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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 2: my co host Matt Miller.
Speaker 1: Every business day we bring you interviews from CEOs, market pros,
Speaker 1: and Bloomberg experts, along with essential market movin news.
Speaker 2: I'm the Bloomberg Markets podcast called Apple Podcasts or wherever
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Speaker 2: Today we had the jolts come in a little lower
Speaker 2: than expect it, So if you were job openings, ism
Speaker 2: services jess as we were talking before, came in a
Speaker 2: little bit better than forecast, better than last month. That's good,
Speaker 2: maybe fed friendly, But I don't know how to put
Speaker 2: all this together. Fortunately we have people do that for us.
Speaker 2: One of them is Jennifer Lee. She's a senior e
Speaker 2: conmist and managing director BEIMO Capital Markets.
Speaker 3: And for the folks the kids that don't know, that's Bank.
Speaker 2: Of Montreal back in the day, BEMO Capital Market's a
Speaker 2: great firmat there in Canada. So, Jennifer, looking at the
Speaker 2: US economy, what's your take here? I mean, is it
Speaker 2: a soft landing and hard landing and no landing? What's
Speaker 2: going on out there?
Speaker 4: Good morning, and thank you very much, Cheviell, thank you
Speaker 4: for having me on.
Speaker 5: You know, I'm going to stick to what we have
Speaker 5: been saying for a long time now, which is that
Speaker 5: soft landing narrative. At least it is up until now
Speaker 5: like this morning's as you're pointing out this morning's to reports,
Speaker 5: you know, the ism was up and the jolts were down, Joppa,
Speaker 5: bricks were down. So it's it's it's but it's not
Speaker 5: down enough. We still have over one point four jobs
Speaker 5: available for every unemployed American out there. That's it's a
Speaker 5: pretty decent jaw market overall. It's not we're not seeing
Speaker 5: you know, two jobs for every one person like we did,
Speaker 5: you know, last year. But it's still a tight labor
Speaker 5: market and it's still fairly healthy. I some services you
Speaker 5: know showing the activity is picking up the most of
Speaker 5: a couple of months. I mean, this is only the
Speaker 5: first increase in a few months, but still it shows
Speaker 5: that again, this whole soft landing narrative is still playing out,
Speaker 5: at least for now.
Speaker 6: Looking at the ECFC function in the terminal pull up,
Speaker 6: looking at where the consensus among economists that are pulled
Speaker 6: in the terminal. You can look at annually, also quarterly.
Speaker 6: If you look over quarterly, though on a basis, there's
Speaker 6: there no longer is a quarter over quarter contraction coming
Speaker 6: into this year. Originally there was a call for the
Speaker 6: second and third quarter to see contraction. We aren't seeing
Speaker 6: that anymore. We're still seeing growth. So I'm curious your
Speaker 6: thoughts on when there still is this concern because looking
Speaker 6: at how the consensus among economists, the probability of a
Speaker 6: recession is still around fifty percent. That's pretty elevated compared
Speaker 6: to if you're looking at say other firms like Golden
Speaker 6: Snacks that have lowered their calls in recent months. Why
Speaker 6: do you think there is still so much skepticism in
Speaker 6: gluiness out there about the trajectory of the economy when
Speaker 6: you have this chextaposed against a lot of really strong
Speaker 6: consumer spending data.
Speaker 5: I think it's it's a great question, and I'm thinking that,
Speaker 5: you know, we've never been in this sort of environment
Speaker 5: where you know, we have a central bank like the
Speaker 5: FAT that has been tightening so much in such a
Speaker 5: short amount of time. This is like a reck of
Speaker 5: the amount, and yet we're still seeing you know, a
Speaker 5: business investment. You know, it's it's has us ups and
Speaker 5: downs of course, but it's still supported by a by
Speaker 5: physical spending. And it all goes back to the US
Speaker 5: consumer staying resilient. You know, they're not going to be
Speaker 5: spending like crazy, you know, for for you know, in
Speaker 5: twenty months, I think things have already started to dial down.
Speaker 5: But again it's that it's that job market. I think
Speaker 5: it's all goes back to having a strong job market,
Speaker 5: and that goes back to demographics, It goes back to
Speaker 5: the pandemic. What I was a little bit worried about,
Speaker 5: I will say, was when I saw the personal income
Speaker 5: of spending data last week. With that mind that very
Speaker 5: small point one percent, which is a salary increased, and
Speaker 5: I was like, oh, that's not great, but you know,
Speaker 5: it's good in terms for the FED. It's not great
Speaker 5: for the consumer. But as long as you know, we
Speaker 5: continue to see steady job growth, continue to see steady
Speaker 5: wage gains, you know, either point one or point five
Speaker 5: or whatever, you know, I think that will be a
Speaker 5: good support system overall for the US economy. Now, we
Speaker 5: actually pulled, by the way, our negative growth rate quite
Speaker 5: a while ago, and I'm losing track of time here
Speaker 5: in my old age, but.
Speaker 4: You know, we have, we have pulled it. And again
Speaker 4: we're sticking to that soft planning.
Speaker 5: So we've got, you know, growth slowing from that sustainable
Speaker 5: I think five point two percent growth rate in Q
Speaker 5: three down to about one percent in Q four and
Speaker 5: then flattening out a little bit around you know, the
Speaker 5: point two is or so over the next first half
Speaker 5: of next year.
Speaker 4: Jennifer talking about.
Speaker 3: Jennifer talked to us about inflation here. I don't know.
Speaker 2: I mean, for John Tucker and I it's all about
Speaker 2: filling up our cars with gasoline down at the Jersey Shore.
Speaker 2: And I just filled up for three dollars and ten
Speaker 2: cents a gallon. I feel like inflation's coming down, but
Speaker 2: I'm guessing the Fed does engage it on my gasoline
Speaker 2: intake here. But so, how do you think the FED
Speaker 2: is viewing inflation and the fight against inflation.
Speaker 4: I think it's viewing it with a very cautious outlook.
Speaker 5: And even though you know, for example, like last week,
Speaker 5: when Governor Waller introduced the whole cost of rape cuts
Speaker 5: into the whole conversation, which everyone like got super excited about,
Speaker 5: you know, he didn't, you know, he just said that
Speaker 5: was like a he was encouraged by that number, and
Speaker 5: in needs. I think he said like three four or
Speaker 5: five months before they can start.
Speaker 4: Talking about rapecuts.
Speaker 5: So he didn't mention that they're going to start cutting race.
Speaker 5: He says, we need to see a few more months
Speaker 5: worth of of better inflation data before we do anything.
Speaker 5: So I think they're really with a very cautious outlook.
Speaker 5: But again, you know, we when we have longer term
Speaker 5: inflationary pressures out there, like from the labor market, you know,
Speaker 5: like we have the working age population globally has already
Speaker 5: basically peaked, right, so we're seeing a.
Speaker 4: Lot of people retiring, a lot of people.
Speaker 5: Shifting industries, so there's still that tightness.
Speaker 4: In the labor market.
Speaker 5: And this is like again a global phenomenon, and certainly
Speaker 5: that in the US. I think Bloomberg ran a story
Speaker 5: this morning about meurses being you know, a short supply
Speaker 5: as another example of a of an industry that needs workers.
Speaker 5: So that's going to cause out for pressure on wages
Speaker 5: and the labor market. And then I'm going to go,
Speaker 5: I'm going to point to mother Nature again and climate
Speaker 5: that's been causing so much havoc all over the world
Speaker 5: in terms of like floods and droughts, and I think
Speaker 5: that's going to have you know, some still upward pressure
Speaker 5: on food prices and all that. And of course all
Speaker 5: the wars are having upper pressure on energy prices, so
Speaker 5: all that I think still has I'm a bit worried
Speaker 5: still about inflation. Not going to call it an all
Speaker 5: clear just yet, and I think the FED would probably agree.
Speaker 6: On Friday's jobs report, we'll also get a reading on
Speaker 6: average hourly earnings. What are you seeing when it comes
Speaker 6: to wage growth, because that is something that we know
Speaker 6: FED Chair Jero Pal is watching really closely.
Speaker 5: So we're looking for about a three times increase, which
Speaker 5: is in line with consensus, you know, about four percent
Speaker 5: year over year. Still steady, but coming down maybe because
Speaker 5: we already know that the economy is slowing. It's not
Speaker 5: five point two percent anymore. You know, it's probably closer
Speaker 5: to one percent this quarter. Demand is starting to slow.
Speaker 5: We're not seeing you know, three hundred thousand jobs job
Speaker 5: increases anymore. So I think wage demands and the fact
Speaker 5: that inflation, as we just said, is coming down, I
Speaker 5: think it's going to temperate demand for earnings.
Speaker 4: Now.
Speaker 5: Having said that, you know, I'm also a bit concerned
Speaker 5: just given all the strikes that we've seen over the
Speaker 5: past year, and I don't remember have a time where
Speaker 5: we saw so many and demands were being met. So
Speaker 5: that again is sort of like that, you know, on
Speaker 5: the one hand, on the other hand, thing with which
Speaker 5: I shouldn't be doing, but I'm doing it anyway, you know,
Speaker 5: overall slowing demand for labor, but still you know, there's
Speaker 5: still that that big source overall, So I think it's
Speaker 5: still gonna be steadyish, but slower wage growth overall.
Speaker 2: Jennifer, Outside of the US, where you kind of focusing
Speaker 2: on where's the next where's the big delta?
Speaker 3: Is it Europe? Is it Asia? Outside the US? Where
Speaker 3: are you focusing?
Speaker 5: I'm kind of worried about Europe, frankly, but although this
Speaker 5: morning I will say that was a little bit more relieved.
Speaker 5: You know, it was like some and we normally don't
Speaker 5: look at revisions too much for services and composite.
Speaker 4: Pmis because they usually don't change that much.
Speaker 5: But the fact that they all realized higher, particularly in
Speaker 5: the UK as well, back over fifty was a little
Speaker 5: bit gratifying. And the fact that you know that last
Speaker 5: week's inflation rate for the for the for the euro
Speaker 5: Area the lowest in almost in over two years actually,
Speaker 5: And the fact that one of the big uber hawks herself,
Speaker 5: you know, is a belish novel of the vice executive
Speaker 5: board member of the ECB, actually said that you know,
Speaker 5: when things change, she changes her mind. And that's something
Speaker 5: huge coming from her, you know, some of the other hawks,
Speaker 5: you know from the bundes Bank, and we haven't heard
Speaker 5: from Austria recently, but you know, I think there's still
Speaker 5: very more cautious on the outlook. But I'm still again
Speaker 5: worried about when when the ECB will finally drop its
Speaker 5: hawkish talents, and of course they still are surrounded by
Speaker 5: wars over there as well, so that's a little bit worrying.
Speaker 5: And of course the UK is actually interesting. The data
Speaker 5: keep changing. You know a lot of revisions out there
Speaker 5: that you know, and we're seeing a lot of change
Speaker 5: signs changing on growth rates, which is kind of interesting.
Speaker 4: But the UK is not looking as bad.
Speaker 5: As I would have expected a year ago, so a
Speaker 5: bit more encouraged on that front.
Speaker 6: We only have about a minute left. But if you
Speaker 6: were able to ask FED Chair Jerome Pala question is
Speaker 6: press conference next week following the Federal Reserve's decision, what
Speaker 6: would you ask him?
Speaker 5: I would say, sir, with all due respect, if assuming
Speaker 5: no one's in the room, just tell me what exactly
Speaker 5: is it going to take before you're going to start
Speaker 5: talking about great cuts? What will it taken? Tell me
Speaker 5: all the factors. I can put them on my little
Speaker 5: checklist and check them off.
Speaker 3: What do you think should be on top of that list?
Speaker 5: How many months of CPI do you need to you know,
Speaker 5: and how much does it need to go down for
Speaker 5: the three months and the six month annualized rate before
Speaker 5: you can start saying Okay, forget it, We're done. We
Speaker 5: are completely you know, I'll complete at this point, and
Speaker 5: I want to see what he thinks about for wages
Speaker 5: as well on the demographic front, and you know unemployment generally,
Speaker 5: you know, how how much how much do you want
Speaker 5: the unemployment rate to rise by in order to say
Speaker 5: that you are finally finished?
Speaker 2: Jennifer, thanks so much for joining us. Always appreciate getting
Speaker 2: a few minutes of your time, Jennifer Lee. She is
Speaker 2: a senior economist and the managing director at ABMO Capital
Speaker 2: Markets up there in Canada. Always appreciate getting a few
Speaker 2: minutes of Jennifer's time.
Speaker 3: Here.
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Speaker 2: Let's talk about private credit certainly a big, big issue
Speaker 2: for us here. We like talking about it because we
Speaker 2: see the growth in private equity is just so extraordinary.
Speaker 6: I guess we'll credits around one half trill.
Speaker 2: Yeah, and it really took off after the Great Financial
Speaker 2: Crisis when the bank started pulling back here. So, uh,
Speaker 2: let's talk to somebody who plays in this part of
Speaker 2: the sandbox. Hugh van steinas vice chair and partnered Oliver Wyman.
Speaker 2: He joins us, Hugh, can you give us kind of
Speaker 2: your view of where we are on the private credit
Speaker 2: boom out there?
Speaker 3: Is it overdone? Is at a healthy market?
Speaker 2: How do you think about the evolution and the growth
Speaker 2: of private credit?
Speaker 8: Well, Paul, thanks for having me on.
Speaker 5: Now.
Speaker 9: Look, I think there's a big runway still to come
Speaker 9: in terms of private credit, and I think it's driven
Speaker 9: by a couple of things. I mean, first, as you
Speaker 9: just said Paul, when you laid it out, the banks
Speaker 9: have been obviously on a bit of a diet in
Speaker 9: the last decade, and that's really advantage some of the
Speaker 9: private credit players. But I think there's another diet to come.
Speaker 9: If you look at the FED proposals, the FED may
Speaker 9: be asking the banks to take as much as a
Speaker 9: thirty five percent increasing capital for their investment banking businesses. Now,
Speaker 9: I'm sure it's going to get watered down, but that's
Speaker 9: an enormous squeeze, which means the banks need shared assets.
Speaker 9: And then secondly, you know obviously had mark grown from
Speaker 9: Apollo on earlier today. I think also the regional banks
Speaker 9: in the States have really got some issues and are
Speaker 9: selling assets at quite good good prices too, So there's
Speaker 9: an opportunity set of bank shedding assets and on the
Speaker 9: other hand, clients just desperate for yield. There's biggest source
Speaker 9: of inflos this year is into private credit, you know,
Speaker 9: as Jess was just saying, it's grown wildly, but it
Speaker 9: might double again in the next two to three years.
Speaker 9: So for the moment, I actually think the conditions remain
Speaker 9: very ripe and a really good year for opportunities.
Speaker 6: Do you see any sort of red flags brewing within
Speaker 6: the private credit market at this point?
Speaker 8: No, it's a great question.
Speaker 9: So look, as a long time bank sell list, any
Speaker 9: asset which any market which grows too fast always creates
Speaker 9: at least an amber flag if not read Look, there's
Speaker 9: a bit of frothiness, particularly look around leverage lending prices
Speaker 9: are becoming tighter.
Speaker 8: That area is really heavily bid.
Speaker 9: For the note we put out last week, I work
Speaker 9: through that twenty eight traditional asset managers have either bought
Speaker 9: another private credit firm or set one up themselves, So
Speaker 9: there's clearly a bit of frothiness around the leverage lending area.
Speaker 9: But if I look at the kind of off the
Speaker 9: run deals, whether it's buying bank assets, whether it's more
Speaker 9: esoteric lending, it still looks quite an attractive spread. So
Speaker 9: I think the leverage lending is probably the area to
Speaker 9: look at. And then the second one, of course, is
Speaker 9: who's the right buyers? Are the buyers ones who understand
Speaker 9: this is the long term asset because you're basically getting
Speaker 9: assets which used to be run by a bank but
Speaker 9: are now going to get run by a fun manager.
Speaker 9: You know, do they have the right skills to work out?
Speaker 9: Do they understand this assets can be liquid? And as
Speaker 9: ever in life, you know, we hope that the right
Speaker 9: buyers by the right assets, but that doesn't always happen.
Speaker 8: So that's another area that I'm very watchful for.
Speaker 2: Hugh, Why do you think the banks are allowing this
Speaker 2: to happen? I mean, when I was at the Chaseman
Speaker 2: Hand Bank, we made a lot of money in our
Speaker 2: leverage lending business. I'm not going to let that business
Speaker 2: go to the private market. What's happening on the other
Speaker 2: side of the street.
Speaker 9: Yeah, you know, it's a great question, and it's It
Speaker 9: is extraordinary that you're getting even some of the US's
Speaker 9: largest banks setting up new private credit units. It's really
Speaker 9: a consequence of regulation, you know, the FARED or in
Speaker 9: Europe the ECB are trying to jack up the capital
Speaker 9: charges to hold leverage loans on the balance sheet. But
Speaker 9: it's not also even just holding them, it's also the
Speaker 9: trading of them. Now, you know, as you know, and
Speaker 9: you've spoken about in the last few months, you know,
Speaker 9: there's an intense battle and negotia oh sorry, a discussion
Speaker 9: going on between the banks and the FED about what
Speaker 9: is the right level of capital for the risks they're running.
Speaker 9: And the large banks clearly think that they've got sufficient capital.
Speaker 9: But if the FED were to apply the rules as
Speaker 9: they're currently proposed, as I said, it's a thirty five
Speaker 9: percent increase that's so ginormous, the banks will clearly need
Speaker 9: to trim their sheets, shed some assets, be more thoughtful
Speaker 9: about the marginal loan they make.
Speaker 8: So I think you're right, Paul. It's been a great business.
Speaker 9: It should be a great business, but it depends it's
Speaker 9: kind of in the gift now of what the FED
Speaker 9: will do.
Speaker 6: Talk to us about the market for private corporate loans,
Speaker 6: because right now they're facing obviously a very high rate
Speaker 6: environment for the first time since they really boomed in popularity.
Speaker 6: What do you think this means next year? Because even
Speaker 6: if the Federal Reserve holds off on raising interest rates,
Speaker 6: rates are still very elevated. How does that impact that
Speaker 6: particular quarter of the market.
Speaker 9: No, Look, I think that is a really good question because, look,
Speaker 9: because the debt is mostly floating rate notes, so in
Speaker 9: other words, it's been passed on to the corporate directly. Look,
Speaker 9: as financing costs normalize, some of the weaker balance sheets
Speaker 9: can be exposed. And you've started to see that even
Speaker 9: in public markets in the last three or four months.
Speaker 9: The trade between the stronger sheets and weaker sheets, even
Speaker 9: in the in the SMP has been quite pronounced, i'd
Speaker 9: say since since June. But you're starting to see that
Speaker 9: move through the private credit market. You know, is it possible,
Speaker 9: It would be surprising if there won't be some challenges
Speaker 9: for a couple of the some of the borrowers.
Speaker 8: And I think that's also you.
Speaker 9: Know why the larger players will need to know can
Speaker 9: they work out the asset, can they rearrange the debts?
Speaker 9: You know, do they want to how do they bail
Speaker 9: inequity if they need to? And I think that restructuring
Speaker 9: element is going to become probably into the second half
Speaker 9: of next year and beyond start to become more notable.
Speaker 9: But you know, the current credit dynamics that we're seeing
Speaker 9: in these portfolios, and admittedly the data could be better,
Speaker 9: but from what we can see at the moment, they're
Speaker 9: still performing quite well. Q.
Speaker 2: I mean, I guess my experience is looking at this
Speaker 2: marketplace that it's been very successful, but it's been focused
Speaker 2: primarily on the middle market lending.
Speaker 3: Do you expect to see these.
Speaker 2: Private credit funds right, bigger and bigger checks going forward?
Speaker 8: Yeah, so definitely we're seeing larger checks.
Speaker 9: So, look, you've seen a four point eight dollars deal,
Speaker 9: You've seen a four point nine billion dollar deal this year,
Speaker 9: I mean, which would be unthinkable even.
Speaker 8: Five years ago alone, let alone beyond that.
Speaker 9: So you're definitely seeing Look, you know, in what I
Speaker 9: think one of the most interesting features of finance is
Speaker 9: how the winner takes. Most dynamic that you see in
Speaker 9: tech and other parts is coming into finance too. You've
Speaker 9: seen it in the big banks, You've seen it in
Speaker 9: also some of the big asset managers, and that kind
Speaker 9: of winner takes most dynamic is coming.
Speaker 8: To private credit too.
Speaker 9: So look, the top ten private credit players represent about
Speaker 9: forty percent of the fundraising of the last twenty four
Speaker 9: months and if anything, it looks like it's going higher now.
Speaker 9: That means they can take on bigger loans, as you said, Paul,
Speaker 9: but also it means that if you've got a you know,
Speaker 9: a mid cap bank who maybe you know has got
Speaker 9: some of the lending facilities from the from the FED
Speaker 9: that they introduced around the you know, the regional bank
Speaker 9: termoil earlier this year, if they need to shed a
Speaker 9: few assets to you know, deleverage their balance sheet, they're
Speaker 9: going to go to one of these top ten, top
Speaker 9: fifteen firms. So it's not just mid market lending, it's
Speaker 9: it's the larger firms are doing much more taking opportunities
Speaker 9: or quirky off the run portfolios from banks. And as
Speaker 9: you saw that with with with with Credit Suite some
Speaker 9: earlier in the year or last year, I think this
Speaker 9: is actually a really interesting seam for some of the
Speaker 9: more skillful players.
Speaker 6: Private debt was supposed to struggle when borring casts were rising,
Speaker 6: but that didn't happen. What was the catalyst to make
Speaker 6: it as successful as it has become in recent years.
Speaker 9: Losh, that's a good question, Jess, because I suppose in
Speaker 9: a way we've only look, this is the sharpest rate
Speaker 9: cycle what since seventy nine eighty one, but it's only
Speaker 9: really in the last twelve months it's really kicked in.
Speaker 9: So to be humble, Jess, we haven't yet seen the
Speaker 9: full seasoned impact rates.
Speaker 8: Yeah, we haven't got there years.
Speaker 9: Yeah, as Tom mkkeepe telling me, it's the long and variables,
Speaker 9: isn't it trip you up? And I don't think we've
Speaker 9: got there yet. So to be honest, Jess, I don't
Speaker 9: think you see the evidence. So that's where look, if
Speaker 9: you want to be bearish, you can say these season
Speaker 9: cost coming through will start to be more problematic for
Speaker 9: some of the mid market firms, particularly if they don't
Speaker 9: have other sources of debt available. And in particular, let's
Speaker 9: be clear, some of the regional banks in the States.
Speaker 9: You can see the latest FED lending surveys and loans,
Speaker 9: you know, lending rates are slowing quite materially, and so
Speaker 9: it's not like the banks are going to pick up
Speaker 9: the slacks, so they're going to be more dependent upon
Speaker 9: private credit. Look, I think the like with all of
Speaker 9: the economy we've seen corporates and households, I'm into this
Speaker 9: with a much stronger balance sheet, right, and that's really
Speaker 9: why it's taking over longer.
Speaker 3: All right, Thank you so much for joining us, great
Speaker 3: great stuff.
Speaker 2: I appreciate getting a few minutes of your time. Hugh
Speaker 2: van steinas vice chair and partner at Oliver Wyman.
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Speaker 2: Jess Met and Paul Sweeney were live here on a
Speaker 2: Bloomberg Director Brokers Studio streaming live as well on YouTube
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Speaker 2: Adding to my argument, my widely held argument here by
Speaker 2: me that pound for pounds, some of the best money
Speaker 2: managers are in Milwaukee, Wisconsin. Is our next guest, Tom Pogner.
Speaker 2: It is I don't know what they're doing out there.
Speaker 2: Tom Agner, Senior portfolio manager managing director at all Spring
Speaker 2: Global Investments. It will always be strong funds for me
Speaker 2: with Tom. Tom, thanks so much for joining us here.
Speaker 2: My friend talk to us about this market. We had
Speaker 2: a ripping November mark it up over eight percent, yields
Speaker 2: coming down dramatically. Was that it? I mean, we where
Speaker 2: where do we go from here?
Speaker 10: Yeah, hey, Paul, great to talk to you again, and yeah,
Speaker 10: those were the good old days.
Speaker 8: The boy.
Speaker 10: It sure seems like we're playing into even the data
Speaker 10: this morning, this Goldly Locke scenario. And I think one
Speaker 10: of the things I try and do it which I
Speaker 10: think you always did, which is look over the credit
Speaker 10: markets and see what they're telling us. And you know,
Speaker 10: after touching five percent, the ten years been ripping downward.
Speaker 10: And I think even more importantly for US equity investors,
Speaker 10: credit spreads are hitting new lows for the year, and
Speaker 10: I think I was looking at it this morning. I
Speaker 10: think we're all the way back to pre COVID levels
Speaker 10: on credit spreads, which means investor risk appetite is up,
Speaker 10: which is a good thing for equities and a good
Speaker 10: thing if you're a growth investor, so what are.
Speaker 6: You advising clients to buy and sell?
Speaker 10: Yeah, so we've been telling them, you know, don't miss out.
Speaker 10: I know it's been a magnificent seven year, and you
Speaker 10: know we've participated with that. We own a lot of
Speaker 10: those stocks, but we've we've had smaller mid cap stocks
Speaker 10: in the portfolio in trying to find opportunities there. We
Speaker 10: feel like that probably is the biggest misnomer from an
Speaker 10: evaluation standpoint in the market today. They don't do as
Speaker 10: well when rates are going up, but if rates continue
Speaker 10: to go down, as we've seen over the last week
Speaker 10: or two, you can see small MidCap stocks really participate
Speaker 10: in this rally. And I think that's an opportunity. And
Speaker 10: then the other thing we've been telling them is, yes,
Speaker 10: technology is important. We like technology stocks, but have diversification
Speaker 10: in your portfolio.
Speaker 2: So outside of tech, Tom, what do you think of
Speaker 2: some areas are you? I guess some folks now, after
Speaker 2: you know this year in the performance of the magnives
Speaker 2: and seven, they're saying, boy, do I ride these things?
Speaker 2: Do I try to chase them? Or do I just
Speaker 2: say I missed that trade? Now let me go find
Speaker 2: some other good names and maybe have not participated in
Speaker 2: twenty twenty three.
Speaker 10: Yeah, we would be barbelling it. So again, I wouldn't
Speaker 10: be out of those names. I think a lot of them.
Speaker 10: You know. Actually, like an Nvidia is trading at the
Speaker 10: lowest PE evaluation it has in five years. People are
Speaker 10: doubting the sustainability of the earnings that have been generating.
Speaker 10: Even if you look over at Amazon trading about fourteen
Speaker 10: times enterprise value to EBITDAH, you know, relative to some
Speaker 10: of the big media companies, relative to Apple, which trades
Speaker 10: at you know, well north of twenty times EBITDA, we think,
Speaker 10: you know, there's still opportunities there. And then but I think, yeah,
Speaker 10: go down the market cap, look at places like healthcare,
Speaker 10: look at some of the things that kind of got
Speaker 10: destroyed during this GLP one phenomenon, which we agree with,
Speaker 10: like there's no doubt that that is going to impact healthcare,
Speaker 10: but it's not going to really destroy the models of
Speaker 10: other companies. And we think there are opportunities in small
Speaker 10: and MidCap healthcare, in particular in medtech. And one of
Speaker 10: the things that I think is really interesting is you
Speaker 10: listen to some of these conference calls of companies like
Speaker 10: A J and J. They are talking about ramping up
Speaker 10: the M and A playbook again and that can be
Speaker 10: very good if you in the small MidCap space.
Speaker 6: You also sent us a list of stocks, one of
Speaker 6: them Amazon on here and we're talking about megacap stocks here.
Speaker 6: What is it about Amazon that you like?
Speaker 10: Well, part of it is they've gotten the religion right.
Speaker 10: So they brought in and I don't think it was
Speaker 10: a huge surprise to us, but you want to see
Speaker 10: the execution they brought in. The CEO came over from
Speaker 10: the AWS side. AWS historically has run twenty five thirty
Speaker 10: percent EBITDA margins, pretty healthy margins for that business. We
Speaker 10: don't think the retail side gets anywhere near there, but
Speaker 10: you know, getting it up from negative to zero to
Speaker 10: you know, pushing mid single digits now, we think that
Speaker 10: is a good opportunity. We think the data center AWS
Speaker 10: business is bottom out of growth at twelve thirteen percent.
Speaker 10: We know AI sucks, takes up a lot of data
Speaker 10: center space, and we we think Amazon, you know, is
Speaker 10: a good play on that. And that's again one that
Speaker 10: we think is a reasonable evaluation, even with a pretty
Speaker 10: good move it's had this year.
Speaker 6: Yeah, up more than seventy percent here today Paul Amz
Speaker 6: and the ticker on MED.
Speaker 7: Yeah.
Speaker 2: Absolutely, yeah, absolutely, Hey, how do you view AI in general?
Speaker 2: It just seems like it became a thing so so quickly,
Speaker 2: and investors were just kind of clamoring and forgot, how
Speaker 2: do they get some exposure here aside from Nvidia? How
Speaker 2: do you view AI and do you have any exposure
Speaker 2: there that you think is interesting?
Speaker 7: Yeah?
Speaker 10: I think you were believers, and so I actually spent
Speaker 10: all last week talking to companies about it. I think
Speaker 10: it's like eighty percent chance this is revolutionary, you know,
Speaker 10: twenty percent chances this is kind of a normal net
Speaker 10: secular shift within the technology space that that isn't as.
Speaker 8: Big a deal.
Speaker 10: But we're pretty big believers. We think the dollars are
Speaker 10: flowing there. If you look at who's spending the dollars,
Speaker 10: these are companies with who've historically been smart spenders, the Googles,
Speaker 10: the Amazons, the meta of the world. And we think
Speaker 10: it benefits not just in videos, and we do think
Speaker 10: benefits and videos, but it's gonna start spilling over to
Speaker 10: other companies, other semiconductor companies. We think as you go
Speaker 10: into next generations, and a MD potentially benefits as you
Speaker 10: move more into inference from training. We think power management
Speaker 10: is extremely important and companies like a monolithic power plane
Speaker 10: of that. And then we think database is extremely important
Speaker 10: in data management, and there's gonna be a whole a
Speaker 10: few different ways to play that. Our biggest position there
Speaker 10: in the portfolio has been Mango dB. It's had a
Speaker 10: great run this year, its valuation has come up and
Speaker 10: lo and behold they actually report tonight. So I would
Speaker 10: encourage people to wait and digest that news. But we
Speaker 10: think the growth talent winds behind that business are being
Speaker 10: underestimated and undervalued in the market, so we think it's
Speaker 10: a good opportunity. But I would digest the new data
Speaker 10: we're going to get tonight.
Speaker 6: What are some stocks or industries that you don't want
Speaker 6: to own? A good question.
Speaker 10: I think we're still back and forth on consumer right.
Speaker 10: I think the most recent data points have been a
Speaker 10: little better. If you look at the projections for holiday spending,
Speaker 10: they look pretty good this year, five to twelve percent,
Speaker 10: which would be pretty healthy. I think we were at
Speaker 10: three to four percent last year. I think it's you know,
Speaker 10: so anything above above that would be healthy. I think
Speaker 10: consumers are moving back to internet online spending, which should
Speaker 10: benefit those types of companies again. And you know, I
Speaker 10: think was mentioned prior to my segment here that you know,
Speaker 10: even though the jolt S data is showing a bit
Speaker 10: of a slowing in the job market, there's still one
Speaker 10: point four job openings per job loss out there and
Speaker 10: or job seekers, and so it's still a pretty healthy
Speaker 10: environment if you're a consumer out there. And so it's
Speaker 10: not the greatest, but it's not too bad. And so
Speaker 10: I think there's a lot of back and forth there,
Speaker 10: and so i'd say we're a little more agnostic in
Speaker 10: that segment, and I'd say you definitely need to be
Speaker 10: a little picky on what you're investing there. And then
Speaker 10: i'd say the other that a little cautious on is
Speaker 10: what's going on in the industrial segment. It's just we're
Speaker 10: just hearing of increase tightening there, of companies pulling back
Speaker 10: a bit. Europe seems like I don't think it's going
Speaker 10: in recession, but that growth that had picked up a
Speaker 10: little bit at the beginning of this year when we
Speaker 10: talk to companies, sounds like it's kind of gone the
Speaker 10: other way again. And that's that's you know, pushing kind
Speaker 10: of zero percent growth and then China, to be fair,
Speaker 10: has been disappointing all year.
Speaker 7: Yep.
Speaker 2: Absolutely, Hey Tom, thanks so much for taking a time.
Speaker 2: Really appreciate chatting with you. Tom Agner. He's a senior
Speaker 2: portfolio manager. He's a managing director over at Afspring Offspring
Speaker 2: Global Advisors, based just outside of Milwaukee, Wisconsin. Appreciate checking
Speaker 2: in with him.
Speaker 7: You're listening to the tape kens our live program Bloomberg
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Speaker 7: flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2: Jessica bought a new car recently, twenty twenty four version.
Speaker 2: It's first new car I bought since twenty fourteen. And
Speaker 2: what I noticed is it's basically a technology platform with
Speaker 2: four wheels. It's software, it's point and click, It's basically
Speaker 2: your iPhone.
Speaker 3: With four wheels.
Speaker 2: It's not so much about the car, is about the technology.
Speaker 3: And I'm wondering, like, who are these people behind all
Speaker 3: this stuff? Like who does all this, We're.
Speaker 2: About to find out. Phil Jale he joins us. He's
Speaker 2: the CFO of e carts, the Nasdaq traded company e
Speaker 2: c X is the ticker based in China. Phil, thanks
Speaker 2: so much for joining us here via zoom here tell
Speaker 2: us just give us a thirty thousand foot view. What
Speaker 2: do you guys do at e car x?
Speaker 11: Thank you Paul for having me here. At least it's
Speaker 11: a Phil So Ihak's actually is a year in uh,
Speaker 11: you know, in design and the development and delivery of
Speaker 11: the best best of a breed of a copy digital
Speaker 11: copyter solution.
Speaker 12: As well as the full stack of software.
Speaker 11: Solution and automas driving solution for electric fed mobility urine.
Speaker 12: So we are in this industry for six years already.
Speaker 6: Who are typically your customers?
Speaker 11: So we have Malti customers both in China and the
Speaker 11: outside of China.
Speaker 12: So in China we served for the largest customer like
Speaker 12: a Chili group.
Speaker 11: At the same time, we also provide our service to
Speaker 11: you loadus Vobo post and the smart.
Speaker 2: So one of my favorite features is the heads up
Speaker 2: display and it's like I'm flying inn F sixteen. It
Speaker 2: tells me like you know, the speed limit and how
Speaker 2: fast I'm going on all that kind of stuff. I
Speaker 2: want to change the you know, the radio or the whatever.
Speaker 3: Do anything on the entertainment front. It just comes right
Speaker 3: up on your screen.
Speaker 2: It's a little freaky, but again it kind of makes
Speaker 2: me feel like I'm a fighter pilot or something nice.
Speaker 2: So Phil, talk to us about where your industry is going.
Speaker 2: It just seems like the the technology is so extraordinary
Speaker 2: making such leaps and bounds. Here when I go to
Speaker 2: the Consumer Electronics Show in Vegas in January, it's no
Speaker 2: longer it's basically an auto show, you know, with some
Speaker 2: some some pecs around it.
Speaker 3: Talk to us about where the technology is going.
Speaker 11: Yeah, sure, listen if the industry is a promising and
Speaker 11: uh got a lots of dramatic changes.
Speaker 12: So, uh, the eve eco industry.
Speaker 11: Already moved the front, you know, the combustion engine focused
Speaker 11: to you know, electric fights mobility solution move a from
Speaker 11: you know, the traditional Veico to you know, uh Thomas
Speaker 11: driving focus, so least to the industry is moving very fast.
Speaker 11: And now we are entering into an uielectional electronic mobility
Speaker 11: solution with the Eco Solutions cob Nation mode. So ECAs
Speaker 11: is seeing the ripest to support the industry transformation right.
Speaker 6: Now, talk to us about how the EV market is
Speaker 6: different in China versus the US.
Speaker 11: Yeah, definitely, so China, the new V market in Chinese
Speaker 11: woming As, we can see that we have many new
Speaker 11: players in the market, and right now China, our players
Speaker 11: actually provide the best of the reader's solutions in least
Speaker 11: the industry, not only for the Chinese MS, but also
Speaker 11: you know they are going abroad. They are going to
Speaker 11: provide the services in euro market, in the US market
Speaker 11: to support those of global em to grow and a strife.
Speaker 2: So it's it's interesting here. I mean, we just think
Speaker 2: about all the technology here. Talk to us about your
Speaker 2: company a little bit. I see the stockdown about sixty
Speaker 2: percent year to date. What's the what's the story that
Speaker 2: you're telling your investors here?
Speaker 11: Okay, so Ihas, Actually we are performing pretty well in
Speaker 11: terms of the financial performance. We are announced in a
Speaker 11: produltry our popeline granary growth group at fifty percent year
Speaker 11: a year, and our gross Marting percent gross Martin dollar
Speaker 11: also grew one and forty percent year growth. All those
Speaker 11: strong financial performance indiquate LA. We are in good shape
Speaker 11: at the same time. Right, for example, we provide our
Speaker 11: full stack solution to many vehicles program. For example, we
Speaker 11: just support link D zero eight, the vehicle to launch
Speaker 11: in a year.
Speaker 12: Right will provide not.
Speaker 11: Only in the computing platform, but also will provide you know,
Speaker 11: as a solution, a common striving containing on it as
Speaker 11: well as you know, we operating system called framing Auto.
Speaker 11: So basically with that we are able to increase the
Speaker 11: content per vehicle and increase our pop line and the
Speaker 11: profitability as well. So we are long term focused the
Speaker 11: company we serve for the customer value. And right now
Speaker 11: I would say letter our stock prices under value.
Speaker 8: But it's okay.
Speaker 11: We are we are working on you know, the customer
Speaker 11: value enhancement and we really flat the investors. We'll we'll
Speaker 11: see our UH performance recurring.
Speaker 6: In terms of the surprise you talked about in your
Speaker 6: latest quarterly results about increased demand from international markets. Where
Speaker 6: have you seen the most increased demand?
Speaker 11: So from the international market perspective, I do believe that
Speaker 11: many traditional oms they would like to take it into
Speaker 11: the new evening market and let UH change had taken
Speaker 11: had taken place largely both in you know, Europe market
Speaker 11: and the China market and lots of the global m
Speaker 11: they like to play in a big way in China market,
Speaker 11: so they want, you know, the partners like the E
Speaker 11: cars to support UH.
Speaker 12: Better plan in China as well.
Speaker 11: At the same time, lots of the Chinese OM like
Speaker 11: to explore into Lefolo print in global market and e cars.
Speaker 11: We also follows oms to to strive to to you know,
Speaker 11: to to have the competitional advantage you know, gog market.
Speaker 12: So that is what happened. We called the channel to
Speaker 12: Global and Global China.
Speaker 2: Phil How was some of the tensions between the US
Speaker 2: and China, particularly it relates to technology and technology transfers.
Speaker 2: How has that impacted your business?
Speaker 11: I think the challenge is definitely uh uh you know,
Speaker 11: applied it to the industry, to to many uh many
Speaker 11: players tech players in the market. And I think the
Speaker 11: real issue here is how to address the customer demand.
Speaker 11: How does customers want to have the trusted the partner
Speaker 11: to support a UH vehicle to success succeed in the market.
Speaker 11: So right now it cas also operate globally, so not
Speaker 11: only in China, but also in Europe. We open up
Speaker 11: our foot printer in the UK, in the inter States,
Speaker 11: in Sweden and Germany. So we are truly a global
Speaker 11: company and we collaborate collaborated with lots of the customers
Speaker 11: on a different diretion from the countries. So that's why
Speaker 11: we have confidence to you know, to bring a value
Speaker 11: to the customers and then the folly business to grow
Speaker 11: and win.
Speaker 2: Hey, Phil, thanks so much for joining us. I really
Speaker 2: appreciate getting some of your time on learning about your company,
Speaker 2: Phil Joe. He is the CFO of e car X.
Speaker 2: Symbol is e c X on the NASDAC and you
Speaker 2: can put that into your Bloomberg terminal and check.
Speaker 3: Out the stock.
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