Speaker 12: Yeah, I think it'll be Target. Okay, last year, last quarter, rather,
Speaker 12: we saw a pretty positive reaction from Wall Street after
Speaker 12: Walmart earnings and then the complete opposite reaction.
Speaker 5: Targets down almost two percent today.
Speaker 12: Yeah, Target and Costco shares both fell immediately after Walmart
Speaker 12: reported this morning, So we'll be looking to see that.
Speaker 12: I mean, Target relies a lot on like discretionary spending.
Speaker 12: You come into Target for one thing, and then you
Speaker 12: see a lot of other cute things and you grab
Speaker 12: them and and those are the kinds of things that
Speaker 12: people are pulling back on right now. And if that
Speaker 12: chopper is not even going to Walmart because they're sorry,
Speaker 12: if they're not even going to Target because they're going
Speaker 12: to Walmart instead, that's bad news for Target.
Speaker 9: Does a report such as this apart from Target, a
Speaker 9: report such as this from Walmart make you rethink expectations
Speaker 9: for the entire sector for the current quarter?
Speaker 12: For sure? Walmart is the bell weather of consumer spending.
Speaker 9: What's the one we should be watching next?
Speaker 12: I'm watching Target?
Speaker 9: Yeah, a home depot. What is that going to tell us?
Speaker 12: You know, home depot has a lot of other factors too,
Speaker 12: whether other types of spending.
Speaker 9: I mean, I'm also thinking about just like yeah, I'm
Speaker 9: also thinking about the housing market. Yeah, to what extent,
Speaker 9: you know, A dreary sort of outlook there, Yeah, for
Speaker 9: sure affects that company.
Speaker 12: Yeah, you buy a new house, you're moving into a
Speaker 12: new house, you go to Walmart, Target, Costco or to
Speaker 12: fill up on things. And if you're not buying a
Speaker 12: new house, you're not buying those things.
Speaker 5: Yeah, and we have seen pressure.
Speaker 4: I'm just gonna I mean homes today are up about
Speaker 4: nine tens of a percent just looking at what they're doing.
Speaker 5: Sofa here in twenty twenty five, down about four percent.
Speaker 4: But again we keep yesterday we got hit because of
Speaker 4: Toll Brothers exactly exactly. But we do hear like the
Speaker 4: conversation that if mortgage rates continue to stay hi. You know,
Speaker 4: sometimes it makes people say, Okay, here's where we're settling.
Speaker 4: I'll get off the fence and do something and buy
Speaker 4: a home and then fill it with stuff. Others say,
Speaker 4: I'm still going to wait till maybe things go down. Emily,
Speaker 4: thank you, appreciate, thank you. The rundown on Walmart Emily Cone,
Speaker 4: she's Consumer team leader here at Bloomberg News, joining us
Speaker 4: right here in our studio. As we mentioned Walmart shares,
Speaker 4: they are definitely under pressure. Stock down now about six
Speaker 4: and a half percent, so just shy of.
Speaker 5: Its worst levels of the day.
Speaker 4: If we take a look at the trade here in
Speaker 4: twenty twenty five for Walmart just up about seven point
Speaker 4: six percent.
Speaker 2: This is the Bloomberg Business Week Podcast. Listen live each
Speaker 2: weekday starting at two pm Eastern up on applecar Play
Speaker 2: and the Android Auto with the Bloomberg Business app. You
Speaker 2: can also listen live on Amazon Alexa from our flagship
Speaker 2: New York State. Just Say Alexa played Bloomberg eleven thirty.
Speaker 5: So this popped up on our radar today.
Speaker 4: Bloomberg Opinion commas Tyler Cowen a professor of economics at
Speaker 4: George Mason.
Speaker 5: He's also a host of the Marginal Revolution blog.
Speaker 4: He writes a column today that the US economy may
Speaker 4: be heading towards stagflation. You know what that is a
Speaker 4: combination of high inflation high unemployment, which last occurred in
Speaker 4: the mid nineteen seventy, so it's been a while. He
Speaker 4: notes that current inflation rates are three percent and may
Speaker 4: increase due to factors such as rising rent rents, wage growth,
Speaker 4: and also President Trump's trade policy, which could lead ultimately
Speaker 4: to higher prices and tim Our next guest believes the
Speaker 4: US economy can function perfectly well with inflation closer to
Speaker 4: three percent. We'll see if he has any caveats to that.
Speaker 9: We've got with us. Dan Genter, CEO of Genter Capital Management.
Speaker 9: He joins us here in the Bloomberg a BusinessWeek studio,
Speaker 9: they've got about seven and a quarter billion dollars in
Speaker 9: assets under management. Dan good to see you three percent inflation.
Speaker 9: We always talk about the FEDS target of two percent.
Speaker 9: It's a long story about why that target it exists.
Speaker 9: But three percent, why do you think it's manageable?
Speaker 13: Well, look, it's been manageable for a very long period
Speaker 13: of time. And three percent pretty well goes along with
Speaker 13: long term population growth. Frankly, so it kind of runs
Speaker 13: hand in hand that as you have that population growth,
Speaker 13: you're consuming mort goods and services, and those prices tend
Speaker 13: to go up in line with that. That's not even
Speaker 13: taking into consideration if you have a one percent increase
Speaker 13: in productivity, which is normal, kind of throws you back
Speaker 13: into that two percent range when you're really looking at
Speaker 13: effective prices from disposal income. So long term, that's, in
Speaker 13: my opinion, a very very manageable number. I mean, the
Speaker 13: significance of the number really becomes more of the Fed policy,
Speaker 13: their outlook and the effect on interest rates, all right,
Speaker 13: because you know, in a very simplified format, look, interest
Speaker 13: rates basically determine the cost of everything. It determines your
Speaker 13: cost of production, it determines your cost of financing, It
Speaker 13: determines your cost for the two biggest items for almost
Speaker 13: every American which is their mortgage and their car loans.
Speaker 9: And so that's.
Speaker 13: Really going to be the key with regards to how
Speaker 13: fast do we go or how fast do we slow?
Speaker 4: So interesting does it matter in terms of population growth?
Speaker 5: The aging uh?
Speaker 4: You know is it if it's population growth where I
Speaker 4: don't know, with an aging population, does that kind of
Speaker 4: change the outcome of things?
Speaker 6: Just curious?
Speaker 13: Yeah, Carol, radically changes the consumption patterns, right because you know,
Speaker 13: there there's basically an economic phenomenon which has never been broken,
Speaker 13: and that is that you cannot break the baby boomer bubble,
Speaker 13: all right. That the baby boomer bubble made the Camaro,
Speaker 13: it made the Mustang, you know, then it made the
Speaker 13: suv and now it's moving to Mercedes and BMW and
Speaker 13: vacation homes and you know, and you can't fight it.
Speaker 13: It's just too big of a bubble of consumption. And
Speaker 13: now when you have a situation to where you know
Speaker 13: that that generation, if you will, is largely leaving the workforce,
Speaker 13: then it's also become you know, a very high consumption,
Speaker 13: but it's a different pattern of consumption. So they're not
Speaker 13: buying as many of the consumer durable goods. They don't
Speaker 13: buy as many refrigerators and other things that you know,
Speaker 13: in many cases drive some of the underlying pressures and inflation,
Speaker 13: but luxury goods and so on, you know, go on
Speaker 13: to terror for that.
Speaker 5: It's funny that you said that.
Speaker 4: I actually just wrote up a report that talked about
Speaker 4: luxury spending and how the luxury world has really kind
Speaker 4: of ignored what they call the so called silver generation.
Speaker 4: And there's some some stats from McKinsey that estimates almost
Speaker 4: half of the incremental growth and consumer spending this year
Speaker 4: compared with last year will be driven by.
Speaker 5: Those older than fifty. And it's just kind of interesting.
Speaker 4: To say, not ignore it, certainly for the luxury space,
Speaker 4: but maybe more generally.
Speaker 9: Well, look the evidence. Look at the end of last year.
Speaker 13: You look at fourth quarter sending with regards of retail
Speaker 13: goods and holiday spending, all right, and everyone was more
Speaker 13: or less flat, all right. The only one I had
Speaker 13: a big jump was Hermes, all right, So pretty well
Speaker 13: confirms that situation. You take the upper of the upper end,
Speaker 13: and they have plenty of money that's set aside. They
Speaker 13: have plenty of capital since they're major investors, they're also
Speaker 13: the major beneficiaries of the wealth effect from the stock market.
Speaker 9: So, look, that part.
Speaker 13: Of the consuming public feels very flush right now.
Speaker 9: Okay, that part of the consuming public is not going
Speaker 9: to be around forever. And I'm curious about what you
Speaker 9: think of the next generation, especially with regard to the
Speaker 9: way the economy has changed. We're now living in an
Speaker 9: economy where people are wondering, Hey, what's going to happen
Speaker 9: to my job as a result of disruption caused by AI?
Speaker 9: How should we be thinking about that?
Speaker 13: Well, look, there clearly is going to be a significant
Speaker 13: amount of disruption for certain sectors. You know, there's going
Speaker 13: to be a number of service jobs, you know, people
Speaker 13: that are basically answering the phones and giving client service
Speaker 13: over the phone for you know, various consumer products and
Speaker 13: so on. Look, are recording in a robot can do that? Certainly?
Speaker 13: And frankly, security jobs and things that robots can do.
Speaker 13: Anything that you can automate, you know they're going to
Speaker 13: be able to take over. Now, there's going to be
Speaker 13: other jobs that it's not going to effect, and certain
Speaker 13: things that it's going to help.
Speaker 9: Well, so let's say those folks who do get displaced
Speaker 9: by AI by robots, what do they then go and
Speaker 9: do well.
Speaker 13: Hopefully, what we're going to see is under the current administration,
Speaker 13: there is going to be a very big push and
Speaker 13: there's also going to be a lot of support for
Speaker 13: recreating manufacturing jobs in this country. So what we see
Speaker 13: is that there's probably going to be a fall off
Speaker 13: in some of the low end jobs, but there'll be
Speaker 13: an increase in some of the higher paying manufacturing and
Speaker 13: those types of jobs, you know, more of what historically
Speaker 13: we call the blue collar jobs that way have in America.
Speaker 13: You know, especially as we try to move tech jobs back,
Speaker 13: chip production back, you know, power generation, oil production. We're
Speaker 13: trying to move everything back to make America great again.
Speaker 13: And those are actually higher paying jobs than the ones
Speaker 13: that are going to get displaced by robotics or.
Speaker 4: Electronics, higher paying jobs, higher selleries. I'm all for it,
Speaker 4: higher wages across the board, but that also probably means
Speaker 4: everything costs a lot more. So, is it potentially it's
Speaker 4: not just a three percent inflation rate, but a lot higher.
Speaker 13: Well, I don't know that necessarily is going to cost
Speaker 13: a lot more, because if you're increasing the estic supply, right, okay,
Speaker 13: whether that be electronic jury and energy or or from
Speaker 13: oil and gas, or manufacturing. If the supply is going up,
Speaker 13: then the pricing is not necessarily going to go up.
Speaker 13: So I think the concern about inflation is to say,
Speaker 13: you know, where where is the pivot you.
Speaker 4: Talked about higher paying jobs, so that if AI replaces
Speaker 4: kind of those lower paying jobs and we have more
Speaker 4: higher paying jobs. I mean, that is a cost line,
Speaker 4: certainly on balancing.
Speaker 13: Absolutely then depends on productivity, all right, because basically if
Speaker 13: the wages go up but the productivity goes up, then
Speaker 13: your cost of good sould is not necessarily going to
Speaker 13: go up and you don't have to pass out along
Speaker 13: to the consumer.
Speaker 3: You know.
Speaker 13: To me, a bigger issue, frankly, is that where do
Speaker 13: the lines crossed between potential tariffs and then also taking
Speaker 13: those production jobs you know, back to America, because if
Speaker 13: you're in a position where you know, we do end
Speaker 13: up in a trade war some type and you have
Speaker 13: a literally overnight increase of fifteen to twenty percent, that's
Speaker 13: clearly inflationary.
Speaker 9: If you can't come back and.
Speaker 13: Say, oh, we're going to now increase production domestically you know,
Speaker 13: to where it's going to supplement that and take the
Speaker 13: place do.
Speaker 9: You think we will end up in a trade war. No,
Speaker 9: I don't.
Speaker 13: Well, I think we will have trade wars with certain countries.
Speaker 13: I think our major trading partners that are going to
Speaker 13: have the biggest effect are, you know, negotiating as we speak.
Speaker 13: You know, we're seeing everybody coming to the table. If
Speaker 13: it's going to be a tariff, it's going to be minimal.
Speaker 13: So I think the idea of saying, look, if you
Speaker 13: want to fight with us, we're going to have a
Speaker 13: tariff and we'll collect money from you, you know, or
Speaker 13: you want to work with us in essence where we're
Speaker 13: you will take more of our goods and we'll take
Speaker 13: your goods. Then basically that's advantageous to us because now
Speaker 13: we're distributing more of our goods to other places in
Speaker 13: the world, and that's advantageous Doe domestic companies.
Speaker 4: Well, it's just interesting though. Then do you not think
Speaker 4: that the end of global supply chains is near? Do
Speaker 4: you think that ultimately, if we don't have a tariff war,
Speaker 4: then global supply chains kind of stay put and we
Speaker 4: don't necessarily bring everything back to the United States And
Speaker 4: just got about twenty seconds.
Speaker 13: Yeah, Look, I don't think we'll ever get out of
Speaker 13: a global supply chain. I think that what we're going
Speaker 13: to see is that we want to be treated fairly. Yeah,
Speaker 13: we're not asking for a special treatment, just you know,
Speaker 13: a level playing field. And then there's certainly some strategic
Speaker 13: from national security that we don't want to be where
Speaker 13: we're subject to all of our seven percent of our
Speaker 13: chips being made in Taiwan.
Speaker 5: All right, got to leave it on that note.
Speaker 4: Dan, great to get some time with you, Dan Gender.
Speaker 4: He is CEO of Jettor Capital Management.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from two to five eas during Listen
Speaker 1: on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 9: We know that data centers used to power AI use
Speaker 9: a lot of energy. We spent a lot of time
Speaker 9: yesterday talking about where the power is going to come from,
Speaker 9: totally showing up the grid in Texas. We talked to
Speaker 9: Zach Dwall about that, and then also Maria Korsnik over
Speaker 9: at the Nuclear Energy Institute about nuclear Here's some context, Carol.
Speaker 9: Data centers use more electricity than most countries. Only sixteen nations,
Speaker 9: including the US and China, consume more. If you take
Speaker 9: all the data centers together, it's a lot. It's a lot.
Speaker 9: It's a lot. So it does raise the question and
Speaker 9: does the infrastructure exist to support these demands? And we're
Speaker 9: not just talking electrical infrastructure, we're talking about the way
Speaker 9: that computer systems and computer networks are built. Christina Shim
Speaker 9: was part of a group of executives who tried to
Speaker 9: answer that question today. She's Chief Sustainability Officer at IBM.
Speaker 9: She was joined at her panel at the Future Investment
Speaker 9: Initiative Institute in Miami by Sarah Fryar, CFO at OpenAI,
Speaker 9: and Rogie Nanda, CEO at Data Vaults, among a few others.
Speaker 9: Christina joins us now from Miami. Did you answer the
Speaker 9: question today, Christina? Does the infrastructure exist?
Speaker 14: I think you probably heard from most of us that
Speaker 14: there is definitely constraints on capacity at the moment, But
Speaker 14: the idea is more about how can we solution around that? Right,
Speaker 14: So what we're trying to do is think about the
Speaker 14: entire like you mentioned, the full stack of AI, So
Speaker 14: it's not just about the data centers. It's yes, the
Speaker 14: infrastructure supporting the data centers. It's also the chips. It's
Speaker 14: also the models themselves. When you're thinking about AI, it's
Speaker 14: the entire stack of it, and how you can be
Speaker 14: intentional across all of those to be able to make
Speaker 14: more of an increased in terms of capacity and decrease
Speaker 14: in terms of energy requirements and usage.
Speaker 9: If we think about this as like a chain, where
Speaker 9: is the weakest link?
Speaker 14: Oh, I mean, look, I think there's good ways to
Speaker 14: be intentional across all of those areas. Look the chips themselves.
Speaker 14: We're talking about in the last fifteen years, a ninety
Speaker 14: nine percent increase in efficiency in chips. One of the
Speaker 14: chips that we're investing in is called the North Pole
Speaker 14: and it's really based on the physiology of the brain
Speaker 14: and that and of itself has shown twenty five times
Speaker 14: more efficiency than the pre previous iterations of the chips
Speaker 14: that we had worked on. If you think about the
Speaker 14: infrastructure too, and how they can potentially be tied in
Speaker 14: terms of the processing to renewable energy or other energy sources,
Speaker 14: you can also think about every iteration of the mainframe
Speaker 14: and other infrastructure, hard infrastructure that's going into the data
Speaker 14: centers being increasingly generation by generation more and more efficient
Speaker 14: tied to different sources of energy that are required. And
Speaker 14: so I think that, combined with how we think about
Speaker 14: this journey of smaller models that are much more efficients,
Speaker 14: that are really much more efficient, not just efficient, but
Speaker 14: fit for purpose, more intentional about the use cases. Tying
Speaker 14: all of this together, you're really creating a much more
Speaker 14: powerful way of thinking about the computing capacity and the
Speaker 14: constraints that we're currently facing.
Speaker 4: I have to say, I did a quick Google search,
Speaker 4: so forgive me for my did.
Speaker 9: You use the AI part of the Google s.
Speaker 5: I didn't use? I did not, but I was like intrigued.
Speaker 4: When you said north Pole physiology of the brain, I
Speaker 4: was like, wait what, and so my understanding I'm looking
Speaker 4: so co locates memory and processing and the connections between
Speaker 4: neurons inspired by the brain. North Po tightly couple's memory
Speaker 4: with the chips compute units and control logic, leading to
Speaker 4: a massive thirteen terabytes per second.
Speaker 5: On chip memory bandwidth. Did I get it right?
Speaker 14: Incredible?
Speaker 6: Right?
Speaker 14: I mean, look, I'm not going to be the technical
Speaker 14: experts to speak to all of the ins and outs
Speaker 14: of that particular model, but the fact of the matter
Speaker 14: is there are some amazing investments in research and technology
Speaker 14: that are across as I mentioned the entire stack, the
Speaker 14: chips being one of them, and how cool is that
Speaker 14: it is being you know, kind of builds off the
Speaker 14: physiology of how we think about our brain mass.
Speaker 4: It's just kind of sorry, it was, you know, the
Speaker 4: elephant in the living room.
Speaker 5: I had to go there.
Speaker 4: Having said that, though, Christina, you know when you talk
Speaker 4: about you know, more productive chips, more efficient chips, what
Speaker 4: does that mean though? In terms of energy demand? You know,
Speaker 4: I did moderate this panel about a week ago and
Speaker 4: it was with the Nuclear Energy Institute, and it was about,
Speaker 4: you know how powered demand, which hasn't really moved for
Speaker 4: a long time, has now increased dramatically over the last
Speaker 4: year or so and the forecasts continue to see that growth.
Speaker 5: So are these chips which.
Speaker 4: Increasingly are needed, efficient enough, productive enough to kind of
Speaker 4: outpace that overall growth in demand.
Speaker 5: Because it sounds like no.
Speaker 14: Yeah, I think, you know, to be honest, I think
Speaker 14: the innovation needs to continue, right, and so there's continued
Speaker 14: technological innovation. Is it going to solve all problems at
Speaker 14: this current moment? No, But I think going forward, the
Speaker 14: fact that there is this increased innovation across all the
Speaker 14: different areas of technology that affects how we think about
Speaker 14: capacity constraints and infrastructure for AI. We will get there
Speaker 14: and let the I give you an example for the
Speaker 14: AI specific chips and infrastructure. We had set up a
Speaker 14: set of accelerators of these chips that were installed at
Speaker 14: the University of Alabama and Huntsville, which is just down
Speaker 14: the road from the NASA Marshall Space Center. And why
Speaker 14: that's relevant is that we have a partnership with NASA.
Speaker 14: We have built these geospatial foundation models. This set of
Speaker 14: AIU accelerated accelerator chips that were installed there for gen
Speaker 14: AI experiments was incredible because we were able to do
Speaker 14: a lot of the climate and geospatial testing of these
Speaker 14: models off of these chips, and just an early tests
Speaker 14: alone with these models, we saw that the cluster could
Speaker 14: run three times more efficiently than the commercial GPUs that
Speaker 14: are out there. So, while it may not be the
Speaker 14: the answer to all things at the moment, we're seeing
Speaker 14: that there is increased acceleration of the innovation that goes
Speaker 14: into how we can solve this problem for the medium
Speaker 14: to longer term.
Speaker 9: Yeah, Christina, Caroly and I have spent a lot of
Speaker 9: time over the last few weeks playing with Chad GPT
Speaker 9: is that your only is that.
Speaker 5: What you're That's the only one I've played.
Speaker 9: Around you, not like a Gemini person.
Speaker 5: Yet I haven't gotten there, and I haven't.
Speaker 9: Paid the quad for you.
Speaker 5: Yet it stops showing up. No deep Seek, No deep Seek.
Speaker 9: I don't know if you're allowed to use deep Seek.
Speaker 5: I don't know that I am either.
Speaker 4: I'm not actually sure I'm allowed to use it here.
Speaker 9: I have to use it on my phone. Yeah, So
Speaker 9: it does raise the question though. So we've been doing
Speaker 9: you know, we haven't been. We're not power users by
Speaker 9: any means, but I love to when we talk to
Speaker 9: people like you, to have you lay out a vision
Speaker 9: for us, because we understand what these lllms can do.
Speaker 9: But what's the world we're going to be living in,
Speaker 9: say five to ten years, and the role AI is
Speaker 9: going to have in it?
Speaker 14: You know, it's funny you say five to ten years.
Speaker 14: I would say even pause. It a lot closer to
Speaker 14: us than that. I mean, lllms are think what people
Speaker 14: are most used to because we're already used to like
Speaker 14: Google searches. Everything is done by words. But the multi
Speaker 14: modal element is going to be huge going forward. It
Speaker 14: already is right, the fact that you can speak to it,
Speaker 14: the fact that you can snap a picture, that it
Speaker 14: creates pictures for you. So the generative aspect from a
Speaker 14: multile my modal perspective is going to be much bigger.
Speaker 14: That's going to include video, that's going to include what
Speaker 14: I mentioned about geospatial I mean, all of these different
Speaker 14: ways of really making sense of the world and the
Speaker 14: world and the technology making sense of things for us
Speaker 14: is going to be profound, and that I don't think
Speaker 14: it's going to take five years. Already happening now, but
Speaker 14: at a much more accelerated pace of adoption because as
Speaker 14: you said, the power the power users maybe using them,
Speaker 14: but the average users may not be. I think that
Speaker 14: that's where you know the next, the next iteration of
Speaker 14: this will be going.
Speaker 4: But do you are you concerned when you think about
Speaker 4: sustainability in particular? That's what your job is, chief sustainability officer,
Speaker 4: And I'm not quite sure how you define it.
Speaker 5: As we ramp up.
Speaker 4: Energy or try to meet the energy demand from AI
Speaker 4: and just the electrification of our world thing increased industrialization
Speaker 4: once again of our world, I mean, are we able
Speaker 4: to do it in a sustainable, greener without harming Earth
Speaker 4: anymore than we already have.
Speaker 14: Yeah, right, it's a very important question, so thank you
Speaker 14: for asking it. I think the idea is that just
Speaker 14: as much as energy efficiencies has increased or improved over
Speaker 14: the last several decades, it will continue to do so.
Speaker 14: So while it is requiring an immense amount of energy
Speaker 14: and water as well for data center cooling at the
Speaker 14: current moment, because of a lot of the technological innovation,
Speaker 14: I have hope that that's actually where we will be
Speaker 14: able to manage some of the and mitigate for the
Speaker 14: environmental footprint. And I said before too, and I'll say
Speaker 14: it one more time that the intentionality of how we
Speaker 14: think about using AI is really important. So how you
Speaker 14: think about what chips you're using and how energy efficient
Speaker 14: those are your infrastructure, And again, as I mentioned, is
Speaker 14: it closely tied to a data center that's using renewable
Speaker 14: energy versus oil and gas. That will make a huge
Speaker 14: difference as well. And also the size of the model, right,
Speaker 14: you don't need a trillion parameter model to do anything,
Speaker 14: and everything we've seen, you know, thirty folds increases in
Speaker 14: capacity just by using smaller models, but also lowering the
Speaker 14: costs and increasing the efficiency of that as well. So
Speaker 14: I think if your intentional across the entire stack of it,
Speaker 14: we can all be much more responsible on how we're
Speaker 14: thinking about the use of AI. For sure, it's a concern.
Speaker 14: We need to be intentional about it, and I'm hoping
Speaker 14: that you know, increasingly, as we're working through with our
Speaker 14: partners and educating more broadly, that the average user will
Speaker 14: also as well.
Speaker 9: Hey, you're done in Miami at the Future Investment Initiative Institute.
Speaker 9: Some big names there, including you, in addition Saffercats at Oracle,
Speaker 9: Eric Schmidt of Alphabet and Google fame, Robert Smith, Stephen Ross,
Speaker 9: Marcelo Clare, Stephen Cohen, Travis Kalanick formerly of Uber. The
Speaker 9: lift continues the list that happens when I talk about it,
Speaker 9: where sometimes I say lifts, The list just continues to
Speaker 9: go on. What's the vibe there, what's the conversation, what's
Speaker 9: dominating the conversation?
Speaker 14: Number One, incredible excitement about the opportunities to work between
Speaker 14: the world, collaborate. The Saudi Arabian government is just you know,
Speaker 14: investing a ton in how we are collaborating together and
Speaker 14: showing that technology and these partnerships and technology are going
Speaker 14: to make significant impacts on the world in a positive way.
Speaker 14: I would say that's like first and foremost and too.
Speaker 14: I mean that the theme of the conference is invest
Speaker 14: with purpose, the idea of being you know, as you
Speaker 14: mentioned big names in the room, trillions of dollars of
Speaker 14: capital either owned or being managed by these people in
Speaker 14: one room, and the idea is, how do we make
Speaker 14: sure that we are investing with purpose thinking about the
Speaker 14: impact that we're having, both the consequences as well as positive.
Speaker 4: Christina has to just jump in because here you have,
Speaker 4: you know, a day where city scraps diversity goals DEI
Speaker 4: term under a Trump pressure, pressure from the White House,
Speaker 4: they came out and said that earlier today PEPSI pulled
Speaker 4: back on DEI programs. I feel like there's a rethink
Speaker 4: too about maybe concerns about climate change. What confidence do
Speaker 4: you have that the build out to meet the demand
Speaker 4: is done in a purposeful way and maybe a careful way,
Speaker 4: certainly when it comes to impact on the environment. And
Speaker 4: we've just got about thirty seconds here.
Speaker 14: Sure, Look, I can't speak to what all the other
Speaker 14: companies are doing. For us, it's still about long term
Speaker 14: value creation for our clients and our partners. I know
Speaker 14: that I've met with many people here who feel the
Speaker 14: same way, and so we'll continue to do that. And
Speaker 14: you know, whether or not it's using certain categories of
Speaker 14: words or not, at the end of the day, it's
Speaker 14: about the outcomes of what we can drive and how
Speaker 14: we can make sure that we're doing that in the
Speaker 14: most responsible and ethical way, and so that's what we
Speaker 14: will contain it.
Speaker 4: So the value creation continues to include whether it's diversity
Speaker 4: or making sure that the impact on the environment is minimal.
Speaker 5: Are still sustainable? Is that fair? That's fair?
Speaker 14: And I would say even more than that, it's not
Speaker 14: one or the other.
Speaker 3: Right.
Speaker 14: One of the main things that I say is that
Speaker 14: sustasability is as much of a business driver as anything else.
Speaker 14: It's not one or the other. And I think that's
Speaker 14: critical as part of this.
Speaker 5: Christina, thank you so much, appreciate it. This is Bloomberg.
Speaker 4: Macle I'll bet you let me drive.
Speaker 9: Oh no, no, no, no, this is not a twenty Okay, please.
Speaker 2: Excuse me.
Speaker 4: I want to drive.
Speaker 9: It's a question. This is the drive to the clothes.
Speaker 3: Pungs for me a thing.
Speaker 2: Well, drill don on Bloomberg Radio.
Speaker 5: Is it that time, Carol, Oh, TikTok. Yeah, that's when
Speaker 5: I usually do that. Sorry, I'm a little off today.
Speaker 9: No, I don't think so. I'm off.
Speaker 5: All right, today's your day to be up. I'm on
Speaker 5: so TikTok. Everybody better, you better be on eighteen minutes ago.
Speaker 5: And do we wrap up the.
Speaker 9: Train on the s and everything.
Speaker 4: Yeah, it is time for the drive to the clothes folks.
Speaker 4: We want to get right to it because we love
Speaker 4: talking to Brian Kelly, Chief investment Officer portfolio manager over
Speaker 4: at Hennessy Funds. He co manages the Hennessy Cornerstone MidCap
Speaker 4: thirty fund. It has returned on average nearly twenty two
Speaker 4: percent annually, putting the fund in the ninety ninth percentile
Speaker 4: against those in the sector, beating pretty much just about
Speaker 4: everyone in that group. That's according to our own data
Speaker 4: here at Bloomberg.
Speaker 9: He joins us from Chapel Hill, North Carolina. As I'm
Speaker 9: reading this along with Carol, Ryan, I'm wondering if that's
Speaker 9: if it's tough act to kind of follow performance such
Speaker 9: as that, like no pressure. Yeah, kind of a little
Speaker 9: bit of pressure, right.
Speaker 15: Oh, absolutely, no pressure at all. No, actually, there is
Speaker 15: not a whole lot of pressure. I'll tell you why
Speaker 15: this fund was conceived in two thousand and three.
Speaker 3: The formula that it uses.
Speaker 15: Is actually the exact same today as it was back then.
Speaker 15: This is a fundamental quant type formula. Now don't think
Speaker 15: of it as quantitative as in AI. Just like all
Speaker 15: that you were taught about a moment ago. We're not
Speaker 15: going to need data centers galore for this type of
Speaker 15: investing strategy. But it is a formula, and it sticks
Speaker 15: to the exact same thing year in and year out.
Speaker 15: And we do, of course have some years in which
Speaker 15: we're down. We're actually lagging a little bit this year already,
Speaker 15: But overall the entire history of the fund, yes, it's
Speaker 15: done very well. So it actually does take a little
Speaker 15: bit of the pressure off. Just knowing that you can
Speaker 15: take some of the emotion out of investing. You can
Speaker 15: stick to your formula, you can stick to your guns
Speaker 15: even when it seems like it might not be working.
Speaker 15: Or sometimes when you know a stock you own has
Speaker 15: gone up at one point it was up eight hundred percent,
Speaker 15: and you think, well, maybe I should get rid of it.
Speaker 3: Well, there was still some more upside in that.
Speaker 15: So this is really a formula based fund, and it
Speaker 15: kind of makes it a little easier to run.
Speaker 9: So let's talk about the formula. What's the secret sauce,
Speaker 9: what's the quant method here?
Speaker 15: Absolutely, the secret sauce, first of all, is actually published
Speaker 15: on our website. It's on our fact sheets and our perspectus,
Speaker 15: it's everywhere. The idea is that we want to give
Speaker 15: investors a really great portfolio of about thirty companies in
Speaker 15: the MidCap space. Now we define MidCap is between one
Speaker 15: and ten billion. We're then looking for three main things.
Speaker 15: We're looking for earnings growth, we're looking for valuations, and
Speaker 15: we're looking for momentum. So we pick stocks that are
Speaker 15: below one and a half times priced to sales. We
Speaker 15: want earnings growth on a year over year basis, and
Speaker 15: we want momentum three and six month price appreciation.
Speaker 3: And then what we do is we take that.
Speaker 15: Entire portfolio whatever's left over, and sometimes there's about one
Speaker 15: hundred and fifty companies if you look at the entire space,
Speaker 15: and we rank them by their best one year performance,
Speaker 15: and the top thirty enter the fund. Now, a couple
Speaker 15: of little nuances that I think really help the fund
Speaker 15: is that we pick these thirty stocks. They go into
Speaker 15: the fund at about three point three percent each, but
Speaker 15: along the way, we only do this once a year.
Speaker 15: We let them run, so we end up reinvesting more
Speaker 15: into stocks that are doing well and investing less into
Speaker 15: stocks that aren't doing so well.
Speaker 4: And I know, the last time we talked to you
Speaker 4: with I think was in November, you guys had done
Speaker 4: kind of the reboot and the rebalance and only two
Speaker 4: stayed in that portfolio of thirty.
Speaker 15: Is that correct, that's correct, yes, yep, yeah, that was
Speaker 15: the last time. And that's kind of typical of what
Speaker 15: the fund does. There's about, you know, a ninety percent
Speaker 15: turnover every year each year, and I think the reason
Speaker 15: is is that you get stocks that have had better
Speaker 15: momentum over the current year versus the last year, and
Speaker 15: that kind of makes a lot of them fall out,
Speaker 15: but we end up, you know, keeping whatever still stays
Speaker 15: in makes the cut, and then we put new ones
Speaker 15: in as well.
Speaker 3: But at the end of the day, we end up
Speaker 3: with thirty stocks, all equally weighted at about three point
Speaker 3: three percent, and then let them go from there.
Speaker 4: I got to ask you. So, which were the two
Speaker 4: that stuck around? I can't remember.
Speaker 3: That is a good question. I can pick that up.
Speaker 15: Oh it was m Core one of them, and I
Speaker 15: need to figure out the other one.
Speaker 9: Okay, that's that's it called a Carol Master pop quiz.
Speaker 3: Sorry, there a couple.
Speaker 9: You know. It's interesting now in terms of the top holdings, Peloton, Alaska, Brinker,
Speaker 9: and Newell Brands. Newell's been struggling this year, so that's
Speaker 9: an interesting one to see. But Peloton, let's start there.
Speaker 9: How did Peloton end up as the top holding?
Speaker 15: Again, this was a situation where when we did the rebalance,
Speaker 15: and this was back in November of last year, Peloton
Speaker 15: came into the portfolio at a three point three percent
Speaker 15: position as well, we bought it all it around to
Speaker 15: say five and a half six dollars range. This rebalance
Speaker 15: we talked about usually takes about two to three weeks,
Speaker 15: and the stock has surged since. Certainly there's been some
Speaker 15: ups and downs a little more volatile than some of
Speaker 15: the stocks we have in there, but that's why it's
Speaker 15: now the largest position. It's had a really nice start
Speaker 15: this year until today. You know, it's down a lot today,
Speaker 15: but the point is it was trading at below one
Speaker 15: and a half times priced to sales. It really was
Speaker 15: kind of out of favor. Yet it had some good
Speaker 15: momentum behind it, just enough to make the portfolio. And
Speaker 15: since that time it's it's up about seventy percent from
Speaker 15: our entry price.
Speaker 4: Well, and another one that you got is have the
Speaker 4: in the portfolio Brinker International, which is already up about
Speaker 4: seventeen percent so far this year. They own Chilis and
Speaker 4: a few other chains, so that one's in the portfolio
Speaker 4: as well.
Speaker 15: Absolutely, you know, And that's another one. It's a typical
Speaker 15: type of investment that we find. These are companies that
Speaker 15: have been around for a while, they have good products.
Speaker 15: Chili's has done they own Chili's, Brinker does. They've done
Speaker 15: a great job of refocusing on their brand, sort of
Speaker 15: simplifying their menu, bringing customers back, and it's worked. And
Speaker 15: this type of investing, I would say, for various reasons
Speaker 15: in how the portfolio, how the actual metrics work together,
Speaker 15: ends up finding stocks that are kind of turnaround stories.
Speaker 15: We're not going to be the smartest guys in the room.
Speaker 15: We're not going to buy things before they turned because
Speaker 15: we want that momentum already to happen, but it's happened
Speaker 15: again and again. And a good example of that is
Speaker 15: that and you can be sectors as well as individual stocks.
Speaker 15: Energy about you know, four or five years ago, when
Speaker 15: energy was trading at forty, when oil was trading.
Speaker 3: At forty dollars a barrel. A lot of those.
Speaker 15: Companies were, of course not making a lot of money
Speaker 15: at that point, but they still had a pretty low
Speaker 15: price to sales. And we at one point owned about
Speaker 15: thirty percent of the fund in energy stocks. Energy swored
Speaker 15: oil prices hit almost one hundred and twenty at one
Speaker 15: point and then settled in around eighty or ninety, and
Speaker 15: that ended up being a really really good part of
Speaker 15: the fund. And it was an example of how an
Speaker 15: entire sector might be out of favor, an entire you know,
Speaker 15: different individual companies could be out of favor, and we'll
Speaker 15: see them as a turnaround story in the fund.
Speaker 4: Yeah, bring our International up two hundred and six percent
Speaker 4: last year, up thirty five percent twenty twenty three, but
Speaker 4: still coming up. As you said, you look at earnings, growth, valuation,
Speaker 4: and momentum in the fun pretty.
Speaker 9: Cool stuff baby back ribs.
Speaker 4: Did you have to see that there, babyback, isn't it
Speaker 4: Ryan Kelly. We do love getting time with you. Thank
Speaker 4: you so much for stopping by Ryan Kelly, Chief Investment
Speaker 4: Officer Portfolio manager at Tennessee Funds. Out there in Chapel Hill,
Speaker 4: New North Carolina, Chapel Hill, North Carolina.
Speaker 9: Which is kind of cold behind them?
Speaker 5: Is it cold there?
Speaker 9: Looks a little cold, looks a little looks a little cold.
Speaker 2: This is the Bloomberg Business Week podcast, available on Apple, Spotify,
Speaker 2: and anywhere else you get your podcasts. Listen live weekday
Speaker 2: afternoons from two to five pm Eastern on Bloomberg dot Com,
Speaker 2: the iHeartRadio app, tune In, and the Bloomberg Business Us app.
Speaker 2: You can also watch us live every weekday on YouTube
Speaker 2: and always on the Bloomberg terminal