This is Bloomberg Business Wait Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news the Bloomberg Business Week podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
It is for Capital Markets Day Today and Dearborn and having some fun and a I believe Coney Dog in downtown Detroit is her own Matt Miller radio and TV anchor, my co host at times, lever of all things, four wheels, two wheels and more that first of all, nice to have you here with justin myself. Where the heck are you? You look like you fit in.
There, Coney.
Anyone who's been to Detroit knows that the local food is a Coney Dog, right, which is basically a hot dog with chili on it. And there are really only two places to get those, the classic Coney's National Chili and then there's another chain that I won't mention while I'm in here. Nice, but yes, whenever I go to Detroit, I stop here first get my fix of Cony's, and then I go on and do whatever business I came here to do.
I'm just going to tell you and get them at my kitchen too, because that's how my husband likes his hot dogs with chili on it. Okay, so tell us what you were in I mean, we know why you were in Detroit. You had some interesting conversations.
Yeah.
I had an interview with the CEO of Ford today and the reason that you know he invited me, along with the rest of his executive board and a ton of Wall Street analysts, is that Ford is trying to convince the Street that they can meet their goal of producing two million evs in twenty twenty six, and probably a lot more importantly, that they can actually make money on those evs, right, because they're slated to sell about three billion dollars worth of electric vehicles this year and
they're slated to lose about three billion dollars on their sales. So currently their margin is like negative one hundred percent, but they say they are going to be able to boost it to eight percent on EV's by twenty twenty six, and that's what they want to convince analysts.
I think I was curious about matt Is. I mean, we didn't get forwards earnings earlier this month, and they beat on first quarter profit, but they obviously warned on their outlook for this year. I'm kind of wondering how does the EV sort of fit into that dynamic and how much growth could that potentially When you're hearing and talking to the CEO for does he think that that could potentially help things moving forward?
So the EV, you know, last year they only sold sixty one thousand evs in the US, and of course they sell millions of cars, so it's hardly anything, but hopefully that share is going to increase. Still, it's not the you know, the cold steel that they sell off dealership lots that makes them money. You know, they're hoping to get, like I said, margins back to eight percent and their traditional ic business they're hoping to be around
ten percent, which is where they are right now. They make a ton of money on the f one fifty trucks that they sell with gas engines, but the real growth, according to Farley, is going to come from software and services. They have, for example, a business unit for pro that works with you know, contractors, plumbers, electricians, et cetera, and they make a ton of money, like big Fat Margins, selling software that can tell you, you know, if your engine has got a problem. If your door needs fixed.
They even can tell that your windshield wiper is moving in a way that that means it's about to break. So that's where they see the growth coming and that's what they're hoping to see in the future.
So Zach, it's not only the year of efficiencies at Meta, it's also at Ford Motor Company, and Matt did catch up with Ford CEO Jim Farley to talk about the efficiencies that it could put together, all of them in many different forms. Listen up, everybody, We're making progress.
It needs to go faster. But a new culture setting in in the company. We have, you know a lot of other competitors that made a lot of personnel reductions. We see that as kind of more of an in our journey on cost and quality, more of an output metric. So we want to reduce is more like the bill material cost, the industrial cost, and the plants a lot of extra inventory we want to get out as well
as our negotiated cost with the supplier. So our cost we want to get out is actually in the heart of our industrial system.
It's not like just people.
You have said in the past, you have twenty five percent more engineers working on the same output as your competitors. Does that mean you're going to reduce that twenty five percent? Are you letting it happen through attrition? How's it working?
You know, we're very intentional about this, Matt. I think you're going to see from Ford over many years, a natural reduction, not through attrition, but skill mismatch, intentional transition of our teams, moving some of the engineering to lower cost labor sources. So it'll be a combination of things. But you know, it's obvious that we have we have to be more efficient uncompetitive advertising and marketing spend is also something that you've called out. Actually, I would say
on our blue business we've underinvested in advertising. We want on our E business really not to do a lot of broadcast advertising.
We want to practice speak for itself.
And really the investment in the marketing there is really the ownership model, so people kind of come back and high loyalty.
Same with pro on the blue business.
You know, we are starting to see inventories grow for the whole industry. We're in a great space. We have a really fresh lineup of vehicles, but that merchandising capability, I would assume We're going to have to spend more this year and prices will come down, thankfully for the customer after all these years of tight supply.
How much do you think prices are going to come down and what's going to drive.
That we're assuming in our plan this year and next year, you know, five plus percent reduction. It's kind of in between where we were maybe in nineteen and where we've been. I don't think we see what we'ren't going to go back to the days a couple of years of one hundred day supply, so most people are in the fifty day supply range. You know, I think the natural discounting for someone who has an older product is going to
be in the thousands. You're starting to see now low aprs from a lot of brands who have older product.
What's unique of before.
It is we're basically we have an all new lineup, soh you know, we're a bit of a unicorn. But I think the background pricing will be more difficult.
You said in the past, or people have asked, you know, how do you get from eight percent on your ev business you want to do ten percent overall to like the seventeen percent that Tesla has Do you get up there or do they you think eventually see margin pressure.
It's a good question. Both both are going to happen.
We're seeing you know, look at what's happening in China with BYD.
It looks what's happening with Tesla.
They reduce their prices on model why their main product, you know, five seven thousand dollars. It goes up, it goes down, but it's it's pretty far down. I think, you know that they've had the market to themselves at a big head star kind of like what we do on pro and now they're seeing a lot more pressure. Obviously, I think we're going to definitely see that, especially in the two row crossover.
We think there'll be like fifty to one.
Hundred new models, so you know, and a lot of people want to grow, so there's going to be it's gonna be a great time to buy a two row electric EV for customers like Makey where we compete really in EV you know, pickup trucks, three row crossovers that we're going to show people today and the commercial vehicle EV commercial vehicles, we don't see as much price you know, competition because there's not as many vehicles choices there all.
Right, That, of course is the Ford CEO Ji of Farley talking there with Matt. Matt, you know, I'm trying to understand if they're going to be cutting prices, they're projecting what billions of dollars of losses for their EV unit this year. I mean, how is it that they ultimately get to that eight percent return on EV's It's not going to be easy. I get the efficiencies, but it's gonna be tough.
No, it's not going to be easy. But they're taking out two and a half billion dollars of costs this year, and they think that they have six to seven billion dollars of structural cost disadvantages compared to competitors that they want to take out by the middle of the decade. So you add that to the software and services revenue that they hope to really start generating, especially from the ED cars. And remember they're cutting prices on just like
Tesla right on the cheaper vehicles. The more expensive vehicles are not getting cut. In fact, those prices are rising. So if you want you know, an F one to fifty lightning Er, if you want a Raptor R, or if you want a Bronco Wild Track. You're not getting a price cut on those. You're not getting a price cut on any of the Halo cars, just the cheaper stuff.
You know what I really want? I want a Cony dog. Can you bring one back?
Uh?
Yeah, I'll get you a Coney to go.
That'll be pretty ugly by the time it gets here.
I'm loving that leather jacket.
Math.
He wears it, well, he wears it with you.
You know.
Mike McKee didn't like this. Apparently he doesn't like the look. It is an authentic nineteen forty three pilot's check.
All right, we'll get Mike in and you the two if you can kind of debate it out, all right, My Matt safe travels back home, of course, our Matt Miller there in Detroit.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business App, or watch us live on YouTube.
No business theres on our radar today. Nowhere to hide, because folks, we are tracking it. Because it does feel like from day to day there is news on the semi space, mostly because of Micron technology, certainly in today's trade stock under pressure after China cyberspace regulator said that its products failed to pass a cybersecurity review in the country.
And this comes on the heels of a Bloomberg exclusive last week of Micron said to be getting one and a half billion from the Japanese government to make next gen memory chips in Japan. So let's get to what it all means, because it's certainly an important sector. I mean, we all know chips go into so much and how it really fits in, especially the Micron news into the overall semi space. So let's get to it. Paula pencal Is with US Bloomberg Intelligence Semiconductor's analyst in our Bloomberg
Interactive Brokers studio. Also with us is I and King Bloomberg News, US semiconductor networking reporter on the phone in San Francisco and Ian. You were part of the team that put together that exclusive last week about the investment in Micron. Let's start with you. A lot of news, a lot going on with Micron. You always remind me not every semiconductor is the same. Tell us about the news around Micron and why it's important to follow what's going on.
Yeah, I mean this is being seen as an escalation of the ongoing trade dispute, trade war, call it what you want, between the US, which is theest creator of semiconductors, and China, which is the largest market for semiconductors. And what's going on here really is that Micron is being told by the Chinese government we don't like your products, we don't think they're safe, and we're going to ban
them from critical infrastructure. A lot of lack of clarity around what that actually means and what that impact is going to have, but obviously as a headline, it's not a pretty one.
And Paul I want to bring you into this conversation. So as an analyst at Bloomberg Intelligence, what's your sort of big takeaway in the development and all this.
Well, first of all, we don't really know what the impact is, as Ian had pointed out. Mark Murphy, the CFO, commented today at JP Morgan's conference, that the impact could be anywhere from single digit percent impact to top line revenue, or it could be low single digit up to high single digit. But then he went on to say, we really don't have a lot of clarity, China was light
on what exactly it meant by this security risk. The one thing I would point out is it's clearly it does appear to be a political posturing because typically memory chips are not targeted by hackers just because they tend to have storage. They don't have a lot of like specific software that runs on it or code. So that sort of supports the fact that this is definitely likely a political move.
I mean, yeah, right, you know, I mean it's a little wacky, right if you again you remind us that not all chips are the same Paul the same thing, But I mean it's a little weird. And I do wonder as you follow this space, is it just a case until this political football kind of calms down a little bit? I mean, is that the expectation? I mean, I feel like the rhetoric, especially when it comes to semis and high tech, just continues to get tougher and tough between the US and China.
No.
I think you're absolutely right. The general direction is towards escalation. And you know, the concern that overarching is of so called pea coupling, that these two markets will just learn to live without each other. But in the interim now cause an awful lot of pain. And the way to look at the Micron action, according to what some people think, is like China has not responded to a lot of what the US has done over the last couple of years because it couldn't because it didn't have anything to
really fight back with. The Micron thing is the one thing that it could fight back with. They don't need Micron. They can get exactly the same chips from Samsung, exactly the same chips from Heinex, and therefore this isn't going to hurt them. They're not shooting themselves in the foot by taking action against Micron, and if perhaps for the political audience back in Beijing, this looks like they are doing something and it looks like they're being.
Strong Paula, I'm curious as far as do we have any sort of scoop as far as how this could end up impacting Micron's financials.
Well, again, they are unclear. The company has communicated to investors they are unclear as to the exact impact, but it could be anywhere from low single digits to high single digits, but they really don't know. I would say though that just to follow up on what you was saying. It is a little bit of a slippery slope for China though, because even though they don't need these memory chips because they can source them elsewhere, you know, there are other chips that they do need from the US.
So it really is a battle between the two and Microns sort of stuck in the middle.
Well, there was some great reporting. I think this might have been by Debi Wu, or maybe it was by you Ian. You know that Micron and I'm reading from the story Micron is still depend on the global electronic supply chains that often run through Chinese factories. I mean, this is the tricky stuff, right when we talk about globalization. That train has left the station, and when you look at some like semiconductors, right, it's a global supply chain.
So how do we how do you look at something like that and ultimately where Micron lands, you know, with or without China.
Yeah. No, to back up what Paula said and go back to what the CFO himself said, He's like, we don't know. First of all, yeah, we don't know, But guess what as much as a quarter of Micron sales somehow go through China, Whether it's Hong Kong headquartered companies. Whether it's through the distribution channel, we don't know, right, Because China the world is the world's device manufacturing center, so you really need to be there, you need to
have those relationships. So anything that breaks up that chain that we've seen, you know, develop over the last thirty years, this, you know, interdependency is not good.
So and go to the story that you and a colleague out of Asia broke last week about Micron getting one and a half billion from the Japanese government for next gen hip. So roll that into this story and in the reporting.
Yeah, that's I think that's a that's a good way to perhaps segue into that because everybody in the world, you know, with the US, the Europeans, the Japanese, and the Koreans are like, look, we want chip independence too, right, we need to build our own factories. Japan's a little bit late to the game. But guess what, hey, Micron, come and build here. How does that look if you're China. Some song has a chip factory in China. Heinez has a chip factory in China. Micron doesn't, Right, How did
I look? Yeah?
Exactly? Paul come in on that Yeah, I would just say.
I mean there's an element of Yeah, Micron's sort of like covering their bases just in case. And you know, I think like a couple of years ago they had planned to build in Japan and then you know, at their Hiroshima plan extend their capability there, but they backed out. I mean, the market went south and so on and so forth. But here they are back to the table. Everybody's sort of coming forth with their own equivalent to the.
US Chips Act.
Japan is you know, Singapore is even China is I'm hearing like one hundred and forty nine billion going to subsidize the sector. So Japan's taking advantage of this opportunity now to sort of establish itself and hopefully emerge as a new manufacturing hub within Asia.
I do wonder too, though, Ian like, how ultimately does this work then if everybody's kind of developing their domestic JIP industry, yay, great, I guess right, it's in your backyard. But at some point, I mean, is it going to be problematic and require almost government support at some point because it's cyclical, right, I Mean, we always talk about this, and I do wonder is it going to ultimately end up in a glut of chips in a lot of markets.
Well, Sanda Jah, the CEO of Micron, told me off saying that my thinking was too mid in the past, but that thinking is very much that this is a viciously cyclic industry. We've seen loads and loads of plans in the past about building factories here, there and everywhere. And guess what, when things get tight, those factories get built and they never get equipment put in them. Those factories get built and they end up doing something else. So believe that when you see the chips rolling off
these lines would be my caution. But also, you know, take Sanjay Jar's word for it. Apparently my thinking is mired in the past.
Well mine's apparently mired in the past too, because it just kind of makes sense to me. Any last final thoughts, Paula just got about twenty thirty seconds here.
Now, I would just say that it's an ongoing process that we have to keep close eye on, and no one really knows what the final outcome is going to be on this front. And in terms of the impact, we.
Can just hope that there's like the metaverse and AI everywhere and like we just need a million chips everywhere. I don't know, it's it's a very interesting time that we're living in. Paula, thank you so much. Paula Pancal. She's Semiconductor's analyst at Bloomberg Intelligence. Here in Studio Interactive Brokers Studio. I king our thanks oas our go to when it comes to all things global techs chips, usmconductor and networking reporter at Bloomberg News.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business App and YouTube. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
So the aviation sector really set to thrive in twenty twenty three. You're just back from a trash.
Just back from Maruba. Did not check bags because I'm always afraid I'm going to lose my.
Bad You're helping setting a set up the next segment, so let's get to it with Sherry Stein. She's Chief Technology Officer of the America's at SITA. They are the IT provider for global aviation. They work at airports, on board planes at borders. They operate more than two hundred countries, which may explain why we find her on this Monday on zoom in Spain. Sherry, nice to have you here on Bloomberg. Talk to us a little bit about this organization,
the history. It's been around for a long time, so just talk a little bit about the mission if you will.
Sure, that's right, hey, Carole, just too nice to be here with you. Yeah. So CITA was formed in nineteen forty nine really to help bring the communications together between airlines, aircraft and the airports, so that you know, they could easily know when an aircraft was leaving one airport and when it was expected to arrive at the next, and so to help facilitate that air to ground communications. So we were formed on that basis and have been operating ever since.
So we serve more than Yeah, that's what I was gonna say. Your members are like global correct nowadays?
That's right. Yeah, we're a cooperative organization with about four hundred and fifty different members. Airlines airports around the world, So any airport that you're go into, about ninety five percent of the world's airports. Just look for that powered by seat a sticker on any of the computer equipment or kiosks or boarding gates or any of the devices that you see there. And then of course, you know, the network behind the scenes that you won't see is part of what helps keep that all working.
So, Sherry, talk to us about these different innovative solutions that y'all are trying to rule out here that are already basically at a number of different airports that basically try to help travelers.
Yeah, so big focus is on digitization and how to help eliminate the manual and paper laden processes that have plagued not only our industry but other industries. Right is how to move to a more seamless or frictionless process.
So we done a lot of work around you know, biometrics for document validation, and then certainly the subject that you were talking about earlier, just with your flight to Aruba, includes not only work with biometrics and digital identity, but also around bag tracking and bag management and helping to make that whole process more seamless and easier for people to give that confidence to check their bags.
Now I have to say I'm putting a little Apple tags in my luggage so that I can kind of track it. But I'm also noticing that more and more airlines are saying, hey, you check your bags, here's where they are, and they're giving you some information. I'm assuming you are involved in that.
That's right exactly. So our platform suite as World Tracer is the brand name. Passengers might not know it because we're more of a B to B We provide services to the airlines and to the airports behind the scenes, but anything to do with the bag messaging. When you get the notification that your bag has been checked in, that your bag has been put onto the plane, that your bag is arriving at carousel three at your destination,
that's all messaging powered by our platform. So it helps really help boost that confidence and provide the digitization for the automation of those processes to help you keep passengers informed and reduce some of the stress levels and anxiety, because nobody wants that when they travel.
You want Actually, since we're being asked to do more and more at the plate, you know, like in check it and stuff, there's a lot that's being kind of put on us, like conversy, did you do did you check in yourself? Did you take the bag over?
I did everything? Yeah, I did everything. That's why I was just I was worried. I've had lost baggage in the past, and I just didn't want to go again.
I was curious.
I know that you did a baggage It Insights study, and not surprisingly you had on there. The number of mishandled baggage nearly doubled from twenty twenty one to twenty twenty two. I mean as far as other things when it comes to delayed baggage or other forms that you're able to help people that are working through this. Is it just for lost baggage or what else can you do here as far as trying to help travelers kind of ease their travel burdens.
Yeah.
So really, when you look at kind of the end to end process, I suppose right there are more than forty organizations involved in helping to fulfill a trip. So everything that we can do to provide more information, more data,
more tools to help give the passenger more information. Feeling control, because I think the biggest thing about travel is maybe feeling you know that you don't have control, you don't have access to information, you don't have always accurate information, So everything that we can do to help make that
possible is really core to our mission. So, you know, the bag tracking details, certainly being able to provide accurate flight information and making sure that you get that single source of truth so you have consistent information regardless of you know, whether you're looking at the screen in the airport, the app on your phone, or you know, calling the reservation center that everybody has the same information about that flight or about your bag. Can I send all of those things?
Are this ability to track your bag?
Though?
If there's a delay? I mean, how is it kind of helping to make sure that Indeed, like if you're sitting on the plane and then you realize, okay, my bag didn't get there, that's going to distress the hecatomy rather than not knowing until I get to the carousel. So I do wonder. I guess ultimately it's not just about like telling you information but hoping that it isn't delayed, it isn't lost. So I'm curious how it's all of this digitization and the work that you guys are doing
with airports and airlines. How is it improving so log bags aren't delayed, aren't lost, aren't damaged.
Yeah, so a couple of cases, I suppose, Like with the Luftanza, we've been working on this auto reflight system where if a bag happens to miss a connection because maybe it's a tight timeline or you know, flight was delayed for some reason, we have an auto reflight now, so it puts the bag automatically onto the next flight and then just without having to retag the bag, without
having to require manual intervention. And so that's bringing fantastic savings for TANZA and so leading to the rollout of that system on a wider basis beyond the proof of concept. And then airlines like Latam are seeing like a forty percent increase in customer satisfaction through the implementation of self bag drop and the systems that they're doing there, because now they reduce the burden of the manual tagging processes
and they can automate all of that as well. So a lot of things in that type of approach that give the passenger control again and help to make it more automated.
We'll find to check in with you, certainly something we can all relate to, and it's interesting to kind of go behind the scenes and understand how it's all working. Sherry Stein is Chief Technology Officer of the America is at SITA, joining us on Zoom from Spain. I do have to say that when I see the app, tell me, hey, your bag has made it. I mean, I'll follow it. Yeah, Like.
It's such a relief.
It is totally all right, everybody you're listening to watching Bloomberg Business Weekend. This is Bloomberg Radio.
Brother Marc.
A journal how about you let me drive?
No, no, no, no, honey, please, I'll do the riding gravels.
Let's mate, I want to try it.
It's a good question time.
This is the drive to the clothes dot Com for me.
I think we'll buy around.
You don on Bloomberg Radio.
All right, everybody just read eighteen minutes just under eighteen minutes left in today's trading session. Carol Master Along and Jests met in live in our Bloomberg Interactive Brokers studio on Bloomberg YouTube, or i should say, on YouTube and Blomberg Originals as well our streaming service. You heard Charlie talking about the market's Jess bouncing around. I mean, I said, I feel like over the last week or said, we've
had a lot of met trading days. It felt like we did break out a little bit yet last week an optimism of maybe a deal getting done out of DC. But it just does feel like we're marking time a little bit until this gets done.
Definitely, And obviously we've talked about the technicals there with the S and P five hundred as well as the NASAK one hundred. So especially after a gangbuster year, you know, it makes sense to some of my sources that we'd see.
A little bit of a pullback from here. All right, So let's get into it with our drive to the closed. Guest. Max Wasserman is back with us, founder and senior portfolio manager at the independent investment advisory for a Mira mar Capital. He's joining us so once again on zoom from Northbrook, Illinois. Max, nice to have you here. Top of mind for you on this Monday.
Well, thank you for having me. I think the biggest thing that I would focus on is disparity within the market itself. Really, five technology companies are accounting for eighty percent of the S and p's total return. It's Navidia's Amsen, Google, Microsoft, Apple, and if you look at it, From that perspective, it's
really the nasdack that's carrying in the whole market. The equal weighted part of the market's actually up only one to two percent, So if you look at the market, it's really a Nasdaq retracement of what they lost last year, and it's concentrated in five stocks, which we think is not that healthy for the market.
So if it's not that healthy for the market, how are you positioning in the stock market at this.
Point, Well, we're staying we're diving in growth investors, so we're looking for valuations that make reasonable sense paces good yield. While we do have investments in some of the large cap techts, we're looking in cyclicals. We're looking in healthcare
energy companies that we think have reasonable valuations. Right now, if you look at the top five stocks, they have a forward pe of thirty one times, So with the NASAK being up twenty percent, we don't think the risk reward is really favorable from this level in that area of the market. But there's other area the markets and the cyclicals, the energies, the healthcare. They're trading it, you know, mid teams, which is less than the S and P itself.
You know, what I find interesting is that we have had this if you go back maybe years ago or so or I don't know, I'd have to look at my calendar to really denote the exact timeframes. But Max, we've had these conversations before that the overall gains of the market are really fueled by a handful of names, those big tech names, only for folks to say, yep, stepping back from them don't make sense, overdone, overdone, and then we just see more money go into it and
we see them pop to the upside. Because so much of our economy is really a lot of what these companies are doing. So how do you kind of factor that in fundamentally, Well.
If we look at you take a step back. If you look last year, for example, when the Nasdaq was down thirty two percent, right then the SMP was down around twenty. Equal weighted and dividend oriented stocks were down in the high single digits. So if you look at a company like Apple, which we have an investment in, it's back to where it was in August of twenty two.
So the stock just made a complete retrenchment. If you look back into Navidio and some of these texts all these companies just made a retrenchment to where they were trading a year ago. So it's not like these are making ultimate new highs by tremendous amount. Making some new highs like Microsoft, but it's not by a significant amount. So what we're saying to people for new money, be cautious jumping into the nas deck. The S and P five hundred has become the ETFs if you will have
become a mini Nasdaq one hundred. If you think about it, Apple and Microsoft account for almost fourteen percent of the waiting in the S ANDP. So as technology goes, so goes the general market. But there's a lot of other areas which have a better asymmetrical return. And if we look at somebody long term, if you bought the nas deck a year ago, all you're doing is barely breaking even now where it. Had you been a little bit more conservative and not chased into these stocks at highs,
you wouldn't be hurt as much. But yeah, now you're todate. Everybody likes tech because it's up twenty percent. But if you take a longer perspective, they're just giving you back. They're just coming back to where they were a year ago.
Have you made any sort of shorter term changes just based on what's happening with the debt ceiling, because when I've spoken with my sources, a lot of them feel like it's more of a bond story right now rather than a stock story.
We look at the debt failing is more of a political issue than anything. The issues that we see is if you get a failed they failed to ratify the debt ceiling, you could get a five to ten percent pullback, But we think that's political and we would use it as a buying opportunity. We haven't changed anything based on the debt ceiling because it's day to day and it's not a strategy. It's just trying the whims of the politics, which you have to look at. Though that has affected
people strategy. It's what's happening in the banking area. You know, regional banks are having a harder time. Large money center banks are had a hard time given the fact that the interest rate risk they took didn't pay off. So from that perspective, we deemphasized financials and we have been underwinting financials for some time. But we make the regional
banks and we do have an investment in one. We still think there's some it's going to be languishing for a while until they fix the balance sheets a little bit better.
How does what the Fed do and I don't want to get into what the Fed will do because we could go back and forth from day to day or week to week. But how does what the Fed ALTI mentally does and where it lands and for how long impact your strategy right now?
Well, how it impacts is liquidity. So if the Fed, you know, we look as the Fed maybe maybe one or two more rises and interest rates and that's about it. We think the Fed's gonna be tightening and the economy is going to slow down. You think increases possibly, I do.
I do now.
They may pause it for a little bit, but inflation is still embedded in the economy. Wagers are still going high, Unemployment is still very low. So you could see an area where you get something called stagflation. So they may try to prevent that, and that's you know, that's a possibility. But they may pause next time just to try to
digest everything that's going on. But I could still see another twenty five to fifty basis points by year end, which is contrary to what everybody's thinking the Fed's going to cut. I think people are hoping the Fed's going to cut to justify this enthusiasm in the NASDAK. And it's also the market's trying to talk the Fed into doing something. I mean, right now, the Fed gave so much liquidity for so many years. To take it back, they have to get rid of the embedded and and
that's a bigger risk. So to us, the thing that we would change if we thought the Fed was going to shift policy and going to cut interest rates, then we probably moved to a little bit more higher beta type stocks, if you will, because they'll do better and lower interest rates. But right now we see no reason to change, especially with valuations. Technology is not offering it to us, and again we have investments in there. We
just don't think the risk reward. But also if they cut interest rates or they slow it down, we think everything's going to be a fourth quarter story reflecting twenty twenty four, and there we see the market much stronger and we think the market will start reflecting that. So we think the Fed's not as big of an issue right now. It's just really digesting everything it's done all.
Right, We're going to leave it, I think. On that note, listen, thank you so much some really thoughtful advice for us on this Monday. Max Wasserman. He's foundering senior portfolio manager and you're More Capital registered independent, registered investment advisory firm. Joining us on zoom from Northbrook, Illinois.
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