WEBVTT - US Consumer Confidence Falls, Carnival Earnings 0:00:02.920 --> 0:00:10.840 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.880 --> 0:00:15.040 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:15.080 --> 0:00:18.079 Eastern on Apple card playing Android Auto with the Bloomberg 0:00:18.120 --> 0:00:21.440 Business App. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:23.800 or watch us live on YouTube. 0:00:24.720 --> 0:00:26.639 So we have an economic data out as well, So 0:00:26.720 --> 0:00:30.240 the Conference Board consumer confidence of falling a little bit 0:00:30.280 --> 0:00:33.040 and coming in a one hundred point four present situation 0:00:33.120 --> 0:00:35.760 coming in a little light, Expectations a little light, but 0:00:35.800 --> 0:00:37.640 we want to get perspective on this, particularly as we 0:00:37.720 --> 0:00:40.800 head into the debate later on this week. Dani Peterson 0:00:40.800 --> 0:00:43.879 as chief economist at the Conference Board, and she joins us, now, 0:00:43.880 --> 0:00:45.960 can you tell me more about this data and what 0:00:46.000 --> 0:00:48.519 you kind of noticed from this survey. 0:00:49.760 --> 0:00:53.200 Sure, consumers are still having mixed feelings. For the most part, 0:00:53.200 --> 0:00:57.000 they're optimistic about their current employment situation, and certainly that's 0:00:57.040 --> 0:01:00.080 why the present situation index continues. 0:00:59.680 --> 0:01:00.480 To be buoyant. 0:01:00.760 --> 0:01:04.240 But they're still very concerned about the future, especially with 0:01:04.319 --> 0:01:07.760 respect to business conditions and their incomes. And so when 0:01:07.800 --> 0:01:10.440 you net all that out, we're just seeing kind of 0:01:10.480 --> 0:01:13.880 treading water here with consumer confidence. It's not terribly different 0:01:13.920 --> 0:01:15.720 in terms of breaking out of the range we've seen 0:01:15.760 --> 0:01:16.520 over the last. 0:01:16.360 --> 0:01:17.080 Year and a half. 0:01:17.520 --> 0:01:18.960 But still in all, we're. 0:01:18.880 --> 0:01:22.399 Noticing that expectations are weakening and that could start really 0:01:22.680 --> 0:01:24.280 weighing on the overall index. 0:01:26.240 --> 0:01:28.679 Talk to us about that expectations again, it came in 0:01:28.720 --> 0:01:31.839 its seventy three and that's down from a revived seventy 0:01:31.840 --> 0:01:33.600 four point nine last period. 0:01:34.040 --> 0:01:35.480 Where do you want to see that number? 0:01:35.480 --> 0:01:37.360 Where does that number need to be to suggest a 0:01:37.400 --> 0:01:39.400 healthy economy? 0:01:39.760 --> 0:01:45.039 Sure, so, anything below eighty usually signals that the consumer's thinking, well, 0:01:45.040 --> 0:01:47.760 maybe a recession is on the way. While it's not 0:01:47.880 --> 0:01:51.760 our expectation, we do think that consumer spending is going 0:01:51.840 --> 0:01:54.680 to slow over the course of the summer. Probably it 0:01:54.720 --> 0:01:57.720 already started in the earlier months of this year. It's 0:01:57.720 --> 0:02:01.120 going to continue. And also we ask consumers do you 0:02:01.160 --> 0:02:04.200 think a recession's going to happen? That kicked down in 0:02:04.280 --> 0:02:07.640 terms of the percentage saying yes, But still they're very 0:02:07.640 --> 0:02:12.120 worried about what's ahead. Again, it's focused on business conditions 0:02:12.160 --> 0:02:18.000 ahead and their incomes, but they're not complaining much about employment. 0:02:18.080 --> 0:02:21.079 But even still that employment gauge is below where we'd 0:02:21.120 --> 0:02:22.240 think it should be. 0:02:23.880 --> 0:02:25.799 It's interesting you say that because I feel like Michelle 0:02:25.840 --> 0:02:28.160 Bowman versus Mary Daily over the last twenty four hours 0:02:28.200 --> 0:02:31.360 told me something. And some are worried about infletion like 0:02:31.400 --> 0:02:33.720 Michelle Bowman, and some are worried more about growth and 0:02:33.800 --> 0:02:38.280 employment aka Mary Daily. In your survey, though, it seems 0:02:38.280 --> 0:02:42.160 like it's still just prices rather than jobs. 0:02:43.400 --> 0:02:46.920 Exactly. So when it comes to prices, consumers are continuing 0:02:47.000 --> 0:02:49.840 to complain about the level. They're saying the level of 0:02:49.880 --> 0:02:53.440 food and gasoline prices are still too expensive, and prices 0:02:53.480 --> 0:02:56.840 overall are still higher than what they'd like. They're complaining 0:02:56.919 --> 0:02:59.720 less about the rate of increase in prices, which is inflation, 0:03:00.120 --> 0:03:03.800 and indeed the inflation expectations gauge continues to take downward. 0:03:04.040 --> 0:03:07.080 But it's that concern about the fact that well, eggs 0:03:07.080 --> 0:03:09.680 are eight dollars, bread is ten dollars, and that's really 0:03:09.960 --> 0:03:11.239 disconcerting consumers. 0:03:12.840 --> 0:03:15.400 All right, Dan, thank you so much for stepping in 0:03:15.400 --> 0:03:17.520 and chatting with the Stany Peterson is the chief economist 0:03:17.639 --> 0:03:20.440 at the Conference Board. On the latest consumer confidence data 0:03:20.480 --> 0:03:22.640 cap in a little bit weaker than the prior period. 0:03:22.639 --> 0:03:23.920 Will keep an eye on that. 0:03:25.560 --> 0:03:29.440 You're listening to the Bloomberg Intelligence podcast Catch US live 0:03:29.520 --> 0:03:33.040 weekdays at ten am Eastern on applecar Play and Android 0:03:33.080 --> 0:03:35.840 Auto with the Bloomberg Business app. You can also listen 0:03:35.960 --> 0:03:39.080 live on Amazon Alexa from our flagship New York station 0:03:39.440 --> 0:03:42.200 Just Say Alexa playing Bloomberg eleven thirty. 0:03:43.600 --> 0:03:46.440 Carnival up over six percent. Here's what I don't understand. 0:03:46.640 --> 0:03:48.680 Carnival's doing really well. They're looking at good bookings, but 0:03:48.680 --> 0:03:50.520 then we got consumer confidence or at the top of 0:03:50.520 --> 0:03:52.960 the ten saying that people are worried and they're worried 0:03:52.960 --> 0:03:53.800 about rising prices. 0:03:53.800 --> 0:03:55.280 I don't know how to square these two things. 0:03:55.400 --> 0:03:55.760 I don't know. 0:03:56.560 --> 0:03:59.760 People are still spending on experiences. It appears like coming 0:03:59.800 --> 0:04:01.320 out of pandemic. I guess we kind of thought that 0:04:01.320 --> 0:04:02.960 would be a year or two. But yeah, they're took 0:04:03.440 --> 0:04:04.800 great bookings into next year. 0:04:04.880 --> 0:04:06.840 I know it's like forget eggs, but we're going to 0:04:06.880 --> 0:04:09.840 go buy a cruise. Brian Egger is Bloomberg Intelligence Senior 0:04:09.880 --> 0:04:11.920 Gaming and Launching analysts, and he joins us. Now, Brian, 0:04:11.960 --> 0:04:14.280 can you help me make sense of the strength and 0:04:14.320 --> 0:04:17.840 the likes of Carnival Carnival versus the overall feeling that 0:04:17.880 --> 0:04:21.120 consumers continue to say that they are stressed about sure. 0:04:21.160 --> 0:04:25.400 I think what Carnival is seeing is going beyond pent 0:04:25.520 --> 0:04:31.000 up demand from the pandemic to genuine, ongoing, sustainable, disposable 0:04:31.040 --> 0:04:33.719 spending on leisure travel. So if they're seeing it across 0:04:33.720 --> 0:04:36.080 the board, I mean it really is broad base. They're 0:04:36.080 --> 0:04:39.039 singing in Europe and North America. They're seeing it for 0:04:39.120 --> 0:04:43.240 both on board spending and ticket fare gains, and they're 0:04:43.240 --> 0:04:46.719 seeing it both on new hardware and you know, kind 0:04:46.720 --> 0:04:49.400 of legacy ships as well, So it is pretty broad based. 0:04:51.360 --> 0:04:54.960 So is it the typical cruising customer? Is it new 0:04:54.960 --> 0:04:56.520 people coming into the industry? 0:04:58.200 --> 0:04:59.040 What are they seeing here? 0:04:59.720 --> 0:05:02.600 H I think it's both. There's always a focus on 0:05:03.200 --> 0:05:07.000 new cruise customers and marketing the value relative value of 0:05:07.040 --> 0:05:10.440 cruises compared to other forms of vacation. I think it's 0:05:10.480 --> 0:05:15.280 really both, And you know, different brands attract different demographics 0:05:15.279 --> 0:05:17.279 and age groups, but you know to the extent that 0:05:17.279 --> 0:05:20.200 it's broad based, and it seems to be happening not 0:05:20.240 --> 0:05:22.679 only in the first quarter but continuing to the second quarter, 0:05:23.960 --> 0:05:26.680 and as Alex mentioned next as well, you know, I 0:05:26.720 --> 0:05:28.920 think it's we're seeing it across the board. 0:05:30.480 --> 0:05:34.160 If we go into a real slump or if inflation 0:05:34.320 --> 0:05:38.039 stays sticky. Does that affect this sustainable leisure demand the 0:05:38.120 --> 0:05:40.320 Carnival and you were talking about, you. 0:05:40.279 --> 0:05:43.880 Know, it does. Certainly. Travel prices have increased, and we're 0:05:43.920 --> 0:05:46.640 seeing that dis manifested of the fact that Carnival raised 0:05:46.680 --> 0:05:50.160 its net revenue old growth outlook for twenty twenty four 0:05:50.279 --> 0:05:53.400 from nine point five percent to ten and a quarter percent, 0:05:53.440 --> 0:05:56.400 So they're partly benefiting from that price. But obviously, you know, 0:05:56.440 --> 0:05:59.760 inflation cost inflation does affect the disposition of consumers. But 0:05:59.800 --> 0:06:02.800 from now, at least, you know, the demand on the 0:06:02.839 --> 0:06:05.440 consumer discretionary side certainly seems to be there. 0:06:07.640 --> 0:06:10.640 How About on the cost side, I'm thinking fuel, I'm 0:06:10.680 --> 0:06:13.880 thinking labor. What's going on on the cost side for 0:06:14.120 --> 0:06:15.120 a lot of these crews companies. 0:06:15.200 --> 0:06:19.280 Yeah, it's a factor certainly in terms of cost positioning. 0:06:19.279 --> 0:06:21.919 They've maintained I guess i'd say kind of a stable 0:06:21.960 --> 0:06:25.560 full year unit cost growth outlook of about four and 0:06:25.640 --> 0:06:28.560 a half percent or so, excluding the increases in the fuel. 0:06:28.839 --> 0:06:31.600 There are some increases going on there, but they're also 0:06:31.720 --> 0:06:35.800 to some degree being offset where they can by operating 0:06:35.800 --> 0:06:40.920 efficiencies and you know, where they can refinancing of debt 0:06:40.920 --> 0:06:44.719 and interesting and They've also identified just operational cost savings 0:06:44.720 --> 0:06:49.000 throughout wherever possible. So it's a challenging cost environment generally 0:06:49.000 --> 0:06:51.880 for the economy, but they are I think, I think 0:06:51.920 --> 0:06:56.039 seeing pockets of opportunity to uh to manage and mitigate 0:06:56.080 --> 0:06:56.880 that cost growth. 0:06:58.640 --> 0:07:03.400 Is there a distinction between Disney Cruises and Norwegian Cruise, 0:07:03.560 --> 0:07:05.200 like the ones that take it to Iceland and the 0:07:05.279 --> 0:07:07.039 Paul would go on versus the ones that, like I 0:07:07.040 --> 0:07:09.120 would have to go on with my kid, Like, are 0:07:09.160 --> 0:07:11.240 there a distinction or is this like a broad stroke 0:07:11.640 --> 0:07:12.679 for the cruise like guys? 0:07:12.760 --> 0:07:15.400 I mean, there are so many distinction across brands to 0:07:15.440 --> 0:07:18.280 give you some sense of it, you know, like domestically 0:07:18.360 --> 0:07:22.000 or in terms of US brands, they saw yields up 0:07:22.480 --> 0:07:25.600 in the quarter seven percent, European brands up twelve percent, 0:07:25.840 --> 0:07:28.520 So it's pretty broad based with some differences in comparisons. 0:07:28.720 --> 0:07:33.240 I will say that the level of yield growth expectation, 0:07:33.400 --> 0:07:36.720 it's ten percent ish as I mentioned for Carnival, you know, 0:07:36.760 --> 0:07:38.280 it's nine and a half percent for a while, and 0:07:38.320 --> 0:07:42.040 it's a touch above seven percent for Norwegian. And while 0:07:42.040 --> 0:07:45.280 there are differences across companies in terms of comparisons, I 0:07:45.320 --> 0:07:47.920 think you can say those are roughly the same ballpark 0:07:48.440 --> 0:07:51.080 in terms of the inertia momentum for bookings. 0:07:53.440 --> 0:07:55.960 Is this an industry? Are they building new ships? 0:07:57.040 --> 0:07:59.119 There are new ships in order, you know, the level 0:07:59.120 --> 0:08:02.040 of supply growth slows down a little bit going into 0:08:02.080 --> 0:08:04.720 next year. It's kind of like a kind of a 0:08:04.760 --> 0:08:08.600 mid single digit long term supply growth rate, which historically 0:08:08.680 --> 0:08:11.000 is actually a little bit more modern than what we've 0:08:11.000 --> 0:08:14.040 seen over some past decades. So they are building new hardware, 0:08:14.160 --> 0:08:16.000 but they're also I mean, this is kind of key 0:08:16.040 --> 0:08:19.960 for Carnival. They have been repositioning some ships and rebranding 0:08:20.360 --> 0:08:24.560 a lot of the former Costa and Piano Australia ships 0:08:24.840 --> 0:08:27.520 as Carnival brands. So in addition to some new shipbuilding, 0:08:27.760 --> 0:08:30.520 there's also some rebranding and brand positioning going on. 0:08:32.280 --> 0:08:34.160 All right, Brian, we appreciate you. Thank you very much. 0:08:34.160 --> 0:08:37.000 Brian Egger Bloomberg Intelligence in your gaming and launching analysts. 0:08:37.000 --> 0:08:38.760 Paul, have you have you booked your cruise? 0:08:39.120 --> 0:08:40.600 He's been talking about it. 0:08:40.720 --> 0:08:43.320 There's potential there for the fall of twenty five. Okay, 0:08:43.400 --> 0:08:45.760 So I'm so we're just we're still in the thinking stage. 0:08:45.760 --> 0:08:47.400 Okay, So this will be like a good indication. If 0:08:47.400 --> 0:08:49.640 this is kind of like spread outward. 0:08:49.400 --> 0:08:52.280 Then Charlie's all over the I mean, he's. 0:08:52.120 --> 0:08:54.240 The guy who does the weird things and then also cruises. 0:08:54.280 --> 0:08:54.760 So there is that. 0:08:56.240 --> 0:08:59.959 You're listening to the Bloomberg Intelligence podcast. Catch us luck, 0:09:00.040 --> 0:09:02.240 I have week days at ten am Eastern on Apple 0:09:02.320 --> 0:09:05.320 Car playing Android Otto with the Bloomberg Business app. Listen 0:09:05.440 --> 0:09:08.520 on demand wherever you get your podcasts, or watch us 0:09:08.559 --> 0:09:09.600 live on YouTube. 0:09:11.640 --> 0:09:13.280 Alex Dee and Paul Sweeney were live here from the 0:09:13.280 --> 0:09:16.600 Bloomberg invest Conference in Lower Manhattan, the World Financial Center, 0:09:16.600 --> 0:09:20.319 bringing together leaders from asset management, banking, and the private markets. Say, 0:09:20.320 --> 0:09:22.680 the World Financial Center during the warm weather months is 0:09:22.720 --> 0:09:24.560 a magical part of Manhattan that I don't think a 0:09:24.559 --> 0:09:26.640 lot of people know about, right on the Hudson River. 0:09:26.720 --> 0:09:29.240 Lots of cool yachts, lots of great restaurants, open spaces 0:09:29.240 --> 0:09:30.319 for the kids to run around. 0:09:31.040 --> 0:09:32.040 Yeah, it's good stuff down here. 0:09:32.080 --> 0:09:33.400 So if you haven't been down here at this World 0:09:33.400 --> 0:09:36.240 Financial Center Battery Park area in warm weather, it's really 0:09:36.320 --> 0:09:37.600 really a cool part of the city. 0:09:38.120 --> 0:09:38.240 You Know. 0:09:38.280 --> 0:09:40.480 What I've noticed over the years is the University of Illinois 0:09:40.480 --> 0:09:42.520 cranks out a lot of math geeks. I mean, like 0:09:42.640 --> 0:09:46.160 really smart, mathy people. I didn't know that until I 0:09:46.200 --> 0:09:48.319 started seeing them all over the place. Daniel Marilla was 0:09:48.360 --> 0:09:51.040 one of them, co founder and head of quantitative Strategies 0:09:51.040 --> 0:09:53.600 at Freestone Group. Daniel, thanks so much for joining us 0:09:53.640 --> 0:09:56.800 live here at the Bloomberg invest Conference. Talk to us 0:09:56.800 --> 0:09:58.560 about your firm. This is a new firm for you, 0:09:58.600 --> 0:10:01.000 guys recently set it up. Tell us about your approach 0:10:01.040 --> 0:10:01.640 to investing. 0:10:02.320 --> 0:10:04.720 Yeah, I guess well, first of all, actually thank you 0:10:04.760 --> 0:10:08.120 for having met I do own the math geek thing. 0:10:08.200 --> 0:10:10.920 Yes, are you a math geek or did just put 0:10:10.920 --> 0:10:11.280 that on you? 0:10:11.400 --> 0:10:13.440 I am happy to own HD and I don't know 0:10:13.480 --> 0:10:15.679 what I'm happy to own it. 0:10:16.600 --> 0:10:16.800 Yeah. 0:10:16.840 --> 0:10:20.720 For Freestom Grove co founder Todd Parker and myself, we 0:10:20.760 --> 0:10:23.480 spent quite a long time et cetera. All And I 0:10:23.480 --> 0:10:25.440 guess the way you would want to think about our 0:10:25.480 --> 0:10:27.120 new firm, which we started about a year and a 0:10:27.120 --> 0:10:31.240 half ago, is we're looking to sort of evolve the 0:10:31.280 --> 0:10:36.280 integration of fundamental investing with quantitative process. 0:10:36.679 --> 0:10:38.440 Does the math geek thing right? 0:10:39.480 --> 0:10:43.440 We believe that the way in which you managed to 0:10:43.440 --> 0:10:46.840 sustain alpha delivery from the fundamental process is to pair 0:10:46.920 --> 0:10:50.880 it with the disciplined understanding of what's happening in the 0:10:50.880 --> 0:10:53.640 market is via all those quantitative tools, right, and so 0:10:54.040 --> 0:10:56.880 we've made a very signifant investment on our platform, all 0:10:56.960 --> 0:11:00.640 the math EBITs that go with it, and Rod class 0:11:00.880 --> 0:11:03.640 fundamental team to sort of look to evolve that process. 0:11:03.840 --> 0:11:06.840 Right, So what is a quant strategy and then how 0:11:06.920 --> 0:11:09.440 does that mesh with fundamentals? So that the whole point 0:11:09.440 --> 0:11:11.400 of quants was because you didn't have to worry about 0:11:11.440 --> 0:11:13.120 the fundamentals. 0:11:13.640 --> 0:11:16.640 Yeah, So I think you want to think in alpha 0:11:16.840 --> 0:11:20.280 space if you're looking to deliver alpha as opposed to 0:11:20.320 --> 0:11:24.480 just take risk, right. I think the objective of the 0:11:24.559 --> 0:11:27.320 quantity side and the fundamental side is essentially the same, right, 0:11:27.360 --> 0:11:30.480 which is you're looking for a differentiated view about the 0:11:30.480 --> 0:11:33.040 prospects of a firm. And I think the difference tends 0:11:33.040 --> 0:11:36.320 to be that in quantitative land, you're looking to get 0:11:36.320 --> 0:11:39.120 that differentiative view via taking advantage of a very high breath, right, 0:11:39.200 --> 0:11:41.400 So you look for some subtle bit of data that 0:11:41.440 --> 0:11:45.240 tells you a very little bit about many firms, right, 0:11:45.280 --> 0:11:47.600 And so you essentially create what people would use a 0:11:47.760 --> 0:11:50.520 factor where a little bit of information helps you make 0:11:50.559 --> 0:11:52.960 a small bed across I don't know, a thousand stocks, right, 0:11:53.120 --> 0:11:56.240 Russell one thousand in the US or something right, Whereas 0:11:56.280 --> 0:11:58.440 on the fundamental side you're looking for the same thing 0:11:58.600 --> 0:12:01.960 at differentiative view, But there you're much more focused on 0:12:04.200 --> 0:12:07.000 the idea that a human has the ability to come 0:12:07.040 --> 0:12:09.960 to understand a level of subtle detail about an individual 0:12:10.080 --> 0:12:13.760 firm at real debt that you couldn't get if you 0:12:13.880 --> 0:12:15.720 tried to do it as sort of automatically across all 0:12:15.760 --> 0:12:19.080 the firms, right, So you focus on maybe twenty, maybe 0:12:19.120 --> 0:12:22.199 thirty firms, and you'd spend your life literally thinking about 0:12:22.200 --> 0:12:25.640 these firms, right, And so it's a breath versus depth thing, right. 0:12:27.000 --> 0:12:29.240 We think that in a sense, you could put the 0:12:29.320 --> 0:12:30.520 both of our worlds together. 0:12:30.600 --> 0:12:30.720 Right. 0:12:30.760 --> 0:12:33.040 There many firms out there who do each of these well. 0:12:33.520 --> 0:12:37.240 We think that putting them together actually is sort of 0:12:37.240 --> 0:12:38.960 the right way of actually thinking about it. There's no 0:12:39.040 --> 0:12:41.320 reason why they can't be together other than it's hard. 0:12:41.400 --> 0:12:43.240 You need two types of expertise. 0:12:42.840 --> 0:12:44.480 You need the management, you need the systems and all 0:12:44.480 --> 0:12:44.760 these things. 0:12:44.800 --> 0:12:46.080 So it is hard to put them together. 0:12:46.600 --> 0:12:49.280 But we believe you can, and that that leads to 0:12:49.480 --> 0:12:51.240 sustainable alpha essentially. 0:12:51.320 --> 0:12:52.439 Quote from both sides. 0:12:52.640 --> 0:12:56.480 So I'm a former equity research analyst, so covering the 0:12:56.520 --> 0:12:58.160 media space. So let's say I come in one day 0:12:58.160 --> 0:13:01.240 and say, got to buy the walk this company here today, 0:13:01.679 --> 0:13:03.240 but the black box says sell it. 0:13:04.080 --> 0:13:04.880 Do what happens? 0:13:04.880 --> 0:13:09.440 Then? I think in you would like to think that 0:13:09.480 --> 0:13:12.240 in most cases, that situation doesn't arise, right, And the 0:13:12.240 --> 0:13:15.640 reason why it shouldn't arise is because. 0:13:15.559 --> 0:13:17.560 That last step that you talk about, right, which is 0:13:17.640 --> 0:13:18.160 I want. 0:13:18.000 --> 0:13:21.800 To buy the stock, should occur on the back of 0:13:21.840 --> 0:13:24.720 a traceable discipline investment process. 0:13:24.800 --> 0:13:24.920 Right. 0:13:24.960 --> 0:13:26.160 So by the time you come to me and say 0:13:26.200 --> 0:13:29.640 I want to buy the stock, presumably we would have 0:13:29.679 --> 0:13:31.920 had a conversation or in the tooling, you would have 0:13:31.920 --> 0:13:34.920 spent that whole bunch of time going to conferences, talking 0:13:34.960 --> 0:13:37.760 to firm management, you know, building a financial model and 0:13:37.760 --> 0:13:41.959 putting estimates out there such that your conclusion I want 0:13:42.000 --> 0:13:45.240 to buy the stock sort of naturally flows from all 0:13:45.280 --> 0:13:47.160 the notes that you've done, all the work that you've done. 0:13:47.640 --> 0:13:50.200 Let's say you're producing estimates for earnings, and earnings is 0:13:50.240 --> 0:13:54.120 next week. Let's say your estimates are higher than the street, right, 0:13:54.840 --> 0:13:57.600 I think the street is missing something, right, And here's 0:13:57.640 --> 0:13:58.840 all the work that backs that up. 0:13:59.000 --> 0:13:59.959 Therefore I want to buy it. 0:14:00.240 --> 0:14:00.400 Right. 0:14:00.880 --> 0:14:04.360 So in that context, the quote black box is essentially 0:14:04.400 --> 0:14:06.920 all the tooling that helps you do that, right, So 0:14:07.040 --> 0:14:09.720 all the signals, the data that informs all the modeling 0:14:09.720 --> 0:14:13.000 that you do. It could be everything from satellite data 0:14:13.040 --> 0:14:15.040 that tells you how many cars were parked in front 0:14:15.080 --> 0:14:17.800 of whatever the shops are. Essentially they work together, so 0:14:17.800 --> 0:14:20.160 by the time that decision happens, there's no sort of 0:14:20.240 --> 0:14:22.960 separation essentially, or there shouldn't be at least, right, So 0:14:23.000 --> 0:14:24.920 it's not something that we actually worry very much about 0:14:24.920 --> 0:14:28.120 because if you put them together properly in a sense, 0:14:28.120 --> 0:14:32.360 that conclusion falls out from sort of having that traceable work, 0:14:32.440 --> 0:14:33.000 if you will. 0:14:33.400 --> 0:14:35.440 So you were here, you just did a panel and 0:14:35.480 --> 0:14:38.680 the panel name was the right mix of humans and machines. 0:14:38.800 --> 0:14:42.760 So it's going to be about using AI in this model. Correct, 0:14:42.960 --> 0:14:45.200 How have you found a good balance? How are you 0:14:45.240 --> 0:14:46.560 thinking about that balance? 0:14:47.360 --> 0:14:50.360 Yeah, I guess that sounds kind of a trite thing 0:14:50.400 --> 0:14:53.760 to say, but the answer is basically depends. It depends 0:14:53.760 --> 0:14:54.200 on the thing. 0:14:54.320 --> 0:14:54.520 Right. 0:14:56.480 --> 0:14:59.760 We like to make a distinction between automation questions, right, 0:15:00.080 --> 0:15:02.440 the technology AI now, but in the passive would have 0:15:02.440 --> 0:15:05.400 been machine learning, neural networks, you know, data signs of 0:15:05.440 --> 0:15:09.040 all kinds. It's evolved into being able to take on 0:15:09.200 --> 0:15:11.680 more of this kind of unstructured data stuff on the 0:15:12.280 --> 0:15:14.960 language side, but it's an evolution of the same, right, 0:15:15.000 --> 0:15:18.280 And we find that for automation tasks, the more you 0:15:18.320 --> 0:15:22.720 can push on things that are sort of not insight generation, right, 0:15:22.800 --> 0:15:25.800 not where the idea comes from, but just automating the tasks, 0:15:26.800 --> 0:15:30.040 it's quite effective. And we generally have been sort of 0:15:30.040 --> 0:15:31.960 big believers that you want to invest in your ability 0:15:32.000 --> 0:15:32.360 to do that. 0:15:32.920 --> 0:15:34.840 On the judgment side, which. 0:15:34.680 --> 0:15:38.160 Is, will AI helped me produce better insight like actually 0:15:38.240 --> 0:15:41.800 a differentiated idea, we've been significantly more cautious on that end. 0:15:42.200 --> 0:15:43.600 And the reason for it is if you think about 0:15:43.640 --> 0:15:48.400 how AI is built out. You feeded all this augmentation 0:15:49.160 --> 0:15:53.160 and it produces essentially a probabilistic forecast or what is 0:15:53.200 --> 0:15:55.640 the next word in a sentence or people use the 0:15:55.640 --> 0:15:58.320 word token right, next sentence, next individual. 0:15:57.920 --> 0:15:58.480 Word, et cetera. 0:15:58.920 --> 0:16:02.560 It is essentially built if in our parlance you would 0:16:02.600 --> 0:16:05.240 call it it's built to produce the consensus. Right, you 0:16:05.240 --> 0:16:07.320 ask it a question and the answer to that question 0:16:07.440 --> 0:16:10.520 comes from here's all the documents about this topic, and 0:16:10.560 --> 0:16:13.000 the average answer quote, the most likely answer is this. 0:16:13.080 --> 0:16:14.080 So that's differentiated. 0:16:14.280 --> 0:16:14.600 Correct. 0:16:14.640 --> 0:16:18.080 That's a problem, and so into asset management when you're 0:16:18.120 --> 0:16:21.760 interested in a differentiative view, AI is inherently not built. 0:16:21.440 --> 0:16:23.440 For that, or at least not quote out of the box. 0:16:23.640 --> 0:16:26.080 Right, So you need to think much more carefully about 0:16:26.360 --> 0:16:28.360 how do I use it as a starting point for 0:16:28.480 --> 0:16:33.200 thinking about summarization questions, directing and attention, detecting themes, measuring sentiment, 0:16:33.320 --> 0:16:36.760 all very useful things that might lead you to have 0:16:36.760 --> 0:16:39.640 a better insight. But it's not inside generation itself, right, 0:16:39.720 --> 0:16:42.000 And so then the topic really sort of matters, right 0:16:42.120 --> 0:16:45.160 is it writing code for the engineers? Maybe not so much, 0:16:45.720 --> 0:16:48.840 but is it The ability to summary is a huge 0:16:48.880 --> 0:16:51.400 amount of data. You know you were an equity analyst, right, 0:16:51.440 --> 0:16:52.920 part of the job is you show up in the morning. 0:16:53.000 --> 0:16:54.440 There's like a million things to read. 0:16:54.600 --> 0:16:57.840 Right, There's all the cell side analyze, all the transcripts 0:16:57.920 --> 0:16:59.760 from conferences, all the news about the company. 0:16:59.800 --> 0:17:00.000 Right. 0:17:00.760 --> 0:17:03.160 Just the act of reading is a big deal. Right, 0:17:03.480 --> 0:17:05.359 So you can imagine how I might be helpful in 0:17:05.440 --> 0:17:08.480 directing attention and highlighting new emerging themes. 0:17:08.280 --> 0:17:08.640 Et cetera. 0:17:09.119 --> 0:17:11.720 You probably still want to be reading at least some 0:17:11.760 --> 0:17:14.320 of the key pieces of it, because you'd worry about 0:17:14.320 --> 0:17:16.240 where the insight comes from as opposed to where the 0:17:16.320 --> 0:17:17.280 summarization comes from. 0:17:17.320 --> 0:17:18.360 Does that sort of make sense? 0:17:18.480 --> 0:17:21.840 Yeah, real quickly, thirty seconds. How some of the early 0:17:21.880 --> 0:17:23.480 returns been for your firm? 0:17:23.920 --> 0:17:27.040 Give us we've been doing sort of about what we plan. 0:17:27.160 --> 0:17:29.280 We did you call me a math nerd. We did 0:17:29.359 --> 0:17:32.200 quite a We did quite a lot of simulation about 0:17:32.200 --> 0:17:34.280 how the thing should work when we started going, right, 0:17:34.400 --> 0:17:36.960 what sort of returns with what assumptions, and we're basically 0:17:37.000 --> 0:17:38.160 tracking to what we would. 0:17:37.920 --> 0:17:39.200 Have expected at this point. 0:17:39.280 --> 0:17:40.280 What's what's your benchmark? 0:17:40.840 --> 0:17:43.480 No benchmark? Right, we bark in neutral. We are perfectly 0:17:43.480 --> 0:17:45.560 hedged to in the S and P. Five hundred. We 0:17:45.600 --> 0:17:48.720 also take no factor risk, and so essentially the benchmark 0:17:48.880 --> 0:17:52.000 is our ability to deliver uncorrelated returns to the other 0:17:52.119 --> 0:17:53.760 benchmarks is essentially how you think? 0:17:54.240 --> 0:17:57.040 Does AI real quick for go? Does AI stress you out? 0:17:57.359 --> 0:17:59.000 In what way? Might AI stress you out? 0:17:59.080 --> 0:18:00.520 It doesn't test me out? 0:18:00.680 --> 0:18:02.600 You know, it's kind of exciting, right, The new things 0:18:02.600 --> 0:18:03.440 are always exciting. 0:18:04.040 --> 0:18:04.320 Huh. 0:18:04.600 --> 0:18:07.320 That's because he's a PhD in math, right, why they 0:18:07.400 --> 0:18:07.639 like this? 0:18:07.720 --> 0:18:10.040 The math gee's like new nerdy thing. 0:18:10.119 --> 0:18:10.679 Yes, got it. 0:18:10.800 --> 0:18:12.160 We definitely liked the cool stuffy. 0:18:12.520 --> 0:18:14.840 Thank you all right, Daniel Marillo, thank you so much. 0:18:14.880 --> 0:18:16.480 It was a pleasure to have you stopping by. Thank 0:18:16.520 --> 0:18:18.800 you very much. Co founder and head of Quantitative Strategies 0:18:18.840 --> 0:18:22.080 at Freestone Grove Partners. He coined himself a math geek, 0:18:22.119 --> 0:18:22.640 so we'll. 0:18:22.480 --> 0:18:23.560 Just go with that. 0:18:26.760 --> 0:18:30.640 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:18:30.720 --> 0:18:33.760