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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. This market hanging in there.

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Speaker 1: It's doing a little bit better than maybe I had

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Speaker 1: given a credit for. Just a few minutes ago, the

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Speaker 1: SMP up about eight tenths of one percent. A lot

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Speaker 1: of questions for war investors out there as we flirt

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Speaker 1: with bear market territory and SMP maybe chief among them,

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Speaker 1: as a recession, Sylvia Jablonski, chief investment officer and co founder,

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Speaker 1: have to find a t F S joins us. Sylvia,

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Speaker 1: how are you thinking about that? Again? I think maybe

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Speaker 1: over the last week or two, one of the more

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Speaker 1: frequent questions we had is, Okay, the Fed is raising

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Speaker 1: interest rates. We get that, but put in context the

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Speaker 1: risk of a recession that might result from this rising

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Speaker 1: indestrate environment? Do you guys think about that? At Defiance?

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Speaker 1: Good morning to Paul Well. I think that a lot

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Speaker 1: of what is going on in the market is very

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Speaker 1: much you know, near term panic, fear, um some capitulation,

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Speaker 1: and that naturally spurs these these thoughts and again just

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Speaker 1: fear that there will be an inflation sooner or inflation

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Speaker 1: recessions sooner than rather than later. Um. You know, my

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Speaker 1: my thought on that is that we're certainly in a

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Speaker 1: deep correction, if not a short term bear market, we're

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Speaker 1: pretty close. You know, no dec is there a spire

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Speaker 1: is swarting with that twenty percent level intra day Um,

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Speaker 1: it's it's it's got about half of the components below

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Speaker 1: or so foot call ratios are high, you know, consumer sentiments,

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Speaker 1: so there are all these things that are just sort

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Speaker 1: of scary and it feel terrible in the near term.

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Speaker 1: But you know, I don't think we're at that point

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Speaker 1: where a recession is necessarily right around the corner. And

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Speaker 1: the reason why is because the economic backdrop still remains

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Speaker 1: pretty healthy. You know, you have a hot labor market.

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Speaker 1: If loosening a little bit, um, you have you know,

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Speaker 1: trillions of dollars and savings from from a strong consumer,

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Speaker 1: a strong curve of balance sheets, and we don't have

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Speaker 1: a credit crisis. You know this isn't two thousand eight.

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Speaker 1: Banks are sort of stable and strong and there are

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Speaker 1: good things that will help us sort of weather the storm,

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Speaker 1: if you will. So, yeah, how much does this bear

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Speaker 1: market talk really matter? We gonna have guilty little our

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Speaker 1: markets reporter on just a few minutes ago, and she said, well,

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Speaker 1: you know, it's really just psychological. It doesn't matter that much.

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Speaker 1: Do you agree? Well, I think it matters for for

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Speaker 1: people who are who are selling. I think that you

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Speaker 1: know that that crowd is is essentially um, you know,

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Speaker 1: taking losses and they really shouldn't, you know, So I

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Speaker 1: think um Abigail makes a great point. I expect, I

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Speaker 1: expect that a lot of this is sort of psychological

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Speaker 1: and that you know, we're just watching the sort of

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Speaker 1: market fall and and it feels terrible, and so you

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Speaker 1: have traders sitting on the sidelines. But where it does

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Speaker 1: matter is that you know there are opportunities that can

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Speaker 1: be had now. Right, So if you are an investor

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Speaker 1: that has on the sidelines and you have a long

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Speaker 1: term investment, her eyes and you could be missing out

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Speaker 1: on an opportunity of fear and panics. Keeping on the sidelines.

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Speaker 1: You know that also keeps things sort of repressed for

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Speaker 1: a longer period of time as well, if we don't

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Speaker 1: see investors coming back in. But what's interesting about you know,

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Speaker 1: sort of this their market or non bare market, whatever

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Speaker 1: it is is. You know, there are sort of two

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Speaker 1: types of people out there there, traders who can benefit

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Speaker 1: the short term, and what I would say is that

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Speaker 1: those traders tend to be high frequency experts. I'll go, guys,

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Speaker 1: you know the hedge funds so invested in the corporation.

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Speaker 1: Don't try to do it yourself. It's too tricky now.

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Speaker 1: But if you're a long term investor and you have

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Speaker 1: a long term outlook, you know, buying stocks on the

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Speaker 1: discount again, with the odds of a recession still being

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Speaker 1: fairly low, with this unique set up in the economy,

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Speaker 1: it is probably not the worst idea if you're looking for,

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Speaker 1: you know, sort of quality and strung down sheet. A

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Speaker 1: lot of names around down now, you know. I had

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Speaker 1: a phone call from my financial advisor on Friday advising

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Speaker 1: me that we're taking some tax loss tax losses on Friday,

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Speaker 1: just letting me know. I was like, oh great, But

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Speaker 1: that was the first time in fourteen years we had

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Speaker 1: had that conversation. About taking tax losses on and there's

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Speaker 1: all my e T s as well. So are there

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Speaker 1: e T s out there that are actually doing well

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Speaker 1: that unfortunately I was not in? You know, it well

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Speaker 1: depends on the time frame. It depends on when you

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Speaker 1: when you sort of got it in them, and when

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Speaker 1: you're getting out, you know. I definitely think that there

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Speaker 1: are some ets that investors can look at now that

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Speaker 1: are poised to do well, you know, in terms of well.

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Speaker 1: I think that the pullback of the market is pretty

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Speaker 1: widespread right now. I mean, oil, gas and energy ets

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Speaker 1: have have sort of done well, um with you know,

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Speaker 1: with sort of the inflation, the energeo politics. But I

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Speaker 1: also think that ETFs that are poised to do well

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Speaker 1: do exist, and I think a lot of those will

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Speaker 1: be in the travel reopen um type of spaces. You know.

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Speaker 1: I think that that's a good trade of consumer spending

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Speaker 1: going from good services. I think that you know, the

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Speaker 1: longer term outlook on things like you know, alternative energy resources,

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Speaker 1: things like hydrogen things solar um could be interesting to

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Speaker 1: investors now, So you know, they're definitely places to look

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Speaker 1: and look. I would even just argue that that you

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Speaker 1: know them both cues and sim age and just just

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Speaker 1: you know, sort of plain old technology and and um,

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Speaker 1: you know, um sort of larger market cup somebody. Conductor

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Speaker 1: ETFs are interesting just because they've been absolutely hammered from

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Speaker 1: their all time highs um, so their places to do

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Speaker 1: well in the future. But to answer your question now,

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Speaker 1: it's probably more around the commodity space, and it's around

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Speaker 1: those names. Sylvia, what about Levered e t s And

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Speaker 1: there was some chat on the street a couple of

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Speaker 1: weeks ago that Leverty t f s and their liquidation

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Speaker 1: was hurting the market and kind of snowballing some of

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Speaker 1: the selling. Where does that fall in the grand scheme

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Speaker 1: of things. Yeah, so having you know, having a background

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Speaker 1: of some more than a decade at the level of

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Speaker 1: a niversity ETF provider direction, Um, you know, what I

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Speaker 1: can say is that a lot of people sort of

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Speaker 1: misunderstand how how the trade works. Right. If if you

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Speaker 1: have a both fund um that is buying, you often

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Speaker 1: have a bare fund that is selling or vice versa. Um.

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Speaker 1: You know, there's a lot left and there's been numerous

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Speaker 1: studies done and the impact on the close of leven

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Speaker 1: niversity TF funds, whether it's you know, direction posures are

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Speaker 1: kind of the lion's share of it. It tends to

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Speaker 1: be well under one percent or so. UM. So you know,

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Speaker 1: I think it's it's it's. It sounds good, but in sanery,

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Speaker 1: the math doesn't usually play out for it to be true.

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Speaker 1: All right, Sylvia, thank you so much for joining to

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Speaker 1: really appreciate getting your thoughts here on these markets and

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Speaker 1: on the E t F space. Sylvia Jablonsky, chief investment officer,

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Speaker 1: co founder Defiance E t F s here we have

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Speaker 1: a good green day on the screen for equities, but

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Speaker 1: you know, you take a look at the total return

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Speaker 1: aggregate for US corporates minus thirteen percent year to date.

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Speaker 1: Just brutal out there in the world of fixed income

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Speaker 1: and credit. Um, let's talk to somebod who does this

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Speaker 1: stuff for a living. Randy Schwimmer, co head of Senior

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Speaker 1: Lending and Seeing Senior Managing Director Churchill Asset Management. Randy,

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Speaker 1: anywhere for you and your team to hide year to date?

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Speaker 1: And what are your thoughts for the remainder of the year. Well,

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Speaker 1: it's great to be with you, and actually we're not

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Speaker 1: hiding at all. We're out We're out there investing and uh,

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Speaker 1: you know this is a time when private markets are

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Speaker 1: actually shining. So we're seeing a reset as you mentioned,

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Speaker 1: you know, it's been now happening for a while, kind

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Speaker 1: of a repeat of March of when we were really

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Speaker 1: sure where the public markets were going. UM. We have

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Speaker 1: more recession worries to deal with now, I think as

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Speaker 1: the FED is increasing interest rates and trying to battle

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Speaker 1: inflation um and so that's now causing concerns in the

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Speaker 1: public markets about you know, what's going to happen with

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Speaker 1: earnings and so forth, and if if rates start to

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Speaker 1: get too high, what's the impact on the consumer. We're

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Speaker 1: starting to see some slowing in some areas, but but

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Speaker 1: private capital in general has been very constructive, particularly during

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Speaker 1: this time. We've actually seen a number of deals that

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Speaker 1: were stalled in the high yield bond market being taken

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Speaker 1: out by private capital managers who are stepping in with

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Speaker 1: deals like Nielsen and CDK Global and even peloton Um

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Speaker 1: and and stepping in actually refinancing some deals that that

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Speaker 1: were stuck because of what's going on in the public market.

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Speaker 1: So I think, you know, the private capital, because of

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Speaker 1: the long term nature of both the assets and liabilities

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Speaker 1: UM that that are locked in in our markets, as

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Speaker 1: well as the significant hole levels that we've that we've

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Speaker 1: achieved because of great fundraising activity. In general the last

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Speaker 1: couple of years, private credit sects have been very constructive

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Speaker 1: during this otherwise volable market, this otherwise volatble market. I

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Speaker 1: want to dive into what you said about the high

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Speaker 1: yield space specifically because to me, I feel like with

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Speaker 1: all this recession talk, if there was indeed a recession

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Speaker 1: coming or even on the horizon, you would see it

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Speaker 1: show up in the credit market first. But the crests

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Speaker 1: crest prosts haven't widened to what we've seen in previous recessions.

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Speaker 1: Is that disconnect that you're keeping an eye on. Yeah,

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Speaker 1: and in fact, we haven't really seen that in the

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Speaker 1: private market's well known fairness. You know, the middle market,

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Speaker 1: the smaller companies tend to be a lagging indicator, so

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Speaker 1: the large cap, more highly traded businesses are probably gonna

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Speaker 1: see the impact first. Um. You know, we're not seeing

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Speaker 1: really a slowdown, certainly not in our portfolio. Revenues for

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Speaker 1: our portfolio companies continue to be strong. Um. Now again,

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Speaker 1: you know, we'll see what happens during the rest of

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Speaker 1: the year. Some of the impact particularly with inflation UH

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Speaker 1: sensitive areas such as food and energy and commodities. Those

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Speaker 1: kinds of things are are still top of mind for

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Speaker 1: us from a portfolio perspective, and we're very focused on

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Speaker 1: the potential of higher costs down the road. Supply chain

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Speaker 1: issues continue to be UM at the forefront, potentially compressed

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Speaker 1: margins as a result of some of these higher costs

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Speaker 1: in certain areas, But in areas where we're UM you know,

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Speaker 1: being very constructive, for example, health care and technology and

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Speaker 1: business services, these companies are continue to do pretty pretty well.

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Speaker 1: And I think you're starting to see even the public

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Speaker 1: markets today a little bit of kind of reassessment UM

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Speaker 1: in what we mean by a slowdown and what really

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Speaker 1: the markets are worried about. But I do think that

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Speaker 1: UM private capital will continue to be very very positive

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Speaker 1: as we move forward, you know, and even in an

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Speaker 1: environment where some of the concerns with whether where, whether

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Speaker 1: it's inflation or interest rates, that's something that we've been

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Speaker 1: really dealing with all along, particularly going through over it.

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Speaker 1: So I don't really see any change in our own posture. Randy,

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Speaker 1: how about as interest rates UH continue to rise and

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Speaker 1: there's talk of a slowing economy, maybe even a recession.

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Speaker 1: What are the leverage have you changed the kind of

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Speaker 1: the leverage levels or that you're willing to go to

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Speaker 1: the market with. Well, we we always are sensitive to

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Speaker 1: those kinds of things. We we tend to turn down

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Speaker 1: and probably the transactions that come in the door because

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Speaker 1: of that reason. Um. I think the focal point, Paul,

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Speaker 1: that is, as I mentioned, something that's of concern is

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Speaker 1: really the cost structures of these businesses because you're as

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Speaker 1: you're looking forward to your point, you know, if you

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Speaker 1: start to see food and energy in certain commodities where

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Speaker 1: costs are going to be higher, you're not going to

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Speaker 1: be leveraging those businesses the same you would have, you

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Speaker 1: know nine months ago, twelve months ago, and so yes, um,

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Speaker 1: you know, more leveraging in companies or things that we're

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Speaker 1: always focused on. We're going to be very um cautious

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Speaker 1: about that going forward. But in many cases where companies

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Speaker 1: are doing well, where the private equity sponsors that we're

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Speaker 1: partnering with are putting in significant capital below our structures

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Speaker 1: because they believe in these businesses, those are companies that

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Speaker 1: were we continue to lean into and we believe in.

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Speaker 1: And I think that you know, the outlook for the

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Speaker 1: rest of the year continues to be good investors that

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Speaker 1: we are serving, uh, seemed to indicate that they have

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Speaker 1: the same or even higher interest in private credit again

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Speaker 1: because it tends to be you know, the oil on

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Speaker 1: troubled waters which we're seeing right now, and people believe

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Speaker 1: that that that's going to be positive going forward. All right, Randy,

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Speaker 1: good stuff. Really appreciate getting an update on the private

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Speaker 1: equity and a senior lending business into the private equity space.

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Speaker 1: Randy Schremmer, cohead of senior Lending and senior managing director

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Speaker 1: at Churchill Asset Management. You know, one of the bricks

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Speaker 1: in the wall of worry, and there are many, is

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Speaker 1: this scene called stag inflation. I started hearing about over

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Speaker 1: the last couple of months. I had to go back

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Speaker 1: into my economics book from Business Malfair, What the heck

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Speaker 1: is stagflation again? And I guess it's kind of like

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Speaker 1: inflation but slowing to no growth. And that just doesn't

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Speaker 1: sound very good. But that's certainly one thing that's been

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Speaker 1: royal in these markets. Let's get the latest Lis McCormick

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Speaker 1: Global Fixed Income and Foreign Exchange Reporter for Bloomberg News joints.

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Speaker 1: Us I like to say, live in our Bloomberg Interactive

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Speaker 1: Broker studio. That's good stuff, Liz, all right, stagflation is

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Speaker 1: it a thing for this market? Our investors really worried

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Speaker 1: about it? And you know, what are you hearing about it?

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Speaker 1: It's definitely, uh, something that people are worried about. And

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Speaker 1: I've heard even the senior investors say, we had to

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Speaker 1: crack out our textbooks and remember what this is. And

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Speaker 1: I think it's become I'm amalgam of different explanations now

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Speaker 1: with a lot of people saying, hey, look, if you're

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Speaker 1: telling me stagflation in this world is slowing growth and

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Speaker 1: high inflation, well that's what we have. I mean, I

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Speaker 1: don't think that's the textbook explanation, but so people are

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Speaker 1: worried about that. You know, obviously the feed is worried.

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Speaker 1: So there, you know, kind of stepped up this tightening path.

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Speaker 1: But yeah, people are thinking about that. So let's how

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Speaker 1: do you get out of a stagflationary environment. Well, I

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Speaker 1: think that's what the FED is doing. Like you've heard

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Speaker 1: Chairman Pal talk about he thinks he can pull off

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Speaker 1: tightening bringing down inflation without causing recession, although he's changed

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Speaker 1: his tone a little from slow growth to slowish growth too.

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Speaker 1: It'll take a little bit of pain, right, But then

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Speaker 1: that's their ideal goal is to say, hey, the labor

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Speaker 1: market is really strong. It can take these higher rates.

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Speaker 1: We can bring inflation under control, but we don't have

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Speaker 1: to completely implode the economy. I'll though, as you guys know,

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Speaker 1: history doesn't always go with that. Usually Fed tightening, there's

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Speaker 1: a recession, but we'll see what happens. You know, the

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Speaker 1: FED calls rightfully into the discussion the strong labor marketplace,

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Speaker 1: which it certainly is if you look at unemployment just

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Speaker 1: for example. But one of the risks when you do

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Speaker 1: talk about the labor market is wage inflation kind of

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Speaker 1: spiraling a little bit. And I guess we're running it

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Speaker 1: wage inflation five percent, but there's a concern out there

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Speaker 1: that could get a little bit hotter um is a

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Speaker 1: market concerned about that? Do you think, Well, that's something

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Speaker 1: people talk about because also talking to a colleague today

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Speaker 1: that you know, when people get these raises, say they

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Speaker 1: got a five percent raise, they're not so much the

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Speaker 1: next year are going to say, oh, I'll give that back, right,

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Speaker 1: So that's what the FED is worried that this gets

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Speaker 1: in trench. So I think that's on the radar, though

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Speaker 1: I've heard some FED officials say, or we don't see

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Speaker 1: the wage price spiral as if yet. You know, we

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Speaker 1: want to contain inflation expectations, which have come off a

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Speaker 1: lot from the kind of peak we had. But yeah,

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Speaker 1: you know, if those wages get entrench, that's the problem.

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Speaker 1: You know, there's two jobs basically for every opening, and

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Speaker 1: that's what Chairman Palell's talked about, concerned too hot labor market.

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Speaker 1: And I saw just a new story today. I guess

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Speaker 1: the Bank of America. They're hourly employees now going up

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Speaker 1: to twenty five dollars an hour. So yeah, I think

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Speaker 1: the official minimum wage is still seven dollars, but it

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Speaker 1: seems like Walmart and you know, you know Amazon have

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Speaker 1: set the real minimum wage at fifteen dollars for all

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Speaker 1: intensive purposes. But now you've got you mean like you

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Speaker 1: mean like the like the bank teller's and I guess,

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Speaker 1: so very interesting. So we're seeing it out there. Um,

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Speaker 1: just don't know if it's problematic yet. I was gonna say,

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Speaker 1: they used to be like if you did like a

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Speaker 1: junior banker salary divided by hours they work. It came

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Speaker 1: down like twenty five, which is interesting. Um, Liz, let's

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Speaker 1: talk about the dollar if we can. We are seeing

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Speaker 1: this new dynamic where you see a weaker dollar yield

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Speaker 1: kind of resumed their march higher. Why the separation, Well

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Speaker 1: today it's interesting and I heard you guys talking girl

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Speaker 1: or but we had Christine Lagarde kind of pre announced,

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Speaker 1: which was a surprise that you know, they're going to

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Speaker 1: be stopping their bond buying. They want to get rates

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Speaker 1: off the negative level. But I think the third quarter,

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Speaker 1: she said, so, you know, the dollar for a while,

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Speaker 1: the FED was the most aggressive in town, you know,

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Speaker 1: even though other central banks were tightening, and definitely the

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Speaker 1: e c B was the lagger. Now you have le

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Speaker 1: guards stepping up. So I think there's the feeling that

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Speaker 1: you know, hey, the other central banks and there's others

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Speaker 1: that are kind of increasing their hawks rhetoric that it's

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Speaker 1: you know, that divergence isn't as extreme. Plus, the dollar

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Speaker 1: had such a torrid rise, right, you know, I mean,

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Speaker 1: let's let's just talk about dollar long saying like in

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Speaker 1: any market, hey, let's take some profits. It's come a

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Speaker 1: long way. How far can it go. So I think

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Speaker 1: there's the two things flows and you know the divergence narrowing.

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Speaker 1: You mentioned ECB starting to move here. Is it still

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Speaker 1: a valid concern to claim that the US feder Reserve

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Speaker 1: is quote unquote behind the curve. Well, the FED would

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Speaker 1: argue not so much, right. I think Buller just said,

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Speaker 1: we're not so much behind the curve. Um. I think

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Speaker 1: with where the market has priced in what the FED

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Speaker 1: will do, which Chairman Palace kind of pointing to a lot. Hey, listen,

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Speaker 1: the markets doing what you know we want, and they've

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Speaker 1: priced in all these hikes to come. So I think

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Speaker 1: if you go by that and the q T is

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Speaker 1: starting next month where they unwind you know, some of

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Speaker 1: the dead on their balance sheet, they would argue, we're

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Speaker 1: not as behind the curve as we were. Um, that's

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Speaker 1: where the question is. Like I was listening to one

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Speaker 1: of the guests earlier talk about do they have the

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Speaker 1: room to hike maybe fifty basis points the next two

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Speaker 1: meetings and then stop and look around. Maybe but not

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Speaker 1: if inflation is too hot, they might have to just

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Speaker 1: keep going. But is it enough for the ECB to

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Speaker 1: finally catch up to the Fed or at least that's

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Speaker 1: the way it's being framed. When you have the b

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Speaker 1: o E that's kind of doing their own thing, you

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Speaker 1: have a PBOC that's actually looking to stimulate, um, and

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Speaker 1: a b o J that's kind of stuck between a

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Speaker 1: rock and heart place. Right. Well, the b o J

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Speaker 1: has kind of been stuck for a long time, exactly. Um.

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Speaker 1: But yeah, no, I mean clearly, I think the FED

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Speaker 1: in the in the last months has been the most

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Speaker 1: kind of laser focused. We're on a mission. We're getting

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Speaker 1: to neutral. You know, we're going to get inflation down that. Yeah,

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Speaker 1: they stand out, but yeah, these other central banks are

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Speaker 1: a little more hodgepodge, you know. But I think the guards,

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Speaker 1: especially because you did it in that blog, you know,

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Speaker 1: kind of getting ahead of it was pretty telling. And

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Speaker 1: you know you look at the work function. I mean

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Speaker 1: w i r P World interest rate probability still looking

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Speaker 1: for eight basis point cuts by the end of the year.

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Speaker 1: I'm sorry, thank you markets. Yeah, exactly, that's what I mean.

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Speaker 1: That if if the FED, and that's what they're kind

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Speaker 1: of looking at, says, look at how much the markets

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Speaker 1: priced in. You know, we're getting there. It's it's filtering

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Speaker 1: through to expectations, which is what we want. Um. Yeah,

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Speaker 1: but it's like that nebulous neutral. They said, we want

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Speaker 1: to get to neutral. Some people say it's bound two

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Speaker 1: and a half. They're gonna feel their way as they

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Speaker 1: get there, and that I think you're going to see

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Speaker 1: some more volatility at that point. All right, Liz, thanks

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Speaker 1: so much. We appreciate it. Liz McCormick, global fixed income

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Speaker 1: and foreign exchange reporter for Bloomberg News, joining us live,

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Speaker 1: which we really appreciate. In the Bloomberg Interactive Broker studio,

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Speaker 1: Dianna Baker and Ed Hammond had a story out on

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Speaker 1: the Bloomberg term on this morning. There are M and

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Speaker 1: A reporters. They broaked a lot of news right there

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Speaker 1: saying broad Comms and talks to buy vm Ware. I mean,

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Speaker 1: vm Where's a big Company's got a forty billion dollar

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Speaker 1: market cap, so this would be a major deal in

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Speaker 1: in that business. Let's bring it somebody who does this

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Speaker 1: stuff for living Ujinho. He's a technology analyst for Bloomberg Intelligence,

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Speaker 1: which thanks so much for joining us here. What do

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Speaker 1: you make of this deal? Vm War's a big company.

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Speaker 1: The deal actually makes sense from from a broadcom perspective. UM,

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Speaker 1: they've been embarking on a revenue diversity the percification strategy

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Speaker 1: for the past couple of years, dating back to with

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Speaker 1: the acquisition of c A and UM. If you listen

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Speaker 1: to Broadcom's last serning is called, they said that they

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Speaker 1: had the capacity to do a deal that's fairly sizeable

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Speaker 1: and vm where somewhat. That's a deal, So that's from

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Speaker 1: a deal synergies perspective. There's another player here that might

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Speaker 1: get in the way. Michael Dell at stake in vm ware.

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Speaker 1: Can you walk us through why he might be a

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Speaker 1: hurdle UM. Well, I wouldn't necessarily that he's a hurdle, right.

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Speaker 1: The one thing that I do think that given that

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Speaker 1: he is the holder, as well as silver Lake being

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Speaker 1: a teen percent UH Holdrovid, they want the right valuation,

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Speaker 1: right and and that's one of the reasons why the

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Speaker 1: stock is up about uh The evaluation that that we

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Speaker 1: pegged as part of our note earlier today was that

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Speaker 1: it's probably going to be an enterprise value about seventy billion,

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Speaker 1: So that's another ten percent from here. So Michael Dell

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Speaker 1: isn't going to sell vm ware for cheap boy, I

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Speaker 1: wish I were the m in a bank care for

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Speaker 1: Broadcom UM. These guys do a lot of deals. What's

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Speaker 1: the strategy behind you know, some of their acquisitions? Sure,

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Speaker 1: UM a couple of couple of things, right, scale up

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Speaker 1: on the areas that they do do well and and

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Speaker 1: do best, shed the non performing assets, and then then

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Speaker 1: really try to optimize the the operating margin. These guys

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Speaker 1: have stunning operating margins if across the semiconductor or any space,

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Speaker 1: UM you operating margins UH and UM. Every deal that

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Speaker 1: they make they try to shed excess costs to bring

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Speaker 1: their operating margin to that sixty percent level. So, for example, UM,

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Speaker 1: in the analysis that we did, we think that without

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Speaker 1: any deal operating expense energies, they could probably do roughly

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Speaker 1: seven dps secretion UM. Vm Ware has about operating margin here. Now,

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Speaker 1: if they can shed some of the excess costs for

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Speaker 1: vm Ware, they can make this deal very very creative

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Speaker 1: over the next two to three years, just just by

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00:22:08,560 --> 00:22:14,520
Speaker 1: bringing vm Ware's operating UH levels closer to Broadcoms. I'm

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00:22:14,520 --> 00:22:17,720
Speaker 1: just reading some Bloomberg Intelligence research here says brod Com

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00:22:17,760 --> 00:22:21,119
Speaker 1: can do and all cash deal if necessary. This is

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00:22:21,119 --> 00:22:24,520
Speaker 1: a theme we're seeing among a lot of the tech

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Speaker 1: players that they're sitting on so much cash that they're

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Speaker 1: kind of deploying it in this M and A space.

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00:22:29,720 --> 00:22:31,960
Speaker 1: Is there a broader trend here we need to be

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00:22:32,000 --> 00:22:35,600
Speaker 1: aware of or is this a more idiosyncratic Broadcom vm

436
00:22:35,600 --> 00:22:39,960
Speaker 1: ware story. Well, you know, what are the themes um

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00:22:40,080 --> 00:22:42,720
Speaker 1: that that we're thinking about from from a an M

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00:22:42,760 --> 00:22:46,040
Speaker 1: and A standpoint, uh is that if you do have

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00:22:46,080 --> 00:22:49,639
Speaker 1: excess cash, might as well use it um if you're

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00:22:49,640 --> 00:22:51,640
Speaker 1: not going to get the returns on that cash. Now,

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00:22:51,640 --> 00:22:54,000
Speaker 1: what what Broadcom may have to do is to raise

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00:22:54,040 --> 00:22:57,280
Speaker 1: the debt to make this deal done. Now, some of

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00:22:57,280 --> 00:22:59,240
Speaker 1: the other news reports I've read was that it might

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00:22:59,240 --> 00:23:04,000
Speaker 1: be an a combination of cash and stock. But if

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00:23:04,080 --> 00:23:06,360
Speaker 1: if I do you know, if I if I think

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00:23:06,359 --> 00:23:09,520
Speaker 1: about it, you know, for from from uh uh from

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00:23:09,560 --> 00:23:13,120
Speaker 1: evaluation or net debt to a nibada standpoint, they can

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00:23:13,160 --> 00:23:15,520
Speaker 1: really take up the deal much higher if they really

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00:23:15,520 --> 00:23:18,040
Speaker 1: wanted to, if there is a competitive bid. Right now,

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00:23:18,080 --> 00:23:21,159
Speaker 1: I don't think there's a competitive bid. But you know,

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00:23:22,600 --> 00:23:25,720
Speaker 1: from a post deal perspective, I get roughly a three

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00:23:25,760 --> 00:23:29,600
Speaker 1: point products um net debt or leverage ratio. So for

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00:23:29,640 --> 00:23:32,240
Speaker 1: these guys, so they can comfortably do the deal and

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00:23:32,440 --> 00:23:36,680
Speaker 1: possibly continue to UH fund their capital over trans program.

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00:23:36,720 --> 00:23:38,760
Speaker 1: All right, would you let's step back a little bit.

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Speaker 1: You know you've been covering the tech space for a

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00:23:41,359 --> 00:23:43,360
Speaker 1: long time. Now give us a sense of kind of

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00:23:43,600 --> 00:23:46,000
Speaker 1: where we are in tech spending. I don't know if

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Speaker 1: the supply chains are still on issue, but give us

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00:23:49,840 --> 00:23:51,600
Speaker 1: just a sense of as you step back and look

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00:23:51,640 --> 00:23:54,399
Speaker 1: across the tech stack, where are we kind of in

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00:23:54,400 --> 00:23:56,240
Speaker 1: the psycle, how are things going for the big nature.

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00:23:56,800 --> 00:23:59,800
Speaker 1: I actually view it as a tale of two cities,

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00:24:00,160 --> 00:24:04,000
Speaker 1: right UM. The overarching theme, at least in the near

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00:24:04,119 --> 00:24:06,880
Speaker 1: terms that the supply chain has thrown a monkey ranch

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00:24:07,000 --> 00:24:11,360
Speaker 1: to UH some of this spending. But I do think

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00:24:11,400 --> 00:24:14,240
Speaker 1: that on the consumer side we do have some UM

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00:24:14,280 --> 00:24:19,000
Speaker 1: inflationary concerns heading into the second half. I'm fairly concerned

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00:24:19,040 --> 00:24:23,639
Speaker 1: about European tech spending, China tech spending, in consumer tech

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00:24:23,680 --> 00:24:25,560
Speaker 1: spending in the near term, and that's going to affect

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00:24:26,200 --> 00:24:28,280
Speaker 1: the PC space. And some of the names that we

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00:24:28,359 --> 00:24:31,240
Speaker 1: have called out in the past UM are R Dell

473
00:24:31,400 --> 00:24:34,960
Speaker 1: and H H P hp Q. But on the other

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Speaker 1: end of of the ledger, we have an enterprise tech

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00:24:37,840 --> 00:24:41,480
Speaker 1: spending and we're still coming off a period where companies

476
00:24:41,480 --> 00:24:44,800
Speaker 1: that have under under invested in tech in the pre

477
00:24:44,920 --> 00:24:50,480
Speaker 1: pandemic period are finally, um, finally leading to invest coming

478
00:24:50,480 --> 00:24:52,119
Speaker 1: out of it. And even though there might be a

479
00:24:52,160 --> 00:24:56,919
Speaker 1: recessionary environment going into three UH, they still need to

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00:24:56,960 --> 00:25:00,080
Speaker 1: invest so they can avoid another potential black Swanna. That

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00:25:00,200 --> 00:25:03,520
Speaker 1: and and if we look at orders, not sales, right,

482
00:25:03,520 --> 00:25:07,119
Speaker 1: because sales are probably impacted by the supply chain. If

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00:25:07,119 --> 00:25:10,399
Speaker 1: we look at orders, we're seeing order order growth that

484
00:25:10,480 --> 00:25:14,119
Speaker 1: are two hundred three hundred times UM over the past

485
00:25:14,320 --> 00:25:18,520
Speaker 1: to three quarters, which and you're gonna see, um, you

486
00:25:18,560 --> 00:25:21,440
Speaker 1: know that that orders are going to convert into sales

487
00:25:21,480 --> 00:25:23,760
Speaker 1: sometime or another. And twenty three or twenty four, All right,

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00:25:23,800 --> 00:25:26,680
Speaker 1: good stuff as always. Wogein host senior hardware analysts for

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00:25:26,680 --> 00:25:30,720
Speaker 1: Bloomberg Intelligence, one of the top tech analysts on Wall Street,

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00:25:30,760 --> 00:25:33,280
Speaker 1: and we have one of tech research top tech research

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00:25:33,400 --> 00:25:39,080
Speaker 1: teams on Wall Street, Bloomberg Intelligence. Thanks for listening to

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00:25:39,119 --> 00:25:42,639
Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to

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00:25:42,680 --> 00:25:46,840
Speaker 1: interviews with Apple Podcasts or whatever podcast platform you prefer.

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00:25:47,240 --> 00:25:51,200
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three,

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00:25:51,640 --> 00:25:54,120
Speaker 1: pet On Ball Sweeney I'm on Twitter at pt Sweeney

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00:25:54,160 --> 00:25:56,840
Speaker 1: Before the podcast. You can always catch us worldwide at

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00:25:56,840 --> 00:25:57,840
Speaker 1: Bloomberg Radio