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Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you

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Speaker 1: along with my co host Lisa Brahma Waits. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money, whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: that Bloomberg dot Com. Paul, we talk a lot about

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Speaker 1: the new tech Cold War between the US and China.

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Speaker 1: The front lines may just be fiber. And joining us

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Speaker 1: now is Professor Susan Crawford of Harvard University joining us

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Speaker 1: in New York. She is the author of a new book, Fiber,

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Speaker 1: The Coming Tech Revolution and Why America Might miss It.

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Speaker 1: So what is this coming tech revolution that you foresee, Well,

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Speaker 1: imagine ubiquitous, unlimited, cheap data capacity throughout it entirely, sort

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Speaker 1: of an enormous market, and that's going to happen in

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Speaker 1: China long before it happens here, and it would make

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Speaker 1: possible all kinds of new jobs, new developments, new ways

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Speaker 1: of making a living. China has actually planned now to

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Speaker 1: connect of their homes this enormous market to fiber optic.

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Speaker 1: The US has no such plan for a national upgrade.

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Speaker 1: But hold on here, I think my cell phone works

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Speaker 1: just fine. I get my movies downloaded quicker. I All

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Speaker 1: I hear about is the cable companies and the telephone

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Speaker 1: companies say how much money they're spending upgrading their systems,

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Speaker 1: their wire you know, their infrastructure. Um, isn't that good enough.

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Speaker 1: It's like the people who said, I have one light

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Speaker 1: bulb in my house. Isn't that fine? Who needs refrigeration?

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Speaker 1: Who needs any more appliances? The whole country needs cheap,

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Speaker 1: ubiquitous fiber access in that last mile. Now, cable is happy,

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Speaker 1: and there are great American set of companies. Because they've

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Speaker 1: built out their infrastructure. Their capex is going way down

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Speaker 1: year after year. Meanwhile, data use is going up and

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Speaker 1: their profit margins are growing up. So as an investment, terrific,

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Speaker 1: But for the country's ability to compete on the world stage,

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Speaker 1: not so great. All right, So let's let's dig into this.

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Speaker 1: You're talking five G, right, you're talking to me idea

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Speaker 1: of building out that infrastructure. What sort of the knock

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Speaker 1: on effect of not having a full scale five G

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Speaker 1: infrastructure in place when it comes to operating businesses. Well,

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Speaker 1: what five G and fiber are taken together, the complimentary.

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Speaker 1: What they're going to make possible is human presence. You'll

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Speaker 1: be able to work wherever you live, rather than having

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Speaker 1: to live where you work. You'll have eye contact with

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Speaker 1: the people you're talking to them. It will be as

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Speaker 1: if there's just a pane of glass between you and

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Speaker 1: the rest of the world. We've never experienced that in

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Speaker 1: the United States, and so imagine healthcare services at a

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Speaker 1: distance that actually feel real, and education and automated manufacturing,

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Speaker 1: elder care, all kinds of new ways of living, especially

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Speaker 1: in an era of climate change, that are going to

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Speaker 1: be essential for the next millennium. So are we talking holograms?

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Speaker 1: Are we talking screen? I mean? Is that how does

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Speaker 1: this sort of materialize? Again, try to imagine a pane

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Speaker 1: of glass between you and the rest of the world

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Speaker 1: that there's so much data it's like a fifteen mile

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Speaker 1: pipe of water in comparison to the two inches we

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Speaker 1: have now going both directions, So all of your downloads

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Speaker 1: where once somebody's upload, you're going to need to be

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Speaker 1: able to be part of things uploading with a fantastic

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Speaker 1: basically unlimited connection, and that makes possible eye contact, which

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Speaker 1: we've never had over our existing internet access networks. All right,

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Speaker 1: so A T and T, Verizon Dish, they've all spent

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Speaker 1: tens of billions of dollars on spectrum. They're all in

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Speaker 1: the very early stages of rolling out what they call

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Speaker 1: five G. Are you suggesting that without that five er

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Speaker 1: to the home last mile it really won't be true

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Speaker 1: five G? I'm suggesting that, you know, we may talk

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Speaker 1: about Chinese China having a government run network. In developing countries,

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Speaker 1: by the way, and not just in China, we'll have

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Speaker 1: a in essence, a private government which is verising and

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Speaker 1: a T T providing their flavor of fully managed five

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Speaker 1: G services. What I'm talking about is the need for

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Speaker 1: the country to have the what evalent of a street

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Speaker 1: grid like basic dark fire all over the country that

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Speaker 1: allows for lots of competing wireless providers, lots of five

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Speaker 1: G providers in rural and urban and poor and rich areas.

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Speaker 1: And our current path is not going to get us there.

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Speaker 1: So how much would that cost? That's not my trouble,

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Speaker 1: that's not my best Not how much will it cost

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Speaker 1: not to do it? This is you know, how much

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Speaker 1: did it cost? To have a federal highway network. How

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Speaker 1: much did it cost to have a transcontinental network? Right,

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Speaker 1: so what are some of the costs to not having it?

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Speaker 1: Oh my god. Uh, this next industrial revolution of very

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Speaker 1: high capacity data flow back and forth symmetrical won't happen here.

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Speaker 1: It'll happen in China and Japan and Korea and northern Europe,

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Speaker 1: the places that actually have people working in this sandbox

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Speaker 1: of new connectivity. So we we may have been the

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Speaker 1: place where the internet showed up in the first place,

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Speaker 1: and we were leading the world in the first generation

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Speaker 1: of internet technology, but we won't for this next generation.

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Speaker 1: So in your professor you you do highlight that there

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Speaker 1: are some town, some markets, some places in the US

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Speaker 1: where maybe I guess these local markets aren't waiting for

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Speaker 1: maybe the federal government or a private tel coda to

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Speaker 1: kind of really wire up their community like it needs

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Speaker 1: to be wired about what happened in those communities are

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Speaker 1: actually about eight hundred of them across the country that

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Speaker 1: have taken their destinies into their own hands. We saw

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Speaker 1: the same story electricity places. They felt they were being

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Speaker 1: squished by the equivalent of Comcast or Charter back in

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Speaker 1: the early days decided to make sure there was utility

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Speaker 1: providing basic electricity services, same things happening in places like Chattanooga, Louisville.

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Speaker 1: San Francisco was on the road to doing this, and

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Speaker 1: then Mayor ed Lee died, and so the current mayor

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Speaker 1: doesn't see it as her priorities. Finance with a tax

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Speaker 1: on the local citizens. You know, patient capital of any

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Speaker 1: form could be a bond issue. It's a very sensible investment.

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Speaker 1: It pays out until the sun explodes. You just have

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Speaker 1: to wait for let's say a dozen years for your

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Speaker 1: investment to come back. And private companies, it's not in

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Speaker 1: their interest to do this. It's just not part of

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Speaker 1: their profile. That's fine. Well, but this is exactly where

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Speaker 1: I was going to go, which is, if it is

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Speaker 1: going to pay until the sun comes home, then why

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Speaker 1: aren't the Comcast? Why why aren't the big cable companies

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Speaker 1: doing it themselves? Because they're very happy. They suffer from

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Speaker 1: neither oversight nor competition. They've made their capital expenditures. Now

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Speaker 1: they just soak the network, and they soak all of us.

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Speaker 1: There's nothing bad about this, not evil. Unconstrained though a

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Speaker 1: private company is never going to provide a utility at

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Speaker 1: reasonable prices to everyone. It's just like, you know, we're

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Speaker 1: not going to rely on private companies for transit, or

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Speaker 1: for electricity or for water. Doesn't make any sense. So

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Speaker 1: this sounds like a scenario. You know my background, I've

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Speaker 1: I've I've spent a lot of time looking at cable

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Speaker 1: companies and te toco companies, and I kind of know

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Speaker 1: the history of how they invest and they think about returns.

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Speaker 1: But you know, my sense is this sounds like when

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Speaker 1: you talk about a national true metric fiber to the

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Speaker 1: home grid. This sounds like something that the Comcast of

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Speaker 1: the world, in the Charters of the world, they're just

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Speaker 1: gonna say, we're gonna stick with what we have until

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Speaker 1: the government wants to come in and do something. Is

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Speaker 1: that kind of how you think it has to be?

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Speaker 1: I guess on this kind of scale, when you equated

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Speaker 1: with the federal highway unit interstate highway system, we have

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Speaker 1: always relied on private companies to provide us with telecommunications,

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Speaker 1: but they've always been burdened with public obligations. Right now,

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Speaker 1: there are no such obligations on those companies. And so

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Speaker 1: what's happening is the entire country, including all American businesses

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Speaker 1: are paying enormous amounts of rent to about four companies

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Speaker 1: for data connectivity, and so of course they're happy with

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Speaker 1: the status quo. I don't blame them, but we fix

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Speaker 1: this with electricity, and we can fix it with communications.

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Speaker 1: And we by the way, our telephone network originally was

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Speaker 1: the envy of the world when it was first unveiled,

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Speaker 1: and our basic, unlit fibergrids should be the envy of

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Speaker 1: the world too. We should be looking the rest of

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Speaker 1: the world in mirror and we're not. Professor Susan Crawford,

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Speaker 1: thank you very much. Very interesting come uh discussion of

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Speaker 1: course her new book, Fiber The Coming Revolution and why

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Speaker 1: America might miss it. Uh. Susan Crafts, Professor of law

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Speaker 1: at Harvard University, based in Boston, obviously, but with us

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Speaker 1: in our broom Bloomberg Interactive Studios joining us now. Bill Barker,

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Speaker 1: portfolio manager of the Motley Fool Small mid cap growth Fund. Bill,

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Speaker 1: thank you so much for being with us. I want

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Speaker 1: to start just with a daylight today. When you see

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Speaker 1: the naz Jack down one and a half percent, Dow

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Speaker 1: down one you know about the same. Are you diving in?

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Speaker 1: Are you buying and if so, where are you seeing opportunities? Well,

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Speaker 1: I think that the opportunities that have popped up today,

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Speaker 1: I guess Caterpillar is driving driving the news. But the

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Speaker 1: news isn't entirely unexpected. That is UH weakness from China

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Speaker 1: UH and and the tariffs affecting the cost for Caterpillar

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Speaker 1: isn't much of a surprise. So I think that the

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Speaker 1: companies that are less affected by that tend to be

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Speaker 1: the less global operators. You're talking about the small cap

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Speaker 1: companies having UH more strength today, and I think that's

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Speaker 1: understandable given that they're less affected by by global concerns

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Speaker 1: at the moment. So what again, kind of what sectors

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Speaker 1: are you diving into? Presumably you know, hopefully you had

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Speaker 1: some cash coming out towards your end and you could

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Speaker 1: probably start the year as you sat down with your

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Speaker 1: team think about, Okay, maybe we're licking our chops a

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Speaker 1: little bit here, we've got some names that maybe our

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Speaker 1: cheaper Where did you put money to work? And coming

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Speaker 1: out of that December swim, we've been putting money to

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Speaker 1: work and looking more at the information tech space and

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Speaker 1: anything else says it was hit the hardest at the

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Speaker 1: end of the year, and uh, taking money from more

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Speaker 1: of the consumer staples sector where there was a lot

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Speaker 1: of strength last year. A couple of things were up,

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Speaker 1: you know, and in our fund that Uh, it's it's

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Speaker 1: a little hard to understand why they were that strong

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Speaker 1: other than the fact that they they were less less

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Speaker 1: exposed to the volatility. So I think that we're we're

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Speaker 1: looking at the some of the same names that we've

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Speaker 1: looked at for a long time and either tech or

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Speaker 1: or sort of stealth tech companies that look to have

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Speaker 1: a competitive advantage going on for five or ten years

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Speaker 1: at least, Bill, was the last time it made a

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Speaker 1: significant shift in your allocation. Uh, Well, we tend to

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Speaker 1: be buy and hold investors, so we don't we don't

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Speaker 1: make huge shifts based on temporary things. But we've steadily

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Speaker 1: gone more into the tech space over the last eighteen months,

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Speaker 1: so Bill, So, you know, we're kind of coming into

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Speaker 1: a lot of consumer earnings coming in here for the

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Speaker 1: fourth quarter earning season. How do you how do you

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Speaker 1: feel about the consumer You know, we we the U

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Speaker 1: S economy seems to be even a two or two

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Speaker 1: and a half percent a pretty solid place to be

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Speaker 1: vis a vis some of the other market markets globally,

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Speaker 1: How are you positioned on the consumer sector? You market

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Speaker 1: way to overweight to underweight, Well, we're overweight on consumer

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Speaker 1: discretionary and UH, there are a lot of a lot

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Speaker 1: of things there where we think that the you know,

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Speaker 1: the domestic spend is still pretty attractive for for a

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Speaker 1: number of sectors in the small and mid cap space.

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Speaker 1: And we're also overweight in UH transportation at the moment.

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Speaker 1: So I think that those are those are categories we

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Speaker 1: continue to be happy about. I think on the transportation space,

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Speaker 1: there is some concern I have to admit that with

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Speaker 1: a slowdown a still healthy US economy, but a somewhat

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Speaker 1: slowing from the growth rate that it had in two

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Speaker 1: thousand and eighteen, that you're going to see some volatility

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Speaker 1: and those and that that might provide more opportunities. Of course, Bill,

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Speaker 1: what's your highest conviction? Bet? Well, foreen what we've got

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Speaker 1: our specific name that in our fund has the highest allocations.

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Speaker 1: XPO Logistics, which is a company which has grown into

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Speaker 1: a seventeen billion dollar revenue company from about a four

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Speaker 1: hundred million dollar revenue six seven years ago. They've run

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Speaker 1: into some weakness as a stock in the last really

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Speaker 1: just four months UH due to one earnings earnings guidance

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Speaker 1: revision UH and also a short sellers report that impacted

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Speaker 1: the stock. But the stock has rebounded from the short

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Speaker 1: sellers report. It continues to be trading at the low

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Speaker 1: end of what it's been at for the last a

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Speaker 1: couple of years. But for a company that has managed

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Speaker 1: to expand about forty times at sales in seven years,

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Speaker 1: we're can hinue to be very confident in management there.

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Speaker 1: Bill Barker, thank you so much for joining us. Bill Barker,

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Speaker 1: portfolio manager at Motley Fool Asset Management, which overseas about

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Speaker 1: two and a half billion dollars in New York markets,

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Speaker 1: off over about about one point three percent, continuing the

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Speaker 1: volatility that we've seen over the last couple of months,

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Speaker 1: and to help us try to dig down a little

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Speaker 1: bit deeper in the market moves. Here, I would like

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Speaker 1: to welcome Jeff Salt. Jeff as the managing director and

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Speaker 1: chief investment strategist for Raymond James. He's based in St.

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Speaker 1: Petersburg floor, but fortunately for us, he is with us

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Speaker 1: today in a Bloomberg Interactive studios. Jeff, thanks so much

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Speaker 1: for joining us so let's frame this a little bit.

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Speaker 1: We have December and January. We have a huge downdraft

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Speaker 1: in December, rebound a little bit here in in January

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Speaker 1: coming into earnings. Someone certainty hear, how are you positioning

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Speaker 1: your What is your advice to your clients as you

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Speaker 1: go around New York this week, presumably to see your

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Speaker 1: institutional investors. What are you telling them as to how

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Speaker 1: they should be positioned given this volatility that we've seen. Well,

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Speaker 1: you saw selling climax back to three days in a

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Speaker 1: row back it ended on December, about a steep of

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Speaker 1: selling climax as I've seen in forty eight years in

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Speaker 1: this business. And we think that is the low, and

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Speaker 1: we told people that that the S and P should

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Speaker 1: rally back up to it overran that last week on

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Speaker 1: the potential for a Chinese trade deal and the cessation

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Speaker 1: of the of the shutdown at least on a short

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Speaker 1: term basis. But by my measurement, we have a proprietary

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Speaker 1: way to measure how much internal energy is in the market. Uh,

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Speaker 1: the markets internal energy has been used up by that

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Speaker 1: dash from twenty six to internal energy, there's there's we

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Speaker 1: have a proprietary way to measure how much energy is

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Speaker 1: built up in the markets. It doesn't tell us which

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Speaker 1: way it's going to be released, but but it tells

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Speaker 1: you that if a move starts, there is enough energy

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Speaker 1: in the market that it can turn into a decent move.

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Speaker 1: So what are the components? I'm sorry, what are the

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Speaker 1: components of energy? I've never heard that term before, and

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Speaker 1: I've been doing this business for thirty years. That's proprietary,

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Speaker 1: you know, I don't tell people. Okay, okay, So it's

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Speaker 1: proprietary to the point that you don't disclose anything. Okay, Well,

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Speaker 1: I guess then how do you know that it's not

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Speaker 1: going to be to the downside, especially given the fact

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Speaker 1: that we have today the results from Nvidia and Caterpillar

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Speaker 1: casting real Paul over markets. We have long term, intermediate term,

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Speaker 1: and short term proprietary models. The long term model flip

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Speaker 1: positive actually in October of eight, which is where most

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Speaker 1: stocks bottom. Ninety two point six percent of stocks traded

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Speaker 1: bottomed on October tenth. I've never of Oh eight. I've

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Speaker 1: never seen that the markets went lower. The indicries went

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Speaker 1: lower into March of oh nine because the financials kept

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Speaker 1: going down, but the majority of stocks bottomed are intermediate

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Speaker 1: and short term indicators flip more often than the long term.

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Speaker 1: In fact, the short term model flip negative on October two, uh,

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Speaker 1: and we told people if you have speculative trading positions,

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Speaker 1: you should sell them. We didn't do anything with with

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Speaker 1: long term investment positions, but in a lot of cases

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Speaker 1: I wish I had. So which sectors? Now are you

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Speaker 1: more inclined to? Are you, you know, kind of putting

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Speaker 1: at the top of your list when people say, hey,

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Speaker 1: where should I be putting some money to work? I

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Speaker 1: still like old tech, and I particularly like the two

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Speaker 1: sectors that were so out of favor last year, Energy

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Speaker 1: and financials. They are cheap. The energy stocks are trading

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Speaker 1: at the same valuation metrics as they were when crude

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Speaker 1: oil was twenty six bucks of barrel. Is old tech

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Speaker 1: things like Intel? Alright, So what do you think that

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Speaker 1: investors are missing? Why do you think they're undervalued right now?

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Speaker 1: I think they were chasing the new nifty fifty, the

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Speaker 1: Fang stocks, uh and ignoring you know, some of the

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Speaker 1: cheaper old technology names. Well, but why especially if we

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Speaker 1: see the slowdown in China is affecting a lot of

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Speaker 1: companies more than people had previously expected. Why why do

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Speaker 1: you think that there could be an upside surprise that

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Speaker 1: we get this this week? Because I still think earnings

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Speaker 1: are gonna do very well in this country. I think

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Speaker 1: people were under invested. Uh, cash levels had built up.

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Speaker 1: We are short term over bought. I was looking for

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Speaker 1: a pull back to the area. I'm not sure we'll

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Speaker 1: get that, but I'm not chasing stocks right here. So

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Speaker 1: how important are the macro issues out there to your outlook?

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Speaker 1: When we think about China and Brexit, seems like those

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Speaker 1: are some significant headwinds for the market. How do you

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Speaker 1: factor that in into your outlook? I don't think Brexit

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Speaker 1: is that big a deal, and I don't think China

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Speaker 1: is slowing that much. I mean six plus percent GDP grow. Sure,

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Speaker 1: it's down from double digits where it was a few

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Speaker 1: years ago, but it's still I wish we had x

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Speaker 1: percent GDP growth. I think the economy is is good.

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Speaker 1: I think earnings are going to continue to come in

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Speaker 1: better than people expect. And I think there's way too

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Speaker 1: much cash on the sidelines right here. So what do

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Speaker 1: you think that uh, the S and P is going

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Speaker 1: to return this year? We have a target of twenty six.

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Speaker 1: All right, and do you think which do you think?

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Speaker 1: Which index do you think is going to perform best

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Speaker 1: this year? I still like the small caps. Why, I

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Speaker 1: just get better growth out of those. There's a lot

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Speaker 1: of names. If I was gonna go back and manage

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Speaker 1: money again, uh, I would deal with actually the microcaps

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Speaker 1: where with very little research or no research coveries, because

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Speaker 1: that's where the mispriced pieces of paper are. So How

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Speaker 1: dependent on your outlook is the Fed, you know, maybe

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Speaker 1: being a little bit do wish this year? I think

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Speaker 1: the Fed is gonna be dolish this year. We've gotten

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Speaker 1: a couple of softer than expected economic figures. Um, I

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Speaker 1: don't think that is. You know, the Present Situations Index,

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Speaker 1: which is always called a recession, is making new highs.

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Speaker 1: There's I don't see where these people come off talking

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Speaker 1: about a recession this year and next. I just don't.

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Speaker 1: I don't see it. All right, jeff So, thank you

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Speaker 1: so much for being with us. We really appreciate it.

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Speaker 1: Jes So, with his optimistic view on the US equity markets,

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Speaker 1: Managing director and chief investment strategist, focused on equity research

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Speaker 1: for Raymond Jane's normally in St. Petersburg, Florida, but here

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Speaker 1: in the North just for the excitement of the colds

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Speaker 1: that we're about to get. Well. Caterpillar reported numbers this morning.

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Speaker 1: They missed the numbers that gave kind of a disappointing outlook. Um,

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Speaker 1: you know, and the stock is trading down eight percent,

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Speaker 1: not surprisingly, So let's dive in and break down the numbers.

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Speaker 1: Joining us as Karen uble Heart. Karen's a senior industrials

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Speaker 1: analysts and Bloomberg Intelligence. He joins us live in the

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Speaker 1: Bloomberg Interactive Broker studio. Karen, thanks for being with us.

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Speaker 1: So I know you've covered this name forever. Let's just

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Speaker 1: call it a long time. What do you think is

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Speaker 1: going on here with cat Is it just the time

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Speaker 1: in the cycle for them and there's not much they

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Speaker 1: can do? Or have they missed something? Uh? You know.

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Speaker 1: I think the surprise is how fast some of the

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Speaker 1: markets are deteriorating, like China. I think people expected that

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Speaker 1: was going to be a slower year, but we'd still

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Speaker 1: see some growth and in fact Asia was down and

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Speaker 1: China was down in the fourth quarter, which was the

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Speaker 1: big surprise. Um. I'd say that things are unraveling a

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Speaker 1: little quicker than people expected certainly and and uh, I

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Speaker 1: thought they would come in kind of close to consensus

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Speaker 1: for next year and they came in well there, their

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Speaker 1: first pass that next year is much lower than consensus.

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Speaker 1: So there are a couple of points that cave is

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Speaker 1: a surprise. First, they really identified for in exchange fluctuations

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Speaker 1: as is serious had when I'm struggling with that one

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Speaker 1: because I thought that they hedged these things. Isn't that

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Speaker 1: something it you kind of gird against And things didn't

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Speaker 1: really fluctuate that much. So what was that? Well, they

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Speaker 1: do had UM a portion of the you know, the

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Speaker 1: the UM known contracts they do, but you can still

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Speaker 1: have translation adjustments you don't don't expect UM. I think

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Speaker 1: that wasn't as it was a bigger than expected piece.

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Speaker 1: But it's really the demand side that's troublesome. UM construction

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Speaker 1: equipment was only up eight percent. It's been up double

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Speaker 1: digits for a while, and again the that was driven

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Speaker 1: by China, but other markets are slowing like Europe, and

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Speaker 1: the incremental margins were terrible in construction UM. That's been

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Speaker 1: the story for CAT that they've been able to really

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Speaker 1: bring a lot down to the bottom line because of

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Speaker 1: their UM cost cutting and pricing and other things. But

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Speaker 1: it sounds like the headwinds and costs were larger than expected.

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Speaker 1: To how's the American farmer doing? Uh? Well, you know

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Speaker 1: they're doing okay, but but um they're losing They've lost

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Speaker 1: a lot of demand from uh China number one and

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Speaker 1: from Mexico as well, and because of the tariffs and

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Speaker 1: the trade wars in South America is very happy to

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Speaker 1: uh take the demand and so interestingly there they they

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Speaker 1: haven't become more pessimistic. However, you know, demand for some

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Speaker 1: of their core products are weaker. What about the increasing

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Speaker 1: credit losses? That was a surprise for me and I

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Speaker 1: actually found that later when I was going through the

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Speaker 1: thirty page release reserved. They they took a bigger credit

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Speaker 1: loss and lowered and raised their reserves for problems in

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Speaker 1: their power business power finance. They finance big capital equipment

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Speaker 1: um that has been troublesome all year. But the up

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Speaker 1: end reserves was much larger than expect and that cost

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Speaker 1: him about a dime. I think, yeah, but what does

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Speaker 1: that tell you? Right? I mean, we have a sense

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Speaker 1: do we have a sense of what regions this was from?

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Speaker 1: Do we have a sense of you know which companies

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Speaker 1: which borrowers are not paid. My my, my, UM my

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Speaker 1: senses it's emerging markets. UM. They have mentioned they did

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Speaker 1: mention Latin America earlier in the year. UM. It's not

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Speaker 1: the power are like GE, it's UM stand by power.

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Speaker 1: It's UM primary UM electricity for you know, emerging markets

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Speaker 1: where they don't have big rids and UM that's big

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Speaker 1: capital equipment. CAT finances it UM. And they're having some

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Speaker 1: trouble with some of the customers and will get a

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Speaker 1: lot more color on that. That happened UM in mining

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Speaker 1: a couple of years ago. UM with Latin America customers. UM.

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Speaker 1: They this is long you know, five year financings you know,

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Speaker 1: in this case a lot longer. And there some people

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Speaker 1: aren't some customers aren't able to pay their bills. So

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Speaker 1: what historically, if if we are towards the end of

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Speaker 1: the cycle, and what kind of what a big companies

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Speaker 1: like Caterpillar whose customers make these are big purchases for them.

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Speaker 1: There are long term purchases for them, and they finance

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Speaker 1: them as you mentioned. I mean, what can a company

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Speaker 1: like Caterpillar do in the face of what looks like

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Speaker 1: slowing demand from two of the bigger regions Europe and China.

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Speaker 1: Is this something? Can they cut cost? What did they do?

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Speaker 1: What's what's interesting is UM they've been done a major

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Speaker 1: restructuring over the last several years and they have cut

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Speaker 1: close a lot UM. But they're gonna have to take

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Speaker 1: another round when volume comes down. A lot of that

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00:24:03,960 --> 00:24:06,280
Speaker 1: was structural. Now as volume comes down, they're gonna have

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Speaker 1: to lay off people. They're gonna have to you know, uh,

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00:24:08,600 --> 00:24:11,680
Speaker 1: cut more costs UM and they're pretty good at that.

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00:24:11,720 --> 00:24:13,920
Speaker 1: But in the first couple of quarters when demand turns down,

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00:24:14,119 --> 00:24:16,040
Speaker 1: they can't get ahead of the curve. So you could

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00:24:16,040 --> 00:24:18,399
Speaker 1: see some you know, bad numbers for a quota or

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00:24:18,440 --> 00:24:20,679
Speaker 1: two until they catch up. So I'm looking right now

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00:24:20,680 --> 00:24:23,640
Speaker 1: and John Deer, they're there cred to fault swaps searching

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00:24:23,680 --> 00:24:26,639
Speaker 1: the most in ten months is the cost to protect

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00:24:26,680 --> 00:24:30,760
Speaker 1: against a default? Uh from from losses on instead. Also,

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00:24:30,800 --> 00:24:33,880
Speaker 1: you're seeing shares fall more than two percent. Are they

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00:24:33,920 --> 00:24:36,720
Speaker 1: going to face the same issues? How widespread do you

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00:24:36,760 --> 00:24:39,600
Speaker 1: think that the caterpillars pain will be? Well, you know, UM,

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00:24:39,640 --> 00:24:44,280
Speaker 1: historically dear Deer was you know, construction eight percent add

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00:24:44,400 --> 00:24:46,840
Speaker 1: But they did a big acquisition in Europe and they're

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00:24:46,840 --> 00:24:49,680
Speaker 1: now a third construction machinery. So that's why it's being

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00:24:49,680 --> 00:24:51,720
Speaker 1: pulled down because it's a bigger part of Deer now.

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00:24:52,080 --> 00:24:55,159
Speaker 1: And yes they'll be impacted as well. What can what

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00:24:55,200 --> 00:24:58,800
Speaker 1: are these big industrial companies do when demand does turn

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00:24:58,880 --> 00:25:02,399
Speaker 1: down in terms of time to compensate their shareholders, you know,

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Speaker 1: protect their stock price. I mean, where's Caterpillar now in

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Speaker 1: terms of buybacks and what can they do? What do

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Speaker 1: you expect them to do? They've they've accelerated there by

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00:25:09,320 --> 00:25:12,359
Speaker 1: that buybacks or cash flow has been exceptionally strong. Um

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00:25:12,480 --> 00:25:14,800
Speaker 1: several years ago, we were worried about that and they've

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00:25:14,800 --> 00:25:17,239
Speaker 1: been coining cash for the last two years and they

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00:25:17,280 --> 00:25:19,520
Speaker 1: accelerated by backs. They can do that to cushion the

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00:25:19,560 --> 00:25:23,000
Speaker 1: blow some. But you know, when when a cycle turns down,

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Speaker 1: you kind of get out of the way of these stocks,

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00:25:24,840 --> 00:25:28,840
Speaker 1: and you know, because they can't really offset with buybacks.

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Speaker 1: Karen euvil Heart, thank you so much for spending time.

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Speaker 1: We know you've got a crazily busy day as you

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Speaker 1: passed through these results, and we'll be listening in on

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Speaker 1: the earnings call. Karen jugil Heart is industrials analyst for

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Speaker 1: Bloomberg Intelligence Thanks for listening to the Bloomberg P and

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Speaker 1: L podcast. You can subscribe and listen to interviews at

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00:25:46,480 --> 00:25:50,119
Speaker 1: Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney,

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Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa A. Bram Woyds.

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Speaker 1: I'm on Twitter at Lisa Bramwod's one before the podcast,

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00:25:56,000 --> 00:26:01,200
Speaker 1: you can always catch us worldwide on Bloomberg Radio