1 00:00:02,920 --> 00:00:10,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,840 --> 00:00:15,000 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:15,040 --> 00:00:15,680 Speaker 1: Eastern on. 4 00:00:15,640 --> 00:00:18,720 Speaker 2: Apple car Play and Android Auto with the Bloomberg Business App. 5 00:00:18,760 --> 00:00:22,000 Speaker 1: Listen on demand wherever you get your podcasts, or watch 6 00:00:22,079 --> 00:00:23,360 Speaker 1: us live on YouTube. 7 00:00:24,880 --> 00:00:26,680 Speaker 3: All right, let's get back to Tesla for a second. 8 00:00:26,720 --> 00:00:30,160 Speaker 3: Dig a little deeper here. Craig Tudel, Bloomberg Global Autos Editor, 9 00:00:30,320 --> 00:00:32,839 Speaker 3: joins us, Now, so can you play this out over 10 00:00:32,880 --> 00:00:35,080 Speaker 3: the last like three days? So elon, Musk jumps on 11 00:00:35,080 --> 00:00:38,000 Speaker 3: a plane, he goes to China. Then what happens? 12 00:00:38,840 --> 00:00:42,280 Speaker 4: Yeah, good morning. It has been a WorldWind a couple 13 00:00:42,280 --> 00:00:45,720 Speaker 4: of days, a few weeks, I would say. Actually, so 14 00:00:46,080 --> 00:00:49,640 Speaker 4: just to go back even slightly further. You know, Musk 15 00:00:49,720 --> 00:00:52,080 Speaker 4: with the post to go to India a little more 16 00:00:52,120 --> 00:00:54,440 Speaker 4: than a week ago and called off that trip said, 17 00:00:54,560 --> 00:00:57,440 Speaker 4: you know, he had heavy obligations that Tesla is how 18 00:00:57,480 --> 00:01:02,480 Speaker 4: he put it. You know, Tesla proceeds to release really 19 00:01:02,520 --> 00:01:05,760 Speaker 4: crumby for quarter earnings. But Musk kind of pulls a 20 00:01:05,800 --> 00:01:09,000 Speaker 4: rabbit out of a hat in you know, announcing the 21 00:01:09,080 --> 00:01:13,200 Speaker 4: change in strategy to get deeper vehicles to market faster, 22 00:01:14,240 --> 00:01:16,520 Speaker 4: how exactly is going to do that is a little fuzzy, 23 00:01:16,560 --> 00:01:21,120 Speaker 4: but the gist of it is to use existing manufacturing 24 00:01:21,160 --> 00:01:25,240 Speaker 4: lines to make these new vehicles that could be ready 25 00:01:25,319 --> 00:01:28,440 Speaker 4: as soon as the late this year or early next year. 26 00:01:29,720 --> 00:01:33,360 Speaker 4: In the process of making that pivot, he clearly needs 27 00:01:33,400 --> 00:01:37,200 Speaker 4: to sort of, you know, get incremental revenue after you know, 28 00:01:37,240 --> 00:01:40,600 Speaker 4: a first quarter where sales were really weak, they had 29 00:01:40,680 --> 00:01:46,720 Speaker 4: the lowest revenue since early twenty twenty two levels. And 30 00:01:46,360 --> 00:01:49,160 Speaker 4: in kind of one clear way that they could do 31 00:01:49,240 --> 00:01:53,240 Speaker 4: that is by offering the system that they've marketed as 32 00:01:53,320 --> 00:01:56,400 Speaker 4: full self driving in the US. Importantly, we should note 33 00:01:56,400 --> 00:02:00,680 Speaker 4: it is not a self driving system, but they've market 34 00:02:00,760 --> 00:02:04,040 Speaker 4: that hasn't stopped them for marketing it as for years now. 35 00:02:04,640 --> 00:02:07,720 Speaker 5: All Right, So Craig, let's focus on this weekend, which 36 00:02:07,720 --> 00:02:09,880 Speaker 5: seems to be moving the stock today. Am I to 37 00:02:09,960 --> 00:02:14,480 Speaker 5: understand that the getting the Chinese approval for this driver 38 00:02:14,520 --> 00:02:17,120 Speaker 5: assistance was up in the air, like there's a risk 39 00:02:17,160 --> 00:02:20,040 Speaker 5: that they wouldn't get it, and then Elon hops on 40 00:02:20,080 --> 00:02:22,560 Speaker 5: a jet, flies over and saves the day. 41 00:02:22,880 --> 00:02:23,960 Speaker 6: Is that what happened? 42 00:02:24,840 --> 00:02:28,120 Speaker 4: Yeah, it wasn't necessarily the case that this was you know, 43 00:02:28,200 --> 00:02:30,920 Speaker 4: kind of an overnight thing. Actually the last time that 44 00:02:31,040 --> 00:02:34,080 Speaker 4: Musk was in China, this was something that we reported 45 00:02:34,120 --> 00:02:36,519 Speaker 4: at the time was on the agenda. It's been something 46 00:02:36,560 --> 00:02:39,600 Speaker 4: that Tesla has been after for quite some time, and 47 00:02:39,639 --> 00:02:43,919 Speaker 4: it's increasingly a way that you know, carmakers are competing 48 00:02:43,919 --> 00:02:47,240 Speaker 4: in China is you know, how advanced is your driver 49 00:02:47,320 --> 00:02:50,920 Speaker 4: assistant system? You know, that keeps you from crashing, that 50 00:02:51,000 --> 00:02:53,720 Speaker 4: keeps you in your lane, that allows you in some 51 00:02:53,800 --> 00:02:57,080 Speaker 4: cases to take your hands off the wheel. But in 52 00:02:57,120 --> 00:03:00,920 Speaker 4: all cases you know you absolutely are responsible for or 53 00:03:00,919 --> 00:03:04,440 Speaker 4: for you know, the car, and you know no companies 54 00:03:04,680 --> 00:03:08,959 Speaker 4: are are taking responsibility legal responsibility if if you get 55 00:03:08,960 --> 00:03:12,840 Speaker 4: into a craft UH. You know, with the exception of 56 00:03:12,840 --> 00:03:15,560 Speaker 4: of some you know, very small sort of limited fleets 57 00:03:15,560 --> 00:03:19,480 Speaker 4: and and contained areas, and you know there are quirks 58 00:03:19,720 --> 00:03:22,760 Speaker 4: as you might imagine, you know, buy market for what 59 00:03:22,880 --> 00:03:25,640 Speaker 4: is required to be able to offer these systems that 60 00:03:25,720 --> 00:03:28,600 Speaker 4: really need to be safe and also need to have 61 00:03:28,680 --> 00:03:32,280 Speaker 4: you know, controls for UH data collection and and you know, 62 00:03:32,360 --> 00:03:36,280 Speaker 4: the cameras used to navigate UH the surroundings that these 63 00:03:36,320 --> 00:03:39,480 Speaker 4: cars are going to need to to pilot around. And 64 00:03:39,760 --> 00:03:42,840 Speaker 4: that's been a hang up for Tesla and other international 65 00:03:42,880 --> 00:03:46,920 Speaker 4: companies that you know, they need to uh in you know, 66 00:03:47,720 --> 00:03:52,120 Speaker 4: in all cases work with local Chinese companies for things 67 00:03:52,160 --> 00:03:55,040 Speaker 4: like mapping and navigation. So one one of the key 68 00:03:55,120 --> 00:03:57,880 Speaker 4: sort of you know takeaways from this trip was uh 69 00:03:58,080 --> 00:04:02,240 Speaker 4: Tesla agreeing to do that with bay Do in China. 70 00:04:02,840 --> 00:04:04,760 Speaker 3: So who owns the stuff. 71 00:04:06,560 --> 00:04:10,320 Speaker 4: It is importantly you know, it's a matter of ownership 72 00:04:10,400 --> 00:04:13,040 Speaker 4: and where it's kept. And so you know, this has 73 00:04:13,080 --> 00:04:18,440 Speaker 4: come up years ago. Actually, you know, Tesla had had 74 00:04:18,480 --> 00:04:20,680 Speaker 4: a bit of a hang up where their cars were 75 00:04:20,720 --> 00:04:24,080 Speaker 4: banned from you know, being in the area of military 76 00:04:24,120 --> 00:04:27,479 Speaker 4: compounds and other sort of sensitive parts of kinda out 77 00:04:27,520 --> 00:04:31,240 Speaker 4: of concerns about you know, any information that cars were gathering, 78 00:04:31,720 --> 00:04:34,440 Speaker 4: and you know, there were concerns about whether any data 79 00:04:34,640 --> 00:04:38,200 Speaker 4: was going from Tesla's China operations back to the US, 80 00:04:38,600 --> 00:04:41,880 Speaker 4: and so Tesla needed to sort of reassert kinda that 81 00:04:42,279 --> 00:04:45,800 Speaker 4: you know, any data collected in China will stay in China. 82 00:04:45,880 --> 00:04:48,880 Speaker 4: And so that has been you know, something that they've 83 00:04:48,920 --> 00:04:51,359 Speaker 4: had to sort of acquiesce to as of you know, 84 00:04:51,440 --> 00:04:55,000 Speaker 4: several years ago. But they they needed to still sort 85 00:04:55,040 --> 00:04:59,400 Speaker 4: of you know, clear uh you know approval for for 86 00:04:59,640 --> 00:05:02,039 Speaker 4: you know, making sure that their keys were crossed and 87 00:05:02,080 --> 00:05:04,440 Speaker 4: eyes were dotted in that respect, and they needed this 88 00:05:04,520 --> 00:05:07,400 Speaker 4: deal with BAYD. It does seem to be the case 89 00:05:07,440 --> 00:05:10,359 Speaker 4: that they need other need to meet other conditions in 90 00:05:10,480 --> 00:05:14,880 Speaker 4: order for FSD to be offered in China. It's still 91 00:05:14,880 --> 00:05:18,320 Speaker 4: not a done deal, but what you know, sort of 92 00:05:18,320 --> 00:05:20,400 Speaker 4: hoops they still have to jump through are a bit 93 00:05:20,480 --> 00:05:23,360 Speaker 4: unclear at this point. That's not stopping the market from 94 00:05:23,400 --> 00:05:24,760 Speaker 4: getting very excited about this. 95 00:05:25,200 --> 00:05:28,599 Speaker 5: So how does this change, if at all, kind of 96 00:05:28,600 --> 00:05:31,679 Speaker 5: the competitive landscape for Tesla in China? I know, you guys, 97 00:05:31,920 --> 00:05:33,720 Speaker 5: you you guys have been reporting a lot of how 98 00:05:33,839 --> 00:05:37,640 Speaker 5: some of the local EV makers have really become very 99 00:05:37,680 --> 00:05:39,040 Speaker 5: good and very competitive. 100 00:05:40,279 --> 00:05:44,640 Speaker 4: Yeah, I think it absolutely is something that's been missing 101 00:05:44,680 --> 00:05:48,840 Speaker 4: for Tesla that, assuming all goes well here, you know, 102 00:05:49,120 --> 00:05:51,440 Speaker 4: it will no longer be a sort of strike against 103 00:05:51,440 --> 00:05:54,680 Speaker 4: them among consumers who really, you know, want the most 104 00:05:54,720 --> 00:05:59,200 Speaker 4: cutting edge technology. It remains to be seen how big 105 00:05:59,200 --> 00:06:01,240 Speaker 4: a deal it will be or Tesla from from a 106 00:06:01,279 --> 00:06:03,960 Speaker 4: revenue standpoint, because we don't know at this point how 107 00:06:04,040 --> 00:06:06,880 Speaker 4: much Tesla will be willing, uh will be looking to 108 00:06:06,960 --> 00:06:09,520 Speaker 4: charge for it. We don't know, uh, you know, to 109 00:06:09,560 --> 00:06:11,719 Speaker 4: what extent they may have to share some revenue with 110 00:06:11,800 --> 00:06:13,800 Speaker 4: some of their partners. It's not clear whether by Do 111 00:06:14,000 --> 00:06:18,160 Speaker 4: maybe gets a cut. You know, in the US, Tesla 112 00:06:18,760 --> 00:06:21,080 Speaker 4: and you know throughout the world, Tesla has made a 113 00:06:21,080 --> 00:06:24,320 Speaker 4: point to really be you know, want to be vertically integrated. 114 00:06:24,839 --> 00:06:25,080 Speaker 1: Uh. 115 00:06:25,160 --> 00:06:27,359 Speaker 4: And that's you know, fancy talk for in control of 116 00:06:27,400 --> 00:06:30,240 Speaker 4: its own destiny. Uh. They were willing to sort of 117 00:06:30,279 --> 00:06:34,120 Speaker 4: acquiesce in this case. Uh, you know, I think because 118 00:06:34,160 --> 00:06:37,320 Speaker 4: they they really could use this boost in China at 119 00:06:37,320 --> 00:06:39,640 Speaker 4: a at a time when their their lineup is getting 120 00:06:39,640 --> 00:06:42,000 Speaker 4: a bit tired and they're losing a lot of market 121 00:06:42,000 --> 00:06:44,400 Speaker 4: share to companies like byd Well. 122 00:06:44,400 --> 00:06:46,320 Speaker 3: This also raises the question too, it doesn't take a 123 00:06:46,400 --> 00:06:49,839 Speaker 3: lot of news to get Tesla stock moving. Not that 124 00:06:49,880 --> 00:06:51,680 Speaker 3: a trip to China wasn't a big deal, but like 125 00:06:51,720 --> 00:06:53,880 Speaker 3: you said, there's so many questions as to the actual 126 00:06:53,920 --> 00:06:56,560 Speaker 3: revenue driver and what it's going to mean. I mean, 127 00:06:56,560 --> 00:06:58,120 Speaker 3: you have to wonder, you know, it's not going to 128 00:06:58,160 --> 00:07:01,080 Speaker 3: take a lot for any kind of shorts Craig to cover. 129 00:07:02,320 --> 00:07:05,000 Speaker 4: I think that's right. And this is also a name 130 00:07:05,040 --> 00:07:09,520 Speaker 4: that you know, options traders absolutely love. It's it's sort 131 00:07:09,560 --> 00:07:11,680 Speaker 4: of like the meme stock that has lasted as a 132 00:07:11,720 --> 00:07:14,960 Speaker 4: meme stock as that craze has sort of faded away, 133 00:07:15,400 --> 00:07:18,960 Speaker 4: and so you know, anytime to your point, you know, 134 00:07:19,080 --> 00:07:22,080 Speaker 4: Musk is able to sort of get the momentum with 135 00:07:22,240 --> 00:07:25,760 Speaker 4: you know, the narrative, it tends to lead to big swings. 136 00:07:25,800 --> 00:07:28,000 Speaker 4: So you know, earlier this year, I think he lost 137 00:07:28,200 --> 00:07:32,480 Speaker 4: control of that narrative. And you know it's not it's 138 00:07:32,520 --> 00:07:34,440 Speaker 4: not at all a mystery as to why that is, 139 00:07:34,480 --> 00:07:37,120 Speaker 4: you know, looking at last week's earnings, but I think 140 00:07:37,120 --> 00:07:39,320 Speaker 4: he was really able to sort of change what people 141 00:07:39,360 --> 00:07:42,360 Speaker 4: were talking about last week. If it, I guess, you know, 142 00:07:42,800 --> 00:07:45,080 Speaker 4: it will see whether or not you know, this is 143 00:07:45,360 --> 00:07:49,200 Speaker 4: uh mostly talk as opposed to you know, going to 144 00:07:49,440 --> 00:07:52,880 Speaker 4: to lead to real, sort of meaningful change in Tesla's 145 00:07:52,880 --> 00:07:55,679 Speaker 4: earnings trajectory, which has not been trending in the right direction. 146 00:07:56,200 --> 00:07:57,760 Speaker 6: All right, Craig, thanks so much. We appreciate it. 147 00:07:57,800 --> 00:08:00,480 Speaker 5: Craig Tudell, Global autos editor for Bloomberg News, joining us 148 00:08:00,520 --> 00:08:01,280 Speaker 5: from London. 149 00:08:01,600 --> 00:08:02,240 Speaker 6: You know, I follow it. 150 00:08:02,440 --> 00:08:05,160 Speaker 5: Bloomberg's own ed Ludlow on social media, and of course 151 00:08:05,200 --> 00:08:07,440 Speaker 5: he just got a new testa and I think he 152 00:08:07,560 --> 00:08:10,880 Speaker 5: uses that autonomous driving features that it has, so he's 153 00:08:10,920 --> 00:08:14,280 Speaker 5: been reporting today for example, our boy Ed, who lives 154 00:08:14,320 --> 00:08:17,000 Speaker 5: in San Francisco. His full commute about twenty five miles, 155 00:08:17,880 --> 00:08:21,239 Speaker 5: three disengagements, but ninety percent of the drive was under 156 00:08:21,360 --> 00:08:25,240 Speaker 5: their FSD in all smooth. His FSD made it all 157 00:08:25,280 --> 00:08:28,120 Speaker 5: the way to the Golden Gate Bridge, but then had 158 00:08:28,160 --> 00:08:31,080 Speaker 5: some problems about deciding which lane it wanted to choose, 159 00:08:31,120 --> 00:08:31,680 Speaker 5: so Ed had. 160 00:08:31,560 --> 00:08:32,200 Speaker 6: To step in there. 161 00:08:32,240 --> 00:08:35,080 Speaker 5: But by and large, that's reporting this on a daily basis. 162 00:08:35,080 --> 00:08:38,079 Speaker 5: He's putting his life on the line for his primary 163 00:08:38,160 --> 00:08:39,280 Speaker 5: reporting duties. 164 00:08:39,480 --> 00:08:40,720 Speaker 7: He's the best. 165 00:08:40,840 --> 00:08:41,840 Speaker 6: It looks like it's working. 166 00:08:42,080 --> 00:08:44,319 Speaker 3: I guess is the question just becomes like how much 167 00:08:44,360 --> 00:08:46,400 Speaker 3: you want to pay for it? Like, I mean, sure 168 00:08:46,440 --> 00:08:49,920 Speaker 3: it'd be great, but is the average person, not just 169 00:08:49,960 --> 00:08:52,040 Speaker 3: the tech reporter in San Francisco who are also anchors 170 00:08:52,080 --> 00:08:54,600 Speaker 3: in tech show, like well, the average person spend eight 171 00:08:54,640 --> 00:08:56,680 Speaker 3: grand a year for it or one hundred bucks a month. 172 00:08:56,920 --> 00:08:58,720 Speaker 6: I don't know. I mean that kind of goes to 173 00:08:58,720 --> 00:09:00,560 Speaker 6: the bigger issue of car here. 174 00:09:00,600 --> 00:09:03,280 Speaker 5: I mean, you know, it remains to be seen for 175 00:09:03,480 --> 00:09:06,360 Speaker 5: Tesla investors, you know, is it tough to make? Can 176 00:09:06,400 --> 00:09:09,959 Speaker 5: they make a profit at a thirty thousand the price limit? 177 00:09:10,000 --> 00:09:11,640 Speaker 5: There's a lot of concern that. 178 00:09:11,600 --> 00:09:12,480 Speaker 6: They won't be able to do that. 179 00:09:12,559 --> 00:09:16,440 Speaker 5: But again Elon put out some good talk on the 180 00:09:16,480 --> 00:09:18,800 Speaker 5: earnings call, trying to masking over what was a week 181 00:09:18,920 --> 00:09:21,000 Speaker 5: quarter and then of course going over and had this 182 00:09:21,040 --> 00:09:23,000 Speaker 5: great successful event here in China. 183 00:09:23,080 --> 00:09:24,679 Speaker 6: The last forty eight hours. 184 00:09:26,120 --> 00:09:30,040 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 185 00:09:30,120 --> 00:09:32,960 Speaker 1: weekdays at ten am Eastern on applecar. 186 00:09:32,640 --> 00:09:35,160 Speaker 2: Play and androyd Otto with the Bloomberg Business. 187 00:09:35,520 --> 00:09:38,360 Speaker 1: You can also listen live on Amazon Alexa from our 188 00:09:38,400 --> 00:09:42,760 Speaker 1: flagship New York station, Just say Alexa playing Bloomberg eleven thirty. 189 00:09:44,280 --> 00:09:46,880 Speaker 3: You got the SMP up about four tenths of one percent. 190 00:09:46,880 --> 00:09:49,400 Speaker 3: But it's a really busy week between Eco, jobs data, 191 00:09:49,440 --> 00:09:51,800 Speaker 3: the FED and then earnings as well. So you want 192 00:09:51,800 --> 00:09:54,720 Speaker 3: to break down what is going to actually move the markets. 193 00:09:54,720 --> 00:09:58,719 Speaker 3: Margie Pateel, senior portfolio manager at all Spring Global Investments 194 00:09:58,760 --> 00:10:00,880 Speaker 3: that joins us now, So I know you're going to 195 00:10:00,960 --> 00:10:03,320 Speaker 3: say all of the stuff, but let's just pin you down. 196 00:10:03,400 --> 00:10:05,160 Speaker 3: So is it going to be Apple and Amazon and 197 00:10:05,200 --> 00:10:06,960 Speaker 3: all the companies reporting. Is it going to be the 198 00:10:06,960 --> 00:10:08,400 Speaker 3: FED or is it going to be the jobs data? 199 00:10:09,840 --> 00:10:12,640 Speaker 8: Oh, I think the job will be more important because frankly, 200 00:10:12,720 --> 00:10:15,160 Speaker 8: what the FED has done or not done, hasn't really 201 00:10:15,200 --> 00:10:17,880 Speaker 8: had much of effect on the market either way. When 202 00:10:17,960 --> 00:10:22,199 Speaker 8: they talked about three cups this year, the market was 203 00:10:22,240 --> 00:10:24,920 Speaker 8: a little interested in. When the market is now saying, well, 204 00:10:24,920 --> 00:10:27,880 Speaker 8: maybe they'll even race rates, it hasn't really affected the market. 205 00:10:27,920 --> 00:10:31,600 Speaker 8: The market's been hooping at earnings. That's what's important. Inflation 206 00:10:31,760 --> 00:10:34,480 Speaker 8: has not been a negative issue for companies, So I 207 00:10:34,480 --> 00:10:37,360 Speaker 8: think it's more of the same at looking at data 208 00:10:37,400 --> 00:10:39,920 Speaker 8: that shows the strength of the economy, like the jobs data. 209 00:10:40,440 --> 00:10:46,040 Speaker 5: So are you concerned that this FED maybe maybe get 210 00:10:46,040 --> 00:10:49,200 Speaker 5: a little bit reticent here about that FED pivot we 211 00:10:49,200 --> 00:10:50,760 Speaker 5: had in December, and that maybe they went a little 212 00:10:50,760 --> 00:10:53,120 Speaker 5: bit too far, and maybe they'll try to compensate here 213 00:10:53,360 --> 00:10:55,440 Speaker 5: this week and may talk a little bit more hawkish 214 00:10:55,760 --> 00:10:57,120 Speaker 5: than the market's discounting. 215 00:10:58,320 --> 00:11:01,240 Speaker 8: Well, you know that they're seems to have swung a 216 00:11:01,240 --> 00:11:04,760 Speaker 8: lot more than their actual actions, and the actions that 217 00:11:04,760 --> 00:11:07,920 Speaker 8: they've made, even raising rates for the last two years, 218 00:11:08,280 --> 00:11:09,760 Speaker 8: didn't really derail the market. 219 00:11:10,600 --> 00:11:12,439 Speaker 9: The market really has proven to be not. 220 00:11:12,480 --> 00:11:16,720 Speaker 8: So sensitive to short changes in short term interest rates 221 00:11:17,040 --> 00:11:18,560 Speaker 8: as we've seen in past cycles. 222 00:11:18,960 --> 00:11:22,280 Speaker 9: So I think the and particularly short rates, I think again. 223 00:11:22,160 --> 00:11:25,520 Speaker 8: Corporate America is pretty much immune to the Fed's decisions. 224 00:11:25,679 --> 00:11:28,680 Speaker 8: They're not overlevered. So really, I HDA doesn't matter, but 225 00:11:28,720 --> 00:11:31,800 Speaker 8: it really doesn't matter. And I think inflation at say 226 00:11:32,080 --> 00:11:35,480 Speaker 8: three and a half percent is really a benign backdrop 227 00:11:35,640 --> 00:11:38,640 Speaker 8: for corporate earnings, allowing companies to have the ability to 228 00:11:38,720 --> 00:11:41,560 Speaker 8: raise prices a little bit and keeping those high margins. 229 00:11:41,640 --> 00:11:43,959 Speaker 8: I think that's what the market's looking at, rather than 230 00:11:43,960 --> 00:11:45,800 Speaker 8: what the FED is doing or thinking about. 231 00:11:46,840 --> 00:11:48,439 Speaker 3: In that case, what are we going to learn from 232 00:11:48,480 --> 00:11:51,199 Speaker 3: earnings this week? In that you're at a date, you 233 00:11:51,320 --> 00:11:54,200 Speaker 3: got energy and financials are number two in three in 234 00:11:54,280 --> 00:11:56,319 Speaker 3: terms of sector is best performing on the S and 235 00:11:56,360 --> 00:11:59,000 Speaker 3: P Communication services number one, But you could argue that 236 00:11:59,000 --> 00:12:01,520 Speaker 3: it's a meta an alphabet thing and tech comes in 237 00:12:01,559 --> 00:12:05,079 Speaker 3: at number four. Is it going to be cyclical leadership? 238 00:12:05,120 --> 00:12:07,400 Speaker 3: Will that actually happen when their earnings deliver? 239 00:12:08,840 --> 00:12:10,920 Speaker 8: Well, I think all those sectors that you said are 240 00:12:11,280 --> 00:12:14,120 Speaker 8: economically sensitive, and so they have all. 241 00:12:14,040 --> 00:12:18,160 Speaker 9: Reflected, frankly, a better economy. Last week's earnings were better. 242 00:12:17,920 --> 00:12:20,600 Speaker 8: Than the market expected, and we'll see this week if 243 00:12:20,640 --> 00:12:23,760 Speaker 8: again we have better than expected. I expect that we will, 244 00:12:24,559 --> 00:12:28,040 Speaker 8: and so I think that that's really what the market's telegraphing. 245 00:12:28,440 --> 00:12:29,839 Speaker 9: When you have those sectors that. 246 00:12:29,800 --> 00:12:34,360 Speaker 8: Are sensitive, even financials energy, that says to me that 247 00:12:34,400 --> 00:12:36,600 Speaker 8: the market is not worried about economic growth. 248 00:12:36,640 --> 00:12:39,040 Speaker 9: It's looking at price and power or a little bit 249 00:12:39,080 --> 00:12:39,640 Speaker 9: of inflation. 250 00:12:43,600 --> 00:12:46,000 Speaker 5: Right now, we're speaking with margattele portfolio manager at all 251 00:12:46,040 --> 00:12:48,080 Speaker 5: Spring a Global, and coming up in just a couple 252 00:12:48,120 --> 00:12:50,240 Speaker 5: of moments, we're going to listen into a Bloomberg television 253 00:12:50,280 --> 00:12:54,280 Speaker 5: interview with Lamborghini CEO Stefan Winkelman, and Matt Miller is 254 00:12:54,320 --> 00:12:56,720 Speaker 5: not here to participate in that. 255 00:12:56,760 --> 00:12:57,720 Speaker 6: I know who's going to miss that. 256 00:12:58,080 --> 00:13:00,439 Speaker 5: So Markie, here, what are the sectors we should be 257 00:13:00,520 --> 00:13:03,920 Speaker 5: looking at here as we think about the second half 258 00:13:04,000 --> 00:13:05,800 Speaker 5: of this year, where are you guys most. 259 00:13:05,679 --> 00:13:06,199 Speaker 7: Of these. 260 00:13:07,520 --> 00:13:10,680 Speaker 8: Well, again, we think economically sensitive sectors are going to 261 00:13:10,720 --> 00:13:13,559 Speaker 8: do better for the year, so that would be technology. 262 00:13:13,720 --> 00:13:15,920 Speaker 9: Certainly, it's been a volable sector, but we still. 263 00:13:15,720 --> 00:13:19,760 Speaker 8: Think there are plenty of very competitive companies who are 264 00:13:19,800 --> 00:13:22,960 Speaker 8: not priced too high that will perform better than the market. 265 00:13:23,440 --> 00:13:26,040 Speaker 8: We also like industrials because we do think there's a 266 00:13:26,080 --> 00:13:30,240 Speaker 8: capital expenditure cycle and expansion of manufacturing and investment by 267 00:13:30,280 --> 00:13:34,160 Speaker 8: companies that were very positive. Some of the materials in fact, 268 00:13:34,240 --> 00:13:38,840 Speaker 8: we think will benefit and energy, which has rather been overlooked. 269 00:13:39,280 --> 00:13:43,920 Speaker 8: Healthcare has been more a company come group of companies 270 00:13:43,920 --> 00:13:47,600 Speaker 8: that's reacted to the down draft after COVID and the 271 00:13:47,720 --> 00:13:50,280 Speaker 8: drawing up of money to be spent on tools and 272 00:13:50,320 --> 00:13:51,320 Speaker 8: devices by log of. 273 00:13:51,320 --> 00:13:52,239 Speaker 9: The new companies. 274 00:13:52,520 --> 00:13:56,199 Speaker 8: So we think healthcare is attractive still, but very selective 275 00:13:56,280 --> 00:14:00,199 Speaker 8: because some companies, say Lily for example. 276 00:13:59,840 --> 00:14:01,000 Speaker 9: Have a wonderful product. 277 00:14:01,800 --> 00:14:04,760 Speaker 8: Some of the tools and devices companies have had disappointing 278 00:14:04,800 --> 00:14:08,080 Speaker 8: earnings because of destroyer and funding and also because of 279 00:14:08,360 --> 00:14:10,200 Speaker 8: dramatic luring of China sales. 280 00:14:10,840 --> 00:14:13,960 Speaker 3: Margie, you didn't mention tech, and so I assume that 281 00:14:13,960 --> 00:14:15,840 Speaker 3: if you don't own tech right now, it's hard to 282 00:14:15,840 --> 00:14:18,560 Speaker 3: buy it at these levels. But how big of a 283 00:14:18,600 --> 00:14:20,480 Speaker 3: part should that be of your portfolio? 284 00:14:21,800 --> 00:14:25,360 Speaker 8: Well, really, when you look at technology, there are first 285 00:14:25,400 --> 00:14:28,680 Speaker 8: of all, many companies now pay competitive dividends, which I 286 00:14:28,760 --> 00:14:30,960 Speaker 8: didn't used to do. And if you look at their 287 00:14:31,040 --> 00:14:35,080 Speaker 8: price earnings ratio versus some sort of estimate of future growth, 288 00:14:35,400 --> 00:14:37,760 Speaker 8: and then you look at other sectors price. 289 00:14:37,520 --> 00:14:40,760 Speaker 9: Earnings ratio estimates of growth, it always. 290 00:14:40,480 --> 00:14:42,560 Speaker 8: Seems to me that tech may be a little bit 291 00:14:42,600 --> 00:14:46,880 Speaker 8: expensive on a price earnings ratio, but much higher sustainable 292 00:14:46,880 --> 00:14:49,840 Speaker 8: prospects of growth. When you look at some sectors that 293 00:14:49,880 --> 00:14:55,840 Speaker 8: are priced almost as high as tech, say consumered staples. Really, 294 00:14:55,880 --> 00:14:57,720 Speaker 8: I just don't see the growth there. I don't see 295 00:14:57,760 --> 00:15:01,480 Speaker 8: the pricing power there in an uncertain world. Just as 296 00:15:01,520 --> 00:15:05,400 Speaker 8: to me, technology use is fairly valued and it will 297 00:15:05,440 --> 00:15:07,840 Speaker 8: really depend on earnings, and so I think it'll continue 298 00:15:07,880 --> 00:15:08,440 Speaker 8: to do better. 299 00:15:09,160 --> 00:15:11,040 Speaker 6: Right, market Ptel, thank you so much. We appreciate that. 300 00:15:11,120 --> 00:15:14,720 Speaker 5: Market Ptel's senior portfolio manager at all Spring Global Investments 301 00:15:15,280 --> 00:15:17,200 Speaker 5: joining us via zoom Hearing. 302 00:15:19,560 --> 00:15:23,440 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 303 00:15:23,520 --> 00:15:26,240 Speaker 1: weekdays at ten am Eastern on Apple car Playing and 304 00:15:26,360 --> 00:15:29,240 Speaker 1: broud Auto with the Bloomberg Business app. Listen on demand 305 00:15:29,280 --> 00:15:32,960 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 306 00:15:34,200 --> 00:15:35,840 Speaker 3: Let's go to Apple for a second. So that's not 307 00:15:36,040 --> 00:15:38,120 Speaker 3: is actually up by about three percent to get an 308 00:15:38,200 --> 00:15:41,520 Speaker 3: upgrade over at Bernstein. It sees Bernstein apparently sees China 309 00:15:41,560 --> 00:15:45,240 Speaker 3: issues as cyclical, but the broader headline was that the 310 00:15:45,240 --> 00:15:48,960 Speaker 3: European Union took aim at Apple's iPad. It's been hit 311 00:15:49,000 --> 00:15:51,880 Speaker 3: by its digital dominance corrack down. I don't really know 312 00:15:51,920 --> 00:15:54,400 Speaker 3: what that means, but luckily Anna Igrana does. He's Bloomberg 313 00:15:54,440 --> 00:15:57,000 Speaker 3: Intelligence technology analyst. He joins us. Now on a rock, 314 00:15:57,560 --> 00:16:00,680 Speaker 3: what does that mean that the EU's digital dominant crackdown 315 00:16:00,760 --> 00:16:01,720 Speaker 3: hits the iPad. 316 00:16:02,840 --> 00:16:05,280 Speaker 10: Yeah, it's to be very honest, it's not much, frankly, 317 00:16:07,320 --> 00:16:10,240 Speaker 10: only because the EU wants to make sure that these 318 00:16:10,280 --> 00:16:13,640 Speaker 10: ecosystems or the operating systems are open and allow third 319 00:16:13,640 --> 00:16:16,120 Speaker 10: party apps and you know, the opening of the payment system, 320 00:16:16,120 --> 00:16:18,960 Speaker 10: et cetera. Apple's already said they're going to do this 321 00:16:19,000 --> 00:16:21,880 Speaker 10: for the iOS for the iPhone, so which is a 322 00:16:21,920 --> 00:16:24,480 Speaker 10: bigger deal. And no, now they have to do this 323 00:16:24,560 --> 00:16:27,520 Speaker 10: for the iPad operating system too, which they're going to 324 00:16:27,560 --> 00:16:29,000 Speaker 10: do anyway. I mean, it's not going to be a 325 00:16:29,040 --> 00:16:33,120 Speaker 10: big deal again mathematically because as you know, iPad revenues 326 00:16:33,160 --> 00:16:36,760 Speaker 10: are tiny compared to what they generate from the iPhone. 327 00:16:36,840 --> 00:16:41,800 Speaker 10: So the services associated with iOS iPhone is far bigger 328 00:16:41,840 --> 00:16:45,760 Speaker 10: than the services associated with iPads. So in our view, 329 00:16:45,880 --> 00:16:48,280 Speaker 10: not a big deal. But you know, we we we 330 00:16:48,360 --> 00:16:50,440 Speaker 10: follow whatever the news stays, all. 331 00:16:50,440 --> 00:16:53,600 Speaker 5: Right, an rag big big seven or eight days coming 332 00:16:53,680 --> 00:16:57,360 Speaker 5: up here for Apple. Thursday they report their earnings and 333 00:16:57,440 --> 00:17:00,400 Speaker 5: next Tuesday they have their I guess, so develop a 334 00:17:00,480 --> 00:17:04,720 Speaker 5: developer conference on the seventh. Let's start with the earnings. 335 00:17:05,160 --> 00:17:08,600 Speaker 5: What can they say or what does a market want 336 00:17:08,640 --> 00:17:11,320 Speaker 5: to hear about China? About what type of headwinder it 337 00:17:11,320 --> 00:17:12,280 Speaker 5: will be in for how long? 338 00:17:13,119 --> 00:17:16,440 Speaker 10: So if you hear the word China stabilizing good, if 339 00:17:16,480 --> 00:17:19,639 Speaker 10: you say China's still bad, not good, that's it. I mean, 340 00:17:19,680 --> 00:17:22,040 Speaker 10: there's there's not a whole lot other than. 341 00:17:23,880 --> 00:17:23,960 Speaker 9: That. 342 00:17:24,119 --> 00:17:26,320 Speaker 10: Those are the only two things you'd be looking for, 343 00:17:26,600 --> 00:17:28,879 Speaker 10: because the AI stuff's not going to happen for another 344 00:17:29,040 --> 00:17:31,760 Speaker 10: month or so. When they're when they do the developer 345 00:17:31,800 --> 00:17:35,440 Speaker 10: conference back next day in June, the main event is 346 00:17:35,480 --> 00:17:38,240 Speaker 10: about the iPads, the new iPad's coming out, which is 347 00:17:38,240 --> 00:17:41,520 Speaker 10: again exciting, but again not a needle mover financially. 348 00:17:41,680 --> 00:17:44,719 Speaker 3: Yeah, I was gonna say, I'm okay, fine, what did 349 00:17:44,760 --> 00:17:47,440 Speaker 3: you make of this Bernstein upgrade? So they upgraded the 350 00:17:47,480 --> 00:17:50,199 Speaker 3: Apple target to apperform for market perform. They have an 351 00:17:50,240 --> 00:17:53,040 Speaker 3: unchanged price target of one ninety five. But the reason 352 00:17:53,080 --> 00:17:55,400 Speaker 3: behind it I found interesting. They said the China weakness. 353 00:17:55,400 --> 00:17:59,440 Speaker 3: They see it as more cyclical than structural, and they 354 00:17:59,440 --> 00:18:02,680 Speaker 3: say that overall Apple's business in China has been more 355 00:18:02,760 --> 00:18:05,359 Speaker 3: volatile than the wider company and everything's kind of already 356 00:18:05,400 --> 00:18:08,040 Speaker 3: priced into that point. Do you agree with that based 357 00:18:08,080 --> 00:18:08,760 Speaker 3: on your research? 358 00:18:09,640 --> 00:18:11,720 Speaker 10: See one of the things I would agree is yes, 359 00:18:11,800 --> 00:18:14,359 Speaker 10: it is cyclical. But one of the things I don't 360 00:18:14,359 --> 00:18:17,359 Speaker 10: know is how far is the bottom for these you know, 361 00:18:17,840 --> 00:18:19,680 Speaker 10: do you know we're going to see a double digit 362 00:18:19,720 --> 00:18:20,560 Speaker 10: decline in China? 363 00:18:21,000 --> 00:18:22,160 Speaker 7: That's going to happen now. 364 00:18:22,200 --> 00:18:23,080 Speaker 6: I do not know. 365 00:18:23,160 --> 00:18:25,280 Speaker 10: Whether next year we're going to see the same thing 366 00:18:25,359 --> 00:18:27,680 Speaker 10: or not, because you know, what is going to drive 367 00:18:27,720 --> 00:18:30,880 Speaker 10: that iPhone cycle in China if things are still weak, 368 00:18:30,880 --> 00:18:33,239 Speaker 10: if consumers still weak, and Jami is still giving them 369 00:18:33,240 --> 00:18:35,600 Speaker 10: a hard time. So I think it's tough to time 370 00:18:35,800 --> 00:18:38,400 Speaker 10: when this thing is. But I do believe that Apple's 371 00:18:38,400 --> 00:18:41,000 Speaker 10: a premiere brand and people are not getting rid of 372 00:18:41,040 --> 00:18:43,680 Speaker 10: it to the sake of something else. The Jamie Phone 373 00:18:43,720 --> 00:18:47,879 Speaker 10: just came out after a very very, very very long break, 374 00:18:47,880 --> 00:18:50,880 Speaker 10: and which is what doing I apologize Jaweve phone, not 375 00:18:50,880 --> 00:18:51,760 Speaker 10: not Jami. 376 00:18:52,520 --> 00:18:56,760 Speaker 5: So we had Dan ives on earlier today on surveillance 377 00:18:56,800 --> 00:19:02,439 Speaker 5: and those surprise books about AI and Apple's ability to 378 00:19:02,480 --> 00:19:05,800 Speaker 5: capitalize on AI despite the fact that they really do 379 00:19:05,920 --> 00:19:08,240 Speaker 5: not have any dedicated offering it. 380 00:19:08,240 --> 00:19:11,480 Speaker 6: It appears to most investors. How do you think about 381 00:19:11,800 --> 00:19:12,800 Speaker 6: Apple and AI? 382 00:19:13,040 --> 00:19:17,400 Speaker 5: Will they at some point become an AI play for investors? 383 00:19:18,480 --> 00:19:21,320 Speaker 10: So I think the most important thing is when they 384 00:19:21,520 --> 00:19:23,720 Speaker 10: announce in June. Is it going to be a tie 385 00:19:23,800 --> 00:19:26,280 Speaker 10: up between them and Google again or are they going 386 00:19:26,280 --> 00:19:29,280 Speaker 10: to license some technology from open ai or are they 387 00:19:29,320 --> 00:19:31,399 Speaker 10: going to build something in house. I think the in 388 00:19:31,480 --> 00:19:34,199 Speaker 10: house is probably the weakest at this point, because you know, 389 00:19:34,240 --> 00:19:36,000 Speaker 10: if they would have had something, they would have already 390 00:19:36,040 --> 00:19:38,679 Speaker 10: talked about it. And the second thing is they're just 391 00:19:38,720 --> 00:19:41,080 Speaker 10: pushing a lot of resources in the last six months 392 00:19:41,200 --> 00:19:43,200 Speaker 10: and it's not easy to come up with those things. 393 00:19:43,480 --> 00:19:46,320 Speaker 10: But I think I'll be I'll feel far more comfortable 394 00:19:46,480 --> 00:19:49,040 Speaker 10: if they announced a deal with Google and say we're 395 00:19:49,040 --> 00:19:51,600 Speaker 10: going to license some of Google's technology to build our 396 00:19:51,680 --> 00:19:55,280 Speaker 10: own products or improve our products with that technology, because 397 00:19:55,400 --> 00:19:57,800 Speaker 10: they already have a deal with them on the search 398 00:19:57,840 --> 00:20:00,639 Speaker 10: side of things. So that would make me more comfortable 399 00:20:00,880 --> 00:20:03,280 Speaker 10: than them trying to push out some of their own stuff. 400 00:20:04,119 --> 00:20:07,040 Speaker 3: Would you categorize as Apple being behind AI or is 401 00:20:07,080 --> 00:20:09,480 Speaker 3: this just what Apple does, like they let everyone else 402 00:20:09,520 --> 00:20:11,480 Speaker 3: kind of front run a little bit. They see where 403 00:20:11,480 --> 00:20:14,120 Speaker 3: the good and the bad are and then they kind 404 00:20:14,119 --> 00:20:15,560 Speaker 3: of make their own decisions. 405 00:20:16,480 --> 00:20:19,359 Speaker 10: I would say almost everybody was caught off guard with 406 00:20:19,440 --> 00:20:22,399 Speaker 10: open AI, and I you know, I would say Apple 407 00:20:22,520 --> 00:20:22,960 Speaker 10: was behind. 408 00:20:23,800 --> 00:20:27,320 Speaker 5: So again, but if your Apple, you're not behind in 409 00:20:27,520 --> 00:20:30,560 Speaker 5: very many things for a very long period of time, right, 410 00:20:30,600 --> 00:20:35,040 Speaker 5: I mean, do you envision AI becoming a big part 411 00:20:35,160 --> 00:20:38,480 Speaker 5: of the Apple story, because one could argue without it, 412 00:20:38,480 --> 00:20:39,639 Speaker 5: it's a lot less attractive. 413 00:20:40,480 --> 00:20:43,000 Speaker 10: No, I completely agree with you. In this particular case. 414 00:20:43,080 --> 00:20:45,199 Speaker 10: What could happen is, let's say you build a lot 415 00:20:45,240 --> 00:20:48,960 Speaker 10: of the GENI features or search features within the actual 416 00:20:49,000 --> 00:20:52,359 Speaker 10: iOS or you know, you were to ask CD that 417 00:20:52,520 --> 00:20:55,119 Speaker 10: question that currently you go into an app and you 418 00:20:55,280 --> 00:20:57,920 Speaker 10: input that information and then get it. But what if 419 00:20:57,920 --> 00:21:00,600 Speaker 10: you were able to do it just on the operation system? 420 00:21:00,920 --> 00:21:03,280 Speaker 10: And I think that's I mean, that has a powerful 421 00:21:03,600 --> 00:21:06,359 Speaker 10: way of solving that problem. But again, you need to 422 00:21:06,400 --> 00:21:07,600 Speaker 10: have their technology to do that. 423 00:21:08,200 --> 00:21:10,280 Speaker 3: What else do you What else is on your docket 424 00:21:10,280 --> 00:21:12,720 Speaker 3: this week? What else is front and center for arag? 425 00:21:13,480 --> 00:21:16,680 Speaker 10: I think Amazon announcing tomorrow night is a very big deal. 426 00:21:16,720 --> 00:21:19,280 Speaker 10: I think that's going to tell us whether Amazon's going 427 00:21:19,320 --> 00:21:21,600 Speaker 10: to surprise us on the cloud side or not, because 428 00:21:21,760 --> 00:21:25,000 Speaker 10: we've seen Google's done well Microsoft's done well, and if 429 00:21:25,040 --> 00:21:28,480 Speaker 10: Amazon does not perform, it's going to raise all sorts 430 00:21:28,480 --> 00:21:31,439 Speaker 10: of question if they're losing market share, if Google's ahead, 431 00:21:31,440 --> 00:21:35,320 Speaker 10: if Microsoft already you know, showcasing its AI products. So 432 00:21:35,560 --> 00:21:38,880 Speaker 10: I think it's really focuses on Amazon in my view, 433 00:21:39,000 --> 00:21:41,400 Speaker 10: more than I honestly in Apple at this case. 434 00:21:42,400 --> 00:21:44,800 Speaker 5: All right, So I think the one of the questions 435 00:21:44,840 --> 00:21:50,520 Speaker 5: here ANURAG is just technology in general, I mean, and 436 00:21:50,560 --> 00:21:52,679 Speaker 5: it's all about AI. And the question I have is 437 00:21:52,720 --> 00:21:55,000 Speaker 5: just how much of this incremental or how much is 438 00:21:55,000 --> 00:21:57,520 Speaker 5: this AI spending, which is kind of people so excited 439 00:21:57,560 --> 00:22:01,159 Speaker 5: about any company, does any expert AI? How much of 440 00:22:01,280 --> 00:22:03,320 Speaker 5: that do you think is incremental from spending on AI 441 00:22:03,480 --> 00:22:06,199 Speaker 5: for example, taking money just my IT budget. 442 00:22:07,320 --> 00:22:09,520 Speaker 10: This is the single most important question for this year, 443 00:22:09,840 --> 00:22:11,960 Speaker 10: and for what we have seen, it's more of a 444 00:22:12,000 --> 00:22:14,440 Speaker 10: transfer of budgets at this point because when you see 445 00:22:14,480 --> 00:22:17,720 Speaker 10: your results from Accenture or IBM, you see consulting being 446 00:22:17,800 --> 00:22:20,320 Speaker 10: really weak. So people are taking money from that pocket 447 00:22:20,480 --> 00:22:23,880 Speaker 10: and putting it in you know, hardware or AI related hardware. 448 00:22:24,119 --> 00:22:28,280 Speaker 10: Now we think it's going to drive incremental spending. It is, 449 00:22:28,359 --> 00:22:32,040 Speaker 10: I mean driving it, but at the expense of consulting, 450 00:22:32,160 --> 00:22:33,879 Speaker 10: but we think it's going to come back, and it 451 00:22:34,000 --> 00:22:35,040 Speaker 10: may come back next year. 452 00:22:35,520 --> 00:22:36,160 Speaker 7: That's interesting. 453 00:22:36,200 --> 00:22:37,800 Speaker 3: So it's like one big pot that's just kind of 454 00:22:37,800 --> 00:22:39,480 Speaker 3: moving around and then how you wind up playing it. 455 00:22:39,560 --> 00:22:43,720 Speaker 3: Is there any indication that Amazon's cloud won't be good 456 00:22:43,760 --> 00:22:47,159 Speaker 3: in the same way that Google's was? Microsoft were well. 457 00:22:47,040 --> 00:22:49,160 Speaker 10: There are certain you know, you could see that he leaves. 458 00:22:49,200 --> 00:22:50,920 Speaker 10: Is the way we want to think about it is 459 00:22:51,160 --> 00:22:54,600 Speaker 10: Microsoft did well because it had its open AI relationship. 460 00:22:54,840 --> 00:22:57,320 Speaker 10: Amazon does not have that. Amazon selling a lot of 461 00:22:57,320 --> 00:22:59,639 Speaker 10: the nuts and bolts at this point, and it's really 462 00:22:59,720 --> 00:23:02,159 Speaker 10: large in terms of size. It's the biggest cloud of fault. 463 00:23:02,880 --> 00:23:05,600 Speaker 10: So maybe it takes them another two or three quarters 464 00:23:05,640 --> 00:23:08,520 Speaker 10: to get that big push on AI and they are 465 00:23:08,560 --> 00:23:12,760 Speaker 10: still stuck in the old non AI technology. But I 466 00:23:12,840 --> 00:23:14,600 Speaker 10: think that's really they have to come out and prove 467 00:23:14,640 --> 00:23:17,240 Speaker 10: that they are a viable player, you know, in the 468 00:23:17,280 --> 00:23:20,640 Speaker 10: current status. In the long run, I'm very certain that 469 00:23:20,920 --> 00:23:23,960 Speaker 10: Amazon will get the benefits of a lot of incremental 470 00:23:24,000 --> 00:23:24,720 Speaker 10: spending on AI. 471 00:23:25,720 --> 00:23:27,280 Speaker 5: All right, good stuff on a rog Rana. Thanks so 472 00:23:27,359 --> 00:23:28,840 Speaker 5: much for joining us on a rag Roanic. He's a 473 00:23:28,880 --> 00:23:33,840 Speaker 5: technology channels for Bloomberg Intelligence. Joining us from Chicago, so 474 00:23:33,840 --> 00:23:36,639 Speaker 5: we get you know, we have Apple Thursday after the closes, 475 00:23:36,640 --> 00:23:39,600 Speaker 5: Amazon like gu Tuesday after the close, So a couple 476 00:23:39,680 --> 00:23:43,280 Speaker 5: other big prints coming out of technology. I would say 477 00:23:43,280 --> 00:23:45,240 Speaker 5: some of the technology numbers have been good kind of 478 00:23:45,600 --> 00:23:48,320 Speaker 5: so far this quarter. So be up to these two 479 00:23:48,359 --> 00:23:50,560 Speaker 5: big guys to continue, because it just feels like when 480 00:23:50,600 --> 00:23:52,639 Speaker 5: you look at this market, if technology is not working 481 00:23:52,640 --> 00:23:55,480 Speaker 5: for you, where does the market go? 482 00:23:56,000 --> 00:23:58,840 Speaker 3: Industrials and energy? I Like I mentioned earlier, like if 483 00:23:58,840 --> 00:24:01,639 Speaker 3: you look at you're to date, it's communication services, then 484 00:24:01,640 --> 00:24:04,720 Speaker 3: it's industrials and energy, then tech and the communication services 485 00:24:04,720 --> 00:24:07,680 Speaker 3: as a Google and Amazon story at the end of 486 00:24:07,720 --> 00:24:10,919 Speaker 3: the day. So you have to wonder can the cyclicals 487 00:24:11,000 --> 00:24:13,320 Speaker 3: really take control? Which leads me to energy and the 488 00:24:13,320 --> 00:24:15,560 Speaker 3: idea that how many energy stocks do you actually want 489 00:24:15,640 --> 00:24:17,600 Speaker 3: to own? Or is it just going to be the 490 00:24:17,640 --> 00:24:19,200 Speaker 3: big guys and the rest of them are going to 491 00:24:19,240 --> 00:24:21,480 Speaker 3: be scrambling anyway. 492 00:24:21,800 --> 00:24:25,680 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 493 00:24:25,760 --> 00:24:27,600 Speaker 1: weekdays at ten am Eastern on. 494 00:24:27,640 --> 00:24:31,080 Speaker 2: Applecar Play and Android Auto with the Bloomberg Business app. 495 00:24:31,160 --> 00:24:34,000 Speaker 1: You can also listen live on Amazon Alexa from our 496 00:24:34,040 --> 00:24:38,440 Speaker 1: flagship New York station Just say Alexa play Bloomberg eleven thirty. 497 00:24:40,480 --> 00:24:42,199 Speaker 5: We want to talk to fixed income market coming up, 498 00:24:42,240 --> 00:24:45,160 Speaker 5: but I'm just looking at the news. Boeing announced today 499 00:24:45,160 --> 00:24:47,720 Speaker 5: they look to sell bonds after reporting a cash burn. 500 00:24:47,760 --> 00:24:50,480 Speaker 5: They want to do about eight billion dollars of a 501 00:24:50,520 --> 00:24:52,440 Speaker 5: deal here, and I just see another. 502 00:24:52,240 --> 00:24:53,520 Speaker 6: Bloomberg story coming across. 503 00:24:53,560 --> 00:24:57,400 Speaker 5: Just recently Boeing seas seventy seven billion dollars in demand 504 00:24:57,760 --> 00:24:59,919 Speaker 5: for its six part bond sales. So even after that 505 00:25:00,040 --> 00:25:03,159 Speaker 5: really tough quarter, it just shows you how strong the 506 00:25:03,160 --> 00:25:05,840 Speaker 5: corporate bond market is and how much they're looking for 507 00:25:06,320 --> 00:25:07,320 Speaker 5: bonds to invest in. 508 00:25:07,359 --> 00:25:08,679 Speaker 6: So that's a perfect time to bring in. 509 00:25:09,000 --> 00:25:09,199 Speaker 7: R J. 510 00:25:09,280 --> 00:25:13,040 Speaker 5: Gallows, senior portfolio manager fixed Income at Federated Hermes, joining 511 00:25:13,119 --> 00:25:15,840 Speaker 5: us from Pittsburgh via Zoom. I'm sure a phone call 512 00:25:15,880 --> 00:25:18,560 Speaker 5: went in from the underwriters into Federated Hermes for some 513 00:25:18,600 --> 00:25:23,120 Speaker 5: Boeing bonds. But boy, Rj, it just shows the demand 514 00:25:23,160 --> 00:25:26,280 Speaker 5: out there in the strength of the corporate bond market, 515 00:25:26,320 --> 00:25:26,719 Speaker 5: doesn't it. 516 00:25:28,400 --> 00:25:31,680 Speaker 11: Yeah, corporates have done very well this year high yield, 517 00:25:31,720 --> 00:25:35,640 Speaker 11: in particular on a total return basis. Issuance of IG 518 00:25:35,800 --> 00:25:39,160 Speaker 11: has also have been very strong. I think the fact 519 00:25:39,440 --> 00:25:42,720 Speaker 11: that the economy has proven to be much more resilient 520 00:25:43,119 --> 00:25:45,480 Speaker 11: than many would have expected in the face of a 521 00:25:45,880 --> 00:25:48,000 Speaker 11: bed funds rate between five and a quarter and five 522 00:25:48,040 --> 00:25:53,360 Speaker 11: point fifty has underpinned strong demand for corporate credit. Risk 523 00:25:53,760 --> 00:25:58,560 Speaker 11: fundamentals are good, Earnings have been generally favorable. Obviously there's 524 00:25:58,560 --> 00:26:01,800 Speaker 11: some concerns now is the FED is pushed back on 525 00:26:01,920 --> 00:26:05,800 Speaker 11: the prospect of rate cuts, you know what's next. But 526 00:26:05,840 --> 00:26:08,960 Speaker 11: the theme year to date has been resilience in the 527 00:26:09,000 --> 00:26:13,000 Speaker 11: face of a tight FED and that has certainly underpinned 528 00:26:13,000 --> 00:26:14,320 Speaker 11: strong demand for corporate credit. 529 00:26:14,800 --> 00:26:17,600 Speaker 3: So would you take credit risk or duration risk then, 530 00:26:17,720 --> 00:26:18,840 Speaker 3: or I don't know, like both. 531 00:26:20,680 --> 00:26:22,800 Speaker 11: You know, it's funny that you say that. For our 532 00:26:22,840 --> 00:26:25,720 Speaker 11: investment process, we sort of break things up into you know, 533 00:26:25,760 --> 00:26:28,280 Speaker 11: sort of different components of a fixed income portfolio. We 534 00:26:28,320 --> 00:26:32,160 Speaker 11: deliberate on duration, yield curve, and what we'll call credit 535 00:26:32,520 --> 00:26:37,359 Speaker 11: or sector the allocation of a multisector portfolio across different 536 00:26:37,400 --> 00:26:40,000 Speaker 11: portions of the bond market to include say, treasuries, investment 537 00:26:40,000 --> 00:26:44,000 Speaker 11: of corporate's high yield, emerging markets, et cetera. And our 538 00:26:44,040 --> 00:26:48,160 Speaker 11: playbook year to date has been one of somewhat low 539 00:26:48,200 --> 00:26:52,880 Speaker 11: conviction on the rates side. With respected duration, we're neutral 540 00:26:53,200 --> 00:26:55,679 Speaker 11: at this point in time. We think that means that 541 00:26:55,720 --> 00:26:58,720 Speaker 11: there's symmetric risks that yields could rise or fall from here. 542 00:26:59,520 --> 00:27:01,960 Speaker 11: That's proven to be a fairly safe place to be. 543 00:27:02,080 --> 00:27:05,440 Speaker 11: We're not adding alpha by being neutral, but we had 544 00:27:05,480 --> 00:27:08,200 Speaker 11: been more constructive expecting yields to fall at the beginning 545 00:27:08,280 --> 00:27:10,919 Speaker 11: of the year, and the simple resilience I was just 546 00:27:10,920 --> 00:27:13,879 Speaker 11: mentioning has made that not the case. With respect to 547 00:27:14,080 --> 00:27:17,399 Speaker 11: credit risk, we've been a little up in quality into 548 00:27:17,400 --> 00:27:20,800 Speaker 11: places like mortgages. We like the evaluation and mortgages better 549 00:27:20,800 --> 00:27:23,560 Speaker 11: than we do and investment grade corporates. In high yield. 550 00:27:24,119 --> 00:27:26,840 Speaker 11: We're somewhat underweight investment grade corporates and a little bit 551 00:27:26,880 --> 00:27:29,919 Speaker 11: more underweight high yield. We own them, but we're below 552 00:27:30,760 --> 00:27:33,800 Speaker 11: the universal index in terms of our allocations. The corporate 553 00:27:33,840 --> 00:27:37,360 Speaker 11: credit risk, in part because of the strong rally, has 554 00:27:37,440 --> 00:27:40,680 Speaker 11: driven valuations to a place where we feel like there's 555 00:27:40,680 --> 00:27:43,000 Speaker 11: not a lot of upside left from here. You know, 556 00:27:43,040 --> 00:27:46,200 Speaker 11: that's not calling for panic or recession, but we think 557 00:27:46,240 --> 00:27:50,400 Speaker 11: there's opportunities for spreads to widen on event risk or volatility, 558 00:27:50,680 --> 00:27:53,760 Speaker 11: and we revisit those underweights in that timeframe. 559 00:27:54,119 --> 00:27:56,159 Speaker 5: All right, So I mean I could go, I mean, 560 00:27:56,160 --> 00:27:57,639 Speaker 5: what should I do here? Should I go buy a 561 00:27:57,640 --> 00:28:01,080 Speaker 5: two year treasury darned near five percent? Should I take 562 00:28:01,119 --> 00:28:03,320 Speaker 5: that phone call from my city group salesman's trying to 563 00:28:03,320 --> 00:28:05,679 Speaker 5: sell me some of this Boeing paper? 564 00:28:05,680 --> 00:28:05,880 Speaker 3: Here? 565 00:28:05,880 --> 00:28:07,639 Speaker 6: Do I take the credit risk? Just buy and large? 566 00:28:09,800 --> 00:28:12,800 Speaker 11: It's a it's a great question. The I think that 567 00:28:12,960 --> 00:28:16,080 Speaker 11: it's important you think about acid allocation. To step back 568 00:28:16,119 --> 00:28:19,800 Speaker 11: a little bit. Uh, there's a lot of question right 569 00:28:19,840 --> 00:28:23,040 Speaker 11: now about where are equilibrium yields? What where is the 570 00:28:23,080 --> 00:28:25,280 Speaker 11: Fed going to tell us in the next summary of 571 00:28:25,280 --> 00:28:27,560 Speaker 11: economic projections? Where do they see the long run FED 572 00:28:27,600 --> 00:28:32,040 Speaker 11: funds rate? Where is our star? And our star, you know, conceptually, 573 00:28:32,080 --> 00:28:34,679 Speaker 11: should give some underpinning to bond investors in terms of 574 00:28:34,720 --> 00:28:38,400 Speaker 11: expectations of where yields will be pulled to over an 575 00:28:38,440 --> 00:28:41,440 Speaker 11: economic cycle. When you don't have a lot of confidence 576 00:28:41,480 --> 00:28:44,000 Speaker 11: about our star, it makes it a little bit harder 577 00:28:44,840 --> 00:28:47,000 Speaker 11: tactically to say, yeah, the bond market looks real cheap 578 00:28:47,040 --> 00:28:51,600 Speaker 11: right now, let's add duration, let's add interest rate risk 579 00:28:51,640 --> 00:28:55,080 Speaker 11: to our portfolio. And you know, in that context, that's 580 00:28:55,080 --> 00:28:57,960 Speaker 11: why being at neutral sort of dissatisfying as a bond investor. 581 00:28:57,960 --> 00:28:59,640 Speaker 11: It's almost like you don't have a view on the market, 582 00:29:00,240 --> 00:29:02,400 Speaker 11: but one thing we do have are some of the 583 00:29:02,480 --> 00:29:06,520 Speaker 11: highest yields in fifteen years. And I am one who 584 00:29:06,560 --> 00:29:11,120 Speaker 11: believes that our star is probably not two and a half, 585 00:29:12,560 --> 00:29:16,640 Speaker 11: it's not five either. I wouldn't be surprised that the 586 00:29:16,640 --> 00:29:19,280 Speaker 11: Fed is increasingly going to be migrating your long run 587 00:29:19,320 --> 00:29:23,280 Speaker 11: dot upwards. That suggests that yields won't probably go as 588 00:29:23,360 --> 00:29:27,720 Speaker 11: low perspectively as they have in the past, say ten years, 589 00:29:28,160 --> 00:29:31,360 Speaker 11: certainly outside of the context of crises like a pandemic. 590 00:29:32,560 --> 00:29:34,360 Speaker 11: What does that mean to a bond investor, Well, it's 591 00:29:34,480 --> 00:29:36,680 Speaker 11: just to me that the FED funds rate north of 592 00:29:36,720 --> 00:29:39,240 Speaker 11: five money market yields north of five. That's a good 593 00:29:39,280 --> 00:29:41,840 Speaker 11: place to be for your very risk averse investor, but 594 00:29:41,880 --> 00:29:43,920 Speaker 11: for someone with a little bit of a longer term horizon, 595 00:29:44,320 --> 00:29:47,160 Speaker 11: the bond markets valuation, the level of yields has been 596 00:29:47,200 --> 00:29:50,520 Speaker 11: restored to a point where you can add duration to 597 00:29:50,560 --> 00:29:54,040 Speaker 11: your portfolio and take some more balanced investing as opposed 598 00:29:54,080 --> 00:29:56,080 Speaker 11: to do I own cash or do I owned stocks. 599 00:29:56,560 --> 00:29:58,520 Speaker 11: Bonds are sort of back in the sense that they 600 00:29:58,560 --> 00:30:01,280 Speaker 11: have a role in a diversified port folio because they 601 00:30:01,280 --> 00:30:03,840 Speaker 11: have been reset higher and yield even if I don't 602 00:30:03,840 --> 00:30:06,280 Speaker 11: know those yields will go down in the next three months. 603 00:30:06,440 --> 00:30:08,640 Speaker 3: It's such a good point, which leads me to the 604 00:30:08,680 --> 00:30:11,160 Speaker 3: refunding announcement. So we're going to get the amount today 605 00:30:11,280 --> 00:30:14,360 Speaker 3: and then where Treasury will issue on Wednesday, and then 606 00:30:14,400 --> 00:30:17,680 Speaker 3: just hours later we'll get questions on will to Fed 607 00:30:17,720 --> 00:30:20,440 Speaker 3: back off on quantitative tightening. What do you think the 608 00:30:20,480 --> 00:30:22,560 Speaker 3: combined effect of all this is going to be. 609 00:30:24,640 --> 00:30:24,800 Speaker 2: Well? 610 00:30:24,800 --> 00:30:29,400 Speaker 11: I think the Yellen Treasury has been pretty careful. The 611 00:30:29,400 --> 00:30:32,960 Speaker 11: amount that's being financed is near record proportions, I think, 612 00:30:33,000 --> 00:30:35,400 Speaker 11: only surpassed by the depth of the pandemic and the 613 00:30:35,400 --> 00:30:38,320 Speaker 11: borrowing that was going on at the time. As a result, 614 00:30:38,360 --> 00:30:40,360 Speaker 11: they've relied a lot on the short end of the curve, 615 00:30:40,680 --> 00:30:43,600 Speaker 11: with short yields being high and money market balance is 616 00:30:43,600 --> 00:30:46,600 Speaker 11: being astronomically high. I think they're at a record there's 617 00:30:46,640 --> 00:30:48,480 Speaker 11: plenty of demand at the short end of the curve. 618 00:30:49,080 --> 00:30:52,280 Speaker 11: I don't expect any sharp turns away from that strategy 619 00:30:53,000 --> 00:30:58,080 Speaker 11: in the upcoming announcement. I do think the Fed's QT program, 620 00:30:58,200 --> 00:30:59,960 Speaker 11: you know, we're getting closer and closer to the point 621 00:31:00,040 --> 00:31:02,560 Speaker 11: the Fed is telegraph this where they're going to want 622 00:31:02,640 --> 00:31:06,880 Speaker 11: to slow down the pace of balance sheet reduction, you know, 623 00:31:07,080 --> 00:31:09,120 Speaker 11: slow down the pace of QT, I think, as it's 624 00:31:09,160 --> 00:31:11,800 Speaker 11: come to be called, which is a rational thing to do. 625 00:31:12,160 --> 00:31:14,760 Speaker 11: As much as there's uncertainty about our star, there's also 626 00:31:14,840 --> 00:31:17,120 Speaker 11: uncertainty about the right level of reserves in the system, 627 00:31:17,440 --> 00:31:20,360 Speaker 11: and the FED doesn't want that uncertainty to sort of 628 00:31:20,400 --> 00:31:24,240 Speaker 11: spill over into financing market pressures, which is what happened 629 00:31:24,240 --> 00:31:26,440 Speaker 11: the last time they were trying to reduce their balance sheet. 630 00:31:26,600 --> 00:31:28,800 Speaker 11: So I think both parties, the Treasury and the FED, 631 00:31:28,800 --> 00:31:33,200 Speaker 11: have been very careful about these these key variables, how 632 00:31:33,240 --> 00:31:36,120 Speaker 11: much Treasury is borrowing and where on the curve, and 633 00:31:36,200 --> 00:31:39,600 Speaker 11: how the Fed is going to alter their their balance sheet. 634 00:31:39,720 --> 00:31:41,560 Speaker 11: I don't think either one of these is apt to 635 00:31:41,560 --> 00:31:44,000 Speaker 11: be very market moving right now because of the sort 636 00:31:44,040 --> 00:31:47,320 Speaker 11: of deliberation and the signaling that has gone on both 637 00:31:47,320 --> 00:31:49,000 Speaker 11: from the Treasury and the Fed on both of those 638 00:31:49,080 --> 00:31:50,800 Speaker 11: fronts are. 639 00:31:50,480 --> 00:31:52,240 Speaker 5: Chie I'm going to jump in front of Alex here. 640 00:31:52,240 --> 00:31:53,720 Speaker 5: I know sure what they ask about this? How about 641 00:31:53,760 --> 00:31:54,640 Speaker 5: municipal bonds? 642 00:31:55,400 --> 00:31:57,080 Speaker 7: How about segments? 643 00:31:57,080 --> 00:31:59,520 Speaker 5: Man, exactly, how do you think about muni's in this 644 00:31:59,640 --> 00:32:00,280 Speaker 5: environment here? 645 00:32:02,000 --> 00:32:07,920 Speaker 11: Well, yeah, munis have The absolute yield argument has motivated 646 00:32:07,920 --> 00:32:11,760 Speaker 11: many investors to buy bonds in general, certainly on the 647 00:32:11,760 --> 00:32:14,440 Speaker 11: corporate bond side and also on the meuni bond side, 648 00:32:14,800 --> 00:32:17,640 Speaker 11: investors have been putting money to work into SMAs. The 649 00:32:17,720 --> 00:32:22,240 Speaker 11: mutual fund flows on the uni side are positive. They're 650 00:32:22,280 --> 00:32:26,440 Speaker 11: not huge, but they're they're meaningfully positive. I think the 651 00:32:26,480 --> 00:32:29,280 Speaker 11: point I was making a few moments ago about relatively 652 00:32:29,360 --> 00:32:31,960 Speaker 11: high yields and restoring fixed income as a component of 653 00:32:32,000 --> 00:32:36,160 Speaker 11: your balanced in diversified investment strategy, it resonates with people, 654 00:32:36,440 --> 00:32:37,840 Speaker 11: and you can see that in the behavior in the 655 00:32:37,920 --> 00:32:42,120 Speaker 11: muni market. Interestingly, however, that that has meant that munis 656 00:32:42,120 --> 00:32:45,400 Speaker 11: have held up better on a year to day basis. So, 657 00:32:45,440 --> 00:32:48,840 Speaker 11: for example, if you look at the Bloomberg Muni Bond 658 00:32:48,880 --> 00:32:50,920 Speaker 11: index on a year to day basis, I'm getting updated 659 00:32:50,960 --> 00:32:54,080 Speaker 11: number here, it's down one point seven percent in total return. 660 00:32:54,440 --> 00:32:56,360 Speaker 11: At the start of the year, we expected that would 661 00:32:56,400 --> 00:32:58,360 Speaker 11: be positive by now, so that's been a little bit 662 00:32:58,360 --> 00:33:01,120 Speaker 11: of a setback, but that's still a lot higher than 663 00:33:01,160 --> 00:33:04,320 Speaker 11: the Treasury index, which is down three point two percent, 664 00:33:04,480 --> 00:33:08,440 Speaker 11: or the aggregate index, which is down three point also 665 00:33:08,520 --> 00:33:10,880 Speaker 11: three point two percent, just about the same. You know, 666 00:33:10,920 --> 00:33:14,880 Speaker 11: why is that, well, munis have outperformed given that strong demand, 667 00:33:15,200 --> 00:33:17,440 Speaker 11: and the MUNI market is underpinned right now by the 668 00:33:17,440 --> 00:33:19,720 Speaker 11: fact that the value of the tax exemption goes up 669 00:33:19,800 --> 00:33:22,959 Speaker 11: at today's higher yields relative to the last decade when 670 00:33:23,040 --> 00:33:26,280 Speaker 11: yields were much lower. So tax exempt income has helped 671 00:33:26,280 --> 00:33:29,280 Speaker 11: to attract investors into them munity space who might not 672 00:33:29,360 --> 00:33:31,240 Speaker 11: be so worried about whether yields are going up another 673 00:33:31,280 --> 00:33:33,760 Speaker 11: thirty or fifty basis points or down thirty or fifty. 674 00:33:34,000 --> 00:33:36,840 Speaker 11: They like the valuation in a longer term sense in 675 00:33:36,880 --> 00:33:38,720 Speaker 11: the here and now, and the credit story is good. 676 00:33:38,960 --> 00:33:42,480 Speaker 11: Munie's credit story has been very, very fundamentally strong given 677 00:33:42,520 --> 00:33:45,760 Speaker 11: the economic expansion and sort of the long tail of 678 00:33:45,800 --> 00:33:48,000 Speaker 11: some of the fiscal transfers that went from federal to 679 00:33:48,040 --> 00:33:50,760 Speaker 11: state and sort of bleed through the unique credit system. 680 00:33:51,040 --> 00:33:53,640 Speaker 11: That's still very much a positive dynamic there as well. 681 00:33:53,680 --> 00:33:56,680 Speaker 5: All right, RJ, great overview as always, really appreciate getting 682 00:33:56,720 --> 00:33:57,120 Speaker 5: some of your time. 683 00:33:57,200 --> 00:33:57,360 Speaker 7: R J. 684 00:33:57,440 --> 00:34:01,800 Speaker 5: Gallows, Senior portfolio manager over there at Federated herme C. 685 00:34:02,520 --> 00:34:04,080 Speaker 6: Municipal bonds can be cool. 686 00:34:04,960 --> 00:34:06,680 Speaker 3: Muni's cool UNI moment. 687 00:34:06,720 --> 00:34:11,400 Speaker 5: Cool thanks Joe, mysec very cool. 688 00:34:11,600 --> 00:34:15,479 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 689 00:34:15,560 --> 00:34:17,520 Speaker 1: weekdays at ten am Eastern. 690 00:34:17,239 --> 00:34:20,600 Speaker 2: On Applecarplay and Android Auto with the Bloomberg. 691 00:34:20,280 --> 00:34:23,480 Speaker 1: Business aff You can also listen live on Amazon Alexa 692 00:34:23,520 --> 00:34:26,799 Speaker 1: from our flagship New York station, Just say Alexa play 693 00:34:26,960 --> 00:34:28,520 Speaker 1: Bloomberg eleven thirty. 694 00:34:29,560 --> 00:34:33,280 Speaker 3: From Alexe alongside Paul Sweeney. This is Bloomberg Intelligence Radio. 695 00:34:33,320 --> 00:34:35,200 Speaker 3: We cover all the news for you through our lens 696 00:34:35,400 --> 00:34:38,320 Speaker 3: of our Bloomberg Intelligence analysts who cover two thousand companies 697 00:34:38,360 --> 00:34:41,239 Speaker 3: one hundred and thirty industries around the world. Also once 698 00:34:41,280 --> 00:34:43,319 Speaker 3: a week on Mondays, at this time, we're also going 699 00:34:43,360 --> 00:34:45,879 Speaker 3: to bring you the perspective from our great analyst over 700 00:34:45,960 --> 00:34:49,759 Speaker 3: at Bloomberg. N ef it started off as Bloomberg New 701 00:34:49,920 --> 00:34:53,440 Speaker 3: Energy Finance. They're basically a huge data provider on everything 702 00:34:53,480 --> 00:34:56,920 Speaker 3: that had concerns energy from wind to solar, to oil, 703 00:34:57,040 --> 00:35:00,759 Speaker 3: to gas, to coal, to evs to carbon credits. I mean, 704 00:35:00,800 --> 00:35:04,920 Speaker 3: anything you need to know within energy space. They provide amazing. 705 00:35:04,600 --> 00:35:05,040 Speaker 7: Data for. 706 00:35:06,800 --> 00:35:10,839 Speaker 3: I see, guys, this is my damn. The news from 707 00:35:10,920 --> 00:35:12,759 Speaker 3: last week that I did find interesting, that I did 708 00:35:12,840 --> 00:35:16,400 Speaker 3: key in on, is that a bunch of panel makers 709 00:35:16,400 --> 00:35:21,120 Speaker 3: and polysilicon producers are trying to get tariffs increased for 710 00:35:21,360 --> 00:35:25,800 Speaker 3: equipment coming from Southeast Asia. Basically, there's a lot of stuff. 711 00:35:25,840 --> 00:35:29,840 Speaker 3: There's a lot of equipment coming on. Solar cells and 712 00:35:29,920 --> 00:35:32,640 Speaker 3: modules are coming on, and that is lowering the price 713 00:35:33,480 --> 00:35:36,520 Speaker 3: of those which are then hurting US companies. The problem 714 00:35:36,560 --> 00:35:38,360 Speaker 3: is you kind of need all that stuff if you 715 00:35:38,400 --> 00:35:42,279 Speaker 3: want to greenify or decarbonize your economy quickly. So let's 716 00:35:42,280 --> 00:35:44,759 Speaker 3: get to some of the analysis here joining us now 717 00:35:44,800 --> 00:35:48,839 Speaker 3: as Paul Licenzo he is Bloomberg nif a senior associate, 718 00:35:49,520 --> 00:35:53,440 Speaker 3: can we impose tariffs on the stuff we need to 719 00:35:53,520 --> 00:35:57,600 Speaker 3: decarbonize quickly? Decarbonized quickly? 720 00:35:59,000 --> 00:36:02,680 Speaker 7: We should not, And the US has been doing it 721 00:36:02,680 --> 00:36:06,120 Speaker 7: for a while, actually very quietly since twenty twelve, so 722 00:36:06,160 --> 00:36:09,920 Speaker 7: it's not a new thing. And it's really made solar 723 00:36:10,000 --> 00:36:12,480 Speaker 7: more expensive in the US and everywhere else in the world. 724 00:36:13,440 --> 00:36:16,120 Speaker 7: So the difference is the US has very generous has 725 00:36:16,120 --> 00:36:18,919 Speaker 7: had very generous subsidies for solar for a long time, 726 00:36:19,040 --> 00:36:22,080 Speaker 7: and that upsets some of those higher input costs. But 727 00:36:22,640 --> 00:36:25,480 Speaker 7: is it the most efficient way if you're trying to 728 00:36:25,480 --> 00:36:29,520 Speaker 7: decarbonize quickly and grow sector quickly. Probably not. So what 729 00:36:29,560 --> 00:36:29,839 Speaker 7: are we. 730 00:36:29,800 --> 00:36:30,840 Speaker 6: Talking about here? 731 00:36:31,000 --> 00:36:34,239 Speaker 5: The panels the more than the panels, What are we 732 00:36:34,280 --> 00:36:35,040 Speaker 5: talking about. 733 00:36:34,760 --> 00:36:38,440 Speaker 7: Here, Yeah, we're talking mostly sales and panels. 734 00:36:39,080 --> 00:36:43,080 Speaker 5: So the panel gets the sun, converts it puts it 735 00:36:43,120 --> 00:36:45,120 Speaker 5: into a where's it go from there? 736 00:36:45,320 --> 00:36:47,600 Speaker 7: Correct, it goes into an inverter, which is the brains 737 00:36:47,640 --> 00:36:51,120 Speaker 7: of the system, and the inverter translates that direct current 738 00:36:51,160 --> 00:36:54,239 Speaker 7: power that the panels produce into alternating current power, which 739 00:36:54,280 --> 00:36:55,560 Speaker 7: is the one that we use. 740 00:36:55,760 --> 00:36:58,040 Speaker 5: Thank you for exp because I represent like ninety nine 741 00:36:58,040 --> 00:36:59,440 Speaker 5: percent of our listeners, It's true. 742 00:36:59,239 --> 00:36:59,719 Speaker 7: Sorry about that. 743 00:36:59,800 --> 00:37:05,080 Speaker 3: Yeah, So what part of that would be taxed with. 744 00:37:05,040 --> 00:37:08,320 Speaker 7: The taroff the panels? But what typically those tariffs target 745 00:37:08,400 --> 00:37:11,400 Speaker 7: are the cells, which is the sales is essentially what 746 00:37:11,480 --> 00:37:14,480 Speaker 7: composes those panels. You stack them together and you assemble them, 747 00:37:15,040 --> 00:37:18,440 Speaker 7: because the cells is really the true, the true technological 748 00:37:18,480 --> 00:37:21,920 Speaker 7: component of the panel. The panel is just like cells 749 00:37:21,960 --> 00:37:25,680 Speaker 7: assembled basically. So what's what the US is trying or 750 00:37:25,719 --> 00:37:28,040 Speaker 7: what some of these companies are trying to do, is 751 00:37:29,000 --> 00:37:31,680 Speaker 7: impose a new set of tariffs on Like there's already 752 00:37:31,680 --> 00:37:34,680 Speaker 7: tariffs on panels coming from Southeast Asia, and there will 753 00:37:34,719 --> 00:37:37,000 Speaker 7: be new tariffs coming in June, but this would be 754 00:37:37,040 --> 00:37:40,319 Speaker 7: an additional set of terrafts that they're trying to impose why. 755 00:37:40,280 --> 00:37:42,600 Speaker 3: Can't these companies, like a I don't know, First Solar 756 00:37:42,680 --> 00:37:44,480 Speaker 3: or something make these panels themselves. 757 00:37:45,000 --> 00:37:47,920 Speaker 7: They do First Solar, so First Solar sits in a 758 00:37:47,960 --> 00:37:51,359 Speaker 7: different league. First Solo has a different technologies. This we're 759 00:37:51,360 --> 00:37:55,680 Speaker 7: talking about crystalin silicon technology. First Solo uses a different 760 00:37:55,680 --> 00:37:59,399 Speaker 7: type of technology called thin film, and they fist. Sola 761 00:37:59,400 --> 00:38:01,279 Speaker 7: has been producing their own panels for a long time, 762 00:38:01,360 --> 00:38:03,280 Speaker 7: and they have really ambitious plans in the US. 763 00:38:03,640 --> 00:38:05,799 Speaker 3: But I guess that's the point, right, because they don't 764 00:38:05,800 --> 00:38:07,919 Speaker 3: want the cheaper ones coming in and diluting what they're 765 00:38:07,920 --> 00:38:09,959 Speaker 3: able to sell. So why can't I guess the better 766 00:38:10,000 --> 00:38:12,239 Speaker 3: question I should have is why can't they make it 767 00:38:12,239 --> 00:38:14,360 Speaker 3: for as cheap is the ones that Southeast Asia is 768 00:38:14,360 --> 00:38:14,719 Speaker 3: selling for. 769 00:38:14,840 --> 00:38:17,040 Speaker 7: Yeah, the question is probably the answer is not going 770 00:38:17,080 --> 00:38:21,399 Speaker 7: to surprise you. Just higher input costs, higher production costs, 771 00:38:21,480 --> 00:38:24,520 Speaker 7: higher labor costs. You cannot really reach the same scale 772 00:38:24,520 --> 00:38:26,400 Speaker 7: that you can in the Asian countries in the US. 773 00:38:27,239 --> 00:38:29,200 Speaker 7: It's not just about the factory that you have that 774 00:38:29,280 --> 00:38:31,439 Speaker 7: you where your assemble or making the cells or making 775 00:38:31,480 --> 00:38:34,160 Speaker 7: the panels. It's about all of the adjacent supply chain 776 00:38:34,320 --> 00:38:37,399 Speaker 7: and China and some of these Asian countries, and by 777 00:38:37,480 --> 00:38:40,440 Speaker 7: extent from being so closely to China, they are able 778 00:38:40,520 --> 00:38:43,279 Speaker 7: to ramp up all of the adjacent supply that they 779 00:38:43,320 --> 00:38:47,120 Speaker 7: need in a very efficient way. So typically those megabases 780 00:38:47,120 --> 00:38:50,759 Speaker 7: in China have massive solar factories, and if you go 781 00:38:50,800 --> 00:38:54,880 Speaker 7: across the road, that's where your aluminum prime supplier is 782 00:38:54,920 --> 00:38:56,520 Speaker 7: going to be. If you go in a little bit 783 00:38:56,560 --> 00:38:58,480 Speaker 7: further down the road, that's where your glass supplier is 784 00:38:58,520 --> 00:39:01,480 Speaker 7: going to be. So it works in and in coordination 785 00:39:01,600 --> 00:39:05,240 Speaker 7: quite quite nicely, and that helps improve efficiencies and lower costs. 786 00:39:05,840 --> 00:39:07,120 Speaker 6: It doesn't seem high tech to me. 787 00:39:08,120 --> 00:39:10,479 Speaker 5: Why would I care if China is producing them other 788 00:39:10,560 --> 00:39:13,279 Speaker 5: than if at any time they could stop producing them 789 00:39:13,280 --> 00:39:14,080 Speaker 5: and screw us. 790 00:39:14,120 --> 00:39:15,600 Speaker 11: But I mean, because. 791 00:39:15,360 --> 00:39:18,840 Speaker 3: You're saying that there's no like cybersecurity or security measure 792 00:39:18,880 --> 00:39:19,080 Speaker 3: for that. 793 00:39:19,120 --> 00:39:20,920 Speaker 6: Don't I just want the cheapest panel? 794 00:39:21,200 --> 00:39:24,680 Speaker 7: That's That's correct, And that's exactly what we've been trying 795 00:39:24,719 --> 00:39:27,719 Speaker 7: to say for a long time. Solar manufacturing is a 796 00:39:27,800 --> 00:39:31,800 Speaker 7: terrible business to be in. It's it's really fear compet 797 00:39:31,960 --> 00:39:35,759 Speaker 7: compet Competition is really fears where typically go through all 798 00:39:35,800 --> 00:39:38,799 Speaker 7: these swings of overcapacity, a bunch of bankruptcies and then 799 00:39:39,080 --> 00:39:42,799 Speaker 7: new companies arise from from nowhere, and there's again over capacity. 800 00:39:43,160 --> 00:39:47,120 Speaker 7: So there the IP and really that the technological know 801 00:39:47,200 --> 00:39:51,160 Speaker 7: how there is really not that difficult. And I really 802 00:39:51,160 --> 00:39:54,239 Speaker 7: don't understand, we don't understand why you would want to 803 00:39:54,280 --> 00:39:57,120 Speaker 7: throw so much money at building this industry in the 804 00:39:57,200 --> 00:40:00,040 Speaker 7: US unless it's a geopolitical hedge, which is something that 805 00:40:00,080 --> 00:40:03,680 Speaker 7: obviously begs a very different question and a very different 806 00:40:03,680 --> 00:40:04,560 Speaker 7: set of analysis. 807 00:40:04,719 --> 00:40:07,320 Speaker 3: What kind of Let's say that these tariffs do go through, 808 00:40:07,560 --> 00:40:11,440 Speaker 3: So this request could raise the prospect of tariffs as 809 00:40:11,520 --> 00:40:14,360 Speaker 3: high as two hundred and seventy one point five percent 810 00:40:14,680 --> 00:40:17,160 Speaker 3: later this year. Let's just pretend that that happens. Yeah, 811 00:40:17,239 --> 00:40:19,279 Speaker 3: and I want to install a solar panel on my 812 00:40:19,320 --> 00:40:21,680 Speaker 3: house in Massachusetts. What's that going to cost me? 813 00:40:21,719 --> 00:40:25,280 Speaker 7: Now, it's going to cost you a ton more money. 814 00:40:25,640 --> 00:40:26,799 Speaker 3: A ton I don't like a ton. 815 00:40:27,080 --> 00:40:29,480 Speaker 7: No, I mean, the two hundred and seventy one percent 816 00:40:29,560 --> 00:40:34,760 Speaker 7: is very unrealistic. So what's happened Typically in these petitions, 817 00:40:34,800 --> 00:40:36,400 Speaker 7: this is a little bit of the boring stuff. But 818 00:40:36,440 --> 00:40:40,360 Speaker 7: what happens is what happens is they file this petition 819 00:40:40,640 --> 00:40:45,520 Speaker 7: and then if the US agrees to investigate these companies 820 00:40:45,640 --> 00:40:48,080 Speaker 7: or these they go, they try to they open their 821 00:40:48,080 --> 00:40:50,920 Speaker 7: books to companies, they open their books and they have 822 00:40:51,000 --> 00:40:53,920 Speaker 7: to prove that the amount of subsidies that they receive 823 00:40:54,480 --> 00:40:57,680 Speaker 7: is not as high as what that country wide tariff 824 00:40:57,680 --> 00:41:00,359 Speaker 7: would look like. So typically they get a tear raise 825 00:41:00,440 --> 00:41:02,760 Speaker 7: that is much lower than the two seventy one percent 826 00:41:02,800 --> 00:41:06,880 Speaker 7: that you're referring to. And it can range from like 827 00:41:06,960 --> 00:41:09,960 Speaker 7: thirty to fifty percent. It just really it just really depends. 828 00:41:10,080 --> 00:41:13,560 Speaker 7: But the bottom line is if that were to happen, 829 00:41:13,640 --> 00:41:17,319 Speaker 7: obviously imports from Southeast Asia would be completely ruled out 830 00:41:17,320 --> 00:41:22,359 Speaker 7: in the US and that would really trigger for you know, 831 00:41:22,640 --> 00:41:26,480 Speaker 7: would really trigger the renaissance of the US manufacturing industry. 832 00:41:26,680 --> 00:41:28,960 Speaker 7: But you would have to pay more for your panels. 833 00:41:29,600 --> 00:41:30,840 Speaker 6: Just real quick, thirty thirty seconds. 834 00:41:30,880 --> 00:41:33,480 Speaker 5: What percentage of our panels here in the US come 835 00:41:33,520 --> 00:41:34,280 Speaker 5: from China today? 836 00:41:35,200 --> 00:41:36,200 Speaker 7: About from China? 837 00:41:36,360 --> 00:41:36,560 Speaker 1: Zero? 838 00:41:36,920 --> 00:41:39,360 Speaker 7: Okay, So the US has been singling out China for 839 00:41:39,360 --> 00:41:42,200 Speaker 7: a long time. Southeast Asia more than eighty. 840 00:41:42,040 --> 00:41:45,800 Speaker 5: Percent in the more than eighty percent, And these tariffs 841 00:41:45,800 --> 00:41:47,240 Speaker 5: are just for China or for all. 842 00:41:47,440 --> 00:41:50,640 Speaker 7: For Southeast Asia, for Vietnam, Malaysia, Thailand, and Cambodia, which 843 00:41:50,680 --> 00:41:53,480 Speaker 7: represent that eighty percent number, that I just quote it. 844 00:41:53,680 --> 00:41:56,279 Speaker 3: Paul, Thanks Lott. This is really interesting stuff, and it's 845 00:41:56,320 --> 00:41:58,319 Speaker 3: just that when you want to put a solar panel 846 00:41:58,360 --> 00:42:00,040 Speaker 3: on your house, there's a lot more that goes into it, 847 00:42:00,080 --> 00:42:02,400 Speaker 3: and if you want to sort of decarbonize quickly, why 848 00:42:02,440 --> 00:42:04,480 Speaker 3: wouldn't you want the cheapest available. Paul to your point, 849 00:42:04,520 --> 00:42:07,200 Speaker 3: all right, thanks a lot, really appreciate that. Paul as 850 00:42:07,280 --> 00:42:10,000 Speaker 3: Kano joining us from Bloomberg n EF. 851 00:42:10,560 --> 00:42:15,080 Speaker 1: This is the Bloomberg Intelligence podcast, available on apples, Spotify, 852 00:42:15,280 --> 00:42:18,480 Speaker 1: and anywhere else you'll get your podcasts. Listen live each 853 00:42:18,480 --> 00:42:21,880 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com, 854 00:42:22,000 --> 00:42:25,400 Speaker 1: Beheart Radio app, tune In, and the Bloomberg Business app. 855 00:42:25,520 --> 00:42:28,640 Speaker 1: You can also watch us live every weekday on YouTube 856 00:42:28,719 --> 00:42:30,600 Speaker 1: and always on the Bloomberg terminal