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Speaker 5: On today's Bloomberg Intelligence Show.
Speaker 3: We're going to dig inside the big business stories impacting
Speaker 3: Wall Street and the global markets.
Speaker 4: Each and every week we provide in depth research and
Speaker 4: data on some of the two thousand companies and one
Speaker 4: hundred and thirty industries our analysts cover worldorldwide.
Speaker 3: Today, everyone to take a look at how computer tech
Speaker 3: company Oracle is showing progress and it's been to capture
Speaker 3: more of the competitive market.
Speaker 4: Plus we'll discuss how a physics whiz made a fortune
Speaker 4: betting on nature's catastrophes.
Speaker 5: But first, let's take a look at retail.
Speaker 3: You got Department store of Coals reported same store sales
Speaker 3: that fell four point three percent in the fourth quarter.
Speaker 3: That represents a small improvement over the five point five
Speaker 3: percent decline during the prior quarter. It also shows, though,
Speaker 3: that Coles has struggled to attract shoppers during the holiday
Speaker 3: shopping season.
Speaker 4: For more on this, we were joined by Mary Ross,
Speaker 4: Gilbert Bloomberg Intelligence senior equity analyst covering retail, and Mary
Speaker 4: told us she's still optimistic that Coals can boost growth.
Speaker 6: They do have so Fora and I'm sure that so
Speaker 6: Forora carries the brands that you care about. So so
Speaker 6: Fora has been a key driver for Coals, and that's
Speaker 6: the reason why their sales aren't that bad. You know,
Speaker 6: if you look at the comp sales, they fell one
Speaker 6: percent in the quarter at the stores, So total comp
Speaker 6: sales were down four point three percent orders and consensus
Speaker 6: three percent an estimate, but digital sales were down ten percent.
Speaker 6: And now going forward, after we get beyond the first
Speaker 6: quarter in twenty twenty four, we should see the overall
Speaker 6: comp sales do better. One with this so Fora initiative,
Speaker 6: because the comparable sales for so Fora was up twenty
Speaker 6: five percent in the fourth quarter, so we've been seeing
Speaker 6: double digit increases there, so that will help. But there's
Speaker 6: a number of other initiatives, including the news that they're
Speaker 6: going to be putting Babies or Us shops into about
Speaker 6: two hundred stores by the fall, and that really fills
Speaker 6: a void in the market. I'm sure you're aware that. Well,
Speaker 6: what happened with Bye Bye a Baby and what about
Speaker 6: Member Toys r US that used to be a go
Speaker 6: to place when you were expecting or how you know
Speaker 6: a baby. You could go there, get your strollers, get
Speaker 6: all your products there.
Speaker 4: We talk about what's good in their future. It sounds
Speaker 4: like it's a lot of stuff that is not cold.
Speaker 4: It's so far it's babies are us. What's the issue
Speaker 4: with the fundamental core Coals offering.
Speaker 6: So they're revamping the merchandise because that was part of it,
Speaker 6: is just not having the right assortments. So they're redoing
Speaker 6: shoes and they're going to be bringing in sketchers. They
Speaker 6: already have Nike, they have Audi Doos, and now you're
Speaker 6: also going to see them bring in some youth brands,
Speaker 6: So they're going to bring in Quicksilver, Errol, Postall, Madden
Speaker 6: limited to in Roxy, so those are also going to
Speaker 6: be helping on the apparel side. So with the overall
Speaker 6: revamp that they're doing on apparel, and some of their
Speaker 6: private brands are actually they resonate pretty well, like for
Speaker 6: in Babies, they have Jumping Beans that does really well.
Speaker 6: So it's really a host of a lot of things
Speaker 6: that they've done with the stores. If you go in
Speaker 6: them now, they're a lot brighter. The culture there has
Speaker 6: really been boosted. We've noticed a difference just from a
Speaker 6: year ago on how much the stores have been transformed.
Speaker 6: So that's helping.
Speaker 3: Yeah, that's so interesting. When I went and I was
Speaker 3: looking and you know, kids grow like weeds, right, my
Speaker 3: daughter's ninees. I was looking for pants and I was like,
Speaker 3: oh my god, they have Nike. I was like, genuinely
Speaker 3: like it. I had lots of those moments whilst walking around.
Speaker 4: I'm gonna have to check it out.
Speaker 3: Okay, we're listening all the good stuff here. So why
Speaker 3: did Coles give weaker than expected guides for the full year?
Speaker 6: Part of that is because we had a new ruling
Speaker 6: that came out from the Consumer Financial Bureau saying, Okay,
Speaker 6: we're going to cap late fees on credit cards to
Speaker 6: eight dollars. So that's going to have a negative impact
Speaker 6: for department stores generally because they tend to have the
Speaker 6: biggest exposure, and so Coles was one of them. They
Speaker 6: generate a fair amount of income from their credit card portfolio,
Speaker 6: and so they guided that that income will be down
Speaker 6: mid teams and that's about one hundred and thirty five
Speaker 6: ish million is what we're estimating the impact this year.
Speaker 6: And that's not the full year impact. But they introduced
Speaker 6: a co branded card and in twenty twenty five they
Speaker 6: hope to be able the offset the loss of income
Speaker 6: that you know they'll experience.
Speaker 5: But we'll see.
Speaker 6: But that's one of the reasons why you're going to
Speaker 6: see some pressure on the margin's side.
Speaker 4: What's the consumer favorite these days? I mean, you've listed
Speaker 4: all these interesting brands turning up at Coal's, but is
Speaker 4: that enough to get the consumers through the door, or
Speaker 4: you know, can you tell us a little bit more
Speaker 4: broadly about the retail space. Are there other shops that
Speaker 4: consumers are preferring these days?
Speaker 7: Yeah?
Speaker 6: Well, clearly off price. And when you think about what's
Speaker 6: happening here with Coals, they're buying frequently, which is more
Speaker 6: of an off price strategy there all the buying occurs
Speaker 6: on a weekly basis. Tom Kingsbury, who's the CEO.
Speaker 8: He is the.
Speaker 6: One who turned Burlington Stores into the fast growing off
Speaker 6: price retailer.
Speaker 8: That it is.
Speaker 6: He lends a lot of credibility. So yes, you're seeing
Speaker 6: the consumer that's attracted to Coals, they also shop at
Speaker 6: off price, and off price has been a big winner
Speaker 6: for that value consumer. And then other retailers that are
Speaker 6: doing well are those that are executing and really delivering
Speaker 6: on the merchandise. And I'm speaking to apparel retailers like
Speaker 6: an Abercrombie Urban Outfitters with their anthropology and their free
Speaker 6: people brands. So it's really it's kind of a tale
Speaker 6: of two stories. Those that are executing are delivering on results,
Speaker 6: and here we're in a transition phase at Coal's and
Speaker 6: they're hoping to be able to turn the tide of
Speaker 6: declining sales for this department store operator. And they do
Speaker 6: have one benefit. They're off the mall, not in the mall.
Speaker 6: That makes them different, so it's easier you know, to
Speaker 6: get into the parking lot, get into the store and
Speaker 6: get you know, and get out again. So it's easier access.
Speaker 6: And like you pointed out, they have Amazon returns. It's
Speaker 6: not additive to sales, but it does bring in traffic. True,
Speaker 6: and then more importantly, so Fora has been the biggest driver.
Speaker 4: Our Thanks to Mary Ross Gilbert Bloomberg Intelligence senior equity
Speaker 4: analyst covering retail, we.
Speaker 3: Move now to the airline industry and Boeing. So Boeing
Speaker 3: has been dealing with the growing fallout from an early
Speaker 3: January accident that has since plunged the company into crisis,
Speaker 3: and it's also caused Boeing to reduced aircraft deliveries.
Speaker 5: As a result.
Speaker 4: Southwest Airlines announced this week that it plans to cut
Speaker 4: capacity this year, halt most hiring, and review its spending plants.
Speaker 4: And separately, Boeing said that it's aircraft deliveries trailed rival
Speaker 4: Airbus last month.
Speaker 5: So let's get more on all of this.
Speaker 3: We were joined by George Ferguson, Bloomberg Intelligence Senior Aerospace,
Speaker 3: Defense and Airlines analyst, and we asked him how challenges
Speaker 3: of Boeing will impact the US airline market going forward.
Speaker 9: I think that, you know, the Boeing challenges will provide
Speaker 9: a little bit of firmness to the marketplace. But I
Speaker 9: still see, I think a US airline market that looks
Speaker 9: like it has plenty of capacity in it, and I
Speaker 9: still think fares are flatish to maybe going down for
Speaker 9: the year unless Boeing really curtails their deliveries for the year.
Speaker 4: Yeah, it's interesting because if I read this issue about
Speaker 4: Boeing and I read this cut in capacity, but my
Speaker 4: first thought is going to be that that means higher
Speaker 4: prices for consumers. So what accounts for the difference there?
Speaker 9: Well, first of all, I think the US market already
Speaker 9: had sufficient capacity last year. I think we're bouncing back
Speaker 9: from a pandemic. We saw a bunch of sort of
Speaker 9: revenge travel earlier in this bounce back, and that was
Speaker 9: very leisure driven. I don't think we're going to see
Speaker 9: as much of the leisure driven travel this year. Not
Speaker 9: that I got to pay whatever it's going to take
Speaker 9: to get down to Disney, so you'll see it.
Speaker 10: Maybe a smaller.
Speaker 9: Growth amount in leisure and business isn't fully back.
Speaker 10: We know that.
Speaker 9: So we've got twenty nineteen more than twenty nineteen levels
Speaker 9: of capacity in the marketplace, less business and maybe a
Speaker 9: little more leisure. So when I add that all up again,
Speaker 9: I kind of see a market that looks like it's
Speaker 9: got plenty of capacity. If you look at the guidance
Speaker 9: that Southwest gave on revenue per available seat mile, they
Speaker 9: lowered that at this discussion, So it tells me that
Speaker 9: the market is weaker. You know, at this guidance point,
Speaker 9: the market is weaker than they initially thought.
Speaker 10: And at the same time, fuel prices were a little
Speaker 10: bit higher. So what it looks like.
Speaker 9: To me is Southwest numbers are going to come in
Speaker 9: lighter than we expected in one queue. That's not a
Speaker 9: super healthy market. That's on a market that's got so
Speaker 9: much constraint that they can price whatever they want to
Speaker 9: for airline tickets and make lots of profits.
Speaker 3: Okay, so it's a trifecta, Like they do have a
Speaker 3: specific Boeing issue and the fuel prices and then the
Speaker 3: broader softer market that's a general airline issue. United also
Speaker 3: told Boeing to stop building seven thirty seven Max.
Speaker 5: Ten jets for the carrier. That sounds dramatic and bad.
Speaker 5: What does that actually mean?
Speaker 9: You know, I think it sounds like Scott Kirby, the
Speaker 9: CEO of United, is just getting real about what he
Speaker 9: thinks Boeing can deliver in the near term. I guess,
Speaker 9: you know, if you sit around and you kind to
Speaker 9: hope and hope and hope they're going to get the
Speaker 9: Max ten certified, and you wait on those deliveries based
Speaker 9: on that hope, and the certification keeps getting pushed out,
Speaker 9: and it's really hard to plan. So Scott Kirby said, hey, look,
Speaker 9: stop worrying about the Dash ten. Just bring me Dashed on.
Speaker 9: He's saying, look, I just want airplanes. Bring me airplanes.
Speaker 9: I think the market's generally going to be strong for me.
Speaker 9: He's in the premium segment too, right, which I think
Speaker 9: from the guidance we saw from Airlines, premium is holding
Speaker 9: up better.
Speaker 10: So he wants airplanes.
Speaker 9: He wants to go out and find some of those
Speaker 9: three twenty one larger scale from Airbus.
Speaker 10: I think it's okay. I think Scott's being a realist.
Speaker 9: There's a lot of challenges right now at Boeing, and
Speaker 9: it feels to me like certification.
Speaker 10: For the Dash seven and the Dash ten.
Speaker 9: You know, the dashten being the biggest variant of the
Speaker 9: seven thirty seven. There's just almost no way they're going
Speaker 9: to get pushed out longer than what we expect given
Speaker 9: the problems in manufacturing and Boeing right now.
Speaker 5: And what is that?
Speaker 4: So is there any redacross that we should start thinking
Speaker 4: about for Airbus?
Speaker 9: Here's the challenge of this industry right the readacross is. Look,
Speaker 9: Airbus ought to be able to go get a lot
Speaker 9: more orders for its Airbus A three to twenty one.
Speaker 9: But the problem Scott has, and he's a really good
Speaker 9: customer and they're working hard to find him slots, is
Speaker 9: that they probably can't get him three twenty one's for
Speaker 9: four or five years from now. So that doesn't fix
Speaker 9: his near term problems. And customers that would be smaller
Speaker 9: than United have an even larger problem because air Bus
Speaker 9: isn't going to work as hard to try to get
Speaker 9: them into the delivery cadence. The industry is operating at
Speaker 9: sort of max capacity now. It's pushing its supply chains
Speaker 9: to do better, but we just don't see increases of
Speaker 9: you know, build rates kind of more than ten percent
Speaker 9: per year at best. It's really hard to bring up
Speaker 9: that supply chain, So I think the duopoly means that
Speaker 9: Airbus can't really capitalize that well on this.
Speaker 4: If you think about what the challenges are facing Boeing,
Speaker 4: is there much of a difference to the company if
Speaker 4: we get a soft economic landing, a hard economic landing,
Speaker 4: or no landing.
Speaker 10: Honestly, I think for all the air framers there isn't. Right.
Speaker 9: So again, Airbus and Boeing building aircraft at rates much
Speaker 9: lower than the customers are demanding right now. You know,
Speaker 9: customers like Scott Kirby want to come in and buy
Speaker 9: a three twenty one's next three or four years, can't
Speaker 9: get them.
Speaker 10: So I think even in.
Speaker 9: A hard landing, soft landing, no recession environment, these folks
Speaker 9: just keep working on making the supply chain better, so
Speaker 9: the supply chain can put more of the components on
Speaker 9: the factory floor and build more aircraft.
Speaker 10: Although I would.
Speaker 9: Say maybe in a harder economic landing it might free
Speaker 9: up some of the labor that they need and keep
Speaker 9: some of the labor more stable at their suppliers. And
Speaker 9: that's really the challenge right here, is labor at the suppliers.
Speaker 9: Stabilizing it. You need smart people there who've been doing
Speaker 9: the process for a long time, so they do it
Speaker 9: right all the time, know the right processes and procedures.
Speaker 3: All right, our thanks to George ferguson Bloomberg Intelligence and
Speaker 3: your Aerospace, Defense and Airlines analyst.
Speaker 4: Coming up, we'll break down why investors were excited this
Speaker 4: week about the computer tech company Oracle.
Speaker 3: You were listening to Bloomberg Intelligence some on Bloomberg Radio,
Speaker 3: providing in depth research and data on two thousand companies
Speaker 3: in one hundred and thirty industries. You can access Bloomberg
Speaker 3: Intelligence through Bigo on the terminal.
Speaker 4: I'm Alex Steele and I'm Jen Ryan. This is Bloomberg.
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Speaker 4: Hey everyone, I'm Alex Steel and I'm Jen Ryan filling
Speaker 4: in for Paul Sweeney.
Speaker 5: We moved next to e SG.
Speaker 3: That's Environmental, Social and Governance Strategy. It's been one of
Speaker 3: the main themes over the past few years.
Speaker 4: And you know Alex Annett thirteen billion dollars was pulled
Speaker 4: last year from US based sustainable funds due to subparer
Speaker 4: investment performance and heightened political scrutiny. That's according to analysts
Speaker 4: at morning Stars.
Speaker 3: So we were joined this week by SEEN contractor Bloomberg
Speaker 3: Intelligence and your ESG strategists, and she took a look
Speaker 3: at ESG ETFs and we first asked her to give
Speaker 3: her outlook for the ETFs in twenty twenty four.
Speaker 7: In the US. We expect to continue it pause now.
Speaker 7: I would say last year was the first time that
Speaker 7: flu is sterne negative. We sought about four billion in
Speaker 7: outfluce for me SG ETFs. Though I will say that
Speaker 7: I don't think that represents some kind of like mass
Speaker 7: exodus from the strategy. And I'm happy to tell you why.
Speaker 7: I just see a pause sort of less outflows but
Speaker 7: also less inflows. If you look at the outflows, most
Speaker 7: of it were from a handful of funds, right, So
Speaker 7: in a world where you have five hundred plus funds,
Speaker 7: if one loses money, and it's really one that's all
Speaker 7: fifty percent of most outflows, it's a change in one
Speaker 7: investor sentiment. It's not like one hundred funds picking up
Speaker 7: and selling off.
Speaker 3: Do you think though money flows more into other areas
Speaker 3: of ESG ETFs, like in Europe whose policy and I
Speaker 3: guess commitment. I mean, I say commitment because we don't
Speaker 3: really know how all the energy transition stuff will shake
Speaker 3: out in terms of allocating capital, but where it seems
Speaker 3: like it's more consistent with messaging.
Speaker 7: One hundred percent. So Europe is still ninety nine percent
Speaker 7: of the ESGTF flows. It's about okay, yeah, it's about
Speaker 7: not the forty billion, and I mentioned US as a
Speaker 7: negative four billions, so very big divide. That being said,
Speaker 7: in terms of strategy, we are seeing a bit of
Speaker 7: a I want to call it an expansion, you know,
Speaker 7: a move to climate, to move to more of the thematics,
Speaker 7: that kind of move.
Speaker 4: I guess could you explain that a little bit more?
Speaker 7: Sure? So, when we think of ESG, I think of
Speaker 7: a broad sort of environmental, social, and governance strategy, all three.
Speaker 7: What I find people concentrating on more now is one
Speaker 7: of the eds or the G right, more of the themes.
Speaker 7: And I think a piece of that in the US
Speaker 7: is this push against the ESG label sort of all
Speaker 7: three combined, which is why it's you know, focusing on
Speaker 7: something simpler like gender or climate things like that.
Speaker 3: Why do you think that in the US ESG ETFs
Speaker 3: haven't been maybe as popular as over in Europe. Is
Speaker 3: it the quality of the ETFs or is it the
Speaker 3: feelings behind ESG.
Speaker 7: So I think it's two things. So first, they were
Speaker 7: very popular about twenty twenty two, I want to say,
Speaker 7: almost as popular as Europe, but overtook Europe a little
Speaker 7: bit in terms of growth. That being said, I think
Speaker 7: the political backlash has had quite a bit of implication on,
Speaker 7: you know, its continued growth. Also, the one challenge in
Speaker 7: the US is that growth has been very concentrated to
Speaker 7: a few investors, which means that just a handful of
Speaker 7: investors put large chunks of money. So what we need
Speaker 7: today is we need a wide investor base, which I
Speaker 7: think is going to slow because of this backlash.
Speaker 4: I wonder if you could talk a little bit about
Speaker 4: the sentiment there in the US, and can you, if possible,
Speaker 4: look ahead past the November election here, depending on who wins,
Speaker 4: who takes the oval office what do you think that
Speaker 4: will do to sentiment.
Speaker 7: I think it's definitely going to be driven by who
Speaker 7: comes into office, but at the same time, also who
Speaker 7: controls some of the states right. And that being said,
Speaker 7: the way I see it is if you have like
Speaker 7: the SEC regulation and you have a number of states
Speaker 7: suing the SEC because of that, that's going to continue
Speaker 7: to have a sort of a little bit of a
Speaker 7: negative backlash.
Speaker 3: Also, I mean, the backlash started before we even the.
Speaker 7: Backlash right the back right. So I think the presidential
Speaker 7: cycle will have some impact. But I think the whole
Speaker 7: sort of backlash has to come down a little bit
Speaker 7: or go in some direction for this to have well
Speaker 7: some impact.
Speaker 3: What do you make of the idea that maybe ESG
Speaker 3: doesn't actually help companies profits like.
Speaker 7: Yeah, I mean, I can't for certain say that ESG
Speaker 7: has proven to outperform. I don't think anybody can say
Speaker 7: that unless they've done some kind of fancy quant analysis.
Speaker 7: We're starting to do that. I think we still have
Speaker 7: too limited a time history of data to actually make
Speaker 7: any kind of implication yet.
Speaker 4: It's interesting, though, because I always understood the support for
Speaker 4: DEI and the support for ESG came in part from
Speaker 4: the new generation of consumers, for millennials who want to
Speaker 4: vote with their pocketbook, and also the diversification that's coming
Speaker 4: in the United States workforce. How does that ply into
Speaker 4: your view that the ESG back clash my fade away
Speaker 4: a bit.
Speaker 7: So I guess I have two opinions there. So my
Speaker 7: one opinion, as we've been saying for years that this
Speaker 7: whole transfer of with is going to happen, we still
Speaker 7: see the ESG investor base as highly institutional and it's
Speaker 7: not very retail based. So in that sense, I haven't
Speaker 7: seen this transfer of money come into effect. Will that
Speaker 7: have at least not in the ESGDF food, Will that
Speaker 7: happen OVID generations and you know over to time period.
Speaker 7: I do think so, but we haven't seen it yet,
Speaker 7: and we've been talking about it for a long time.
Speaker 4: Our thanks to Streen contractor Bloomberg Intelligence senior ESG strategists.
Speaker 3: All right, let's go to tech. Now, look at the
Speaker 3: computer technology company Oracle. At the beginning of the week,
Speaker 3: Oracle reported total sales in the third quarter rose over
Speaker 3: seven percent to thirteen point three billion dollars. That was
Speaker 3: roughly in line with analyst expectations.
Speaker 4: And you know alex Oracle also said that cloud revenue
Speaker 4: jumped twenty five percent and that excited investors. On Tuesday,
Speaker 4: Oracle shares posted their biggest gain in more than two years.
Speaker 3: So we were joined by Brody Ford, Bloomberg Technology reporter,
Speaker 3: and we asked him why the street was so excited
Speaker 3: about Oracles results.
Speaker 11: There's been a big debate over the last year. Can
Speaker 11: Oracle transform from this kind of old school on premise,
Speaker 11: come to your office and install it on your servers
Speaker 11: kind of company to really offering cloud infrastructure the way
Speaker 11: we think about Amazon or Microsoft doing. The last couple
Speaker 11: of quarters they were disappointing and people were starting to
Speaker 11: wonder is this a flash in the pan? Is their
Speaker 11: growth sustained? They said, hey, no, we actually got billions
Speaker 11: more on orders than you expected. They had really strong
Speaker 11: bookings growth. That's kind of reignited that enthusiasm that hey,
Speaker 11: maybe Oracle really can be that, you know, fourth hyper
Speaker 11: scaler after Google, Amazon and Microsoft.
Speaker 4: But I guess you know, they've been having their ups
Speaker 4: and downs. Their shares got really badly hit relatively speaking,
Speaker 4: and so do you feel like the recovery today is
Speaker 4: for real or what's going to be the next waystation
Speaker 4: that investors have.
Speaker 5: To look for?
Speaker 11: So what's convinced them is that when you're offering cloud services,
Speaker 11: people forget the cloud isn't in the sky, it's in
Speaker 11: data centers in Virginia, and they need to build them
Speaker 11: of the day. And so Oracle said that they're going
Speaker 11: to spend ten billion dollars next year is building up
Speaker 11: these data centers. And keep in mind a couple of
Speaker 11: years back, they were spending two billion a year on capex.
Speaker 11: Now it's ten. That's a real difference, and that's convincing
Speaker 11: investors that, hey, they are actually building out their physical infrastructure.
Speaker 11: In the AI era, everyone needs more cloud, everyone needs
Speaker 11: more of this computing power. And Oracle does seem prime
Speaker 11: to actually capture a lot of that demand. So people
Speaker 11: will be watching whether these data centers do go up
Speaker 11: in Virginia and other states.
Speaker 3: I thought we didn't like it when companies spend a
Speaker 3: lot of money on stuff.
Speaker 11: We like it if it's going to come back and
Speaker 11: give us something else, Right, I mean, what was that time?
Speaker 3: So they're going to mass all this money. When do
Speaker 3: they make money off of the money they just spent.
Speaker 11: Yeah, it seems like it'd be pretty quick because if
Speaker 11: you believe the executive's on the call, you know, executives
Speaker 11: grand stand sometimes what they say that demand outpaces supply.
Speaker 11: They've been saying this for a while that with the
Speaker 11: AI era, everyone's rushing to get more computing power. They
Speaker 11: can't provide it. So the second these data centers go live,
Speaker 11: in theory, they should be able to convert that into
Speaker 11: revenue very quickly.
Speaker 4: Are they good at doing that quickly relative to other companies?
Speaker 11: They are known for ruthless operational efficiency, so they should
Speaker 11: they should be good at this, right. I mean, of
Speaker 11: course the market could change, right Everything looks rosy with
Speaker 11: AI right now to be able to train their own models.
Speaker 11: Could we see a sea change? Hard to say, but
Speaker 11: yesterday they got eighty billion in bookings. Once you book
Speaker 11: you can't get out of it, so it's for a while.
Speaker 3: So I also find it's interesting if we're going to
Speaker 3: see cloud computing and AI be a cyclical industry or not.
Speaker 5: Like, clearly it's a structural shift.
Speaker 3: But will we see a ton of data centers come
Speaker 3: on at the same time, like from different companies, and
Speaker 3: then their core prices go down so the revenue isn't
Speaker 3: as hot, Like will it be cyclical like chips are.
Speaker 5: For example, or not?
Speaker 11: It's a good question. There's one rule of software compared
Speaker 11: to hardware that software is a lot stickier, right, I mean,
Speaker 11: you buy chips, you have them, you don't need to
Speaker 11: buy more. Once you start giving money to software providers,
Speaker 11: you plan on x amount of come. You know, computational
Speaker 11: power that usually doesn't go down. I mean, is there
Speaker 11: a point where the growth will level off? Probably? I
Speaker 11: struggle to see it, being like hardware, where hey, everybody
Speaker 11: bought computers this year. Now the computer makers are sol
Speaker 11: because nobody wants to buy anymore.
Speaker 4: And then it's all they've got you on the subscriptions,
Speaker 4: basically like what we all have at home. But now,
Speaker 4: can you talk a little bit more about how Oracle
Speaker 4: is benefiting from AI?
Speaker 10: Yeah?
Speaker 11: Well, and that's the big question for a lot of
Speaker 11: software makers. Every software maker when they have positive results,
Speaker 11: they say in their commentary, this is due to aid anything.
Speaker 11: They call their new cloud version the Gen two AI.
Speaker 11: Is everybody using it for AI?
Speaker 7: No?
Speaker 11: But what we though is that AI requires a ton
Speaker 11: of computing power, and Oracle has marketed there specifically for
Speaker 11: being good at training AI models, and so there's reason
Speaker 11: to believe that folks are upping their demand due to
Speaker 11: AI needs. But is this more than a couple of
Speaker 11: percentage point difference. Most analysts don't think so at this point.
Speaker 5: So it's still the cloud. It's still it's the cloud,
Speaker 5: the data centers building all that out.
Speaker 11: Yeah, you know, I think about you know, any companies running
Speaker 11: all these you know, records, the terminal or anything like that.
Speaker 11: Just it's more that kind of tradition stuff at this
Speaker 11: point than it is training models, though that's probably part
Speaker 11: of it.
Speaker 3: I did want to point out too that maybe you
Speaker 3: can comment on this one, that Bank America, the reason
Speaker 3: why they upgrade their earnings, in part was because of
Speaker 3: an investment cycle from big tech Microsoft, Amazon, Google, Meta
Speaker 3: spending one hundred and eighty billion dollars in cap x.
Speaker 3: They're in that reinvestment cycle, and I'm assuming you guys
Speaker 3: like Oracle are going to be beneficiaries.
Speaker 5: Is that a link I can make?
Speaker 11: I think it is probably more that they're all riding
Speaker 11: similar trends, you know, Amazon, Microsoft, They've spoken also in
Speaker 11: recent quarters that their customers are really focus on cutting costs.
Speaker 11: That for the most part, everybody had transported a bunch
Speaker 11: of things to the cloud and then they wanted to
Speaker 11: cut costs, and that behavior was starting to change, you know,
Speaker 11: the twenty twenty four budgets got approved, they started feeling
Speaker 11: good again, and the investment was going up. And so
Speaker 11: I think it's one that they're all riding a similar wave.
Speaker 5: I see.
Speaker 10: You know.
Speaker 4: Let me ask you something internally about Oracle. Who's running
Speaker 4: the company. Is it Larry Ellison?
Speaker 11: It's crazy, right because you think about somebody like a
Speaker 11: Bill Gates that's the same generation. He hasn't been there
Speaker 11: for a decade or more. But yeah, Larry's still running that.
Speaker 11: I mean, he's his title is not CEO, but he's
Speaker 11: chairman and his CTO. He's, you know, on the earnings call,
Speaker 11: talking back and forth with analysts. For someone of his
Speaker 11: age and his generation, it's rare to see him still
Speaker 11: running the company. But he continues to and there's no
Speaker 11: reason to believe that will change anytime soon. So it's interesting.
Speaker 3: All right, Thanks Berdy Berdi Ford, Bloomberg Technology reporter.
Speaker 4: Coming up on the program, A look at It, Predicting
Speaker 4: nature's catastrophes could become more profitable.
Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 5: I'm Alex Steele and I'm Jen Ryan.
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Speaker 4: Hey everyone, I'm Alex Steele and I'm Jen Ryan, filling
Speaker 4: in for Paul Sweeney.
Speaker 5: The move next to politics.
Speaker 3: Earlier this week, Donald Trump clinched the Republican presidential nomination
Speaker 3: and this sets up an election rematch in November with
Speaker 3: current President Joe Biden, who secured the Democratic nomination.
Speaker 4: For more, we were joined by Nathan Dean, senior policy
Speaker 4: analyst at Bloomberg Intelligence. Nathan gave us his take on
Speaker 4: and how investors should start to prepare for the election
Speaker 4: cycle and what sectors may have more at stake.
Speaker 2: What this race is essentially coming down to three things.
Speaker 2: It's President buy and versus President Trump versus not voting.
Speaker 2: But from an investor's standpoint, the way we're advising our
Speaker 2: clients right now is start with the geopolitical the macro views,
Speaker 2: because that's where the power of the presidency is a
Speaker 2: little bit more powerful. And so you see statements like
Speaker 2: President Trump saying fifty percent tariffs on China. Well, we've
Speaker 2: been doing a lot of work with our FX strategists
Speaker 2: on what does that do for the euro dollar?
Speaker 5: What does that do for the dollar?
Speaker 2: And Bloomberg Economics has put out some great pieces as
Speaker 2: well on what that actually could be on the economy.
Speaker 2: And so the second thing to keep in mind is
Speaker 2: executive actions. What would a president do on day one?
Speaker 2: You know, for President Biden, I think it's just par
Speaker 2: for the course, go back to his State of the Union,
Speaker 2: go back to the budget, and you'll get a little
Speaker 2: bit idea of his priorities there. But when it comes
Speaker 2: to President Trump on day one, you'll see a lot
Speaker 2: of executive actions which are directed agencies within the executive
Speaker 2: branch to go out and start regulatory changes. And that's
Speaker 2: the third aspect for it is regulatory change. Now, regulatory
Speaker 2: change takes a lot of time, and so from an
Speaker 2: investor standpoint, it's something to keep in mind of. But
Speaker 2: those geopolitical factors of trade and tariffs and national security
Speaker 2: should be at the forefront of any investor trying to
Speaker 2: figure out how does the election apply to them in
Speaker 2: their portfolio.
Speaker 5: So let's dig.
Speaker 4: Into this a little bit. Do you have any in mind,
Speaker 4: any sectors in particular that could really have more at
Speaker 4: stake in the presidential election outcome?
Speaker 2: Absolutely, it's energy, energy and energy. And so the reason
Speaker 2: why I say that is there's this thing called the
Speaker 2: Inflation Reduction Act. President Biden signed this to the law
Speaker 2: back in twenty twenty two. A lot of investors, especially
Speaker 2: non US investors, are taking the approach that because it's law,
Speaker 2: it's going to be law for the get go. But
Speaker 2: in the IRA, there are a lot of tax cares,
Speaker 2: if you will, incentives and grants and so forth to
Speaker 2: spur clean energy and clean energy initiatives. It's about seventy
Speaker 2: five percent of the investment of the IRA is geared
Speaker 2: towards these tax incentives. Now, if President Trump wins on
Speaker 2: day one, he can put forth one of these executive
Speaker 2: orders directing the Department of Treasury or to the Irs
Speaker 2: to essentially just stop, stop work, stop these incentives and
Speaker 2: so forth. There's some legalities that they have to work
Speaker 2: through here, but effectively they will be able to use
Speaker 2: a scalpel instead of a sledgehammer to start cutting away
Speaker 2: a lot of those clean energy inities.
Speaker 5: I mean, you're talking my language here.
Speaker 3: I mean a lot of oil companies that I talked
Speaker 3: to like the IRA because they're getting subsidies, particularly if
Speaker 3: they're dealing in carbon capture. Some yl companies are also
Speaker 3: dabbling a little bit in hydrogen. I mean this bill
Speaker 3: helped they like it. It helps them.
Speaker 2: Yeah, absolutely, But that's one of the disconnects you often
Speaker 2: hear about New York versus Washington, because in the Washington sense,
Speaker 2: there was a bill earlier this year in which the
Speaker 2: Republicans put forward essentially said we'll get the entire thing,
Speaker 2: and so the messaging is different. And you know, the
Speaker 2: reason why we think and our analysis is out on
Speaker 2: the terminal, we don't think that there's going to be
Speaker 2: that much change to the IRA other than specifically some
Speaker 2: of these EV related tax credits, is because a lot
Speaker 2: of the money and a lot of the infrastructure that's
Speaker 2: being built in the United States are going to red states,
Speaker 2: and so you often see statements from Republicans saying I
Speaker 2: supported this initiative and even President Biden in a State
Speaker 2: of the Union address last week said, look, if you
Speaker 2: don't want the money or you want to take credit
Speaker 2: for it, I'll certainly take the money and take credit
Speaker 2: for it. So I think there's this disconnect between what's
Speaker 2: happening in Washington and the markets. I expect that the
Speaker 2: coalesce if President Trump wins, as the markets and especially
Speaker 2: Wall Street investors have become to try and get in
Speaker 2: to his inner ear and so forth, so to speak.
Speaker 2: But certainly headline risk and you will see headlines associated
Speaker 2: with that going up into the election.
Speaker 4: Our thanks to Nathan Dean, senior policy analyst at Bloomberg Intelligence.
Speaker 3: On this program, we often look at our favorite Bloomberg
Speaker 3: Big Take stories of the week and you can read
Speaker 3: them on the Bloomberg at Bloomberg dot com slash Big Take,
Speaker 3: and this week we looked at the story of how
Speaker 3: a physics whiz made a fortune betting on nature's catastrophes.
Speaker 4: It delved into why predicting nature's catastrophes is in fact
Speaker 4: a big business. We were joined by the stories author
Speaker 4: Gatam Nike. He's a Bloomberg senior editor covering ESG investing.
Speaker 4: We first asked Gaton for more background on what this
Speaker 4: story means.
Speaker 8: It has to do with insurance. So traditional insurance and reinsurance,
Speaker 8: you know, do a fairly good job of covering modest
Speaker 8: and medium sized catastrophes, you know, storms and hurricanes and earthquakes.
Speaker 8: But every thirty fifty one hundred years you get a
Speaker 8: Hurricane Katrina like event which is completely devastating in its scope.
Speaker 8: And that's a kind of event that traditional insurance company
Speaker 8: can't really handle. So they've turned to a new type
Speaker 8: of asset class. Well it's not new, it's have been
Speaker 8: around for twenty five years, but it's really coming into
Speaker 8: its own more and more now, and it's called catastrophe bonds.
Speaker 8: And the way it works is that instead of the
Speaker 8: insurance company taking the risk should disaster happen, that risk
Speaker 8: has passed on to Wall Street investors. So if the
Speaker 8: disaster does happen, the Wall Street investors can lose some
Speaker 8: or all of their money. So it's a pretty risky move.
Speaker 8: But if it doesn't happen, and these bonds are only
Speaker 8: they run for only three to five years, not for
Speaker 8: much longer. If the disaster doesn't occur, then the investigates
Speaker 8: to keep its original capital plus gets a hefty return
Speaker 8: on top of that for taking that risk.
Speaker 4: So your story, it's fascinating and there's stuffing to dig
Speaker 4: into there. But you start off taking a look at
Speaker 4: Formatt Capital Management, and this is the owner of the
Speaker 4: world's biggest collection of catastrophe bonds. Can you talk a
Speaker 4: little bit about their strategy and in particular, you know,
Speaker 4: I just want to circle back to a comment that
Speaker 4: you may just now that in this current environment, this
Speaker 4: market is very, very interesting, and I wonder if you
Speaker 4: could talk about how a warming planet is figuring into
Speaker 4: for Met's strategy.
Speaker 8: Sure, so, you know there are always hurricanes and earthquakes,
Speaker 8: but the problem is that more and more people are
Speaker 8: moving to Florida and California and other parts of coastal
Speaker 8: regions in the world where you know, they want to
Speaker 8: have a nice view and a nice seaside experience. But
Speaker 8: those expensive homes are building. When they get hit by
Speaker 8: a storm, they you know, tend to lose a lot
Speaker 8: of money. So that is the real problem, is that
Speaker 8: human beings are moving to these risky areas, and the
Speaker 8: insurance industries either in some places like California, in Florida
Speaker 8: walking away from it. They're not going to ensure people
Speaker 8: the risks are too high, or they're turning to kind
Speaker 8: of instruments like a catastrophe bond to do so. So
Speaker 8: firmat Capital is the world's biggest cat bond investor. Their
Speaker 8: assets are about ten billion dollars and they have a
Speaker 8: very interesting strategy. So, like other cat bond investors, they
Speaker 8: do buy these risk models which help you to predict
Speaker 8: the likelihood of a hurricane occurring in a particular year
Speaker 8: or over two three years. But what they do is
Speaker 8: they add a magic source. Because the co founder of
Speaker 8: this firm, John So, has a physics background, has a
Speaker 8: biophysics degree from Harvard. He's been able to layer an
Speaker 8: extra in a sophistication in trying to predict the likelihood
Speaker 8: of risk and return for each of these potential catastrophes.
Speaker 8: So his buying approach is quite clever and sophisticated and
Speaker 8: he hopes to get an edge from that. So that's
Speaker 8: where Fermat has really you know, they've been involved in
Speaker 8: this market almost inception, and they use this extra edge
Speaker 8: to try and beat the market and other catbon investors.
Speaker 5: And has it worked. What are their returns like.
Speaker 8: Yeah, so they returns last year, which is a very
Speaker 8: good year for all investors, about twenty percent, and I
Speaker 8: think a lot of other investors also came in at
Speaker 8: that level. I should say that the interesting thing about
Speaker 8: cat bonds, it's a really good diversifier. So you know,
Speaker 8: unlike your regular you know, stocks of bonds that fluctuate
Speaker 8: with market movements or the Federal Reserve decisions, a catastrophe
Speaker 8: bonds outcome is down to mother nature. Either she's kind
Speaker 8: or she's unkind. And if you diversify a portfolio with
Speaker 8: cat bonds and you know, you get the benefits of that,
Speaker 8: it's a really good diversitifier that has no correlation with
Speaker 8: the rest of the financial markets.
Speaker 4: Can you talk a little bit about how the current
Speaker 4: environment and the insurance market it is affecting for met's returns,
Speaker 4: because you know, you make the point in the story
Speaker 4: that a lot of insurers are charging more to protect
Speaker 4: customers from devastating weather.
Speaker 8: Well, you know, last year was a record year for
Speaker 8: the issuance of catastrophe bonds, and this year is looking
Speaker 8: likely it's going to be again a pretty solid year,
Speaker 8: and that reflects the insurance industry's desperate need to pass
Speaker 8: on some of this risk beyond the traditional reinsurance industry
Speaker 8: to Wall Street. Wall Street is a huge, you know,
Speaker 8: deep pocket with trillions of dollars at its disposal, a
Speaker 8: lot of you know, risk taking investors, unlike traditional insurance,
Speaker 8: which is a lot more conservative. So as you can
Speaker 8: see from just the number of new issuances that are
Speaker 8: lined up for twenty twenty four that insurers are increasingly
Speaker 8: turning to this market. So one of the issues a
Speaker 8: problem is that secondary perils, as the industry likes to
Speaker 8: call it so flood, wildfires, and thunderstorms are causing more
Speaker 8: and more insurance damage as opposed to you know, a
Speaker 8: hurricane Ian, a Hurricane Katrina like event, and insurers are
Speaker 8: trying to figure out how can they protect their own portfolios,
Speaker 8: their own balance sheets, but also provide insurance to people
Speaker 8: when you have more of these type of events occurring,
Speaker 8: this sort of medium size five ten billion dollar disasters
Speaker 8: versus you know, the one sort a thirty year event,
Speaker 8: and at the same time try to make sure that
Speaker 8: you know their balance sheet is protected. That's not so
Speaker 8: easy to do because we don't have much data on
Speaker 8: these kind of secondary perils. And also the models that
Speaker 8: are used that give an investor some certainty that okay,
Speaker 8: they don't stand to lose. You know, typically rare hurricane
Speaker 8: the loss estimate is somewhere in the region of two percent.
Speaker 8: It's fairly low. The return you can get is something
Speaker 8: like eight nine percent. So as long as that clarity
Speaker 8: isn't there for these tornadoes, thunderstorms, ice storms that you
Speaker 8: see in Texas, as long as that's happening, the insurance
Speaker 8: industry is going to find it difficult to access the
Speaker 8: camp bond market to cover those kind of perils which
Speaker 8: are becoming more common.
Speaker 3: Gotam, what are the main risk events that now a
Speaker 3: CEO is modeling that may or may not happen, like
Speaker 3: because he basically has a model what he thinks will
Speaker 3: happen and then either take a little bit more risk
Speaker 3: but for more reward, or avoid that altogether. But what
Speaker 3: are the things you're seeing right now?
Speaker 8: Well, you know, they own something like two hundred and
Speaker 8: fifty or two hundred and eighty individual catastrophe bonds and
Speaker 8: the whole market maybe has three hundred and twenty or so.
Speaker 8: These are rough figures, so they are very dominant. They
Speaker 8: own a vast swath of this whole market. You know,
Speaker 8: that could include a tsunami campbond for Japan, or typhoon
Speaker 8: camp bond for the Philippines, a hurricane cat bond for Mexico,
Speaker 8: all kinds of different events. So I think their modeling
Speaker 8: is primarily focused still on the big potential disasters such
Speaker 8: as hurricanes or an earthquake in California or wildfires in California,
Speaker 8: and less so on things like thunderstorms, because again they
Speaker 8: don't really have the data or the sophisticated models yet,
Speaker 8: but they're building up that because that's where the catastrophe
Speaker 8: bond market is going to grow. It's going to move
Speaker 8: away from the kind of Hurricane Katrina like events, the
Speaker 8: rare of big disaster events, and more to you know,
Speaker 8: Hurricane Sandy like event, which you know there is a
Speaker 8: catbond for. You know, the New York Subway system has
Speaker 8: acquired one hundred million catbord. I think they've renewed perhaps
Speaker 8: the third time now to protect the subways from going
Speaker 8: underwater should a Hurricane Sandy like event hit the city.
Speaker 4: Head on our thanks to Gatin Nike. He's a Bloomberg
Speaker 4: senior editor covering ESG Investing.
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