WEBVTT - Tesla's Biggest Deliveries Miss Yet 0:00:02.920 --> 0:00:10.840 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.840 --> 0:00:15.040 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:15.040 --> 0:00:17.520 Eastern on Affo card Playing and Broun Auto with the 0:00:17.520 --> 0:00:21.400 Bloomberg Business App. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:24.000 or watch us live on YouTube. 0:00:25.040 --> 0:00:28.640 Tesla, the stock is down six percent here today. They 0:00:28.760 --> 0:00:32.880 missed pretty significantly on their deliverables for the first quarter. Again, 0:00:32.920 --> 0:00:36.040 stockdown six percent today, off thirty three about thirty four 0:00:36.080 --> 0:00:39.400 percent year to date, So definitely a challenging time for 0:00:39.440 --> 0:00:42.720 the folks at Tesla. Steve Manjoins is Global Autos and 0:00:42.760 --> 0:00:48.720 Industrials analyst for Bloomberg Intelligence. Steve put into context this 0:00:48.840 --> 0:00:50.479 miss year. How big of a miss was it and 0:00:50.720 --> 0:00:52.519 what does it mean going forward? Do you think for Tesla? 0:00:53.240 --> 0:00:56.360 Oh, it's definitely a bad day for Tesla, as you 0:00:56.400 --> 0:01:00.120 can see the stock. Look they're I mean, it's a 0:01:00.240 --> 0:01:03.480 time you know, they just actually raise prices on their cars, 0:01:03.600 --> 0:01:06.720 puts in the question about that strategy. You know, their 0:01:06.720 --> 0:01:10.600 inventory jumped by forty forty six thousand units. It's at 0:01:10.600 --> 0:01:13.480 the all time high at the moment, so there's a 0:01:13.560 --> 0:01:15.840 lot of questions out there. You know, with you know, 0:01:15.959 --> 0:01:20.959 the end market, the consumer hesitating a bit on buying evs. 0:01:21.319 --> 0:01:24.319 So what's going to be for Tesla going forward? Definitely 0:01:24.360 --> 0:01:28.440 their one point million target sales target for the year 0:01:28.840 --> 0:01:30.880 is definitely at risk. 0:01:31.920 --> 0:01:34.200 Do we know why? Like, what's the why behind it? 0:01:34.400 --> 0:01:37.000 They're going to talk about production misses in terms of 0:01:37.080 --> 0:01:40.520 supply chain issues, et cetera. But then Ruvian kind of 0:01:40.560 --> 0:01:43.199 crushed it, So so what's the real reason here? 0:01:44.160 --> 0:01:47.920 Yeah, they actually, you know, Tesla attributed to the RESC 0:01:48.120 --> 0:01:51.280 hostilities and you know that's that's partly right because a 0:01:51.280 --> 0:01:54.080 lot of their Model three and Model why they're most 0:01:54.200 --> 0:01:57.640 the best selling vehicles actually come from China, and you know, 0:01:58.040 --> 0:01:59.960 you know, you would assume a lot of these vehicles 0:02:00.120 --> 0:02:03.600 shipped through the Pacific Ocean avoiding the Red Sea. But 0:02:03.880 --> 0:02:05.920 you know, let's you know, we'll give them benefit of 0:02:06.000 --> 0:02:11.400 doubt that it had some impact. Maybe it's not necessarily 0:02:11.760 --> 0:02:14.799 the shipment of vehicles, maybe the shipment of parts right 0:02:14.880 --> 0:02:17.840 through the Red Sea that's impacted the production uh in 0:02:18.040 --> 0:02:21.280 in China. And remember they actually cut some of the 0:02:21.440 --> 0:02:25.280 some production in China recently as well, so you know 0:02:25.320 --> 0:02:29.080 that could be the reason. But like you said, Rivian 0:02:29.160 --> 0:02:32.760 sales have gone up. You know, is there anything specific 0:02:32.840 --> 0:02:33.880 to to Tesla. 0:02:34.440 --> 0:02:34.760 I don't. 0:02:34.840 --> 0:02:37.200 I don't really think so. One you know, one quarter 0:02:37.280 --> 0:02:40.360 is not gonna tell us the trend for the long term. 0:02:40.520 --> 0:02:45.160 I think Tesla vehicles are still you know, liked by 0:02:45.200 --> 0:02:48.960 a lot of consumer. We just did a survey, actually recently, 0:02:49.080 --> 0:02:52.720 a buying intention survey. You know, Tesla has the greatest 0:02:53.120 --> 0:02:57.120 UH brand loyalty still amongst all brands in the in 0:02:57.160 --> 0:02:58.079 the auto industry. 0:02:58.560 --> 0:03:03.280 Yes, so, Steve, I guess obviously the big question on investors' 0:03:03.320 --> 0:03:08.160 minds is what is the real demand for EV's in 0:03:08.200 --> 0:03:11.040 general and Tesla in particular, look in it, I guess 0:03:11.040 --> 0:03:12.639 the near and intermediate term. Do you have a view 0:03:12.680 --> 0:03:12.960 on that? 0:03:13.720 --> 0:03:16.880 Yeah, I mean I've always thought that not only Tesla, 0:03:17.040 --> 0:03:19.480 but the entire EV market is going through a rough 0:03:19.480 --> 0:03:22.600 patch this year and likely into the next year. You know, 0:03:22.680 --> 0:03:26.560 my long term view is still optimistic about EV's. I 0:03:26.600 --> 0:03:30.680 think there's enough policies out there to push you know, 0:03:30.760 --> 0:03:34.880 greener vehicles, more greener vehicles on the road. I think 0:03:35.080 --> 0:03:39.160 the issue today is about affordability. There's actually not enough 0:03:39.240 --> 0:03:44.440 affordable EV's out there for the masses currently a lot 0:03:44.480 --> 0:03:49.400 of vehicles are expensive. They're over fifty thousand dollars and 0:03:50.040 --> 0:03:53.080 not a lot of people can buy them, especially during 0:03:53.240 --> 0:03:55.120 high interest rate environments. 0:03:55.600 --> 0:03:59.240 So that has been the rhetoric really for a bit, 0:03:59.320 --> 0:04:01.200 and Elon Mus seems to say, Okay, we're going to 0:04:01.280 --> 0:04:03.240 do the lower cost, but give us a second. Right, 0:04:03.240 --> 0:04:06.480 we had this wave of Model Y all three, et cetera, 0:04:06.520 --> 0:04:08.680 and now we're going to have another wave of more 0:04:08.720 --> 0:04:09.600 affordable EV's. 0:04:09.640 --> 0:04:11.320 How when does that wave happen? 0:04:13.120 --> 0:04:14.960 A lot of it actually comes online at the end 0:04:15.040 --> 0:04:17.680 of twenty twenty five. Starts coming online at the end 0:04:17.720 --> 0:04:20.880 of twenty twenty five. That's when you have a Model two. 0:04:21.600 --> 0:04:26.320 GM is also relaunching the more affordable Bolt all of 0:04:26.360 --> 0:04:30.640 them are, you know, thirty thousand or less. And then 0:04:30.720 --> 0:04:33.040 you have you know, GM will continue to roll out 0:04:33.120 --> 0:04:37.159 cheaper vehicles, and you have Rivian also launching the R 0:04:37.240 --> 0:04:40.360 two and R three, you know, in twenty twenty six 0:04:40.400 --> 0:04:41.320 and twenty twenty seven. 0:04:41.480 --> 0:04:43.360 So it doesn't want a carnam Bar two by the way, 0:04:43.920 --> 0:04:46.760 total side, no, I mean everyone, but go ahead. 0:04:47.279 --> 0:04:48.760 Yeah, but you know, a lot a lot of the 0:04:48.839 --> 0:04:51.240 more affordable EV's coming in, and the hope is that, 0:04:51.440 --> 0:04:54.720 you know, the the addressable market for the EV, market 0:04:54.960 --> 0:05:00.359 for the EV industry expands as more more cars, cheaper 0:05:00.400 --> 0:05:03.359 cars come on the road and are available to consumers. 0:05:03.560 --> 0:05:05.800 But if I if I were an investor in this company, 0:05:05.800 --> 0:05:08.000 I'd be saying, Okay, you need to bring in a 0:05:08.120 --> 0:05:12.440 cheaper priced car for the mass market, but I'm not 0:05:12.440 --> 0:05:13.920 sure you can convince me that you can do it 0:05:14.360 --> 0:05:17.560 at a profit. What's the expectation of their ability to 0:05:17.640 --> 0:05:21.560 turn out lower price models on a per unit profitable basis. 0:05:21.400 --> 0:05:25.000 That that's a very good question. I think scale is 0:05:25.040 --> 0:05:28.200 the most important thing. I mean, this is a scale 0:05:28.320 --> 0:05:31.360 volume game and the auto industry has been like that 0:05:31.400 --> 0:05:35.120 for one hundred years. So you know, the question is, 0:05:35.760 --> 0:05:38.599 you know, are the cheaper vehicles going to resonate as 0:05:38.680 --> 0:05:42.159 you push more production through an assembly plant. In the 0:05:42.200 --> 0:05:48.200 auto industry, the unit cost does fall significantly in you know, 0:05:48.320 --> 0:05:52.400 in a logarithmic kind of trend. So we're hoping that 0:05:52.480 --> 0:05:55.960 it will cut. But specifically to Tesla, I want to 0:05:56.040 --> 0:05:59.159 also mention that they've done a really good job in 0:05:59.279 --> 0:06:04.599 vertically in grading their processes throughout the whole value chain, right, 0:06:05.040 --> 0:06:09.040 and that actually does cut costs, especially in you know, 0:06:09.120 --> 0:06:12.240 newer tech like this. You know, if I look at 0:06:12.600 --> 0:06:15.560 over one hundred years ago, Henry Ford basically did the 0:06:15.600 --> 0:06:19.960 same thing. You know, switching everybody from horse carriages to 0:06:20.120 --> 0:06:25.040 automobiles actually required vertical required Ford to be to vertically 0:06:25.040 --> 0:06:30.440 integrate and able to manage costs and manage design and 0:06:30.520 --> 0:06:34.760 be nimble and flexible to react to consumer. 0:06:34.320 --> 0:06:37.039 Tastes in the meantime before we let you go, just 0:06:37.080 --> 0:06:40.640 that stock has been so painful, Like one sixty twenty 0:06:40.720 --> 0:06:42.800 nine is sort of the low that we saw back 0:06:42.800 --> 0:06:44.520 in April, and then after that you got to go 0:06:44.560 --> 0:06:46.400 all the way back to nearly one hundred bucks. 0:06:46.440 --> 0:06:47.719 Do we get there? What do you think? 0:06:50.279 --> 0:06:54.279 I mean, you know, I don't think you'll get there. 0:06:54.360 --> 0:06:57.200 I think there's still a lot of value in the company. 0:06:58.080 --> 0:07:01.760 You know, they've you know, they've based thickly you know, 0:07:02.080 --> 0:07:06.880 change paradigm, shifted the whole entire autence industry in terms 0:07:06.880 --> 0:07:11.000 of vehicle design, in terms of manufacturing. But don't forget right, 0:07:11.160 --> 0:07:15.440 they also is doing a lot around full self driving 0:07:15.440 --> 0:07:20.160 autonomous vehicles. They have a supercomputer that's actually doing that 0:07:20.240 --> 0:07:23.320 for them. So there's there's still a lot of hope. 0:07:23.320 --> 0:07:24.840 I think if you look at if you talk to 0:07:24.880 --> 0:07:27.400 the bulls in the street, there's still a lot of 0:07:27.400 --> 0:07:30.840 hope in them rolling out the FSD the full self 0:07:30.920 --> 0:07:35.240 driving full to everybody on a road and get to 0:07:35.320 --> 0:07:37.000 level four and five automless driving. 0:07:37.760 --> 0:07:39.480 All right, Steve, thanks so much for joining us as 0:07:39.480 --> 0:07:42.800 Steve Man Global Autos and Industrials research channels. Bloomberg Intelligence 0:07:43.200 --> 0:07:46.600 coming to us from Princeton, New Jersey via that Skype thing. Again, 0:07:46.680 --> 0:07:50.080 Tesla down, you know, on down six percent today on 0:07:50.120 --> 0:07:52.760 that pretty big actually most of the analyst as saying, 0:07:53.040 --> 0:07:56.200 extraordinarily big miss. They're really surprised to the marketplace stock 0:07:56.240 --> 0:07:58.400 down six percent today, thirty four percent year to date. 0:07:59.000 --> 0:08:01.040 And again, as you mentioned, Alex, the company into press 0:08:01.040 --> 0:08:04.680 release calling a lot of supply issues as reasons for 0:08:04.760 --> 0:08:08.080 the miss, not calling out a demand issue. But of 0:08:08.120 --> 0:08:10.720 course that's what a lot of folks are concerned about 0:08:10.720 --> 0:08:12.400 if they think about not just Tesla, but just kind 0:08:12.400 --> 0:08:14.960 of the evy market in generals are trying to think 0:08:15.000 --> 0:08:18.960 about the ultimate demand for electric vehicles in this market. 0:08:20.440 --> 0:08:24.320 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:08:24.400 --> 0:08:27.480 weekdays at ten am Eastern on Apple car Play and 0:08:27.480 --> 0:08:30.760 Android Auto with the Bloomberg Business. You can also listen 0:08:30.840 --> 0:08:33.959 live on Amazon Alexa from our flagship New York station, 0:08:34.320 --> 0:08:37.079 Just say Alexa playing Bloomberg eleven thirty. 0:08:38.640 --> 0:08:41.040 Let's add one more name to the downside here. It's 0:08:41.040 --> 0:08:43.480 Apple down six tens of one percent. Although it could 0:08:43.520 --> 0:08:45.320 be worse, like it could be Tesla, and so there 0:08:45.360 --> 0:08:48.079 is that. But I take a look at this chart, Paul. 0:08:48.480 --> 0:08:49.760 It is ugly. 0:08:50.440 --> 0:08:53.920 We surpassed the low that we saw earlier in the year, 0:08:53.960 --> 0:08:57.240 in early March. I should say, the next level if 0:08:57.240 --> 0:08:58.680 I just look at it looks to be what we 0:08:58.679 --> 0:09:01.040 saw at the low back in October of one seventy. 0:09:01.040 --> 0:09:04.320 I mean, it just it looks really really ugly, and 0:09:04.400 --> 0:09:06.000 you have to wonder where we go from here. 0:09:06.120 --> 0:09:06.320 Yeah. 0:09:06.360 --> 0:09:08.719 Jess Metten, our good friend from Bloomberg News, covers the 0:09:08.760 --> 0:09:10.520 stock market. She's got a great story out today, and 0:09:10.640 --> 0:09:13.800 just putting into context, the first quarter the stock was 0:09:13.840 --> 0:09:16.360 off twelve percent. That's the worst performance relative to the 0:09:16.720 --> 0:09:18.280 in p five hundred and over a decade. 0:09:18.440 --> 0:09:19.520 Just to put it in perspective. 0:09:19.760 --> 0:09:21.240 I mean, usually if you see that kind of down 0:09:21.280 --> 0:09:23.000 draft and Apple, you're like, oh, forget it. Now's like 0:09:23.040 --> 0:09:25.800 one hundred and dolling over where everything's going to be terrible, 0:09:25.840 --> 0:09:28.000 and that hasn't been the case. Anaur Agrana joined this 0:09:28.160 --> 0:09:31.640 a Bloomberg Intelligence technology analysts standing by. So do we 0:09:31.720 --> 0:09:34.800 breach the one sixty five low that we saw back 0:09:34.840 --> 0:09:36.960 in October of twenty twenty three? Do we have to 0:09:36.960 --> 0:09:39.760 go back to earlier next year? Like where's the bottom 0:09:40.000 --> 0:09:40.480 on a rog? 0:09:42.160 --> 0:09:43.400 Yeah, it's very tough to say. 0:09:43.400 --> 0:09:46.000 The only reason is because when you look at Apple, 0:09:46.840 --> 0:09:47.760 the fundamentals are. 0:09:47.679 --> 0:09:49.439 Not good right now because of a lot. 0:09:49.240 --> 0:09:51.920 Of pressure in China, and we see no hope at 0:09:51.920 --> 0:09:55.120 this point that's going to change in the upcoming earning season. 0:09:55.520 --> 0:09:57.720 I think the only silver lining for Apple could be 0:09:57.800 --> 0:10:02.080 if during the June By Developer conference they are able 0:10:02.120 --> 0:10:05.920 to announce any big you know, AI push into the phones. 0:10:06.559 --> 0:10:09.120 I mean, that's the only thing that can perhaps you know, 0:10:09.559 --> 0:10:12.200 go out and give you a new refresh cycle by 0:10:12.200 --> 0:10:13.960 the end of the year. But other than that, it 0:10:14.000 --> 0:10:16.200 looks like a pretty bleak year for them on a 0:10:16.240 --> 0:10:17.280 fundamental basis. 0:10:17.440 --> 0:10:20.320 How About from a technical basis, I would think that 0:10:20.360 --> 0:10:23.319 these guys are buying back stock aggressively. They can be 0:10:22.880 --> 0:10:26.120 even be more aggressive if they wanted to does that 0:10:26.160 --> 0:10:28.440 put it kind of a floor for the stock somewhere 0:10:28.600 --> 0:10:29.680 in or around here, do you think? 0:10:31.080 --> 0:10:33.440 Yeah, I'm actually I've been surprised that they have not 0:10:33.520 --> 0:10:35.840 been more aggressive in buying back shares over the last 0:10:35.840 --> 0:10:38.120 few years, because they do have the capacity to do it. 0:10:38.400 --> 0:10:40.840 You know, they spent somewhere around ninety two hundred billion 0:10:40.880 --> 0:10:44.080 dollars almost their entire fee cast flow, buying back shares. 0:10:44.360 --> 0:10:47.360 But they've talked about being a little more aggressive in principle, 0:10:47.640 --> 0:10:49.240 but in practice, I've not seen that. 0:10:49.400 --> 0:10:50.720 And you know, perhaps. 0:10:50.360 --> 0:10:52.840 Maybe this year could be a change while they go 0:10:52.920 --> 0:10:55.240 out and do some some more, but I haven't seen 0:10:55.240 --> 0:10:55.920 that yet. 0:10:56.679 --> 0:10:57.920 So what do they do? 0:10:59.120 --> 0:11:02.000 I mean, if that's the case, yeah, no, that's it. 0:11:02.080 --> 0:11:03.200 What do you see? 0:11:03.920 --> 0:11:05.839 So one of the things you don't say is by 0:11:05.880 --> 0:11:07.840 the fourth quarter of this year or by December, you 0:11:07.880 --> 0:11:10.800 will see easier comparisons in China. So that could be 0:11:11.000 --> 0:11:12.200 you know one one hope. 0:11:12.400 --> 0:11:14.560 Second thing is we are seeing a big push. 0:11:14.360 --> 0:11:16.760 From Wawei right now because of the brand new phone 0:11:16.800 --> 0:11:19.680 that they launched last year. That's really driving a lot 0:11:19.679 --> 0:11:21.760 of the sales, and that's going to go out in 0:11:21.800 --> 0:11:23.800 an ever three ye year from now, So you know, 0:11:23.880 --> 0:11:27.280 you will see you could say, a lower benchmark or 0:11:27.320 --> 0:11:29.800 a lower you know, water line for them to cross 0:11:29.840 --> 0:11:33.360 for next year. And with some Genii features coming in 0:11:33.440 --> 0:11:35.840 this year, you know, one could expect that maybe next 0:11:35.920 --> 0:11:38.240 year we could see that, you know, instead of the 0:11:38.360 --> 0:11:40.880 zero to you know, five percent growth, maybe we can 0:11:40.920 --> 0:11:43.200 see five to ten percent growth on the top line. 0:11:43.240 --> 0:11:45.360 And I think that can change things around for Apple. 0:11:45.880 --> 0:11:50.520 So is there a bare case that China doesn't turn around? 0:11:50.559 --> 0:11:53.480 China is no longer a growth market for Apple? Be 0:11:53.559 --> 0:11:57.640 it competitive issues, be it change in investor sentiment towards 0:11:57.640 --> 0:12:01.040 Western companies and Western technology, be it the economy. They 0:12:01.080 --> 0:12:03.640 could be in for a Japan like period of malaise. 0:12:03.679 --> 0:12:06.200 I mean, you could really paint a reasonable scenario where 0:12:06.440 --> 0:12:07.760 China's not a growth market for them. 0:12:08.000 --> 0:12:08.280 Ever. 0:12:09.880 --> 0:12:11.439 Yeah, and then they have to sit down and look 0:12:11.440 --> 0:12:13.480 at their strategy and say, do we really go down 0:12:13.520 --> 0:12:16.280 the chain of you know, cutting down pricing. They have 0:12:16.360 --> 0:12:19.319 never done that. They've always believed in margins. But if 0:12:19.320 --> 0:12:21.800 they were to you know, push a lower priced phone, 0:12:21.880 --> 0:12:25.920 let's say in the emerging market, whether that's in India, Indonesia, Brazil, 0:12:26.160 --> 0:12:28.280 I mean, that can really help out and take care 0:12:28.320 --> 0:12:31.280 of some of that opset in China, but we haven't 0:12:31.280 --> 0:12:33.320 seen that. I mean, if Apple doesn't play that game, 0:12:33.600 --> 0:12:36.480 it doesn't you know, we go down that market. But 0:12:36.720 --> 0:12:39.400 they can actually do that if need be, in order 0:12:39.400 --> 0:12:41.920 to gain market share, but we haven't seen that yet. 0:12:42.080 --> 0:12:44.680 So you have CCTV over in China reporting that President 0:12:44.720 --> 0:12:48.800 g and President Biden talked last night discussing China US ties, 0:12:48.800 --> 0:12:50.880 et cetera. Do you feel like Tim Cook is like 0:12:50.960 --> 0:12:53.560 calling government officials, mean, like, you guys got to help 0:12:53.559 --> 0:12:54.120 me out here. 0:12:55.480 --> 0:12:55.960 Yeah, I see. 0:12:55.960 --> 0:12:58.640 If you see, in the last one month, he went 0:12:58.640 --> 0:13:01.080 to China and he basically promised them that he's going 0:13:01.120 --> 0:13:03.480 to do more investments in the area. And that is 0:13:03.480 --> 0:13:05.800 on the back of a lot of discussion about supply 0:13:05.840 --> 0:13:09.520 chain diversification away from China. So he's made a couple 0:13:09.559 --> 0:13:12.079 of trips in the last one year, you know, basically 0:13:12.120 --> 0:13:14.360 saying that listen, we're here for the long run. Please 0:13:14.400 --> 0:13:17.640 help us out and you know, maybe maybe maybe we 0:13:17.720 --> 0:13:19.559 need two or three or more of these phone calls, 0:13:19.559 --> 0:13:21.040 and you know, China is going to be. 0:13:20.960 --> 0:13:21.680 Back up for them. 0:13:22.360 --> 0:13:24.720 If I were buying Apple Computer today, I would have 0:13:24.800 --> 0:13:28.800 one catalyst, and that would be AI that it's something 0:13:28.840 --> 0:13:31.600 there's no AI in the Apple story and on mining 0:13:31.640 --> 0:13:34.240 stock today because I think Cooper Tino will figure out 0:13:34.280 --> 0:13:37.760 a way to get AI into the narrative. Would that 0:13:37.760 --> 0:13:39.000 be a decent call there. 0:13:40.160 --> 0:13:41.880 Oh, that would be a very decent call. In fact, 0:13:41.920 --> 0:13:44.200 the news released by Mark Ellman that they're you know, 0:13:44.280 --> 0:13:47.480 talking to Google about their Google's large language model. I 0:13:47.480 --> 0:13:49.240 think that's going to really help them if they go 0:13:49.320 --> 0:13:52.440 out and you know, make that partnership because you know, 0:13:52.480 --> 0:13:56.320 Google is uh, you know, the search engine you know 0:13:56.400 --> 0:13:58.880 came at this point and they are the default engine 0:13:58.880 --> 0:14:01.880 for Apple products. They have an old relationship. Google pays 0:14:01.880 --> 0:14:04.240 a lot of money for that search right on the 0:14:04.280 --> 0:14:07.920 Apple ecosystem. If Apple's able to go out and showcase 0:14:08.000 --> 0:14:10.480 that you need to upgrade the phones because you need 0:14:10.520 --> 0:14:13.440 a better memory and you need more processing power, that 0:14:13.640 --> 0:14:15.520 is the case for people to go out and you 0:14:15.520 --> 0:14:18.240 know people with older phones of iPhone eleven twelve, there 0:14:18.280 --> 0:14:20.400 are a lot of phones out there that are really 0:14:20.400 --> 0:14:20.880 old at. 0:14:20.760 --> 0:14:23.400 This point, and you know which you need. 0:14:23.080 --> 0:14:27.320 That processing power. You know, you may lead into a 0:14:27.360 --> 0:14:28.920 refresh cycle out there. 0:14:29.120 --> 0:14:29.600 An RAG. 0:14:30.040 --> 0:14:33.320 What do you feel like at some point though, does 0:14:33.360 --> 0:14:37.080 Apple need to do their own AI strategy, like they 0:14:37.080 --> 0:14:39.520 don't tend to do that partnership stuff. Right, They kind 0:14:39.520 --> 0:14:41.960 of cleaned a lot of their ranks with the AI car, 0:14:42.040 --> 0:14:44.080 with the AI car, with the car self driving car, 0:14:44.120 --> 0:14:46.440 petting that aside. They were supposed to repurpose those people 0:14:46.440 --> 0:14:46.720 in the. 0:14:46.640 --> 0:14:47.920 AI and then that didn't happen. 0:14:48.520 --> 0:14:51.160 I mean, at what point does that become an actual 0:14:51.240 --> 0:14:52.480 good catalyst for the stock. 0:14:54.160 --> 0:14:57.080 So they are pushing a lot of money into that area. 0:14:57.120 --> 0:14:59.440 But remember Google's been doing it longer than them, and 0:14:59.480 --> 0:15:02.920 they are trying to figure out some of their applications 0:15:02.960 --> 0:15:06.840 on you know, similar to chat GPT. Now I think, 0:15:06.960 --> 0:15:08.720 you know, you just can't expect them to you know, 0:15:08.720 --> 0:15:10.520 they just shut the card division down a couple of 0:15:10.520 --> 0:15:13.760 months ago, and you know, they just moved the engineers. 0:15:13.760 --> 0:15:15.560 You can't expect them to come out with a product 0:15:15.720 --> 0:15:17.280 in the next three to six months. It's going to 0:15:17.320 --> 0:15:20.400 take some time. Meanwhile, there is nothing wrong in licensing 0:15:20.440 --> 0:15:23.480 technology from Google. Remember Apples not in the search business. 0:15:23.600 --> 0:15:27.240 They license that technology from somebody. It's possible for the 0:15:27.280 --> 0:15:29.800 short term they will license that technology and after that, 0:15:30.040 --> 0:15:31.880 you know, once they figure out that things can work 0:15:31.880 --> 0:15:34.200 on their ecosystem a little bit better as part of 0:15:34.200 --> 0:15:37.640 their operating system. They don't need that partnership, but you know, 0:15:37.720 --> 0:15:39.640 I think in the near term they do. They do 0:15:39.760 --> 0:15:41.960 need to you know, partner with somebody, either it's Google 0:15:42.080 --> 0:15:42.640 or open Ai. 0:15:43.360 --> 0:15:46.640 So for this developer conference in June, how big is 0:15:46.640 --> 0:15:49.320 that going to be for the company and for the stock? 0:15:50.760 --> 0:15:52.960 Yeah, I think it is probably the biggest you know 0:15:53.040 --> 0:15:55.680 moment for them for the last couple of years, as 0:15:55.760 --> 0:15:59.280 we have seen a reduction or a decline in the 0:15:59.320 --> 0:16:02.360 growth rate of their products business, which is predominantly you know, 0:16:02.400 --> 0:16:04.920 iPhone and all the others. I think this is going 0:16:04.920 --> 0:16:06.960 to be the biggest cat list everybody is watching for 0:16:07.480 --> 0:16:09.960 and see what can they showcase if they are able 0:16:10.000 --> 0:16:12.000 to convince the street that this is going to lead 0:16:12.080 --> 0:16:15.000 to the next you know, big push in people going 0:16:15.080 --> 0:16:17.240 up and not just you know products, It's going to 0:16:17.280 --> 0:16:19.800 help out services also. It's going to make some of 0:16:19.840 --> 0:16:22.200 those products a little more stickier. People you know, make 0:16:22.280 --> 0:16:25.080 fun of CD for example right now, if it's powered 0:16:25.080 --> 0:16:27.320 by Google, if it has a lot more you know, 0:16:27.360 --> 0:16:30.120 firepower to do a lot of operations, maybe I'm not 0:16:30.160 --> 0:16:32.160 going to open the third party app that's on my 0:16:32.920 --> 0:16:35.280 phone to go out and search for things that I'm 0:16:35.280 --> 0:16:38.840 doing right now. Maybe I'll just be by default using it. 0:16:39.120 --> 0:16:42.480 I say this a lot. I mean Google and you 0:16:42.520 --> 0:16:45.640 know Apple for that matter, control the distribution of the 0:16:45.640 --> 0:16:50.000 operating system through the mobile apps. That's a very powerful ecosystem. I'll, 0:16:50.200 --> 0:16:51.840 i'll you know, of course, you guys to look at 0:16:51.840 --> 0:16:54.320 what was Strip Advisor a few years ago, or what 0:16:54.560 --> 0:16:56.840 was you know, even Yelp. 0:16:57.200 --> 0:16:57.920 I mean, those. 0:16:57.680 --> 0:17:00.720 Market caps have really gone down because people go to 0:17:00.760 --> 0:17:03.400 Google directly and search for those things rather than going 0:17:03.400 --> 0:17:06.000 to the application. So I think if Apple's able to 0:17:06.040 --> 0:17:09.400 play this thing out properly, their distribution system is strong 0:17:09.480 --> 0:17:11.480 enough to you know, really monetize on that. 0:17:11.600 --> 0:17:14.200 It's true, I don't like trust Yelp anymore. I don't 0:17:14.240 --> 0:17:15.160 know what that's about. 0:17:15.160 --> 0:17:18.000 But then but then the flip side, then you have 0:17:18.040 --> 0:17:20.040 all the regulators right from the EU and the US 0:17:20.640 --> 0:17:23.040 finds they want to rethink how they're doing things, how 0:17:23.080 --> 0:17:26.920 they wind up up. So there's also that hidden risk 0:17:26.960 --> 0:17:28.080 up there on or I'm going to let you go, 0:17:28.200 --> 0:17:28.879 but great stuff. 0:17:28.960 --> 0:17:29.679 Super appreciate it. 0:17:29.640 --> 0:17:32.439 And I'm a'm gonna joining us from Bloomberg Intelligence like 0:17:32.480 --> 0:17:35.560 they're clearly coming after their ecosystem and by day I 0:17:35.640 --> 0:17:37.879 mean European regulators and US regulators, So like, how do 0:17:37.880 --> 0:17:39.320 you get ahead of that? How do you manage it 0:17:39.320 --> 0:17:41.280 when like that's your going to be your lifeblo at 0:17:41.280 --> 0:17:42.520 the end of the day, when you run out of 0:17:42.600 --> 0:17:43.800 cool products. 0:17:43.520 --> 0:17:45.800 Right, and that's going to be something that's one of 0:17:45.800 --> 0:17:48.280 the many challenges, many headwinds that you know a lot 0:17:48.280 --> 0:17:50.399 of folks when you look at Apple, they say, this 0:17:50.480 --> 0:17:52.080 is something that the stock has to deal with. It's 0:17:52.119 --> 0:17:54.880 a headwind just like it was from Microsoft the eighties 0:17:54.880 --> 0:17:57.120 and nineties until they were able to put that behind 0:17:57.160 --> 0:18:01.120 them write a few big checks along the way. 0:18:01.560 --> 0:18:05.440 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:18:05.520 --> 0:18:08.159 weekdays at ten am Eastern on Apple, card Play and 0:18:08.280 --> 0:18:11.200 Endroud Auto with the Bloomberg Business App. Listen on demand 0:18:11.280 --> 0:18:15.640 wherever you get your podcasts, or watch us live on YouTube. 0:18:16.720 --> 0:18:20.080 The SMP draw down so far this year has only 0:18:20.119 --> 0:18:23.400 been barely two percent, So do we get there? Let's 0:18:23.400 --> 0:18:27.080 ask Shelby mcfatten, investment analyst over at Motley Fool Asset Management. 0:18:27.080 --> 0:18:29.600 She joined US now in the Bloomberg Interactive at brokers 0:18:29.600 --> 0:18:32.640 at Studio Shelby, this is is this the selloff we've 0:18:32.640 --> 0:18:33.640 all been waiting for? 0:18:33.960 --> 0:18:35.439 Is it a buy the dip kind of thing? What 0:18:35.480 --> 0:18:35.920 do you think? 0:18:36.240 --> 0:18:36.439 You know? 0:18:36.640 --> 0:18:39.440 Unfortunately, I'm going to air towards no. And I'm really 0:18:39.520 --> 0:18:42.200 heavy on that unfortunately, right because we know these valuations 0:18:42.200 --> 0:18:45.520 have just been so rich, and when you're looking at 0:18:45.560 --> 0:18:49.080 the long term for your investment strategy, you know it's 0:18:49.400 --> 0:18:51.280 easier to say, Okay, we'll just sort of hold out. 0:18:51.359 --> 0:18:54.440 It's all right. But we do get really excited about 0:18:54.480 --> 0:18:57.000 some of those buying opportunities, either to add to current 0:18:57.040 --> 0:18:59.399 positions or to be able to enter new ones. So 0:18:59.680 --> 0:19:02.200 I think when we look at what might cause a dip, 0:19:02.440 --> 0:19:05.840 we don't yet have those factors being quite as strong. 0:19:05.960 --> 0:19:08.080 I think we might need a couple more quarters to 0:19:08.119 --> 0:19:11.280 see at least what might happen with interest rates being 0:19:11.359 --> 0:19:13.240 a sort of force to push the market down a 0:19:13.280 --> 0:19:15.800 bit more so do so? 0:19:15.880 --> 0:19:17.600 Do you need to see higher rates? You need to 0:19:17.600 --> 0:19:20.240 see weaker earnings? What do you think is what do 0:19:20.240 --> 0:19:21.800 you think we'll push this market down? When and if 0:19:21.840 --> 0:19:23.040 we do get that correction? 0:19:23.400 --> 0:19:25.000 You know, I think it could be a combination of both, 0:19:25.040 --> 0:19:27.640 and it really in some ways depends on the sectors, right, 0:19:27.720 --> 0:19:30.439 So when we think about tech, we do know that 0:19:30.480 --> 0:19:33.520 those being you know, higher duration, very sensitive, that interest 0:19:33.600 --> 0:19:36.399 rates are going to most likely affect the tech sector 0:19:36.480 --> 0:19:38.720 quite a bit. And then on the other end of 0:19:38.760 --> 0:19:41.080 that small caps as well. We've seen the sort of 0:19:41.200 --> 0:19:44.080 damage that can be done to valuations to both of 0:19:44.119 --> 0:19:47.240 those groups, So that's one sort of focus, and then 0:19:47.280 --> 0:19:49.440 outside of that, we do again need to see the 0:19:49.520 --> 0:19:52.440 change in those fundamentals. So in some of the companies, 0:19:52.440 --> 0:19:55.680 we're seeing that the valuations are just stretched for optimism 0:19:56.320 --> 0:19:57.320 for wanting to hold on. 0:19:57.680 --> 0:19:59.960 At the same time, though, if interest rates are going up, 0:20:00.000 --> 0:20:01.680 and I say interest rates like the ten years going 0:20:01.760 --> 0:20:04.639 up because the economy just firing on all cylinders, does 0:20:04.680 --> 0:20:07.359 that change the reaction function to say small caps or 0:20:07.359 --> 0:20:08.120 big tech. 0:20:08.720 --> 0:20:11.360 In some ways yes and no. So if the economy 0:20:11.440 --> 0:20:14.200 keeps firing, we might sort of have a situation where 0:20:14.920 --> 0:20:18.000 trading sort of shakes out those who are not interested 0:20:18.040 --> 0:20:20.600 in holding out and seeing whether there is more or 0:20:20.680 --> 0:20:23.080 less volatility than they've expected. When it comes to things 0:20:23.080 --> 0:20:26.800 like small caps especially do that thinner trading volume. But 0:20:26.840 --> 0:20:29.560 when it comes to the larger caps, there's a chance 0:20:29.600 --> 0:20:32.000 that we kind of just settle out at a higher 0:20:32.040 --> 0:20:35.199 clip that we end up with. What is the fed'sphear 0:20:35.320 --> 0:20:38.600 is that we just step up in inflation and invaluation basis. 0:20:38.600 --> 0:20:40.480 So it's one of those things where, unfortunately it's a 0:20:40.520 --> 0:20:42.240 little bit of a seesaw we all have to sort 0:20:42.240 --> 0:20:43.200 of waiver to shake out. 0:20:44.240 --> 0:20:47.040 One of the names on your list is see our h. 0:20:47.080 --> 0:20:50.000 It's a Irish company, which is why I'm interested in it, 0:20:50.560 --> 0:20:54.280 building products company. Is this an infrastructure act kind of 0:20:54.720 --> 0:20:57.320 play for you guys, CRH, Yes, so ticker. 0:20:57.480 --> 0:20:59.679 When we entered the position, that was one of the 0:20:59.680 --> 0:21:02.200 reasons that we had piqued some interest, and other was 0:21:02.240 --> 0:21:04.360 that they were going to be moving their listing from 0:21:04.480 --> 0:21:07.240 LSE to the New York Stock Exchange and going ahead 0:21:07.280 --> 0:21:11.160 and starting to do their gap reporting, so realizing getting 0:21:11.200 --> 0:21:13.800 a little bit more bang for their buck, starting to 0:21:13.800 --> 0:21:16.040 get that multiple that they were looking for, and of 0:21:16.080 --> 0:21:18.440 course the fact that the IIJA was going to bring 0:21:18.560 --> 0:21:19.720 forward some. 0:21:19.760 --> 0:21:20.920 Of that cash flow for them. 0:21:21.200 --> 0:21:23.760 On top of that, before the infrastructure build, they were 0:21:23.800 --> 0:21:27.400 already the number one provider in North America for asphalt 0:21:27.440 --> 0:21:29.720 ready mixed concrete cement, So they were sort of this 0:21:29.800 --> 0:21:33.399 sleeper agent in all of the repair and just keeping 0:21:33.480 --> 0:21:36.160 up with the roads and things like that, apart from 0:21:36.160 --> 0:21:38.760 any new build. So it's a company that is not 0:21:38.960 --> 0:21:41.199 thought of a lot, but they're really king in what 0:21:41.280 --> 0:21:41.600 they do. 0:21:41.880 --> 0:21:43.760 How is the booking for that all working? Because I've 0:21:43.760 --> 0:21:45.960 been struck, what'd say, the infrastructure build for example, like 0:21:46.200 --> 0:21:48.760 we all were expecting like a huge wave of money 0:21:49.000 --> 0:21:51.959 and orders, and like the orders are there, but like 0:21:52.000 --> 0:21:54.560 it's not coming the way we were all expecting. In 0:21:54.560 --> 0:21:58.840 the middle of a structural shift, the industry is still cyclical. 0:21:58.600 --> 0:22:01.080 And you're absolutely right. And what we've seen and what 0:22:01.119 --> 0:22:03.640 management has mentioned is that they're getting stretched out a bit. 0:22:03.880 --> 0:22:06.719 So the contract money is coming through, but it's not 0:22:06.840 --> 0:22:09.640 coming through, you know, twenty four to twenty five. It's 0:22:09.760 --> 0:22:13.760 twenty four, six, twenty seven, and they're not necessarily being canceled, 0:22:14.320 --> 0:22:17.720 but they're being taken in slimmer chunks and they have 0:22:17.760 --> 0:22:19.320 to get finished. But at the end of the day, 0:22:19.560 --> 0:22:22.879 rates are still high, and so construction can still be 0:22:22.920 --> 0:22:25.240 a bit more expensive, especially when you're talking about new 0:22:25.280 --> 0:22:28.360 as opposed to repair and remodel. So yeah, that contract 0:22:28.359 --> 0:22:30.240 stretching is absolutely a real phenomenon there. 0:22:30.640 --> 0:22:33.400 So you've got a real estate company on your list 0:22:33.400 --> 0:22:35.320 of stocks, you guys are looking at it, and that's 0:22:35.359 --> 0:22:38.840 got to be a dicey place to be. Alexander Research 0:22:39.400 --> 0:22:43.119 real Estate Are is the ticker symbol. Talk to us 0:22:43.119 --> 0:22:45.919 about that company, because I'm nervous about anything that's got 0:22:45.920 --> 0:22:46.840 real estate in its. 0:22:46.760 --> 0:22:49.360 Name, and I think that's completely fair, and I think 0:22:49.359 --> 0:22:51.639 that a lot of folks would think that on first 0:22:51.680 --> 0:22:54.200 hearing as well. What we're really interested in with Alexandria 0:22:54.280 --> 0:22:56.960 real Estate is one the valuation they've gotten crushed because 0:22:57.080 --> 0:23:00.199 why real estate. But what sets them apart is not 0:23:00.240 --> 0:23:02.320 only they're really deep bench on management that we like, 0:23:02.520 --> 0:23:05.960 they've got an outstanding return for investors when it comes 0:23:06.040 --> 0:23:09.520 to cash delivered back they really just pump out cash 0:23:09.560 --> 0:23:12.160 as a red there. And also their focus on healthcare 0:23:12.200 --> 0:23:15.879 and life sciences. That's really what we're hinging on when 0:23:15.920 --> 0:23:19.080 it comes to our thesis for Alexandria real Estate. And 0:23:19.119 --> 0:23:21.439 because of that, they're also just less exposed to that 0:23:21.600 --> 0:23:24.440 office that is really crushing a lot of the reads 0:23:24.520 --> 0:23:27.119 right now because they're not having to deal with that 0:23:27.280 --> 0:23:31.120 pendulum swing of over development of offices, making them that 0:23:31.400 --> 0:23:33.680 sort of second home for employees and then employees sort 0:23:33.720 --> 0:23:35.399 of saying I'd like to never come back, thank you 0:23:35.480 --> 0:23:38.480 very much. So when we have these new advances in sciences, 0:23:38.520 --> 0:23:41.560 they need more buildings, and that's sort of that's really 0:23:41.600 --> 0:23:43.919 the crux of the thesis for Alexandria real estate there. 0:23:43.960 --> 0:23:46.520 So if they can keep delivering on cash and keep 0:23:46.560 --> 0:23:48.000 on that train, it's a great investment. 0:23:48.119 --> 0:23:50.159 So you guys obviously have done the work on the 0:23:50.200 --> 0:23:53.240 real estate space. You're Motley, you're based done in the 0:23:53.280 --> 0:23:56.760 DC area, right, Yes, our federal employees are they back 0:23:56.800 --> 0:23:58.520 to work five days a week, four days a week, three. 0:23:58.440 --> 0:23:58.800 Days a week. 0:23:58.840 --> 0:24:00.520 You you're in exist hundred percent? 0:24:00.920 --> 0:24:01.440 What is that? 0:24:01.600 --> 0:24:04.320 It seems to be a bit agency by agency at 0:24:04.320 --> 0:24:07.679 this point from my understanding, friends of mine that I 0:24:07.720 --> 0:24:09.760 know are more about three days. When you're looking at 0:24:09.800 --> 0:24:13.679 the contractors, many of them are fully remote now, So 0:24:13.720 --> 0:24:15.440 it kind of depends. If you work for a three 0:24:15.520 --> 0:24:17.960 letter you're probably in four or five days a week. 0:24:18.280 --> 0:24:20.040 If you work for a different agency you might be 0:24:20.080 --> 0:24:20.760 more flexible. 0:24:20.840 --> 0:24:21.159 I do know. 0:24:21.160 --> 0:24:23.920 It's the difference though, Like not being in the office, 0:24:23.960 --> 0:24:26.240 you do you one hundred percent miss out on those 0:24:26.280 --> 0:24:29.000 like random conversations that all of a sudden like mean 0:24:29.080 --> 0:24:32.360 something in a few years or in though I think 0:24:32.400 --> 0:24:34.639 you're right, I just don't know like what the career path. 0:24:34.800 --> 0:24:37.400 But if I were investing in real estate, that would 0:24:37.440 --> 0:24:41.000 be my base case. Like, yeah, occupancies, whatever they are today, 0:24:41.160 --> 0:24:42.800 that's what I'm going to model out. You're not going 0:24:42.840 --> 0:24:44.680 to get any better. I don't think you're get any worse. 0:24:45.040 --> 0:24:45.880 That's what I would model. 0:24:46.000 --> 0:24:47.439 And the same idea at Bloomberg is like, you have 0:24:47.480 --> 0:24:49.520 a desk, right, but if you could also go to 0:24:49.520 --> 0:24:52.040 any desk, would the same experience like that kind of 0:24:52.080 --> 0:24:54.240 idea versus sort of here's an office. 0:24:54.400 --> 0:24:54.840 Kind of thing. 0:24:55.000 --> 0:24:57.760 You also like meta that's not goes up a whopping 0:24:57.760 --> 0:25:00.879 one hundred and thirty percent in the last year, you 0:25:00.920 --> 0:25:02.640 still like it at these levels to buy. 0:25:03.160 --> 0:25:05.560 Yeah, so at this point it is a little bit 0:25:05.640 --> 0:25:07.800 rich in the valuation. So we do watch out for 0:25:07.880 --> 0:25:10.440 any sort of opportunities. And the thing about these textocs 0:25:10.520 --> 0:25:12.360 is that because they can be a little bit viatle, 0:25:12.400 --> 0:25:14.359 you just watch every day and sometimes you do get one. 0:25:14.680 --> 0:25:17.040 But what we like about it is that their say 0:25:17.119 --> 0:25:19.880 do ratio as we call it on our team, as 0:25:19.920 --> 0:25:22.720 they do yes, the say do ratio, So they say 0:25:22.920 --> 0:25:25.480 they're going to moderate costs. They say they're going to 0:25:25.480 --> 0:25:29.320 go ahead and sort of leave behind any investments or 0:25:29.359 --> 0:25:31.680 capital allocation that's not paying off for them. And over 0:25:31.680 --> 0:25:34.280 the last eighteen months or so they've done it. We've 0:25:34.280 --> 0:25:36.480 seen that improvement in their margin. We've seen it starting 0:25:36.480 --> 0:25:38.360 to come through on cash flow. We see that management's 0:25:38.359 --> 0:25:42.199 getting more serious about tangible ways to handle AI. And 0:25:42.240 --> 0:25:44.200 also when we look a little bit forward, we compare 0:25:44.240 --> 0:25:49.000 them to another advertising competitor. Meta's got more retail media exposure, 0:25:49.200 --> 0:25:52.600 which in these times, you know, consumers turning a little 0:25:52.640 --> 0:25:55.160 bit more to goods as opposed to services. So when 0:25:55.200 --> 0:25:59.240 we look at the advertising market in search, for example, 0:25:59.280 --> 0:26:01.520 that's going to lean a little bit towards services as 0:26:01.520 --> 0:26:04.600 goods are coming down more, retail media has an opportunity 0:26:04.640 --> 0:26:07.040 to stand out. So Meta is definitely a little bit 0:26:07.080 --> 0:26:08.199 more poised in that regard. 0:26:08.640 --> 0:26:11.360 Yeah, they I mean that went from being since its inception, 0:26:11.440 --> 0:26:14.160 a top line revenue growth story to really order pass 0:26:14.280 --> 0:26:17.199 two years to being a cost cutting story. Yes, and 0:26:17.240 --> 0:26:19.640 that's what that's what worked. I mean I didn't see 0:26:19.640 --> 0:26:22.159 that coming, but they actually did. They did it what 0:26:22.200 --> 0:26:23.159 they said. 0:26:23.280 --> 0:26:25.720 They do, they do I learned something that's so cool. 0:26:25.800 --> 0:26:28.320 What other company has a good say do? Who else 0:26:28.359 --> 0:26:30.439 has got a good say do? That's a great question, 0:26:31.160 --> 0:26:32.600 it was a bad one. 0:26:33.560 --> 0:26:35.119 Well I don't know if legal wants me to do that, 0:26:35.160 --> 0:26:39.199 but fair enough, but you know, I would say we 0:26:39.240 --> 0:26:41.520 could probably throw Apple out there for having a decent 0:26:41.520 --> 0:26:44.280 say do. And in some situations, I think what ends 0:26:44.320 --> 0:26:48.160 up happening is their valuation gets sort of bounced around 0:26:48.200 --> 0:26:51.560 like a hacky sack because they say that they're going 0:26:51.600 --> 0:26:53.840 to do very reasonable things, and sometimes that's not enough 0:26:53.840 --> 0:26:54.359 for the market. 0:26:54.520 --> 0:26:54.720 Right. 0:26:55.240 --> 0:26:59.240 Mature companies tend to say that, and when you want 0:26:59.280 --> 0:27:02.160 that intense growth and they say, well, we're actually not there. 0:27:02.200 --> 0:27:05.440 We're kind of giving cash back and we're doing responsible allocation. 0:27:06.200 --> 0:27:07.880 They're saying it and they're doing it, but it may 0:27:07.920 --> 0:27:09.200 not be what the market wants to hear. 0:27:09.320 --> 0:27:12.000 Yeah, the market wants to hear. Don't worry about China. Yeah, 0:27:12.240 --> 0:27:14.920 China's fine, don't yes, exactly, there's lots of stuff there 0:27:14.960 --> 0:27:15.720 and don't worry about it. 0:27:16.119 --> 0:27:19.280 Great stuff, You're awesome, you come back all the time. 0:27:19.560 --> 0:27:22.520 Shelby McFadden, investment analysts at Motley Full Asset Management. 0:27:22.560 --> 0:27:25.080 I think we should do sadu ratios like. 0:27:25.119 --> 0:27:27.359 All the time. Like Tucker is right well in the 0:27:27.400 --> 0:27:28.240 say ratio, I. 0:27:28.160 --> 0:27:31.200 Think he totally does, like he delivers, like what you 0:27:32.200 --> 0:27:33.960 see is what you get. 0:27:34.080 --> 0:27:36.400 You know, it's true. I don't know what is what 0:27:36.440 --> 0:27:37.720 you get, So. 0:27:37.720 --> 0:27:39.280 I don't know. That sometimes sounded like an insult, but 0:27:39.320 --> 0:27:39.600 it didn't. 0:27:39.600 --> 0:27:40.399 It didn't mean to be. 0:27:41.960 --> 0:27:43.520 I'm gonna I'm gonna take this and run with it 0:27:43.800 --> 0:27:45.800 for a very long time. Okay, Shelby, thanks a lot, 0:27:45.840 --> 0:27:49.000 really appreciate it. I loved having you join us. There. 0:27:49.600 --> 0:27:53.520 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:27:53.600 --> 0:27:56.640 weekdays at ten am Eastern on Apple card Play and 0:27:56.640 --> 0:27:59.800 Android Auto with the Bloomberg Business. You can also listen 0:28:00.119 --> 0:28:03.120 live on Amazon Alexa from our flagship New York station, 0:28:03.480 --> 0:28:06.280 Just say Alexa play Bloomberg eleven thirty. 0:28:07.280 --> 0:28:09.200 All right, let's get to the bond market here, because 0:28:09.200 --> 0:28:11.160 you're looking at back in yields continuing to rise. It's 0:28:11.200 --> 0:28:13.399 after a pretty solid sell off yesterday as well. The 0:28:13.440 --> 0:28:16.040 tenure yield up about seven or eight basis points. We're 0:28:16.040 --> 0:28:17.760 looking at the thirty, the ten they're all at the 0:28:17.800 --> 0:28:20.200 highest level now that we've seen so far. This year 0:28:20.280 --> 0:28:23.200 as stocks wind up dropping, Ira Jersey, Bloomberg Intelligence Chief 0:28:23.280 --> 0:28:27.720 US interest rate strategist joins us Now, Ira, how do 0:28:27.760 --> 0:28:31.800 you square the data that we continue to see ism manufacturing, 0:28:32.040 --> 0:28:35.200 the jolts numbers, even factory orders, Like, how much higher 0:28:35.240 --> 0:28:37.640 can we go and yield before things start to hurt? 0:28:39.080 --> 0:28:41.880 Yeah, well, obviously they're going to start to hurt risk assets, 0:28:41.960 --> 0:28:45.560 probably sooner rather than later, just because the expectation has 0:28:45.600 --> 0:28:47.720 been that the Fed was going to cut interest rates, 0:28:47.720 --> 0:28:49.840 and as we keep on getting these better and better numbers, 0:28:49.840 --> 0:28:50.280 we're just. 0:28:50.160 --> 0:28:52.000 Going to either do one of two things. 0:28:52.040 --> 0:28:54.920 Either we're going to price out ray cuts altogether, or 0:28:55.000 --> 0:28:57.200 as you've seen recently, is we're just going to push 0:28:57.240 --> 0:28:59.800 out when those cuts are going to start because the 0:29:00.000 --> 0:29:04.800 economy is just not slowing. So the higher yields that 0:29:04.840 --> 0:29:06.240 you're seeing, I think in the back end of the 0:29:06.240 --> 0:29:08.760 curve is just a reflection of the idea that if 0:29:08.760 --> 0:29:11.000 the Fed does ultimately cut, it might not cut that 0:29:11.120 --> 0:29:13.520 much number one, and number two, that the cuts are 0:29:13.560 --> 0:29:17.240 going to continue to be priced out. What's surprising me 0:29:17.320 --> 0:29:19.720 about this move is that a lot of it's coming 0:29:19.760 --> 0:29:21.240 in the back end of the curve. So, like you 0:29:21.320 --> 0:29:24.600 mentioned ten year yields, thirty year yields, two year yields 0:29:24.640 --> 0:29:27.240 have gone up, and at around four point seven percent, 0:29:27.240 --> 0:29:30.120 they're still pricing more or less for three interest rate 0:29:30.160 --> 0:29:33.240 cuts this year. I think that that's probably the next 0:29:33.360 --> 0:29:35.880 nut to crack, where you really need those two year 0:29:35.960 --> 0:29:38.960 yields to go up toward toward five percent in order 0:29:39.000 --> 0:29:41.280 to get ten year yields above four and a half. 0:29:41.320 --> 0:29:41.720 For sure. 0:29:42.360 --> 0:29:45.640 Is there a scenario, ira in any of your crazy 0:29:45.680 --> 0:29:48.040 models that you and your team have their DNA Prinson 0:29:48.120 --> 0:29:52.480 that says no rate cuts in twenty twenty four, good one. 0:29:52.680 --> 0:29:54.560 Yeah, so there actually is. 0:29:54.680 --> 0:29:56.880 And I think that that's a case that you can't 0:29:56.880 --> 0:30:00.120 completely dismiss, especially when you see the strength and the 0:30:00.200 --> 0:30:04.600 data as powerful as it has been recently. So unless 0:30:04.600 --> 0:30:07.320 you wind up getting a more significant slowdown and inflation 0:30:07.920 --> 0:30:11.040 amid this very strong growth, which seems, you know, less 0:30:11.040 --> 0:30:15.080 and less likely as time goes on, then the possibility 0:30:15.120 --> 0:30:17.760 that the Fed doesn't cut interest rates at all this 0:30:17.880 --> 0:30:20.120 year and maybe into next year has to be on 0:30:20.160 --> 0:30:22.160 your radar. And I think and one of the things 0:30:22.160 --> 0:30:25.240 that you've seen in the rates market, so you know, 0:30:25.360 --> 0:30:29.080 libor is no more so now we use something called SOFUR. 0:30:28.760 --> 0:30:30.480 The secure over night Financing rate. 0:30:31.440 --> 0:30:35.160 Well, so most short term interest rate bets are put 0:30:35.240 --> 0:30:38.000 on in SOFUR futures right now, and if you look 0:30:38.080 --> 0:30:41.680 at the options on those futures, you know there's now 0:30:41.680 --> 0:30:44.480 about a twenty percent chance being priced that the Fed 0:30:44.520 --> 0:30:47.000 does nothing or even maybe hikes interest. 0:30:46.760 --> 0:30:48.360 Rates before the end of the year. 0:30:48.360 --> 0:30:51.120 And I think that that and that's a significant shift 0:30:51.160 --> 0:30:53.920 from where we were in mid February, when you know, 0:30:53.960 --> 0:30:55.400 we were pricing only for cuts. 0:30:55.400 --> 0:30:56.560 It was a matter of how many. 0:30:56.760 --> 0:30:57.600 That's interesting. 0:30:57.880 --> 0:30:59.800 So does the fact that we're seeing more move in 0:30:59.840 --> 0:31:02.280 the back end versus the long sorry, yeah, the back 0:31:02.360 --> 0:31:04.880 end versus the front end. What does that tell you 0:31:04.920 --> 0:31:07.280 about the potential hike or no cut scenario. 0:31:08.240 --> 0:31:09.920 Well, I think a big part of it is people 0:31:09.960 --> 0:31:12.760 were I think edging long. So you know a lot 0:31:12.760 --> 0:31:16.800 of people, you know, including in our own Bloomberg Economics team, 0:31:17.000 --> 0:31:18.400 thought that we were going to start to see a 0:31:18.440 --> 0:31:21.360 significance slowing in the economy now. So they had gotten 0:31:21.440 --> 0:31:25.920 long interest rates, had gotten long treasuries, and we're ready. 0:31:25.680 --> 0:31:26.880 For a rally. 0:31:26.920 --> 0:31:29.200 So I think one of the reasons you're seeing the 0:31:29.200 --> 0:31:31.560 back end under formed a little bit is just people. 0:31:31.320 --> 0:31:32.560 Getting out of that risk. 0:31:33.000 --> 0:31:36.520 Once that those positions are cleaner, then you wind up 0:31:36.520 --> 0:31:39.280 with a scenario where people look at the fundamentals and say, okay, 0:31:39.280 --> 0:31:42.560 what's the actual fair value for ten. 0:31:42.480 --> 0:31:43.600 Year yield and two year yield? 0:31:43.680 --> 0:31:46.360 Right now, everyone's kind of in risk management mode saying, okay, 0:31:46.360 --> 0:31:50.760 we're too long risk given the economic environment. Let's right 0:31:50.840 --> 0:31:53.320 size our risk and then we'll determine whether or not 0:31:53.360 --> 0:31:56.360 there's some value here, value or not value there. So 0:31:56.680 --> 0:31:58.480 I think that's the mode that we're in right now. Plus, 0:31:58.520 --> 0:32:01.560 remember we're early in the core or you know, I 0:32:01.560 --> 0:32:03.520 think some of the positioning last week had to do 0:32:03.600 --> 0:32:07.160 with month and rebalancing before people put out their quarterly 0:32:07.240 --> 0:32:10.920 or semi annual fund reports and the like. So some 0:32:11.000 --> 0:32:12.840 of this maybe is that people wanted to be long 0:32:12.880 --> 0:32:15.560 going into quarter end and now they don't see a 0:32:15.600 --> 0:32:19.000 big reason to be long at the moment. So that's 0:32:19.040 --> 0:32:20.760 one reason why people are getting out of risk. And 0:32:20.800 --> 0:32:22.920 it's easy to do when you see, you know, decent 0:32:23.000 --> 0:32:24.960 data like we've had the last two days. 0:32:25.400 --> 0:32:28.000 So the ten year I ref got it at four 0:32:28.040 --> 0:32:30.840 spot three eight. Here is there a technical kind of 0:32:31.080 --> 0:32:33.040 level that I need to be watching for like if 0:32:33.080 --> 0:32:36.640 it breaks above four fifty, then it can go significanly 0:32:36.680 --> 0:32:38.320 higher than that. Is there any technicals here that you're 0:32:38.360 --> 0:32:39.040 paying attention to. 0:32:40.200 --> 0:32:42.840 Yes, and we just broke a very important one actually, 0:32:42.840 --> 0:32:45.840 So four point three to five percent was the level 0:32:45.840 --> 0:32:48.520 that we were watching the last two months. Now that 0:32:48.520 --> 0:32:51.760 we're above that, we'll be targeting four point five one percent, 0:32:52.040 --> 0:32:53.959 call it four and a half percent from round numbers, 0:32:54.800 --> 0:32:57.360 and then above that is four point seven percent, So 0:32:58.160 --> 0:32:59.760 we really have a little bit of a gap here 0:32:59.720 --> 0:33:02.840 another ten or twelve basis points. You know, interestingly, when 0:33:02.840 --> 0:33:05.400 you look at some of the momentum oscillators. I was 0:33:05.480 --> 0:33:07.160 just looking at this with Chris Caine, one of my 0:33:07.200 --> 0:33:11.160 other Bloomberg Intelligence colleagues, who's a chartered market technician, so 0:33:11.200 --> 0:33:13.200 he's one of those people with a three letter acronym 0:33:13.280 --> 0:33:15.640 after his name and looks at charts all the time. 0:33:16.280 --> 0:33:18.000 So he and I were actually just talking about this 0:33:18.120 --> 0:33:22.560 and the relative strength and index, and some momentum oscillators 0:33:22.560 --> 0:33:25.120 aren't yet at extreme levels to think that. 0:33:25.440 --> 0:33:27.760 The selloff is over near term. 0:33:27.840 --> 0:33:31.240 Now you get another day like we have today, then momentum, 0:33:31.280 --> 0:33:33.880 probably those momentum indicators will be in extreme levels. 0:33:33.880 --> 0:33:35.840 And you can maybe think of a little bit. 0:33:35.720 --> 0:33:38.400 Of a pause in the selloff for a little while. 0:33:38.440 --> 0:33:41.040 But we're not there quite yet, so we could see 0:33:41.080 --> 0:33:43.120 more volatility. You know, when we have some FED speakers 0:33:43.160 --> 0:33:45.640 at twelve today, if they sound a little bit more 0:33:45.640 --> 0:33:48.800 hawkish then Jay Powell was last week, then certainly you 0:33:48.840 --> 0:33:50.960 can wind up probably adding on to some of the 0:33:51.000 --> 0:33:52.120 market angst right now. 0:33:52.400 --> 0:33:55.560 Some feels like an understatement. We got Bowman speaking in 0:33:55.640 --> 0:33:58.120 ten ten, you got Williams speaking at twelve, Mess's speaking 0:33:58.120 --> 0:33:59.960 at twelve ot five and Daily speaking at one three. 0:34:00.320 --> 0:34:01.920 Why did they do that? Did they get paid to speak? 0:34:02.560 --> 0:34:03.200 It's a question. 0:34:03.720 --> 0:34:05.720 Yeah, Well, so what's going to learn from like a 0:34:05.760 --> 0:34:07.640 million different FED officials at the same time. 0:34:08.719 --> 0:34:11.400 Well so a lot of the FED speakers, you know, 0:34:11.480 --> 0:34:15.839 these these lunches and these different activities that that that 0:34:15.920 --> 0:34:19.040 the FED presidents, the regional FED presidents or FED governors do. 0:34:19.480 --> 0:34:21.680 A lot of them are scheduled months and months in advance. 0:34:21.719 --> 0:34:23.440 You know, they're part of their job is to be 0:34:23.480 --> 0:34:26.280 out in the community, listen to people, let the public 0:34:26.360 --> 0:34:30.480 know what they're thinking, is how they how they think 0:34:30.520 --> 0:34:32.560 the economy is going to be, what monetary policy is 0:34:32.560 --> 0:34:33.000 going to be. 0:34:33.520 --> 0:34:35.560 It's part of their job, you know. It's it's funny. 0:34:35.560 --> 0:34:37.560 People always ask me, why do these people go out 0:34:37.560 --> 0:34:39.239 there all the time and make all these comments. They've 0:34:39.239 --> 0:34:42.160 actually always made these comments that just when Alan Greenspan 0:34:42.320 --> 0:34:44.279 was the chair, we didn't pay attention to anyone except 0:34:44.320 --> 0:34:49.080 Alan Greenspan, And more recently things have been more democratized 0:34:49.120 --> 0:34:52.399 within the Federal Reserve. So therefore all of these FED 0:34:52.400 --> 0:34:56.480 speakers get more attention, you know, maybe than they deserve. 0:34:56.520 --> 0:34:59.000 But but it is helpful in the fact that now 0:34:59.000 --> 0:35:01.840 we know what the district of the Federal Reserve looks 0:35:01.880 --> 0:35:03.880 like in terms of you know, who who thinks that 0:35:03.960 --> 0:35:06.240 interest rates should be raised, who thinks that they shouldn't 0:35:06.239 --> 0:35:08.640 be raised, who thinks they should be cut right, So 0:35:08.960 --> 0:35:11.799 there's a variety of views and having those views, I 0:35:11.800 --> 0:35:12.960 think does muddy. 0:35:12.640 --> 0:35:13.759 The waters a little bit. 0:35:14.719 --> 0:35:18.360 But an aggregate though, uh, these discussions have always happened. 0:35:18.360 --> 0:35:20.720 Just it was, you know, we just didn't pay attention. 0:35:20.400 --> 0:35:23.160 And now now that we do, we wind up having 0:35:23.200 --> 0:35:27.279 more headlines and maybe generates more volatility the FED Maybe 0:35:27.320 --> 0:35:29.879 could could you know, pull pull that in a little 0:35:29.880 --> 0:35:32.400 bit and basically say, hey, don't make a lot of 0:35:32.400 --> 0:35:34.680 monetary policy comments. But I think the cats out of 0:35:34.680 --> 0:35:36.520 the bag now, and you know we're just going to 0:35:36.600 --> 0:35:40.520 have have continued FED speak that's going to be very 0:35:40.520 --> 0:35:43.000 important to markets on a minute umnit basis. 0:35:42.719 --> 0:35:44.840 All right, I'm all in on the men's and women's 0:35:44.880 --> 0:35:46.840 Final four, so I'm not really paying attention to soccer. 0:35:46.880 --> 0:35:49.160 But if there's one match I need to follow in 0:35:49.200 --> 0:35:50.560 your world of soccer, what would it be? 0:35:51.280 --> 0:35:53.680 Oh? I think Aston Villa of course. 0:35:53.760 --> 0:35:57.160 My my villains have had a big win over the weekend, 0:35:57.239 --> 0:35:59.520 a t nil two nail victory, so we're moving up 0:35:59.560 --> 0:35:59.920 the table. 0:36:00.880 --> 0:36:02.800 Yeah, I'm going to watch the Villa match this weekend 0:36:02.840 --> 0:36:03.200 for sure. 0:36:03.320 --> 0:36:05.760 All Right, Irid Jersey, good stuff. We appreciate it as always. 0:36:05.800 --> 0:36:10.360 Ira Jersey, chief US Interest rate strategist, chief soccer strategists 0:36:10.360 --> 0:36:14.520 for Bloomberg Intelligence, bringing it to us from Princeton, New Jersey. 0:36:14.880 --> 0:36:16.879 Uh so, I don't. I'm all in on the final four. 0:36:16.960 --> 0:36:20.120 The women's had great games for sports, dude, what are 0:36:20.160 --> 0:36:22.560 you doing women's sports? I'm just saying I'm all in 0:36:22.680 --> 0:36:24.799 And this is the first year I've really been like 0:36:25.400 --> 0:36:28.080 paying this level of attention. I mean, Michael Bard, the 0:36:28.080 --> 0:36:29.480 Business of Sports he's always. 0:36:29.280 --> 0:36:29.600 In on it. 0:36:29.600 --> 0:36:32.319 But that's you know, I'm kind of paying attention to it. 0:36:32.440 --> 0:36:35.040 So Final four, ya, yay? 0:36:35.360 --> 0:36:38.120 There better than an NBA game, I would say. 0:36:38.239 --> 0:36:41.080 Last night, Yeah it was. I mean it's just super competitive, 0:36:41.160 --> 0:36:42.960 super competitive, and that's all you went. And they got 0:36:43.000 --> 0:36:46.440 a great Final four Yukons South Carolina. 0:36:45.280 --> 0:36:48.720 Patal Now male and female athletes. 0:36:48.640 --> 0:36:50.720 Non comparence is not it's not even there. 0:36:50.960 --> 0:36:52.399 Do you think we change the changes now? 0:36:52.400 --> 0:36:55.279 After no? No, no, But it gets better. I mean 0:36:55.320 --> 0:36:57.120 the women are getting more and more and more, but 0:36:57.200 --> 0:36:59.680 it's but so are the men and so it's just 0:36:59.680 --> 0:37:01.359 getting kind of crazy out there. 0:37:01.400 --> 0:37:02.080 So we'll see it. 0:37:02.080 --> 0:37:03.759 But anyway, we got the Final four to look forward 0:37:03.760 --> 0:37:05.880 to this weekend. That's coming up. 0:37:08.280 --> 0:37:12.160 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:37:12.239 --> 0:37:15.760 weekdays at ten am Eastern on applecar Play and Android 0:37:15.800 --> 0:37:18.960 Auto with the Bloomberg Business. You can also listen live 0:37:19.040 --> 0:37:22.239 on Amazon Alexa from our flagship New York station, Just 0:37:22.280 --> 0:37:24.920 say Alexa play Bloomberg eleven thirty. 0:37:26.239 --> 0:37:29.520 How about this for an investment strategy, maintain very low 0:37:29.560 --> 0:37:33.200 exposure to overall stock markets by being long selected high 0:37:33.320 --> 0:37:37.000 quality companies and short market index that's what our next 0:37:37.000 --> 0:37:39.680 guest is up to, Lucas to Mickey joints us here, 0:37:39.760 --> 0:37:44.040 founder and managing partner of LRT Capital Management, joining us 0:37:44.080 --> 0:37:47.239 from Austin, Texas. It's got to be overcrowded by now 0:37:47.320 --> 0:37:51.200 Austin Texas. Everybody I knowing to Austin, Texas. Great, So anyway, 0:37:51.200 --> 0:37:53.600 he's down there, Lucas, thanks so much for joining us here. 0:37:53.840 --> 0:37:56.320 Talk to us about your investment strategy. Did I characterize 0:37:56.360 --> 0:38:00.000 that right? And how has it performed for you? 0:38:00.239 --> 0:38:02.840 You know, it's it's something exactly right what you said. 0:38:03.520 --> 0:38:06.680 We don't predict where the market is going to do 0:38:06.800 --> 0:38:09.240 in the short term because I don't think that's something 0:38:09.440 --> 0:38:11.839 we have any expertise in doing, and frankly we don't 0:38:11.840 --> 0:38:16.040 think others can do that. But our strategies have to 0:38:16.320 --> 0:38:20.240 put it, politely, crush the market with very low volatility 0:38:20.239 --> 0:38:23.279 in very low market exposure. So it's worked out fairly well. 0:38:24.280 --> 0:38:25.879 What do you do when you wind up seeing though, 0:38:26.200 --> 0:38:29.759 like record after record for the overall SMP. I mean, 0:38:29.760 --> 0:38:31.840 I appreciate today it's a little different because we're actually 0:38:31.880 --> 0:38:34.399 down one percent, So how do you kind of fight 0:38:34.440 --> 0:38:34.920 against that? 0:38:36.000 --> 0:38:40.040 Yeah, so you know, our strategy because we're effectively buying 0:38:40.360 --> 0:38:44.320 quality companies and then we're shorting indexes, which, in a 0:38:44.400 --> 0:38:49.960 simplistic way, the index is quality plus junk. Junk typically 0:38:50.000 --> 0:38:53.600 outperforms in a type of fomal market that I think 0:38:53.600 --> 0:38:56.480 we've had over the last three four months. So it 0:38:56.520 --> 0:38:59.000 is a little frustrating on a day to day basis 0:38:59.040 --> 0:39:00.959 because you can see, you know, why am I doing 0:39:00.960 --> 0:39:04.560 all this work when I could just buy Social and 0:39:04.880 --> 0:39:08.319 make all the money or super microcomputer. But I think 0:39:08.640 --> 0:39:11.800 over longer term, you know, when you have a downturn 0:39:12.000 --> 0:39:16.920 and they do happen corrections as we call them, you know, 0:39:16.960 --> 0:39:20.600 you do see the value of being disciplined and having 0:39:20.640 --> 0:39:21.560 an actual strategy. 0:39:22.120 --> 0:39:25.719 So how do you define high quality companies in the 0:39:25.719 --> 0:39:29.800 alongside of your portfolio? Sure, so for us. 0:39:29.640 --> 0:39:32.080 When we're talking about quality, it's really down to a 0:39:32.080 --> 0:39:36.319 combination of qualitative and quantitative metrics. So we're looking for 0:39:36.400 --> 0:39:40.240 number one companies that have some kind of mote, meaning 0:39:40.360 --> 0:39:42.920 some kind of ability to earn high rates of return 0:39:43.040 --> 0:39:47.600 on invested capital and more importantly, sustain those returns over 0:39:47.719 --> 0:39:51.360 long periods of time. And here these are simple things 0:39:51.440 --> 0:39:54.799 that Buffett has talked about for fifty years. May it 0:39:54.880 --> 0:40:01.080 be network effects, scale economies in tangible assets, brands, pathents, licenses, 0:40:01.400 --> 0:40:05.600 government approvals. And then that's number one, we're looking for 0:40:05.600 --> 0:40:09.040 something that can earn a good greater return. But number two, 0:40:09.120 --> 0:40:12.399 it has to be able to actually reinvest within that 0:40:12.480 --> 0:40:17.400 competitive mode, because if you're just generating cash, generating returns, 0:40:17.719 --> 0:40:20.359 but you can't reinvest, you're just returning that to shareholders. 0:40:20.760 --> 0:40:23.720 The mode is kind of in the president in the past, 0:40:24.120 --> 0:40:27.560 but not necessarily in the future. And number three, we're 0:40:27.560 --> 0:40:31.360 looking for management teams that do a reasonably good job 0:40:31.760 --> 0:40:36.720 of capital allocation, because ultimately, capital allocation is the link 0:40:37.160 --> 0:40:41.600 between shareholder value and business value. And so if you 0:40:41.640 --> 0:40:45.120 have a bad management that allocates capital poorly, then you 0:40:45.160 --> 0:40:46.960 may have a good business, but you may actually never 0:40:47.000 --> 0:40:50.719 see the benefit as a shareholder come through. And so 0:40:50.800 --> 0:40:53.640 every business is different. No business is an A plus 0:40:53.680 --> 0:40:56.400 and all those three dimensions you know, and it so 0:40:56.440 --> 0:40:59.120 it depends on the business which one you weigh more. 0:40:59.560 --> 0:41:02.400 If you think about a visa, I have an incredible mode. 0:41:02.600 --> 0:41:05.440 You have a business that grows generally faster than GDP 0:41:05.600 --> 0:41:10.360 every year and the management doesn't matter that much. I mean, 0:41:10.400 --> 0:41:12.440 as long as they're not actively setting in the company 0:41:12.440 --> 0:41:15.479 on fire. You know, I'm sorry, but I could become 0:41:15.560 --> 0:41:18.280 CEO of Visa tomorrow and I would kick my legs 0:41:18.360 --> 0:41:20.600 up and probably do nothing for the next five years, 0:41:20.880 --> 0:41:23.439 and very little would change in the trajectory of Visa 0:41:23.520 --> 0:41:27.120 the business right. And then you have other companies like 0:41:27.239 --> 0:41:31.120 a Danaher or a trans Time which are growing through acquisition, 0:41:31.560 --> 0:41:36.520 so their management, acquisition and capital location strategies matter tremendously. 0:41:37.360 --> 0:41:40.640 To that point, then are there sectors that could sort 0:41:40.640 --> 0:41:42.359 of fit the bill or is that too hard to 0:41:42.400 --> 0:41:44.880 dissect because it's truly on like a company by company 0:41:44.880 --> 0:41:49.000 and management basis, So you know there there is. 0:41:49.640 --> 0:41:52.480 There are some sectors where you find companies with more 0:41:52.520 --> 0:41:57.080 modes than others. So technology business services tend to lend 0:41:57.080 --> 0:42:02.000 themselves to high switching costs, intellectual property, network effects, et cetera. 0:42:02.800 --> 0:42:07.840 On the flip side, we're not very interested in commoditized businesses, 0:42:07.880 --> 0:42:09.359 so we're not you're not going to find a lot 0:42:09.400 --> 0:42:12.680 of mining in our portfolio. You're not going to find, 0:42:13.040 --> 0:42:17.760 you know, a lot of shipping names, commoditized airlines. 0:42:17.400 --> 0:42:18.280 Those sort of things. 0:42:18.680 --> 0:42:23.920 We do look for things that have commodity, like exposures 0:42:24.360 --> 0:42:26.680 where we think there actually is a mote but the 0:42:26.800 --> 0:42:30.840 company may trade in a way with a commoditized sector. 0:42:31.400 --> 0:42:35.120 And because that's very important for a diversification purpose for 0:42:35.239 --> 0:42:37.680 the portfolio loocause. 0:42:37.320 --> 0:42:40.320 How many names do you typically have in the longside 0:42:40.360 --> 0:42:41.319 of your portfolio? 0:42:42.320 --> 0:42:45.319 So as of today, we have ninety four positions and 0:42:45.360 --> 0:42:49.400 we typically are around eighty two one hundred, but the 0:42:49.440 --> 0:42:53.640 top twenty names are about forty five percent of our 0:42:54.000 --> 0:42:56.480 long exposure, so that should give you a sense of 0:42:56.520 --> 0:43:01.600 how that balances out. And typically the larger exposures in 0:43:01.640 --> 0:43:06.799 our portfolio are the lower volatility names, and so the 0:43:06.960 --> 0:43:10.640 names like a trade desk for example, which we own, 0:43:11.160 --> 0:43:13.879 which is a business that we admire, we think has 0:43:13.960 --> 0:43:17.399 a durable competitive advantage, but can be very volatile. It's 0:43:17.440 --> 0:43:20.000 not uncommon to see trade desk up or down ten 0:43:20.080 --> 0:43:24.200 or twenty percent. That's a sub one percent position for us, 0:43:24.600 --> 0:43:29.200 whereas something like a chem d which is a very stable, 0:43:29.360 --> 0:43:32.400 very kind of boring business, that's around a three percent position. 0:43:32.440 --> 0:43:36.040 So we size really based on the volatility contribution of 0:43:36.120 --> 0:43:37.719 the different pieces in the portfolio. 0:43:37.840 --> 0:43:40.000 Before I let you go, do you have AI plays? 0:43:41.600 --> 0:43:45.400 We own TSMC and we think that's probably the best 0:43:45.440 --> 0:43:48.959 pixel shovels name that we can come up with. There's 0:43:49.040 --> 0:43:53.319 plenty of AI names and semiconductor companies that are within 0:43:53.360 --> 0:43:57.800 our portfolio or that are within our call it investable universe, 0:43:58.520 --> 0:44:02.160 but we don't have the hottest ones that everyone has 0:44:02.280 --> 0:44:05.640 beat Nvidia on others. So TSMC is really the largest 0:44:05.640 --> 0:44:07.200 direct exposure for us in that space. 0:44:07.440 --> 0:44:09.759 And on the short side, you just short SPX or 0:44:09.960 --> 0:44:11.640 how do you play the short side. 0:44:11.480 --> 0:44:16.279 So we're shorting mid and small cap indexes and that's 0:44:16.400 --> 0:44:19.960 to just match the basis risk of the longside. So 0:44:20.640 --> 0:44:23.040 typically most of our companies, you know, we do have 0:44:23.520 --> 0:44:27.880 things across the market cap spectrum. TSMC is obviously a 0:44:27.920 --> 0:44:31.680 giant company. We own North from Grammen as well, but 0:44:31.800 --> 0:44:35.680 actually most of our names are mid caps. So as 0:44:35.719 --> 0:44:38.800 a result, we're primarily short mid and then some small 0:44:38.800 --> 0:44:43.400 cap indexes, and we're short five particular indexes. Nothing too fancy, 0:44:43.440 --> 0:44:45.160 you know, things that you would know right all. 0:44:45.120 --> 0:44:48.520 Right, lookus fascinating strategy put up some good numbers, so 0:44:48.800 --> 0:44:51.319 good for you, guys. Lucas to Mickey joins Is here. 0:44:51.400 --> 0:44:54.440 He's a founder and managing partner l RT Capital Management, 0:44:54.520 --> 0:44:55.920 joining us from Austin, Texas. 0:44:56.040 --> 0:45:00.560 This is the Bloomberg Intelligence Podcast, available on apples, Spotify, 0:45:00.760 --> 0:45:04.400 and anywhere else you'll get your podcasts. Listen live each weekday, 0:45:04.560 --> 0:45:07.520 ten am to noon Eastern on Bloomberg dot com, the 0:45:07.640 --> 0:45:11.080 iHeartRadio app, tune In, and the Bloomberg Business app. You 0:45:11.120 --> 0:45:14.279 can also watch us live every weekday on YouTube and 0:45:14.440 --> 0:45:16.080 always on the Bloomberg terminal