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We're watching obviously shares of Darden, but we're also watching shares of Amazon today hire, and they're on a tear this year. They're up about twenty four to twenty five percent. There's a few stories on what is one of the world's largest market cap companies, including wagehikes and a new AI assistant. So let's dig a little bit into Amazon with us as Bloomberg Intelligence Senior Technology analyst, Ana rag Grana.
He's with us from our Chicago bureau anak. I know the market overall is rallying, so I know, you know, that's probably one reason or a good part of why Amazon is hire. But we also see that it's you know, raising wages a little bit. Is this just something that usually does ahead of the holiday season.
I think it's it's probably driven by a lot of noise about you know, unionization and a little bit of back. You know, you could say issues around worker conditions, so they you know, I think it was long time due. It's it's good that they're doing it. One of the biggest stories for Amazon in the last twelve months to two years, which Punum and I have talked about quite a bit, is Amazon's you know, path towards improving profitability. So you know, they have done that quite a bit.
If you look at the stock over the last twelve months, it's done very well. And profit expansion is you know, the biggest key of that particular thing. So now when the wages go up, that has an impact on margins. But at the same time, we also heard they are rationalizing their management structure. They're not going to be that
many managers down the road. I think that's going to help offset some of these costs because more of the expensive workers are part of the AWS area, not so much on the retail side of it.
And the stock, you know, it has done well. It's up over the last five years one hundred and seven percent. Some of the other hyper scalers are doing much better. I noticed that Microsoft, for example, is up double that over the past five years. They just handed sixty billion dollars back to shareholders or decided to start doing that for the second time. Is Amazon rewarding shareholders in the same way.
I think it's a focus for Amazon at this point. Far more is improving profitability, both you know, on the retail side as well as the AWS side. We've seen Airgibus margins really spiked up quite a bit in the last one in one year or so. On top of that, that advertising business is doing very well, and that's a very high margin business. I think that is going to be probably the single biggest driver of next you know, face a big, big profit expansion for them, because that's
very high margin. People instead of you know, going to Google to search for a product, may go toon I mean directly into the search engine to look for that product and they can monetize on that.
What about the monetization of AI. Where are they on that? Because that was one of the other stories that popped up on the Bloomberg launching an AI assist and designed to help some of their online merchants manage their own businesses. So what do we know about that? And I am curious if you can kind of put into context where Amazon is in the AI race.
Yeah, So when you look at AI and Amazon, I think the first thing you will think about is, you know, the cloud business. That's where the bulk of the R and D and the bulk of the work is going to go because companies will use their cloud services and third party models to come up with their own solutions. So that's more on the you know, selling of cloud resources or technology side of it, as far as they're
using it themselves to be more productive. Content creation is an area, and that's where the application that was launched today would help their merchants to be online very quicker, much better description of the product pictures. And you know what that does is it helps out to get to your products to market quicker in a far more effective way than you know, you and I would do. Let's
say we are a third party merchant. This just helps it in the everything from points throw all the way down to the selling off that particular product.
Why are you looking at me, Well, you're freaking me out here.
So you don't know about my obsession with the comp function, or maybe you don't remember, but Paul Sweeny knows. So I use it all the time, and so I'm just putting up Amazon against the other fang peers, right, or the other megacap what we call magnificent seven stocks. So Amazon has doubled over the past five years, up one hundred eight percent. Facebook is up one hundred and ninety five percent. Right, Apple is up three hundred thirteen percent.
Netflix is up one hundred and forty six percent. Google is up one hundred and sixty two percent. Microsoft, I mean, up two hundred and eleven percent, all of them, all of them, and I won't even mention Nvidia because obviously they destroy this group. But Amazon's the big loser among the mag seven. Why is that an rag?
So you know, why don't we try the last twelve months, I mean, they've done better than Microsoft.
I always do five. Ye, it's just my base because it's the default of the comp function. I've done it since I started working here in nineteen ninety nine.
Yeah, So one of the things I'd say is, you know, we're building in a lot of the up that happened during the pandemic and the down in that particular one. If you run a ten year number on COMP which I just did while we are talking, Amazon's annual growth rate is twenty four point six percent. And Microsoft is twenty eight, so not that big of a difference between the two. But you know, Amazon's been a very good
story for a while. And frankly speaking, if you look at their cloud business, just that alone is far more profitable than most people understand Amazon to be. It's the retail side of HILD which is dragging it down. But frankly speaking, if you look at it for the next five seven years, I think they have a long way to go.
He's not wrong. Over the last ten years, Amazon's the best performer in the group.
Yes, why we talk to anorog right. Longer term, I.
Can't believe the retail business is the drag, Like I buy stuff on Amazon every day? Is it because people are mad that they seem to have like more Chinese retailer than any other nationality.
Is it expensive to get all this stuff out?
Yeah?
See, Matt, you're you're at this point comparing a technology business with the retail business. So you've got to take that, you know, with that particular aspect of it. Those are single digit margin businesses. Frankly in the long run. Now you're comparing it with the gross marchin business of seventy five eighty percent, which is the tech business of it. But when you look at logistics of Amazon, it's going to be very difficult to come up with anything even
close to that. Over the next five years, they double their logistics footprint during the pandemic, which is, you know, not good for the shareholders in the short run, but I would contend that in the next five seven years it'll start to pay far more dividends than it has done so far.
Well, all right, so I don't know, you know, we're not into earnings yet. I do wonder where, you know, how you're thinking about the environment. It seems like the Fed kind of giving a juice to certainly these megacap tech names today. Certainly you see it in the trade. But I don't know how does the next six to twelve months look specifically for Amazon.
I think, you know, one of the good things in this particular case is going to be small businesses. This is I think the one thing I haven't heard a lot of people talk about it today or since yesterday. They have been struggling because of high cost of funding. It's not the big guys, I mean, Amazon and Microsoft and Apple, they don't really care about what cost of funding is they have too much cash on their hands. But when I look at companies, smaller software companies that
cater to the SMB market, they're really struggling. And I'm hoping with this particular pivot, the consumption of cloud goes up from the SMB community, which will help Amazon. The SMBs that are selling their products on Amazon's retail framework, that's going to go up. So I think netnet it is going to be good for Amazon on to end customers as better as its suppliers.
You know.
I talked to Steve Eisman on my television show this morning. He of big short fame from Newburger Berman, and he has he doesn't do shorts anymore.
He just has.
A portfolio of thirty to thirty five longs and he invests in two stories, one infrastructure, the other is AI. And he was saying that, you know, medium to even large sized businesses, they don't even have their data sorted out to use for jen AI yet, so they need to partner with these other AI, you know, masters of the universe in order to get that done. And I wonder are people going to reach out to AWS before
they reach out to you know, Microsoft or Google. I mean, is is there AI business going to be a big money maker for them.
Yeah. I mean AW is the biggest cloud vendor out there just in terms of market size, so that's going to do very well. As far as data is concerned, each one of these companies has their own data framework. I did listen to Steve this morning and he talked about Accentua's you know, business of cleaning that up. Frankly speaking, there was a mix up. I mean he talked about
the outsourcing business, but that's completely different. It's the consulting business where the data cleanup happens, and from that point they are still in that phase of a slowdown. But having said that, we think that the data cleanup issue is a very long term secular cycle for all technology companies, not just you know, either Accenture or AWS.
Did we do a good job? Did you think Did you like the interview?
Own?
Oh?
It was excellent, excellent.
Thank you.
You put him on the spot. You think he's going to say no.
You can catch my television program Bloomberg Open Interest every day from nineteen.
Guy, Hey, one more thing before you go. There was the story headlines about Intel. This was I think earlier in the week at the start of the week about Intel making an AI fabric chip for Amazon Web Services and the two looking to a customer potential for further designs. It was great news for Intel. What do we need to know about this?
Yeah, so think about it this way, and I'll take you back to Apple. Apple long time ago was buying Intel chips. It was getting heated up. They weren't able to do some stuff with it. So then Apple decided to design their own chips, which they do and then TSMC makes it for them. Made a huge difference to their Mac portfolio. All these cloud providers, whether it's Amazon, whether it's Google, whether it's Microsoft, they are all going down the route of creating their own chips, designing their
own chips. When I say creating, I mean you just design it and somebody else creates it for you. So Intel is probably you know, one of the people they're talking to. I pet you. They're talking to multiple other peoples to help out with that thing. Because the number one problem for cloud providers right now is the lack of GPUs and chips that they need to take care of the AI workload and the other workloads.
Wait, if everybody designs their own chips. What does what do we need in video for? They don't make chips, They send their designs.
Yes, exactly my point. But that's going to take some time.
So they have a little bit of a runway, probably a fairly good size.
Pretty good job they're doing.
Okay, okay, aniok, thank you so much. Anna rag Rana of course, joining us right there Bloomberg Intelligence senior technology analyst out there in our Chicago bureau iceman.
Yeah, he was. He's always a lot of fun to talk to.
What was the most interesting?
You know, it's cool about Steve Iisman. He won't give us pre interview notes. I love that he does it. He's like, listen, I'll show up. You asked me what you want to ask me, and if it's interesting, it'll be a good interview. Yeah, he said. Last time he was on, he said Trump has one hundred percent chance of winning. And now but since then, you know, Joe Biden dropped out of the race, and now he says it's a coin toss.
All right, Well that's interesting.
Yeah.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple card play and then brout Auto with a Bloomberg business act or watch us live on YouTube.
I see five hundred we were talking about it did hitting an inter day right all time high. We'll see whether or not we close that way, but it could. If it does close at a record, it would be its thirty ninth record this year.
And you know, it was crazy yesterday after the FED decision we had the market had two hours to be open and figure this out, and we closed down.
Yeah.
Then all of a sudden this morning, I'm looking at futures up two percent. Wait, yeah, it's good overnight. Did somebody tell mister market like, actually the dot plot is way underestimating what they're going to cut? Or did the initial jobless claims say, hey, look he nailed it. It's a soft landing, right.
And things aren't falling apart, right, And that's what you want to see. Jeff Crumpleman and we'll see what he has to say. He's chief Investment Striatege, his head of equities over at Mariner Wealth Advisors. They're based in Cincinnati. He's joining us back in our studio.
How I should have known you were from the great state of Ohio. Oh, now it all makes sense.
For the next ten minutes. You though expected a quarter point cut.
I did.
I expected a quarter point cut.
I also until yesterday, until what until I think on Monday morning, I talked to Ed Hyman and he convinced me, oh, okay, but I have been expected because they didn't really telegraph a fifty basis point. I thought, this Fed wants to tell us what they're going to do.
But do you think the Fed got it wrong or right? Then?
What's that?
Do you think the Fed got it wrong or right? Then?
You know you could justify either one. It was kind of a flip of the coin with a slight edge that I gave to twenty five.
And I think that.
The twenty five would have said, we respect the inflation number that didn't improve as much as we wanted it to do in the prior month. And you know the fact that economic growth is not all that bad. We've got a number of things unemployment claims and retail sales and all this stuff that just came out that says we're doing okay. The Atlanta Fed is saying real GDP growth
to three percent pace. So I thought, you know, Powell probably would push for fifty, but the committee given there if you look at some of the members just a little more cautious and conservative, I thought he wouldn't convince him. And by going fifty, okay, fine, what they've done is said we're going to be proactive in case it is flowing.
Is it really just fine? Wor as Matt like you kind of were pepperating Mike McKee like, is there something that Fed sees or J. Powell that we need to be worthed?
I just don't understand. Five and a half percent didn't feel particularly restrictive to me considering how well or I mean, the stock market is doing, how well unemployment is doing. You know, I know we went from three point four to four point two, but still four point two is well below the long term average.
I could take your case, but I'm gonna sense you're asking you to take the other case. The other case would be we are way away from normal real Fed funds rates and we're five and a half percent. The normal real after inflation Fed fund's rate is about one percent, So that means that you would have to get if inflation's at two and a half percent, you got to get Fed funds down to three and a half percent to get.
Back to normal.
So you know, I mean, you have Jeffrey Gunlock out there saying and they should have gone twenty five in the prior month.
So fine.
Kind of the way I resolved in my mind is, well, if they would have done that and started their measured kind of approach, it would have been twenty five last month, twenty five this month, a total of fifty. I think what freaks people out is this all of a sudden, these guys are saying, Ah, you know, we fought inflation, We're comfortable. Now we're really going to focus on employment.
And they were willing earlier to let inflation run to two and a half or three percent hotter before all this stuff started a couple of years ago, And now I think they're going to err on the side of being if they're going to be wrong, they'll be a little too aggressive and making sure.
They're Powell said as much yesterday. He said, could we have cut at the last meeting? Yeah, yeah, I mean would have had we seen the employment number that came out right after. But it doesn't make that much of a difference. I mean, one month this even if you think the long and variable legs are shorter now they're not that short.
Yeah, And at the end of the day, we look at three things when we look at the markets. We look at fundamentals, valuation levels, and technicals. And from a fundamental standpoint, you look at the economy and trends of the economy that are solid. You look at overall interest rate trends that are stable and coming down a little bit, and you look at credit spreads. All that stuff is good and earnings are very good. So if inflation's falling, margins are expanding, you've got good business models.
That tends to be a decent time in the market.
All right, Well, let's talk a little bit about some of the names that you like, because the semiconductor area is definitely outperforming.
It's up.
I'm looking at the socks up about five percent so far in today's trade. If I look at some of the best performers in both the NASTAQ one hundred and the S and P five hundred, AMD is on that list. You like AMD? Why that name in the semispace?
Well, I think that it's just a diversified way. If you've had your fill of Nvidia and you've had so much success, you can't stand it anymore? Why don't you diverse file a little bit and get some AMD in there, which also benefits from the graphics chips and the expansion in cloud and data center, but also has some cyclical stuff going on with just CPUs that they also manufacture. And you got a thirty percent growth rate trading at about thirty five times, which is a wonderful PEG rate.
So you know, you don't just have to own one semiconductor company. You can spread out the risk.
A little bit.
Would you still you still own Nvidio?
Absolutely?
We under own it relative to its waiting in the market. Those things are crazy in terms of there are percent of market value of the indices, so I think it's something like eleven percent of the Russell one thousand growth index. We own more like seven percent of it in our portfolio, so yes. And it is in terms of earnings growth, I'm looking for eighty percent earnings growth and it's trading at about thirty times. I'm sorry, but you know there's not a whole lot not to like about that right now.
Just at the numbers.
Did I tell you guys talked to Steve Eisman this morning. He was saying pretty much exactly the same thing you are in terms of the economy and the FED. And he also likes the AI sort guy.
He's got stories.
We're in good times right now, and in good times you got to have a story to invest in. I see that you like, Eli Lilly. I love this story. What do you think about the Wonder drugs? I mean, I get a little bit too optimistic about these things. I also loved, you know, m RNA. But what do you think about Uh, well, every every g LP won.
Every couple of months, we go off site and we sit down and we although we do this daily, we look at what we call the FVTS fundamentals Evaluation level of technicals, and we rate each stock and going in, I thought, come on, Eli, Lilly's run and you know, I've got a nicke it on valuation not really for growth forty times, you know, kind of pe And yeah, in terms of these you know, wonder drugs, it's thriving
that growth now out to counteract that. Another idea I gave you guys was Resmet, which is a sleep apnea company.
And everybody stock as well. I mean, wellhi, Lily, over the past five years is up seven hundred percent resme is up eighty one.
Eighty one is not bad. And I think also that's the opportunity. And everyone's saying, well, these g LP ones, you know now you.
Might not need it for it and it helps out sleep acne.
We're going to sleep now. I guess everyone's gonna lose forty percent our body weight and you're gonna sleep just fine. And that's probably not the case. So you know, you kind of balance that a little bit.
But yeah, they would only give it to me, if they would just give it to me, which one, you know, ozembic or we go to the I don't care what, just do you need it? I need to shed some pounds. My wife's angry that I'm snoring. I'm always turning the A C low. You know, it would fix some Plus I'm gonna get Alzheimer's probably hard disease, Like I want to avoid all those things.
Well, you don't want to o d on those you know you get.
Yeah, no, I'm want to just take a little bit.
I forgot what it's like to work with you. Always fun to see you, Jeff, Thank you so much. Jeff Crumpleman. He's chief Investment Stratius head of Equities ere at Marinerwealth Advisors, someone from Ohio.
Matt, We're good people. Good people.
For a while.
You are.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business ad You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Mortgage rates continuing their decline, hitting the lowest level since early February twenty twenty three. Boring costs have fallen significantly in recent weeks in anticipation of those rate cuts by the Fed. We got that first cut yesterday. The what's interesting is whether or not, Matt, people are going to like maybe hold off on buying house thinking, okay, rates are going to go even lower.
Yeah.
I think it's really fascinating to watch home prices right now. Obviously with lower rates you have in but especially in this area, there's a state in local tax deduction cap stop there right now, which makes it no, it makes it. It makes it a lot more expensive to own a home in this area. Now. If certain things fall into place, that could sunset next year, and then you could see a flood of buyers.
We shall see what in Westchester. Let's do what our next guest has to say. Thomas Carroll's back with us. He's the founder and CEO of ballast Rock Asset Management. They've got about two hundred and forty million in assets under management. He's also a former Goldman Sachs head of trading for fixed income, currencies and commodities. Back with us, how are you.
I'm excellent, thank you. Busy day in the market, but fascinating day in real estate for sure.
Why because of the FED move?
Actually, I think the FED move was largely priced in but off fifty basis points depending on the house, different house views, different places, but on average, more or less that's what you've seen in rate.
The market priced it in like seventy percent chance of a fifty basis point cuts.
More or less you've seen that in rates movement, But more importantly what you've seen today with secondary home trading with and for those of us that are on the institutional investment side, looking forward at deliveries, in particular in multifamily,
which is our area of focus. But deliveries in twenty twenty four projected deliveries in twenty twenty five and twenty twenty six really dropping off a cliff, so with twenty four deliveries expected to be around six hundred and eleven thousand units this year, but next year a forty five percent decline in deliveries and again a further fifteen percent in twenty twenty six projected. What we see is the potential for substantial rent increases in the next two years,
in particular in twenty twenty six. And the question therefore is what does that mean? How quickly can those of us with capital to deploy, How quickly can we get long the market? And can we get long enough in a more accommodative rate environment?
Wait, can people afford to pay more rent? I mean, the rent's already too damn high, right, So well, is it just which areas can see a rental increase?
When you guys play in the south in a big way, we do.
We're exclusively in the southeast, in the Carolinas, in Georgia, in Tennessee, Alabama, northern Florida. But interestingly enough, the data shows that the differential between the cost of owning a home and the cost of renting a home has increased over the past twelve months by a bit more than twenty percent, so it is still about forty percent cheaper
to rent on average nationally. Obviously, it depends exactly where in the country you are, and different markets have different demand and supply dynamics, but in general, nationally it is still cheaper to rent. So therefore, for those landlords that are looking at a drop off in new supply in the years to come, we're certainly eyeing an expectation of increasing rents.
What's it look like in your areas in your region.
Well, I can just say for our portfolio, for example, right now, of our existing assets, we are currently running at the highest revenue levels we've ever run at. Meanwhile, actually occupancy is not actually at peak, so that means that rents are at the highest that they've been and our forward is we're not offering concessions, we're running very close to peak occupancy. That means that there's further pressure upwards on rents.
Thomas, I've got to ask you, though, in an election year, and we talk so much about the affordability or lack thereof of individuals being able to buy a home or even a forward rent. I do wonder whether you think about you know, whether the spotlight or the you know that investors owning real estate their role in pushing up the cost of housing, which is something that has certainly played into inflation in a big way and sticky. You know,
how are you thinking about that? And you know where politicians may come in and say, listen, we got to do something about this because, as you say, the lack of supply in the next year, it's not going to be there. So it's just going to get tougher for individuals, how you know, And there's a point where, you know, different investor bases all of a sudden, politicians are you know, looking at you saying, well, wait a minute, this is maybe not fair.
Absolutely, And so for us, we focus really on the positive social impact that we're able to have through our funds, through our investments, because we are making very substantial investments in these assets. We focus on taking older properties, class B, class C assets and upgrading them, improving them, improving the quality of them. So, yes, rents do go up, but they don't go up in a vacuum. They go up because we're investing millions and millions of dollars in our
assets to make them higher quality assets. So from our perspective, we're changing the nature of the asset itself from something that may be less safe. We focus on safety, security for our residents, a better quality experience, et cetera. In those circumstances where we're genuinely adding value, changing the nature of the asset, changing the position of the asset in the marketplace. And in particular, given that we focus primarily in states that are a little bit less governmentally driven,
let's just say they're more landlage. Either way, they're more landlord friendly. Let's put it that way. They're more landlord friendly. We don't view that as a massive risk for our portfolio, but nationally, certainly we see the discussion.
And but what's your role in all of this, like I always.
Or what kind of push back do you think the industry is going to get? Because the anger, especially coming from the Democratic side of the eye, well really from all populous and the Republicans have now become a real populist party, is has been directed at funds that are buying up supply. So not necessarily your fund.
No, but so there certainly needs to be substantial new development. That's the critical piece that's missing. Our role, for example, in our current funds is improving antiquated assets that otherwise would just get worse and worse and fall into disrepair and actually be unusable. So we're taking nineteen seventies, nineteen eighties assets, nineteen nineties assets and making them very usable. But really the way to resolve the affordability crisis is
through new development. That's it. That's it.
And what needs to happen. What kind of incentives need to be in place. I think Kamala Harris has spoken about, you know, incentivizing new building. What needs to be there. We're talking about tax cuts, or we're talking about regulatory cuts. Donald Trump has talked a lot about cutting regulations in order to spur new development. What in your view needs to happen so that builders can come back in and really start. I mean, I feel like they've been afraid since two thousand and eight.
Certainly. In fact, if you look at the average delivery of single family homes in the ten years after the global financial crisis verst the ten years prior, the total delivery was fifty percent less on average. So certainly they've been very nervous since two thousand and eight and haven't delivered. But there is a little bit of dealing with the not in my backyard component there is. Remember, a lot of these regulations aren't necessarily federal, they're local and zoning requisition.
So that's actually arguably where the bigger challenge is.
But where we started is you said, one of the positives to what you guys do is the lack of supply. Right, that's good for what you're doing.
For our business.
It's just basic supply and demand in terms of, you know, kicking up the prices of what you can charge. So having said that, you've got to watch it right because you don't necessarily want a ton of building to come into some of the markets that you play in, right, because that will impact potentially those investments.
Theoretically, but in practice it's sort of apples and oranges. New development on average, say reasonably cheap cost of development in the US per unit is about two hundred two twenty thousand dollars a unit. We're acquiring assets often below one hundred thousand dollars a unit. So new, a new apartment, multi family apartment being delivered for rent, needs to rent for let's say twenty five hundred dollars a month. Our average rent across our portfolio is a thousand a month,
is it really? So it is totally different. To step up from a Class B or Class C older renovated unit into a class A newly delivered unit is almost two point five times. So think about that. You know, you get a slightly better job, you get a pay increase, doesn't mean that you're getting a two and a half
times increase. They're fundamentally different markets. So all these new deliveries, really, all the deliveries that are happening this year, next year, in the year after, they're almost entirely what are called four star and five star deliveries, So they are really built build their luxury. So actually the real challenge is how do we develop more workforce housing. How do we either renovate the existing assets that are there, improve them,
make them safe, secure, clean, professionally managed. How do we do that? Well, that's where my fund and our teams step in. But then how do we deliver more affordable housing, not just luxury homes a luxury apartment does.
How helpful is then this first fifty basis point cut and how much do they have to cut before it's no longer restrictive for your industry.
So we, for example, are because of course, the changes in FED funds are already effectively priced into the longer end of the curve, and that's ultimately how our debt is priced. We aren't borrowing on a floating rate basis. We're barring five, seven, ten, twelve. You're fixed. So I don't particularly care what happens to FED funds. I just care what FED funds implies for long term yields, and thus what happens to the long end of the curve or the medium end of the curve where we're pricing
our debt against. For us today, we're actually borrowing pretty equivalently to where we were borrowing five six years ago because spreads have compressed, so when we borrow money Fanny and Freddie spreads are almost at all time tights. Those markets are those deck capital markets are wide open. So a combination of kind of a three fifty ten year and our cost of our spread cost of borrowing means that we're borrowing in the mid fibes, which is quite
possible attractive for US. We're buying assets on an unlevered basis. Of about six and a half percent. So with leverage, we're able to create attractive total returns for our clients and our investors.
Great deep dive, Thank you, Great to have you back. Thomas Carroll, CEO at ballast Rock Asset Management, Mark.
A journal Now about you let me drive?
No no, no, please, honey, please gravels.
Let's wake, I want.
It's a good question.
This is the drive to the clothes teck Well shod it don on Bluebird Radio.
All right, everybody just got a bad just under twenty minutes left in today's trading session, and we've definitely got a rally underway. We're off our best levels of the session. Charlie of course, just breaking down the numbers. But still Matt two point eight percent higher on the Nasdaq one hundred, almost a two percent gain on the sp I know it's okay, so fed cut.
So that well helpful to the big mega tech yeah, megacap tech companies, right because Nazdaq one hundred is such a big gainer and the S and P is only up one point eight percent.
It sounds as up five percent right now.
The Philadelphia Semiconductor Induction, Yeah amazing, I mean it just continues to climb higher and hire, and I guess it just took the market a while to understand what happened yesterday.
Yeah, I'm just looking at small caps two they're up two percent here as well, So you're seeing really broad based behind all right, So let's see what Greg Halter has to say. Is director of research at Carnegie Investment Council. They've got four billion in assets under management. And he's joining us from Cleveland, Ohio.
Another Ohio guy, the great state of Ohio.
How did we do this? Is Greg there?
I am here Hillo.
Jill buck Eyes, Oh h, I l.
How are you? How are you good?
Thank you for having me back.
Well, it's good to have you back. I always appreciate what you have to say about the market environment. It is true interesting, you know, yesterday we saw rally and then we saw a pullback on the equity side of things. But it does seem like investors are all in on stocks today. How has the FED move yesterday and commentary in any way influenced your thoughts when it comes to strategy in the equity markets right now?
Well, for one thing, we are pleased that the market is up, but I'm not sure it's changed our thoughts. You know, we look for our market leaders, We look for companies over the long term that have some sort of sustainable competitive advantage, and there's plenty of them working out today in the stock market. But I'm not really sure that our strategy has changed at all because of fifty basis points.
So, yeah, I mean, I guess this was priced in, and you could see that rates the treasury market had already kind of priced it in as well. What do you expect the FED to you going forward? I don't mean to say, like, what's next already, since we're still dealing with what happened now, But where's your terminal rate expectation and how important is that?
Well, I don't know that we have a number to provide for you.
I would just say that we do expect for yields to be lower, certainly in the next over the next twelve months.
You know.
Obviously, if you look.
At the dot plot what is out there right now, it does indicate that rates are set to go lower from all spectrums.
To two point nine percent thirty years. Yeah. So, I mean I wonder if the FED is being a little bit too conservative here. We've heard from let's say John Paulson said he thinks two and a half percent, right, whereas Howard Mark's is three percent. I guess it's not that important.
Yeah, I don't know that, you know, are we dealing in basis points?
I think the direction is more important, and lower rates are certainly going to help anyone that's on a variable rate, from the consumer to the commercial side.
Of lending, anyone who has loans. On the other hand, you.
Know, we've got six point three trillion in money market fund assets and those are going to be yielding less, so there's less income in the savers pockets as well.
So again you got to I think you have to look at both sides.
Can we assume all of that money? I feel like there's been you know, folks salivating for where that money's going to go, assuming it's going to come out of money market although I thought I heard a few months ago somebody saying, historically, you know, money market levels kind of stay around this. This is just what we see. But help me out here, and is that momentum certainly for other asset classes eventually?
I really don't think so.
I think history is on the side of what you had mentioned that money tends to stay there.
It tends to be very sticky.
And if someone's getting four point five four point seventy five relative to the risk they perceive in the market and the volatility. You know, a couple of weeks ago we had a huge drop and people some people got nervous. So four and a half four point seventy five as rates come down, that's not all that bad. If we get back to three or two, you know, where's the tipping point, and you may see some of that go into the market.
Then you know, we've had an increase of.
A couple trillion I think over the last four years in terms of money market funds. By the way, there's three trillion sitting in checking accounts, demand deposits, earning nothing right now. So there's an opportunity for people to earn money. They should be taking advantage of that, and for whatever reason they're not.
It's baffling.
Well, if somebody has money that she or he needs to put to work, where do you expect that to do best? I know that in your notes you point out that banks and biotech have tended to do well the six months after a first cut. Is that where you would go.
Yeah, I think that's a good place. Again, you're talking sectors. I would prefer to invest in some of the best companies that we can find, and there's not that many of them out there. When you think about the compounders of the world, you know, the Echo Labs and Sherwin Williams and Eaton's and companies like that, there's just not
thousands of them. You've got to look for these solid companies, good balance sheets, good cash flow, companies that have been around for a while and they're benefiting from secular positive trends in.
Their industries, such as I mentioned a couple.
Another one would be trade Web, which is on the whole fixed income and money market side of electrifying or electrification if you will, if that's what you want to call it, electronics of trading. That's a company that we like. Syntas is a fabulous company. Otis, which makes elevators, is an excellent company. I mentioned Sherwan Williams and Echo Labs.
Obviously you've got Microsoft and Apple and Nvidia as the mag seven names, but there's plenty of other companies within this one hundred or so that we like to invest in and talk about that are out there.
You mentioned sure when Williams, it makes me think of the housing market. What do you expect to fall out to be in the housing market. A lot of people have implied that when rates go to a five handle mortgage rates, that is that the market could start to move around. But I mean, I have a three percent mortgage. It's going to take a long look at a mote.
No.
Yeah, mine's at two point sixty five, so I'm not keen to give that up and go anywhere soon. And on top of that, you've had a huge increase in home prices, so you've got that double whammy. However, there are people that I just spoke to one today. They have six point three seven percent mortgage. They can start refinancing, and the people who are on the fence can start
coming into the market. Yesterday we saw what a nine point six percent increase month over month in housing starts, So you know, some of the stuff can percolate and that goes to the home depots. The low is the Sherwn Williams of the world.
Greg, do you think by any chance that traders investors are getting kind of ahead of themselves in terms of expectations despite what the dot plot says from the FED that maybe we won't get all those moves either later this year or into twenty twenty five.
Tough question, very tough question, girl. I mean, obviously the data is going to be important. What happens with inflation? And we've had the two sticky items insurance and shelter? Where do those go? Everything else seems to be fairly tame at this point. But with these rate decreases.
What does that do? We're going to have to let the data really tell us where that goes.
Because you know as well as I do, we're in a twenty six trillion dollar economy. Things can move around a lot, and the stock prices can move a lot differently than the actual fundamentals of the industry or the company.
Greg, does the election matter to you when you are planning out for the future and just got about ten seconds?
Not really, it's more media attention.
History shows that it really doesn't matter in terms of the markets with the long term.
All right, going to leave it on that note, Hey, Greg, fun to get some time with you again. Greg Halter, director of Research at Carnegie Investment Council. Four billion in assets under manageer.
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