Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
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Speaker 3: I'm Alex Steel alongside Paul Sweeney. This is Bloomberg Intelligence Radio.
Speaker 3: We bring you all the top news in business and
Speaker 3: economics and finance with our lends through a Bloomberg Intelligence Analysts.
Speaker 3: They cover two thousand companies in about one hundred and
Speaker 3: thirty industries a worldwide. We also take a look at
Speaker 3: all the stock market action. Take a look at Nvidia,
Speaker 3: that's stock up by still over nine percent that company, Paul,
Speaker 3: that's some serious cash. I mean that just like mints.
Speaker 4: The money it does, and you know, it's just extraordinary.
Speaker 4: You think about kind of how they've.
Speaker 5: Become really the play on all things AI. I mean
Speaker 5: they it was a year ago, maybe five quarters ago
Speaker 5: that they issued that revenue guide increase that just shocked
Speaker 5: the tech space and talk shocked Wall Street in terms
Speaker 5: of Wow, this AI spending thing, it is real because
Speaker 5: we are seeing in videos, seeing it in its order book,
Speaker 5: and it's just been extraordinary and it's hasn't let up.
Speaker 5: And you know, I talked to Tim Steneviek every time
Speaker 5: these company reports earnings, and he asked me, Paul, do
Speaker 5: you think these guys are gonna.
Speaker 4: Beat and raise?
Speaker 5: And I said, I think so until they don't, because
Speaker 5: I just don't see any end there at least what
Speaker 5: you hear from the the companies that are making these
Speaker 5: these orders, like Microsoft, like Amazon. All they talk about
Speaker 5: is AI AI AI exactly, and they get the chips
Speaker 5: from in video, So there you go.
Speaker 3: I mean, so, yes, more than forty percent of Video's
Speaker 3: revenue comes from just those guys, right, Microsoft, Meta, Amazon, Alphabet. Okay,
Speaker 3: so there's some so maybe risk in that you have
Speaker 3: competitors that are still trying to ramp up their own
Speaker 3: ability for that. So I guess you're looking at again
Speaker 3: what we what I like to talk about is a
Speaker 3: structural versus cyclical trend. The AI is here to stay
Speaker 3: is a structural change, a structural trend? Right? Does it
Speaker 3: mean that eventually this also won't be some kind of
Speaker 3: cyclical story but we're clearly not there yet.
Speaker 5: No, And so when we get the smart people on
Speaker 5: and we're going to get a smart person on sooners
Speaker 5: soon as he figures out how to get his microphonnel.
Speaker 3: In other ways.
Speaker 5: Yeah, yeah, is a competition. I mean you're supposed to
Speaker 5: be on there a certain time with the Yeah, how
Speaker 5: hard is that?
Speaker 4: You know? So the question is competition. Where's competition?
Speaker 3: Yeah, well it's hard. It's expensive to get this stuff out.
Speaker 3: I think that's the problem.
Speaker 6: And also if you don't want to pay over one
Speaker 6: thousand dollars this year for Nvidio, even though you're optimistic
Speaker 6: about the future there, what are the derivative plays? There
Speaker 6: was so.
Speaker 7: Many today looking at a company it's not publicly traded
Speaker 7: and charge the brainschild of a Princeton professor to make
Speaker 7: it more energy efficient these chips.
Speaker 3: Oh sure, but there are a ton of those startups.
Speaker 3: But it's just a question of actually making the money,
Speaker 3: that is the question. All right, thanks so much for
Speaker 3: I don't know. I don't know why I'm thanking John Tucker.
Speaker 3: Now we do, but I'm gonna go to about those.
Speaker 3: You're welcome. Su Johan Shabani is Boomberg Intelligence senior semi analysts.
Speaker 3: I hope he knows more than we do about this?
Speaker 8: Does all right?
Speaker 3: The stock up ten percent? Can they continue at this
Speaker 3: point to just continue to beat and raise.
Speaker 9: I think in the near term they can definitely demand
Speaker 9: on most of their products keep running ahead of supply.
Speaker 9: We don't see any slowing down in terms of purchasing
Speaker 9: from their customers. In fact, beyond their largest cloud customer,
Speaker 9: enterprise and consumer intern companies are coming in strong. So
Speaker 9: we don't see any sort of big risk that says
Speaker 9: they cannot continue.
Speaker 5: So Kunjohn, I was selling Alex and John. When we
Speaker 5: get smart people on like you yourself, I like to
Speaker 5: ask the question about competition.
Speaker 4: I'm kind of surprised that, you know, in.
Speaker 5: Nvidia has this competitive leadership position relative to everybody else.
Speaker 5: How proprietary is their chip design versus I don't know
Speaker 5: the AMD's of the world, even in Cisco's. What is
Speaker 5: the competitive landscape?
Speaker 9: Yeah, I mean, look, they were I would say almost
Speaker 9: two to even arguably three years ahead of everyone, and
Speaker 9: it's not easy in the chip landscape to catch up.
Speaker 9: When someone has that kind of a lead, they have
Speaker 9: actually aggressively gone out and out in it their peers
Speaker 9: before they were on an eighteen to twenty four month
Speaker 9: product cycle. Now they are on a twelve month product cycle,
Speaker 9: so they just keep staying ahead of their combetition. Their
Speaker 9: combination is trying to catch up. AMD has made significant
Speaker 9: progress and now is another second viral alternative in the market.
Speaker 9: Hence you see that in their significant growth as well.
Speaker 9: But we don't think at this point there is anyone
Speaker 9: else who can rival the total system TCO and performance
Speaker 9: that they have.
Speaker 3: I was mentioning earlier that Nvidia gets about forty percent
Speaker 3: it's revenue from the big four players, Microsoft, Meta Alphabet
Speaker 3: and Amazon. What kind risk is that, if any?
Speaker 9: I mean there have been concerns around it. So there's
Speaker 9: two good data points that came out of this print.
Speaker 9: One that concentration did reduce for the very first time,
Speaker 9: and what we liked it It was not reduced because
Speaker 9: the cloud guys slowed their purchasing. In fact, those top
Speaker 9: four guys that are expected to increase their capec spent
Speaker 9: by forty five percent this year and they are all
Speaker 9: lined up to purchase its newest Blackwell products. But what
Speaker 9: it was good was that the share was taken by
Speaker 9: strong enterprise demand, which we really like because that is
Speaker 9: much more diversified and sticky Kunjan.
Speaker 5: Let's say I'm at Amazon and I buy one of
Speaker 5: nvidious chips.
Speaker 4: When do I have to replace it? Question?
Speaker 9: There's two answers to it. If we were in a
Speaker 9: normal sector semicharactor cycle like you are in smartphones or PCs,
Speaker 9: the refreshed time would be longer, so I would say
Speaker 9: on ideally three to five years. But what's going on
Speaker 9: right now is all of these customers are just racing
Speaker 9: against each other, so they cannot afford to stop. So
Speaker 9: as soon as a newer, better chip is available that
Speaker 9: they can change, they are going to change.
Speaker 3: What would stop all this? Like, we know that AI
Speaker 3: is going to grow, we know that there will be
Speaker 3: demand for chips. We know all that. That's a structural
Speaker 3: shift within the economy. But what makes it cyclical?
Speaker 9: I think the first point of cyclicality would be when
Speaker 9: the demand momentum stops, which we haven't seen no signs of. Look,
Speaker 9: the supply keeps on coming up, so at some point
Speaker 9: demand is going to be meeting supply. And after that,
Speaker 9: if we see any kind of weakness in demand, look,
Speaker 9: look if the largest cloud providers don't see return on
Speaker 9: that investment, don't see monetization benefit, don't see their earnings
Speaker 9: and revenue grow from these investments. That's when we can
Speaker 9: start worrying about sort of a cyclical downtown.
Speaker 5: All right, So, how else in your universe of semiconductors,
Speaker 5: how else do you if you play this trend?
Speaker 9: Look, it's Nvidia still remains sort of the best pure
Speaker 9: play AI play in semiconductors. So I don't know why
Speaker 9: you would want to look elsewhere, but if you were
Speaker 9: forced to, we also like you know, players like Broadcommon,
Speaker 9: Marvel when it comes to AI networking, when it comes
Speaker 9: to the ask chips, which Nvidia's largest customers are designing themselves.
Speaker 9: So these are the two areas where we see significant
Speaker 9: growth coming in over the next two years.
Speaker 4: All right, Yeah, good, John Sabanni, thanks so much for
Speaker 4: joining us.
Speaker 3: There.
Speaker 5: Sabani, senior analyst covering to sevent conductor space for Bloomberg Intelligence.
Speaker 5: Joining us from San Francisco is right there in Silicon Valley.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Just say Alexa play Bloomberg eleven thirty.
Speaker 4: Let's switch gear. Let's get right to our next guys.
Speaker 5: Shanna Sissel, president and CEO of ben bond On Capital Management,
Speaker 5: joining us from Chicago via this zoom thing. Shana, think
Speaker 5: so much for joining us here. I mean, I guess
Speaker 5: the story of the day this morning is in Nvidia,
Speaker 5: another beat and raise.
Speaker 4: As the kids say, what did you take away from
Speaker 4: the earnings last night?
Speaker 10: It wasn't the earnings that I was most surprised by.
Speaker 10: I think we all expected them to be. It was
Speaker 10: somewhat built into the stock price aftermarket. It didn't move
Speaker 10: that much. Obviously now it is. But I think that
Speaker 10: the thing that shoped me most was the ten for
Speaker 10: one stock split announcement. That surprised me.
Speaker 3: Not because.
Speaker 10: It's not unusual for a company to want to split
Speaker 10: in a way that would make their stock price under
Speaker 10: one hundred dollars again and make them more attractive to
Speaker 10: retail investors, make it easier for their employees to take
Speaker 10: advantage of their stock compensation, and a variety of other reasons.
Speaker 10: But in the world of fractional shares, it's not as necessary,
Speaker 10: which is why we see so many stocks trading at
Speaker 10: you know, five six, seven hundred and eight thousand dollars.
Speaker 10: I mean Chipolti is like over three thousand dollars. So
Speaker 10: that actually surprised me the most. But the earnings weren't
Speaker 10: particularly surprising. Obviously, it was above consensus estimates, but there
Speaker 10: was a whisper number, and the numbers that they reported
Speaker 10: were close to that whisper number, And so, you know,
Speaker 10: I think the probably the real problem here is how
Speaker 10: long they can they keep doing this. This is the
Speaker 10: third straight quorder that they reported greater than two hundred
Speaker 10: percent year or year revenue growth.
Speaker 3: Yeah, and I feel like we've been asking that question
Speaker 3: for the third straight quarterer too, so you're not alone.
Speaker 3: I was really struck by a note that came out today. Man,
Speaker 3: it's time for spring break in video is done. We
Speaker 3: got nothing going on until June seventh, which is jobs day.
Speaker 3: It is time for spring break. Do you subscribe to
Speaker 3: that view?
Speaker 10: But I don't. I'm always following the markets. There's always
Speaker 10: interesting things going on. You know. Obviously, as you said,
Speaker 10: the next big report is in June, but there's opportunities
Speaker 10: for here to take a breather. But I think this
Speaker 10: is a great opportunity to start looking for new opportunities
Speaker 10: to get into stocks as people are taking a breather,
Speaker 10: and so I use this time to kind of do
Speaker 10: my work and figure out what my best ideas are
Speaker 10: going to be.
Speaker 5: Going forward, Shenna, do your best ideas include small cap stocks?
Speaker 10: So right now, small caps have some technical issues they
Speaker 10: have I think they're in the third longest streak of
Speaker 10: negative of not reaching a new high, and they have
Speaker 10: really struggled to get out of the funk that they're in,
Speaker 10: which is unusual in many ways, and it might be
Speaker 10: a reflection of some change in market dynamics, especially the
Speaker 10: concentration and the large caps that MAGS seven kind of
Speaker 10: feel and what's driving it. But small caps are interesting
Speaker 10: because if you look at the data, it's the actively
Speaker 10: managed and the factor based small cap types of ETFs
Speaker 10: and mutual funds that are outperforming and substantially so. So
Speaker 10: this whole idea that active management is dead and that
Speaker 10: you don't need active management in your portfolio in order
Speaker 10: to do well, I think needs to be reconsidered because
Speaker 10: in a place like small caps, where there's a lot
Speaker 10: of inefficiencies and opportunities for smart money and those who
Speaker 10: are actually doing work on individual names to outperform. I
Speaker 10: think that, you know, we should reconsider ways that we
Speaker 10: build portfolios and active management right now is really working
Speaker 10: in the small cap space.
Speaker 3: So where in the small cap space, whether is it
Speaker 3: sector specific, is it balance sheet specific? Is it a
Speaker 3: growth value kind of thing?
Speaker 10: It's more factor based, so like quality, but even it
Speaker 10: has to be even higher quality because the active managers
Speaker 10: are beating the S and P six hundred, which tends
Speaker 10: to be higher in quality than the Russell two thousand,
Speaker 10: which tends to be full of a lot of like
Speaker 10: junk and penny stocks and things of that nature. So
Speaker 10: we're seeing that in active management. We're seeing it and
Speaker 10: the quality factor. You're seeing it in the momentum factor,
Speaker 10: but you're seeing it more in the factors than in
Speaker 10: like growth value, in more than.
Speaker 3: Style per se.
Speaker 5: Hey Shanna, what are you guys doing in fixed income?
Speaker 5: I mean I can sit in to your treasury and
Speaker 5: get close to five percent here with no risk?
Speaker 4: Do I sit there? Do I go out on the
Speaker 4: credit curve a little bit?
Speaker 10: So we are being focused on alternatives. We're looking more
Speaker 10: at the private credit and private debt markets. Some interesting
Speaker 10: opportunities in real estate income and with the advent of
Speaker 10: interval funds, it allows us the opportunity to gain exposure
Speaker 10: to those types of credits even for clients that aren't
Speaker 10: qualified or credited. So you know, there's a there's a
Speaker 10: Pender Capital has a real estate debt fund that is
Speaker 10: an interval fund that allows for you know, the average
Speaker 10: investor to gain exposure to an area in private credit
Speaker 10: that was not traditionally available to that space. There's others
Speaker 10: like that, So for us, that's kind of where we're
Speaker 10: playing because that's where the real opportunity lies. You know,
Speaker 10: rates are kind of volatile right now, and as you said,
Speaker 10: you can get really good yield and treasuries, but we're
Speaker 10: seeing a lot of demand in the non traditional credit
Speaker 10: markets and the non bank lenders because the credit markets
Speaker 10: after the financial crisis kind of seized up for a
Speaker 10: lot of potential potential businesses, small business and such. So
Speaker 10: the private debt markets have real opportunity to get above
Speaker 10: average yield with relatively good credit quickly before we.
Speaker 3: Let you go, before we let you go. When you
Speaker 3: look at alternatives like that, that also include like gold,
Speaker 3: and I say that because man gold has been on
Speaker 3: a tear like is that part of the portfolio.
Speaker 10: Oh, absolutely, Commodity is a part of the portfolio. Gold
Speaker 10: and copper are really interesting right now. Gold hit all
Speaker 10: time his yesterday. I would also put crypto in that space,
Speaker 10: so big point. And you know there's a lot of
Speaker 10: chatter right now about the probabilities of the spot E
Speaker 10: ETF being approved this week or next week. I know
Speaker 10: your colleague Eric Belcunus has been writing a lot about it.
Speaker 10: So it's one of those things where crypto is also
Speaker 10: quite interesting right here. But yeah, those are all alternatives,
Speaker 10: and those are all things we consider for portfolios.
Speaker 3: All right, Thanks Lott, really appreciated. Thank you for jumping
Speaker 3: on with us. Shana Sissel joining US, President and CEO
Speaker 3: of a bandy Own Capital Management joining us from Chicago, Illinois.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 2: weekdays at ten am Eastern on Apple card Play and
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Speaker 2: on YouTube.
Speaker 3: We're also keeping our eye on the broader market as well.
Speaker 3: You're looking at the s and key is barely high
Speaker 3: up one tenth of one percent. The Nasdaq Shocker is
Speaker 3: at performing up by six tenths of one percent, really
Speaker 3: helped by Nvidia at a record high fifty two week
Speaker 3: high below and past one thousand. So let's get what
Speaker 3: I'm interested in now is now what? It's not only
Speaker 3: what's now what for Nvidia, but now what for the
Speaker 3: broader market? Is tech still going to be responsible for
Speaker 3: pushing it higher? Gina Martin Adam's chief equity strategist at
Speaker 3: Bloomberg Intelligence, joins us now. And you know this comes
Speaker 3: directly from your guys's note this morning that came out
Speaker 3: that talked about the importance of tech when it comes
Speaker 3: to earnings, but how much that importance will still be
Speaker 3: there in the coming quarters.
Speaker 1: Yeah. I think it's a critical issue for the market
Speaker 1: at large because we've been in this really intriguing sort
Speaker 1: of environment over the course of the last year where
Speaker 1: tech has sort of almost single handedly held up S
Speaker 1: and P five hundred earnings. Tech and communications together as sectors,
Speaker 1: have been the earning stalwarts and the index, while the
Speaker 1: rest of the index has suffered through some kind of
Speaker 1: earnings recession. Intulular, the commodity centric sectors really posting very
Speaker 1: strong declines, but also healthcare posting double digit clines and
Speaker 1: earnings over the course of the last year. As we
Speaker 1: move forward, this sort of onus on technology should lighten
Speaker 1: up at the very least, and that may get reflected
Speaker 1: in the stocks as well. Naturally, when these were the
Speaker 1: only earners on the index, capital concentrated in those names,
Speaker 1: concentrated in those themes, and we're already starting to see
Speaker 1: some evidence that that thematic trade, that tech centric trade,
Speaker 1: is breaking up. Some of the evidence that we presented
Speaker 1: in the note this morning. For example, first is Navidia
Speaker 1: isn't even the top theme stock that we follow right now.
Speaker 1: And when we look at all the stocks that are
Speaker 1: most levered two themes, the stock that has actually performed
Speaker 1: the best is Seman's Energy. We're seeing physical environment themes
Speaker 1: generally outperform AI centric themes. Already in twenty twenty four,
Speaker 1: earnings trends are shifting, and correlations with the market between
Speaker 1: tech and the rest of the market are also shifting somewhat.
Speaker 1: So there's a lot of evidence that this is already
Speaker 1: ocurring in anticipation of that earnings trend shift later this year.
Speaker 5: How about valuation, Gina, where are we here kind of
Speaker 5: post earnings and we've seen the shakeout in kind of
Speaker 5: earnings estimates and guidance and so on and so forth.
Speaker 5: What does that mean for you in terms of valuation.
Speaker 4: Of this market?
Speaker 1: Yeah, I think you have to look at valuations on
Speaker 1: a sector by sector, stock by stock, industry by industry basis.
Speaker 1: If you're looking at valuations in the market at large
Speaker 1: right now, you're also looking at valuations that reflect in
Speaker 1: earnings recession outside of tech and an expected slow recovery
Speaker 1: from that recession. You're also looking at valuations that are
Speaker 1: abnormally skewed toward tech, and tech is the one sector
Speaker 1: in the index where we can prove that using valuations
Speaker 1: as a tactical timing measure is a faulty strategy. So
Speaker 1: I do think that if you're looking at broad market valuations,
Speaker 1: you're kind of missing the bigger picture in really unique circumstances.
Speaker 1: So we do look at sector level valuations, and what
Speaker 1: you find is there are still quite a few very
Speaker 1: discounted segments of the US equity market outside of tech
Speaker 1: and communications, where again capital has concentrated because those were
Speaker 1: the only earnings grows stories largely in the market over
Speaker 1: the course of the last year. So when we look
Speaker 1: across the landscape of the S and P five hundred,
Speaker 1: we actually see nearly half of the stacks in the
Speaker 1: index are training at levels below their media and valuation
Speaker 1: multiples of the last cycle, the pre pandemic cycle. So
Speaker 1: that's just one small stat on what's really happening beneath
Speaker 1: the headline of multiples. Sure everyone will tell you the
Speaker 1: S and P five hundred looks expensive. It looks expensive
Speaker 1: relative to recent pass because of these unique earning circumstances
Speaker 1: as well as the unique concentration of earnings inside tech
Speaker 1: and tech specifically.
Speaker 3: And that's what happens when we say things like maybe
Speaker 3: this time is different, like maybe the economy is different
Speaker 3: this time than it was, say, twenty years ago. Gina.
Speaker 3: One of my favorite stories of this year has been
Speaker 3: the outperformance of utilities, And typically if that happens, you're like, ooh, well,
Speaker 3: investors are going to be really scared because that's where
Speaker 3: you go, and you're scared and you want higher yield
Speaker 3: and you don't want to have any growth, et cetera.
Speaker 3: Is there possibility for utilities to become a growth sector?
Speaker 3: As we tie that into the data center AI story.
Speaker 11: I think no, no, But is there anything to that
Speaker 11: at all? I think the reason utilities have outperformed is
Speaker 11: actually several fold. Yes, there is some optimism with respect
Speaker 11: to AI, but we're in the process actually of working
Speaker 11: through our earning sentiment analysis right now, and no utilities
Speaker 11: companies are mentioning AI as a growth opportunity for them.
Speaker 1: So as much as the market has maybe tried to
Speaker 1: push this narrative, that's really only part of what's impacted
Speaker 1: the utility stocks. It's important to keep in mind that
Speaker 1: utilities are very low beta stacks. We did go through
Speaker 1: a pretty significant corrective process in the month of apriltilblities
Speaker 1: naturally outperformed that process, so their base was higher coming
Speaker 1: into May. And then we've had a bond market rally
Speaker 1: to boot. Utilities are a high rate sensitivity sort of
Speaker 1: segment of the market. When bond yields rally, then of
Speaker 1: course utilities tend to outperform. So there's three reasons why
Speaker 1: utilities have done well over the last three months. I
Speaker 1: do think that there's a possibility, certainly that you have
Speaker 1: some exposure to AI propelling demand for utilities The question then,
Speaker 1: is how much of that demand ultimately results in pricing
Speaker 1: power for utilities. And this is a really critical question
Speaker 1: for this segment. This is a hyper regulated sector, especially
Speaker 1: here in the United States. Will they ultimately just get
Speaker 1: price passed through on a regulated basis or will we
Speaker 1: actually see real shift in growth in the business model.
Speaker 1: I don't know, but it seems like the short term
Speaker 1: answer is not anytime soon.
Speaker 4: Hi, Gina, thank you so much for joining us.
Speaker 5: As always, Gina Martin Adams us strategist for all the
Speaker 5: equity stuff for Bloomberg Intelligence.
Speaker 4: She does, she does it all. We appreciate getting some
Speaker 4: of her time.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 4: Staying on the auto kind of theme here.
Speaker 5: Joel Lavington joins us here he covers He's the director
Speaker 5: of credit research for Bloomberg Intelligence.
Speaker 4: He does it all. One of the research areas he
Speaker 4: covers is the automobile industry. And Joel, thanks so much
Speaker 4: for joining us here in studio.
Speaker 5: You guys are gonna have a concert a conference next
Speaker 5: week in New York City focusing on the auto business.
Speaker 4: Tell us about that. What are you guys doing?
Speaker 12: It's sure, Paul, thank you so much for having us.
Speaker 12: It's gonna be a great conference next Thursday. Everybody please
Speaker 12: come out to one twenty.
Speaker 13: Park for the show.
Speaker 12: We're gonna be talking about things like auto loans and
Speaker 12: have delinquencies which are as high as they were in
Speaker 12: the Great Depression.
Speaker 13: Gregscuse me? The Great Recession? Where are they headed?
Speaker 12: And what does it mean that when Tesla cuts its
Speaker 12: prices by thirty five percent? What does it mean for
Speaker 12: your residual values and your ability to buy a new
Speaker 12: car with the average price of forty eight thousand dollars.
Speaker 13: And of course we'll have the rating agencies there.
Speaker 12: We'll have valuation views from JP Morgan, from Merrill Lynch
Speaker 12: and from credit site.
Speaker 13: So it should be a great, great afternoon for everybody.
Speaker 3: First of all, I want to point out he brought
Speaker 3: me swag. Oh let's see in the radio studio. It
Speaker 3: is a hat. Autopalooza twenty twenty four, Bloomberg intelligence on
Speaker 3: the back, I love me swag. For those of you
Speaker 3: on radio, sorry, but for those of you on YouTube
Speaker 3: you can check out my goods back. The problem is
Speaker 3: is that I like terrible in hats.
Speaker 4: Oh you look right?
Speaker 3: No, yeah, no, trust me. This is this is a
Speaker 3: joke in my family that I ever, but my husband
Speaker 3: looks great in hats. Why are delinquencies so bad right now?
Speaker 1: Sure?
Speaker 12: Well, you know, twenty five percent of loans right now
Speaker 12: alex cost one thousand dollars or more a month. And
Speaker 12: so if you're thinking about your average consumer that makes
Speaker 12: about sixty five thousand dollars, that's your average household a
Speaker 12: forty eight thousand dollars car with one thousand dollars plus loan.
Speaker 12: And then you know, like eighteen percent of the loans
Speaker 12: that are outstanding, Paul have a negative sixty two hundred
Speaker 12: dollars equity value. Because prices, particularly for EV's have been
Speaker 12: coming down so much, so it really puts you in
Speaker 12: a spot where you're paying for something that is already underwater.
Speaker 12: So why continue tends to be the question, and I
Speaker 12: think that's the key reason why you're starting to see
Speaker 12: seeing these numbers rise despite unemployment levels that are quite low.
Speaker 5: So what's the feeling in the auto industry, jol about
Speaker 5: kind of where we are on this transition to evs.
Speaker 4: We seem to have hit a little bit.
Speaker 5: Of a bump in the road here, and I'm not
Speaker 5: sure if it's just a little pothole or if it's
Speaker 5: something much bigger. What are the companies saying, What are
Speaker 5: the investors that you talk to, what are they.
Speaker 13: Saying to me?
Speaker 12: I think it's actually much bigger than what people think.
Speaker 12: I think you're going to see more R and D
Speaker 12: and CAPEX being cut and reduced. And I think you're
Speaker 12: really seeing a recycling of capital usage where you're investing
Speaker 12: in evs into an unknown project with unknown returns, whereas
Speaker 12: when you're socks traded three or four times PE, why
Speaker 12: not go buy the shares or give more dividends. And
Speaker 12: I think you're seeing the shift in capital allocation from
Speaker 12: capex and growth from evs because most consumers don't want them,
Speaker 12: right BI Survey after survey tells you around the globe
Speaker 12: that people are not that interested in owning EU.
Speaker 5: Are they not interested owning evs because of the costs
Speaker 5: they politically they don't link this whole green energy thing.
Speaker 4: They're just not good vehicles. Why don't they want them?
Speaker 12: Cost is a huge factor, you know at the beginning,
Speaker 12: when you have people that will buy whatever the latest
Speaker 12: and greatest technology is.
Speaker 13: That's great and they can afford that.
Speaker 12: But a one hundred and twenty thousand dollars Mercedes is
Speaker 12: not going to work for the average person like myself,
Speaker 12: And so you have issues there with price, which is
Speaker 12: what Tesla has been trying to do to solve that, right,
Speaker 12: and that creates different sorts of issues.
Speaker 13: I think the other thing is infrastructure. There's just not enough.
Speaker 12: And if you think about your typical consumer, perhaps in
Speaker 12: the Midwest, they go on long trips and they want
Speaker 12: three four or five hundred miles of guaranteed road and
Speaker 12: you just can't get that with the infrastructure that you
Speaker 12: have today.
Speaker 3: And this is just also sort of the wrong time, Like
Speaker 3: if we just pair that with auto delinquencies, we haven't
Speaker 3: seen this since the Great Recession, Like that's not the
Speaker 3: right time to then try and convince people to buy
Speaker 3: a car whose base price is sixty.
Speaker 12: Grand, especially because you can get into something better like
Speaker 12: a hybrid or better venege than a pure better value.
Speaker 3: Or like cheaper and sold as the same.
Speaker 12: Thing relative from a green standpoint, certainly better than a
Speaker 12: pure ice engine, where you could probably double your mileage,
Speaker 12: pay a lower dollar amount and feel like you're doing
Speaker 12: something for the you know, for the Earth. And so
Speaker 12: I think that's really why you're starting to see a
Speaker 12: huge ramp up in hybrid sales across the platforms.
Speaker 3: Cask a really dumb question about Tesla. So I've been
Speaker 3: using a lot of Tesla's to get into the office.
Speaker 3: Like Uber has a green car thing, what I've noticed
Speaker 3: is like the size looks exactly the same, but inside
Speaker 3: I feel like I'm in a hotel room. It's like huge.
Speaker 3: Is that because Elon Musk takes out all the stuff
Speaker 3: that's in a regular internal combustion engine car.
Speaker 12: The design and the compactness of their battery has done
Speaker 12: a tremendous job, and much like Lucid has. Lucid of
Speaker 12: course was founded by the former designer for Teslas, so
Speaker 12: they've done a great job of like re designing the
Speaker 12: insides of a vehicle. And that's why it feels so
Speaker 12: much more roomier than you get because the battery essentially
Speaker 12: is pushed lower and the truck or the front is
Speaker 12: pushed forward so you get more space, and they also
Speaker 12: have more of a curved dome on the on the roof.
Speaker 3: Have you been in one? Like, yes, have you noticed it?
Speaker 3: I feel like so much favor.
Speaker 4: Yeah, now do you think about it?
Speaker 8: Yeah?
Speaker 5: But I mean I drove the thanks to Matt Miller,
Speaker 5: the four f one fifty lightning the electric version. That
Speaker 5: now is you like, Yeah, I'm not a pickup truck
Speaker 5: driver because I'm an investment banker. I don't do that
Speaker 5: and I don't do electric, but boy, it was an
Speaker 5: awesome car, awesome vehicle.
Speaker 4: So what's the feeling, Joel. Is hybrid's going to be
Speaker 4: kind of where we settle out? Do you think or?
Speaker 8: Like?
Speaker 5: Like I asked the BCG guys right, and the auto
Speaker 5: guy there says he thinks in ten years forty percent
Speaker 5: of sales will be evs.
Speaker 4: Does that sound reasonable?
Speaker 13: I would take the under on that.
Speaker 12: Take the under on that, yeah, And I you know,
Speaker 12: I think it doesn't really help. It really doesn't help
Speaker 12: anybody until the technology is stronger and the cost is
Speaker 12: lower on the battery side to really make an effective
Speaker 12: car and an effective price. And I think you'll be
Speaker 12: seeing that ramp up in part because the Chinese are coming,
Speaker 12: and the Chinese can make a.
Speaker 13: Profit at ten thousand dollars.
Speaker 5: They're not coming now because we have the don't we
Speaker 5: have like tariffs on them on something like that.
Speaker 12: We do, and that is a huge concern, really more
Speaker 12: for the Europeans than for the US. Four and GM
Speaker 12: don't make a lot of money in China, but when
Speaker 12: you think about Volkswagen, or you think about Mercedes or BMW,
Speaker 12: that's about a thirty five percent of their business is
Speaker 12: based in China. So it's really the tariffs that are
Speaker 12: going back and forth or being discussed with between China
Speaker 12: and Europe and Europe and China. That's really where the
Speaker 12: sticking point is going to be in the near term
Speaker 12: for these autos.
Speaker 3: So going back to the autopalooza that you're going to
Speaker 3: have and you have rating agencies there, it sounds very
Speaker 3: cool rating agencies and cool maybe not usually what you say,
Speaker 3: but you nevertheless, what is going to be your forecast,
Speaker 3: Like what kind of forecasts are you looking at for
Speaker 3: the charge offs for the delinquencies? How are you thinking
Speaker 3: about that for the medium term?
Speaker 12: Yeah, well, I think what's really going to be great
Speaker 12: there is Cox Automotive that experience are going to be
Speaker 12: coming in and talking about what electrification means for finance companies.
Speaker 13: I know that doesn't particularly sound.
Speaker 12: Cool, but really you have seen a perfect performance or
Speaker 12: near perfect performance out of electric cars, and at least
Speaker 12: the slides that they've shown me tell me that that
Speaker 12: is not the case any longer. And in fact, it's
Speaker 12: going to be a lot worse than ice engines. And
Speaker 12: so people that we're betting on evs holding their residual
Speaker 12: values I think are going to be in for a
Speaker 12: bad surprise, whether it's the finance companies or people that
Speaker 12: own abs securities that have a lot of EVS in them.
Speaker 12: So I think they'll be able to provide a lot
Speaker 12: of detail next Thursday.
Speaker 4: All right, Joel, thank you so much for joining us.
Speaker 5: Joe Levington, he runs all the credit research for Bloomberg Intelligence,
Speaker 5: also covers the audio industry in his spare time.
Speaker 8: Autopoalooser.
Speaker 5: Get the Auto industry together in New York City for
Speaker 5: Bloomberg Intelligence Investor Conference Thursday one twenty, Park Avenue Next Thursday.
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 2: Just say Alexa play Bloomberg eleven thirty.
Speaker 5: This is the perfect time to check in with Matt Miller,
Speaker 5: the exceedingly overworked Matt Miller, who joins his here in
Speaker 5: our Bloomberg studio here at some shade.
Speaker 8: Sarcasm is the lowest form of wit.
Speaker 4: Paulley, all Right, what do you guys? I mean, you've
Speaker 4: got your You are so into this auto gig.
Speaker 5: You've got a podcast with our good friend Hannah Elliott
Speaker 5: tell us about it.
Speaker 14: Yeah, and we have some amazing guests. So you're just
Speaker 14: talking to Michael Barr. He has a podcast, The Business
Speaker 14: of Sports, and this weekend is one of the most
Speaker 14: iconic races in motorsports, his Charlot Speedway, the Indy five.
Speaker 8: Hundred, The Indy five hundred.
Speaker 3: I even kind of knew that.
Speaker 14: This weekend, so a lot of people are getting their
Speaker 14: RVs driving out to Indianapolis and Hannah and I spoke
Speaker 14: with Catherine.
Speaker 8: Legg, who is gonna be one of the drivers.
Speaker 14: She had an amazing qualifying session a couple of days ago.
Speaker 14: She was doing an average speed of two hundred and
Speaker 14: thirty miles per hour and she hit the wall, but
Speaker 14: she did not take her foot off the gas pedal.
Speaker 8: Never lift.
Speaker 14: One of my favorite automotive phrases. So she's she's on
Speaker 14: the podcast this week and it's really interesting. But we
Speaker 14: have an amazing line of guests coming up. Next week.
Speaker 14: We're going to talk with Zach Brown, who's the team
Speaker 14: principal for McLaren in Formula one.
Speaker 8: One of the most watched sporting leagues in the world.
Speaker 14: Then tell me and then the week after that, I
Speaker 14: just snagged Tom Wagner.
Speaker 8: He runs Nighthead Capital.
Speaker 14: So everyone knows they own Hertz and they had the
Speaker 14: whole Tesla thing, but they also own Singer, which is
Speaker 14: a Porsche customizer. I guess you could say a Porsche
Speaker 14: restomat outfit in La that's very famous. You can pick
Speaker 14: one of those up for about a million bucks if
Speaker 14: you wait long enough. And they also own Revology, which
Speaker 14: does replicas or reproductions. They prefer of the nineteen sixty
Speaker 14: eight Mustang down in Florida. They have licensing deal with
Speaker 14: Ford and they do an entirely new vehicle from the
Speaker 14: frame up, but it looks exactly like a nineteen sixty
Speaker 14: eight Mustang with modern day performance.
Speaker 8: Yeah so an amazing business.
Speaker 14: He also owned is a soccer team, So I guess
Speaker 14: Tom Kean would care Birmingham I think yeah, no, uh
Speaker 14: and a couple of.
Speaker 8: Worlds a player racing teams.
Speaker 4: Yeah.
Speaker 8: So I'm pretty excited about Hot Pursuit right now. We
Speaker 8: have a pretty good lineup.
Speaker 3: Good that sounds really fun.
Speaker 8: Do you ever listen?
Speaker 3: Yeah?
Speaker 6: Okay, what was the last topic?
Speaker 3: It were cars? I follow her, come.
Speaker 4: On Elliott on social and what a life she leads.
Speaker 4: She's all over the globe.
Speaker 8: Literally today she's at Lake Como perfect.
Speaker 14: Why wouldn't you be in Italy right for the Villadesta
Speaker 14: some kind of concourse delgo.
Speaker 3: And you get that gig.
Speaker 9: Uh.
Speaker 8: Well, Hannah's much better at it, you know.
Speaker 14: She she prefers like the high end luxury market, the
Speaker 14: supercars and hyper cars. She knows all the millionaires and
Speaker 14: billionaires that do the collections. I like, like a Dodge
Speaker 14: muscle car or a Chevy truck. You know, I'm more
Speaker 14: salt of the earth when it.
Speaker 3: Comes to seems like a perfect combination exactly.
Speaker 14: Well, we span the whole gamut and we often disagree,
Speaker 14: but we have a lot of respect for each other.
Speaker 8: So it's podcast.
Speaker 3: Yeah, sure, okay, all listen. So what what are you
Speaker 3: driving right now?
Speaker 14: I actually last week I was in the Fiat five hundred,
Speaker 14: the tiny little compact car, the electric electric version of that.
Speaker 8: It's actually pretty.
Speaker 14: Roomy on the interior, and I enjoyed driving it. I mean,
Speaker 14: it's not the right vehicle unless you're only gonna go
Speaker 14: like maximum five or ten miles, right because it's a tiny,
Speaker 14: little sort of city car, but it really really cool
Speaker 14: and all the ladies in my hometown loved it and
Speaker 14: h And this week I'm I'm gonna test drive the
Speaker 14: new Mercedes E class, the four fifties, so it's got
Speaker 14: the inline six. I'm pretty excited about that. But I'm
Speaker 14: most excited about the Mustangs that are coming up. I've
Speaker 14: been promised by four that I'm gonna get to drive
Speaker 14: the new Mustang dark Horse, and I'm so pumped to.
Speaker 8: Try that out. Are you talking about I see John?
Speaker 4: I see John.
Speaker 3: No, he's not talking.
Speaker 14: So the Mustang, Uh, you know, they came out the
Speaker 14: new Mustang last year. It's kind of a beefier, brawnier,
Speaker 14: more muscular shape.
Speaker 8: And it's the last of the big muscle cars.
Speaker 14: They They finished making the Dodge Challenger last year. They
Speaker 14: don't make that anymore.
Speaker 4: Would you own? I bought one.
Speaker 14: I bought one of the last call versions. Yeah, the
Speaker 14: RT scatpack wide body.
Speaker 4: I knew that.
Speaker 14: And and they finished making the Camaro, so GM and Chrysler,
Speaker 14: Dodge or whatever you want to call it.
Speaker 8: They're out of the muscle car business.
Speaker 14: Mustang is the only American sort of muscle car you
Speaker 14: can see anymore.
Speaker 5: Like, uh, this seems like they made a mistake because
Speaker 5: I don't think those muscle cars are going away.
Speaker 4: I don't think evs are going to take over the
Speaker 4: world like we thought as recently as a year ago.
Speaker 8: Yeah, I think they did it a little bit too early.
Speaker 8: They closed down production a little too early.
Speaker 3: But you still have can you have like hybrid muscle cars?
Speaker 14: That's not really like the point The point of a
Speaker 14: muscle car is kind of a small vehicle, rear wheel drive,
Speaker 14: big motor and like dumb analog is the point of
Speaker 14: a muscle car.
Speaker 3: But if we're gonna keep the muscle car like over
Speaker 3: the next sixty eighty years.
Speaker 8: Yes, so that is what that is what Dodge is
Speaker 8: trying to do.
Speaker 14: They're trying to make electric or hybrid versions of they
Speaker 14: haven't come out with it yet, but the Challenger and
Speaker 14: the charger, so they.
Speaker 8: Do want that. But the muscle car fans might want that.
Speaker 14: The buyers of these products are very averse to electric
Speaker 14: like anything ev if you.
Speaker 8: Go on the forums, they don't like.
Speaker 14: On the other hand, Ferrari is just about to open
Speaker 14: up its first all electric factory, so okay, they're not
Speaker 14: muscle car makers, but you know.
Speaker 4: Again, typically it's not gonna sell. I just don't see it.
Speaker 6: That's the sound that you'll okay.
Speaker 8: I'm with you, I'm with you, I Alex I think
Speaker 8: is on the right track. That's what.
Speaker 14: They don't have any other choice, right because because of
Speaker 14: the cafe regulations, they can't make a six point four
Speaker 14: leader naturally aspirated V eight anymore. It's just too polluting.
Speaker 14: So they're trying to do anything else they can. The
Speaker 14: problem is that the market just isn't there yet.
Speaker 6: And I ask a quick Tesla question, is Elon must
Speaker 6: focus on selling cars or selling or doing the autonomous driving.
Speaker 8: I mean you'd have to ask elon Musk.
Speaker 3: ANSWER's yes, and space and battery stores.
Speaker 8: Yeah, well exactly.
Speaker 6: Well, they're not focusing on the number of cars that
Speaker 6: they're selling now. He seems to be really committed to
Speaker 6: autonomous driving from point.
Speaker 14: I mean, yeah, he's focused on so many different things, right,
Speaker 14: and a lot of investors are concerned that he's not
Speaker 14: as focused as he should be on their specific thing.
Speaker 5: So like like Folkswagen Ford, as you know, unless three
Speaker 5: years they've made big announcements, big investments in EV and
Speaker 5: billions of dollars of loss dollars of losses where we've
Speaker 5: we've seen Ford pull back.
Speaker 4: I mean, we've seen a lot of the companies pull
Speaker 4: back right and say we're gonna go this.
Speaker 8: Yeah, I think they just lost too much money.
Speaker 14: They've obviously been regulated into and you know, socially cajoled
Speaker 14: towards this EV thing, and they've all made the big
Speaker 14: bet that can't be unmade.
Speaker 8: Like it's too late to turn around.
Speaker 14: They're all headed towards evs, but they do have the
Speaker 14: ability to take their foot off the accelerator in terms
Speaker 14: of how many straight evs they make and head more
Speaker 14: towards hybrids because that's what the consumer wants. The consumer
Speaker 14: wants the hybrid. You can drive around town electric power
Speaker 14: only emitting zero CO two from your tailpipe, but when
Speaker 14: you need to go on a longer trip, the range
Speaker 14: extending internal combustion engine kicks in and you don't have
Speaker 14: to like wait at broken chargers to get more power.
Speaker 14: So I think they're all pivoting back towards hybrids. But yeah,
Speaker 14: they've already sunk so much into the battery power, the electrification,
Speaker 14: you know, the software, they can't turn back around.
Speaker 3: And so here's also my question talking about like the
Speaker 3: nuts and the bolts of the stuff. And this is
Speaker 3: where it gets to my world. So when you have
Speaker 3: these tariffs on like things that you need to build
Speaker 3: those cars on China, but the price to buy them
Speaker 3: in North America is so much higher, what are these
Speaker 3: guys gonna do? Are they gonna pay thirty percent more
Speaker 3: to get graph fyighte from Canada or are they just
Speaker 3: gonna wait for China to import that graph Bite to
Speaker 3: Mexico and then they're gonna get it for a lot cheaper.
Speaker 14: You know, first of all, I don't know the answer,
Speaker 14: but I would guess that at some point the government
Speaker 14: is going to have to step in and help because
Speaker 14: I agree with you, the administration has regulated them into
Speaker 14: this path.
Speaker 8: They have no other choice.
Speaker 14: On the other hand, consumers can't afford to pay, you know,
Speaker 14: forty five thousand dollars for an electric car when the
Speaker 14: IC equivalent is twenty five thousand dollars. You know, they've
Speaker 14: got the seventy five hundred dollars credit, But you're gonna
Speaker 14: have to either give more. I mean, especially if you've
Speaker 14: got these protectionist tariffs that are gonna drive prices even higher.
Speaker 14: They've already cost so much inflation, and they're gonna continue
Speaker 14: to inflate prices at the government level. So the consumer,
Speaker 14: if it's gonna be able to keep up, is gonna
Speaker 14: have to get a little bit more help from Uncle Sam.
Speaker 14: That means all of us are gonna have to pay
Speaker 14: even more taxes than we already do.
Speaker 5: And plus John Tucker has to play the congestion pricing
Speaker 5: to come into Mintown, Manhattan.
Speaker 8: Which is a no.
Speaker 14: If I were Tucker, I would definitely charge that to work.
Speaker 14: Like he comes in here at midnight. At two o'clock
Speaker 14: in the morning, we keep telling his commute has to
Speaker 14: be subsidiential.
Speaker 3: We keep telling him that, yes, you're not allowed.
Speaker 14: I don't know why you murder yourself, you know, I mean,
Speaker 14: we all love our bosses, But.
Speaker 5: All right, all right, Matt Miller, thanks so much. He's
Speaker 5: got the podcast. He does everything for Bloomberg Radio and TV.
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