Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa A. Bram
Speaker 1: Woyd's along with Tom Kane and Jonathan Farrow, join us
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Speaker 1: Steve Chevron joins us. Now they had a multiss Solutions
Speaker 1: that federated at her as Steve. Wonderful to catch up
Speaker 1: with you bearish for so long, Steve. If I asked
Speaker 1: you this question this morning, do you chase this rally
Speaker 1: or thank this rally? How do you answer it? Yeah,
Speaker 1: we got on the other side of it right at
Speaker 1: the beginning of the year. I think there are opportunities
Speaker 1: for this rally to go longer and fire than you
Speaker 1: would expect. And you've got inflation it's likely to come down.
Speaker 1: Given the year your comps earning season expectations were so poor.
Speaker 1: The market was looking for this kind of first half procession.
Speaker 1: But the labor market is going to take a much
Speaker 1: longer time to to kind of decelerate, so you know,
Speaker 1: we think that this strength can go higher. You traditionally
Speaker 1: have rallies when you have fed pauses, those are usually suckers.
Speaker 1: Rallies usually um and so I think it's premature to
Speaker 1: cancel the recession. I think there's so many signs that
Speaker 1: the economy is likely to head into recession, but it's
Speaker 1: going to take a while. And that's been the hallmark
Speaker 1: of this whole cycle. Every stage has taken longer and
Speaker 1: gone farther than you expect. We think this rally could
Speaker 1: last us through mid year, but ultimately we still do
Speaker 1: have those concerns about recession. We just think that's a
Speaker 1: kind of second half story. And in the meantime, you've
Speaker 1: got to play this. So stay told to me about
Speaker 1: how you playing games through international? Is it through US tech?
Speaker 1: A combination of both. It's exactly what we did. We
Speaker 1: didn't want to jump on the tech train at the
Speaker 1: beginning of the year. We think earnings they're still vulnerable.
Speaker 1: We think valuations are still very much too expensive. We
Speaker 1: get that they're gonna run on this kind of rally,
Speaker 1: but we decided to do it internationally. We did it
Speaker 1: both and developed and e m international. But again, this
Speaker 1: is a rally that we're dating. It's not necessarily one
Speaker 1: that we're marrying, at least not yet. So how do
Speaker 1: you know that the dates over and to break up?
Speaker 1: You gotta keep following the fundamental the fundamentals. If it
Speaker 1: turns out that the market is moving higher or in
Speaker 1: the you know, four thousands, let's say, by midyear, yet
Speaker 1: earnings are still coming down, yield curves are still inverted,
Speaker 1: the labor market is continuing to slow. You know, people
Speaker 1: look at this and they're confounded by the labor market.
Speaker 1: Unemployment doesn't rise before a recession. It rises in one.
Speaker 1: And in fact, it takes usually six months to go
Speaker 1: from the low and unemployment which we just hit, to
Speaker 1: the start of a recession, over which time the unemployment
Speaker 1: rate really barely rises, maybe by two tenths of a percent.
Speaker 1: And so I think you have to look at those
Speaker 1: emerging layoff announcements see if the labor market continues to weaken,
Speaker 1: and if it does, you're gonna need to fade this
Speaker 1: when you go into it, it doesn't the different story.
Speaker 1: But when you when you go into emerging market Steeve,
Speaker 1: how much is this really a story about China and
Speaker 1: the reopening there, and just entirely riding that until we
Speaker 1: get more concrete data on just the contours of what
Speaker 1: that looks. I mean, it's certainly a big part of it,
Speaker 1: but it's not it's not the entirety of it. I'd
Speaker 1: say the other key factors here. You know, you do
Speaker 1: have a FED that's likely to pause. Emerging markets in
Speaker 1: general tend to do better when the Feds not hiking.
Speaker 1: You've got a dollar that's weekending, and I think it
Speaker 1: may weaken right where you were just talking about, maybe
Speaker 1: the ECB is gonna be a little bit more aggressive
Speaker 1: than the Fed this year in terms of rate hikes.
Speaker 1: You have to expect at some point Japan might have
Speaker 1: to abandon yield curve controls, and so you may have
Speaker 1: this scenario where a weaker dollar, no more rate hikes,
Speaker 1: plus a China reopening gives you, you know, a decent
Speaker 1: window here. The stocks are certainly reacting to that safe
Speaker 1: Let's get to the Fed on Wednesday. If I'm in
Speaker 1: that news conference and I was a journalist, this is
Speaker 1: the question I would ask, do you believe we've seen
Speaker 1: an unwarranted aising of financial conditions? Very simple let's see
Speaker 1: how he answers it. How do you think he will
Speaker 1: approach that question, because it's very likely to be host
Speaker 1: I mean, I think they've got to be frustrated, John.
Speaker 1: I mean, if you look relative to a year ago,
Speaker 1: not not necessarily the peaks mid year, but one full
Speaker 1: year ago, the labor markets incrementally hotter than it was
Speaker 1: faelve months ago. Inflation is as hot, if not as hot,
Speaker 1: as it was twelve months ago. Now it's it's coming down.
Speaker 1: So I don't I don't want to discount that. But
Speaker 1: financial conditions are much looser um, and they've spent so
Speaker 1: much political capital trying to defend this median dot, you
Speaker 1: would think that they're going to have to see it through.
Speaker 1: I don't think that you're going to have a recession
Speaker 1: or not because of you know, an extra five basis points.
Speaker 1: So my guess is if they go to year, they
Speaker 1: might do two more at least get to that median dot.
Speaker 1: And I would expect that he would push back against
Speaker 1: these financial conditions. Some that being said, I have not
Speaker 1: had the best luck at predicting what Pal is going
Speaker 1: to say. I've had a much better job predicting what
Speaker 1: he's going to do. UM, So we'll say, I'll be
Speaker 1: watching along with you, and we'll see how he responds.
Speaker 1: But you know he's gonna get that question. See if
Speaker 1: can you pair that idea with your bullishness right now?
Speaker 1: The riding of the rally? Why is it not going
Speaker 1: to be successful if the FED does try to job
Speaker 1: bone down this market? Why? Well, because I think that
Speaker 1: the data is going to look encouraging, and the data
Speaker 1: on the road to a soft landing doesn't look very
Speaker 1: different than the data on the road to recession. Right.
Speaker 1: Inflation is going to come down. You know, earnings are
Speaker 1: gonna come down. You would expect that in a soft landing,
Speaker 1: but maybe not catastrophically. You expect the labor market too slow.
Speaker 1: And so you've had a market that for the better
Speaker 1: part of a year has wanted a rally on any
Speaker 1: sign of good news. I think they're going to get
Speaker 1: data that that can be construed that way. Um. Ultimately,
Speaker 1: I think that is on the road to recession. It
Speaker 1: would be a historical anomaly to have this much of
Speaker 1: the yield curve and birded. And but I could go
Speaker 1: through all the various different statistics and not have a recession.
Speaker 1: But if you go back every cycle the market has
Speaker 1: a big hurrah rally like that. It did it in nineteen,
Speaker 1: it did it in two thousand and six, and so
Speaker 1: I think that that's those are the powerful forces. The
Speaker 1: market's going to see what they want in this rare
Speaker 1: stark test, and there's been a bullish lean for the
Speaker 1: last year, and usually the last one is the biggest one.
Speaker 1: And I think that's you know, at least what we're
Speaker 1: in it can last six months, it could, and so
Speaker 1: you know, if you're a long term investor, you might
Speaker 1: be able to ignore that. But if you're trying to manage,
Speaker 1: you know, through the markets is our charge, I think
Speaker 1: you have to be cognizant of that risk. Right here,
Speaker 1: it's lasted four weeks so far this year and twenty three.
Speaker 1: Steve gads catch up, but he has always Steve Chevron
Speaker 1: there a federated is getting you set up for the
Speaker 1: Federal Reserve this coming Wednesday. Pay rolls, the FED, the
Speaker 1: e c B, the Bank of England and learnings in
Speaker 1: between joining us now to discuss I'm really pleased to say,
Speaker 1: is Ken trope In, the founder and chairman of Graham
Speaker 1: Capital Hedge Fund with eighteen billion dollars under management. Can
Speaker 1: fantastic to catch up with you, sir, Thanks for being
Speaker 1: with us. Let's start the amount of central bank tighting
Speaker 1: we've seen over the last twelve months. There is a
Speaker 1: feeling that we can get away with something mild, something short,
Speaker 1: and then just move on. Can do you share that
Speaker 1: feeling that view? I think that's too optimistic personally. Um.
Speaker 1: You know, if you think about how the nineteen to
Speaker 1: that twenty two compared to the previous decade. UH In
Speaker 1: the period between the end of the financial crisis two
Speaker 1: thousands ten two thousand twenty one, we saw a total
Speaker 1: of thirteen bases point equivalent rate hikes between the ECB,
Speaker 1: the Bank of England and the FEED. In two thousand
Speaker 1: twenty two, one year, we saw forty basis point rate moves.
Speaker 1: Obviously some of them came in fifty or seventy five
Speaker 1: at a crack. So you've seen an enormous sea change
Speaker 1: in financial conditions and I don't really think the market
Speaker 1: reflects that necessarily um in epuity valuations, So how would
Speaker 1: you lean against it? But would you basically move against
Speaker 1: some of the tech rally? Would you just go more
Speaker 1: into bonds um, you know, I think it's a good
Speaker 1: time to be um very conservative. I think one of
Speaker 1: the things that I think about is that for the
Speaker 1: last eleven years prior to twenty two, you were sort
Speaker 1: of rewarded for buying every dip in equities. I think
Speaker 1: that is the psychology of investors broadly. I think that
Speaker 1: psychology probably needs to shift. I think good ten percent
Speaker 1: rally so far this year in equities seems um like Okay.
Speaker 1: There was a big sell off last year and people
Speaker 1: wanted to get back in with the sense that the
Speaker 1: Fed was gonna start easing in the second half of
Speaker 1: the year. We're not so convinced that they're going to
Speaker 1: ease in the second half of this year. And there's
Speaker 1: still a lot of eight hikes price then between the
Speaker 1: Fed the e c BE in the Bank of England.
Speaker 1: So I would be really cautious personally. What does it
Speaker 1: mean to be cautious Canada time? When last year the
Speaker 1: fort didn't work and frankly the bonders proponent, a component
Speaker 1: of the portfolio, had the worst year on record if
Speaker 1: you look at certain denominations. Is this a new time
Speaker 1: of that being haven trade or is that still really
Speaker 1: a difficult area. I think that's a difficult area. I
Speaker 1: like the two year you know, you've got the yield
Speaker 1: cerve really inverted here, and so I think to be
Speaker 1: in one year notes and and and be patient makes
Speaker 1: a lot of sense. As you said, last year was
Speaker 1: the worst year for a sixty forty portfolio since in
Speaker 1: thirty seven years. I mean, it's crazy kind of you
Speaker 1: thinking inflation is going to be stick here then people anticipate.
Speaker 1: Is that what your position? Somewhat stickier? Yes, I mean
Speaker 1: it is definitely cooling. But you know, uh, energy prices
Speaker 1: haven't gone down that much. They've come off the highs.
Speaker 1: But if you think about the world where in uh,
Speaker 1: you know, there's not any energy development in the United States,
Speaker 1: green policies, which we probably need because of global warming,
Speaker 1: really discourage more energy to development. So resources are tight
Speaker 1: in inflation. Uh. If you look at labor, certainly their
Speaker 1: softness and tech and finance. On the other hand, CBS
Speaker 1: and Walgreens are limiting hours because they can't get enough employees. So, UM,
Speaker 1: I'm not convinced that we're gonna see inflation get anywhere
Speaker 1: near target. UH, as soon as the market would like. Again,
Speaker 1: what does that leave for you curve right now deeply inverted.
Speaker 1: Some people think we can get that return of the
Speaker 1: bull statement because the Federal Reserve is going to cut
Speaker 1: safe the day deliver that statement that we traditionally get.
Speaker 1: Can of you push them back against that too? Then
Speaker 1: I think that your curves moved a little too much. Uh.
Speaker 1: You know, for all of the years I've been in finance, UH,
Speaker 1: there was term premium and duration risk priced in the bombs.
Speaker 1: There is none today. It's the opposite. That doesn't make
Speaker 1: a lot of sense to me. Uh. If you think
Speaker 1: we have some inflation that may be around longer than
Speaker 1: another six or twelve months. Can We've been talking a
Speaker 1: lot about anecdotal science of weakness in the labor market,
Speaker 1: whether it's big tech or even the big banks that
Speaker 1: have been cutting jobs on the margin. From your experience,
Speaker 1: do you think that those anecdotes reflect a real softening
Speaker 1: in the labor picture or do you think that there
Speaker 1: is more sustained strength than people realize. I think it's bifurcated.
Speaker 1: I think UM and high income UH and in UH
Speaker 1: jobs such as tech and finance ans and what have you,
Speaker 1: there's definitely softness. And I think in the service sector
Speaker 1: or uh, you know, in more blue collar jobs not
Speaker 1: so much. And I also think we have the psychology
Speaker 1: of a lot of employees who are younger who have
Speaker 1: never uh you know, endured a recession, and so they're
Speaker 1: being very patient about looking for jobs if they're laid off.
Speaker 1: That's a new phenomenon. I think you can just to
Speaker 1: find a word from you your favorite trade this year,
Speaker 1: and you do not get to say the two year
Speaker 1: because you've said that already. What is it, kent, Well,
Speaker 1: the two years not a trade, It's just a good
Speaker 1: place to be consecutive. Uh. I think if I had
Speaker 1: to pick one thing after stocks have got up ten percent,
Speaker 1: I probably would lean short. You've gotta shot right now.
Speaker 1: We're mixed are Some of our quant systems are long equities,
Speaker 1: while our discustiony traders are basically short. It's a part
Speaker 1: of the equity market can that you think needs to
Speaker 1: be shorted more than most. Um. I think, well, if
Speaker 1: you look at the Hank Sing that's gone up an
Speaker 1: enormous amount in the last three months, that looks really
Speaker 1: expensive to me. And I think broadly, uh, in the US,
Speaker 1: if we are going to see a recession, sometime this year.
Speaker 1: I don't think that's pricedons to the SMP at all.
Speaker 1: Can this was great? Is it nice to mac Rows back? Ken?
Speaker 1: Don't you agree it was the most exciting time to
Speaker 1: be in macro in fifteen years. There's so much going
Speaker 1: on between what's happening uh in the Ukraine, what's happening
Speaker 1: in inflation, all of these rate hikes. Um, you know,
Speaker 1: it's kind of h a lifetime opportunity or who knows,
Speaker 1: You never know exactly what happens, but it's really exciting
Speaker 1: to be in Macro. Well, Can is exciting to talk
Speaker 1: to you, and let's do this more often. Fantastic as always.
Speaker 1: Kentrop in the of Graham Capital, a hedge fund with
Speaker 1: eighteen billion a u M. Laura Raim, the chief US
Speaker 1: Economists FS Investments Joints US right now, So, Laura, this
Speaker 1: is the question going into Wednesday in that news conference,
Speaker 1: if it's not addressed in a statement, the recent easing,
Speaker 1: the recent easing of financial conditions warranted or not? And Laura,
Speaker 1: I wonder how you think one he'll answer that question
Speaker 1: and to whether this market and market participants will actually
Speaker 1: listen to him, you know, whether they're warranted is really
Speaker 1: a reflection of the fact that the markets have been trained,
Speaker 1: in part by the FED to look so far ahead
Speaker 1: of the curve on the economy that I think they
Speaker 1: can be too hasty. And in this case, there was
Speaker 1: so much talk about a recession at the beginning of
Speaker 1: last year, recession at the beginning of this year. To me,
Speaker 1: you know, you really need to look for the timing
Speaker 1: of this almost a year after the FED stops raising rates,
Speaker 1: which is why I've penciled in late for an economic slowdown.
Speaker 1: And it means that at earliest the FED would really
Speaker 1: not consider sort of lowering the head curve and cutting
Speaker 1: rates until much later in the year. And for all
Speaker 1: of those you sort of paint that macro backdrop, and
Speaker 1: it means that markets who are pricing in three rate
Speaker 1: cuts this year are have just gotten too aggressive. That's
Speaker 1: pulled down the front end. And look at what we've had.
Speaker 1: Mortgage refinancings have reignited again. We're about to see the
Speaker 1: housing market come back to life. The set hasn't really
Speaker 1: broken anything. They have put a pin in all of
Speaker 1: these interest rate sensitive sectors of the economy. And guess
Speaker 1: what when raids come down, those all reflare, and I
Speaker 1: think that's what the push and pull we're going to
Speaker 1: see over the next year, and really it's going to
Speaker 1: start this Wednesday. Lots to unpank that, Laura. Can I
Speaker 1: just pick up on your call that you don't think
Speaker 1: the waitness comes until the year end? Laura, what guides
Speaker 1: that view? Okay, you have to take out a microscope
Speaker 1: to find weakness in the labor market. We've had upsetting
Speaker 1: headlines on in some key industries like the tech sector,
Speaker 1: but the reality is these are set or is that
Speaker 1: over higher during the pandemic. They're trying to right size
Speaker 1: that right now. And to me, when you look at
Speaker 1: the broader initial claims, the unemployed rate and three point
Speaker 1: five percent jold state of the vacancy rate, I mean,
Speaker 1: go down the list, Jonathan, pick anything. It is just
Speaker 1: very difficult to find any signs of outright weakness, normalization, cooling,
Speaker 1: all of that is actually healthy. And then on the
Speaker 1: consumer side, I would argue there's a similar situation. There's
Speaker 1: a been a lot of talk about delinquencies picking up
Speaker 1: and consumer banks are being cautious. That is their job.
Speaker 1: I think at the end of the day, when you
Speaker 1: saw the earnings from MasterCard, from all from American Express.
Speaker 1: The consumer is healthy with jobs where they are. I
Speaker 1: think the household can continue to spend and lower inflation
Speaker 1: has a role to play in that too. It's not
Speaker 1: a strong growth picture, it's a grind, but I think
Speaker 1: it stays positive. Laura, you said the FEN hasn't broken anything,
Speaker 1: and then you talk about all these pockets of strength
Speaker 1: that could keep inflation hotter than the FED would like.
Speaker 1: Is the implication here that the FED has to break
Speaker 1: something and then what is it that they have to break? Well,
Speaker 1: that's what a recession is at the end of the day.
Speaker 1: It means that they have taken something and pushed it
Speaker 1: too far. Our economy doesn't like to contract, so it
Speaker 1: needs something to be not working right to to really
Speaker 1: fall into contraction. So you know, they have talked a
Speaker 1: lot about the labor market. They've talked a lot about wages,
Speaker 1: and you know, we need wages to come down pretty significantly,
Speaker 1: and I'm just not sure that's going to happen given
Speaker 1: the limited number of job availability. That at the end
Speaker 1: of I think when they think about targeting something to
Speaker 1: really slow the economy at a broader level, it often
Speaker 1: is the labor market. But I think right now they're
Speaker 1: content with some broader slowing. They just see the need
Speaker 1: to continue to raise rates. I don't think that's going
Speaker 1: to change. It's time for them to slow down, no
Speaker 1: doubt about it. I think they're doing the right thing
Speaker 1: over the next several meetings. So a lot of people
Speaker 1: took us some signal from the Bank of Canada, which
Speaker 1: has been on the front foot when it comes to
Speaker 1: their moves in their central bank, and they just indicated
Speaker 1: they're going to go twenty five basis points. They went
Speaker 1: twenty five basis points and they potentially will hold indefinitely.
Speaker 1: Why is the Fed not going to do that since
Speaker 1: it doesn't seem to bother them that much the financial
Speaker 1: conditions keep easy, I would I would push back that
Speaker 1: it may bother them somewhat. I mean, I think they
Speaker 1: see it. I think they recognize that UM, when long
Speaker 1: term magistrates come down, it undoes some of their rate
Speaker 1: hike activity. And UM, while I think that they're going
Speaker 1: to continue to monitor this, I think they recognize that
Speaker 1: they can't only focus on it because it's not their
Speaker 1: main mandate. Their mandate is inflation, and until we see it,
Speaker 1: not just hit two percent, but hit inflation persistently at
Speaker 1: two percent, they have wiggle room to manage expectations, and
Speaker 1: finance conditions are going to be a big part of that.
Speaker 1: I think they are going to keep watching financial conditions
Speaker 1: very closely, especially over the next six months. We catching
Speaker 1: up with Gimpianco Bianco Research a little bit later this morning,
Speaker 1: and in this recent note he said, I think the
Speaker 1: narrative and attention should now turn to how far down
Speaker 1: we're going to go, not whether inflation has paid a
Speaker 1: lot of Can you speak to that? Are we coming
Speaker 1: down to four Are we going to find it difficult
Speaker 1: to get down toitude? Yeah, the inflation numbers are going
Speaker 1: to look so choppy. This is just because year on
Speaker 1: your base effects are going to make the headline number
Speaker 1: just really come down very fast. I think, you know,
Speaker 1: we've now sort of contorted ourselves in the monthly CPI
Speaker 1: numbers of looking at you know, services wages that are
Speaker 1: excluding shelter. I mean we've gotten I think to micro
Speaker 1: on the CPI data. We need to step back and
Speaker 1: we need to include wages in that conversation. We need
Speaker 1: to include sort of numbers that are in the medium term,
Speaker 1: for is just the near term inflation expectations are part
Speaker 1: of that too, and those have been stickier. So to me,
Speaker 1: it's really a more holistic inflation picture, and I think
Speaker 1: the FED is going to be very focused on more
Speaker 1: than just one piece of cp I, and the labor
Speaker 1: dynamics are very critical to that. That's what their medium
Speaker 1: term models key off of, Laura, what are you watching
Speaker 1: most closely this week in terms of the economic data
Speaker 1: the FED meeting as well as earnings. I mean, nothing
Speaker 1: beats the payroll reports, Lisa. You have to pay a
Speaker 1: ton of attention to those, so to me that we're
Speaker 1: really going to end with the bang on that. I
Speaker 1: think the employment cost index numbers are going to be
Speaker 1: really important this week as well. It's fascinating joint to
Speaker 1: us not to talk about the earnings. Tom Fort, the
Speaker 1: City of Research analyst at DA Davidson, not to I
Speaker 1: have some sympathy for you, sir, because the earnings camenda
Speaker 1: for big tech, the big names in the space of
Speaker 1: what fortun Now, Tom, I won't ask you to pick
Speaker 1: your favorite babybe Bob. If you had to pick one
Speaker 1: endings report right now that I could give to your tomb,
Speaker 1: what would it make So if I had to see
Speaker 1: ear news report right now, the one that I want
Speaker 1: to see is Amazon. So I'm curious. The term I
Speaker 1: think that you're going to see this quarter is beaten layoff.
Speaker 1: So to what extent are these big technology companies laying
Speaker 1: off employees but still outperforming against expectations? So I think
Speaker 1: that these layoffs put these companies in a position where
Speaker 1: it's more difficult for them to show better than expected
Speaker 1: sales and profits. Because if they had better than expected
Speaker 1: sales and profits, why are they cutting head council significantly.
Speaker 1: It's a really important question, tom, So let's ask the
Speaker 1: question as to why Apple isn't cutting head count. So
Speaker 1: Apple will cut head count, they'll do it in one
Speaker 1: of two ways. If you look back to Amazon between
Speaker 1: the first quarter and second quarter of last year, they
Speaker 1: cut about a hundred thousand heads, mostly at the fulfillment
Speaker 1: center level when they acknowledge that they were overbuilt for
Speaker 1: the current level of demand. So Apple could cut by
Speaker 1: attrition much like Amazon did. They've been one of the
Speaker 1: companies who's been in the news for wanting their employees
Speaker 1: to return to the headquarters, um to return to office
Speaker 1: for a greater period of time. They could assist on
Speaker 1: that and then have some attrition there. They could also
Speaker 1: layoff their employees at the retail level. So I do
Speaker 1: believe that Apple, while they haven't done so yet, like
Speaker 1: everyone else, they will adjust their headcount for the current
Speaker 1: level of demand. So far this year, tom any kinds
Speaker 1: of announcements of layoffs has been met, usually with a
Speaker 1: rally in the shares of the company. With this feeling
Speaker 1: of cost cutting that would allow growth to continue to accelerate.
Speaker 1: At what point is that not true anymore? For the
Speaker 1: tech complex? So the question is are they cutting fat?
Speaker 1: Are they cutting muscle? And I think to some degree
Speaker 1: a lot of the cuts have been fat. These companies
Speaker 1: were bloated in terms of headcount, especially bloated given the
Speaker 1: low level of demand for e commerce today for digital advertising.
Speaker 1: So the question is at some point are they cutting
Speaker 1: muscle and not fat. That remains to be seen, but
Speaker 1: I think that the reason you're seeing the starch react
Speaker 1: favorably to the head count moves is on the expectation
Speaker 1: that on a near term basis, it will results in
Speaker 1: higher margins on lower expenses. There are a couple different
Speaker 1: strains of ideas for the economy. Within these tech earnings.
Speaker 1: There's a business side, particularly with cloud computing and the
Speaker 1: spending that you've seen or not with a disappointed tank
Speaker 1: outlook for Microsoft, which potentially we might see repeated by
Speaker 1: Amazon's a WS. And then there's a consumer side, the
Speaker 1: consumer still buying and the Apple continuing to be strong
Speaker 1: on that level, Which prong do you think has the
Speaker 1: greatest weakness? Are we seeing some of the bigger softening? Yeah.
Speaker 1: The greater concern, and this pertains to Amazon from their
Speaker 1: third quarter results. Wasn't that their mature e commerce business
Speaker 1: was slow growing? Is that they're faster, higher margin units
Speaker 1: cloud computing and advertising. We're starting to feel the negative
Speaker 1: impacts of an increasingly challenged macro economic environment. So to
Speaker 1: the extent we see more signs of that when Amazon reports.
Speaker 1: I think that's the greater concern, given that it's higher revenue,
Speaker 1: higher margin for Amazon. Let's build on that um variants
Speaker 1: right about this this weekend. I think it's the question
Speaker 1: to ask for these tech names right now, are we
Speaker 1: seeing some of these names face just a little bit
Speaker 1: of a cyclical test. Are we seeing some of the
Speaker 1: structural story that's dominated these names and delivered monster gains
Speaker 1: over the last five years or so, are we seeing
Speaker 1: that structural shift, a change in the underlying trend tom
Speaker 1: that could be with us for years to come to
Speaker 1: gardless of the cycle. I'll go at the structural shift.
Speaker 1: I think that gone are the days where you can
Speaker 1: get up and expect Amazon, Apple, Alphabet Meta platforms to
Speaker 1: out perform against NASDA automatically. I think you need to
Speaker 1: see some company specific initiatives or in the case of
Speaker 1: Alphabet and Meta, a rebound in digital advertising on a
Speaker 1: strengthening economy, so those shares to outperform the NAZA even
Speaker 1: over short goods of time. So I would say it's
Speaker 1: more structural. I think it's a change in dynamics, and
Speaker 1: I think it's something that's going to continue to play
Speaker 1: out over the next cold months. I tell him, how
Speaker 1: does that influence your thoughts somehow we should be thinking
Speaker 1: about valuing these companies with that in mind. Well, the
Speaker 1: channels for Amazon long term is in order to maintain
Speaker 1: its premium multiple, they essentially have to outgrow the contraction
Speaker 1: in their multiple from an earning standpoint, which is why
Speaker 1: you're seeing such a significant shift in focus to services
Speaker 1: to hire margin efforts for Amazon. But The question for
Speaker 1: all these companies and big tech is can they outpace
Speaker 1: the contraction in their multiple perhaps by having their profits
Speaker 1: grow to higher an expected rate. And I think it's
Speaker 1: gonna be a challenge across the board. What's going to
Speaker 1: happen to the unprofitable tech companies? And I think about
Speaker 1: snap for example, as they report earnings tomorrow, is this
Speaker 1: going to be the beginning of the end? All? Right?
Speaker 1: To two things. One of the good news is that
Speaker 1: you're seeing a bid so a lot of the companies
Speaker 1: this year are getting positive performance in their share price,
Speaker 1: even if you're seeing a pullback in some of their
Speaker 1: projections for earnings. But for the company's like Snapchat, for
Speaker 1: companies that are losing money today and maybe you don't
Speaker 1: have a great balance sheet, they're basically an embrace against time.
Speaker 1: Can they get incremental capital well as the capital markets
Speaker 1: reopened before they run out of money? And in many
Speaker 1: instances is to be determined. I tell them this was great,
Speaker 1: Hopefully we can do this again, like to this way.
Speaker 1: When these numbers start to drop up some Florida there
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Speaker 1: Lisa Abravo. It's and this is Bloomberg