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We're all kind of keeping a watch on GM today.
Yeah, shares are certainly revving up right now. This is the carmaker sees higher profits ahead this year on improved sales, thanks largely to a belief that its biggest problems in twenty twenty three are in the rear view mirror. I mean that was a big deal with the striker last year.
Yeah, it was a lot of things, certainly, you know, chipping away at them. So the automaker plans to reintroduce gas electric hybrid models, which the company sells and other markets currently. They're also staying, though very committed to wrapping up production of battery only vehicles. GM CEO Mary Barrow remains committed to an all electric vehicle lineup by twenty thirty five.
We're going to be building many more ultium based evs we had to construct with modules we have addressed that were on track for the first month and by the middle of the year that should be well behind us. So that's going to allow us to build many more of the existing vehicles like the Cadillac Lyric and the GMC Hummer EV, the Silverado EV work.
Truck, etc.
That was GM CEO Mary Bara, who said once again that she remains committed to an all electric vehicle lineup by twenty thirty five, but they are reintroducing gas electric hybrid models. With more on GM, Let's bring in our Detroit bureau chief where we find Bloomberg News Detroit bureau chief David Welch joining us on zoom David, good to have you back with us. Let's talk a little bit
about the stock move today. I mean, what is it about the results specifically you think that are driving investors to send shares higher?
And actually speaking, they beat everywhere they could, right, So, the fourth quarter was a bit better than expected, always a good thing to do. And for the year they were as well, and then for twenty twenty four also better than analysts were expecting. And then you look at what goes into that kind of there were three big things that really hurt profits last year. One was how much they spent on Cruise, which is their robotaxi company.
They grounded the fleet because of regulatory problems after an accident they had hitting a pedestrian and a crosswalk. So they're going to reduce spending on crews by a billion dollars while still developing the technology. Investors place almost no value on autonomous vehicles right now, so if GM spends less, they like that. Another big item, one point seven billion.
That hurt earnings because GM is making battery sales for its evs and they're doing so at low run rates that are not profitable at all, and because of some accounting rules, they basically they take a charge for that and they expect that to be much less this year. So one point seven billion losing from the EV program. They'll lose some probably in twenty twenty four, but not as much. So investors like that. And then there was
a strike. They have took one point one billion out of profits and they're not going to have another strike again because they've got a labor contract. So you add all those things back in there and the profits this year they're talking about twelve billion at least in earnings before interest in taxes, and maybe as much as fourteen billion, that gets up close to record profits of twenty twenty two.
So all this says profits are going to grow versus twenty twenty three, getting back to the really good times they had two years ago, and they're spending less on some of these trouble spots. And also they say they're going to start getting evs produced, which has been a big problem for them. So some momentum.
David, I love this line in your story. While it struggles to build electric vehicles that are a keystone of Mary Barr's long term growth plan, and it's cruise REBOTAXI unit is on full reboot, GM's core business and making gasoline powered trucks and SUVs thrown off a lot of cash, all right, So there are the contrasting sides of General Motors. Which side should investors focus on at this point?
Right now? I think they're looking at the internal combustion side of the business, which is throwing off a lot of cash, because look, it's the cash generation power of that business that allow GM to raise the dividend and buy back ten billion dollars in shares. So right now, even though GM, you listen to Mary Borrow today, still positioning the company as one with a technology story, one with a growth story going forward for the next five
or ten years with these electric vehicles with crews. Investors are focusing less on that because they see GM as a company that's returning cash, and if the forecast says they're going to do well enough to continue to do that, then investors are going to buy in.
I mean, David, this seems to be the theme of twenty twenty four, which is stepping back from the idea of everyone switching to evs quickly, which people really got wrong over the last couple of years, and many companies really got wrong, and saying that the transition is going to be a lot longer. I mean, look what's happening
with Ford, Look what's happening with Tesla. Does it seem to you that the company is indeed not putting these on the back burner, but tamping back investment in a way that other companies are too.
Well, With GM, a lot of the investment in that EV program has already been made. You look at the vehicles that they're bringing out this year and the ones where they're trying to ramp up production. It's the Cadillac lyric it's the Chevy Silverado EV, the Chevy Blazer SUV, and the small Chevy Equinox Compact. They still have the Hummer that they're wrapping up. They're already spent the money developing those, so that's money spent. Where they're saving money
is delaying programs like the Chevy Silverado EV. There's a plant in suburban Detroit that's going to wrap up production of that. They're delaying that by a year. So they have delayed some of the investment and that does save them some cash this year, but it's not a huge amount. I think. Really the EV story is there's still growth out there. It's just not what everybody thought it was. So everyone is in to watch and see mode with that.
But they're pulling back some investment and that allows them to maybe return money to shareholders. Maybe we're freshing up some of the internal combustion vehicles that are making some more money for them.
All right, So maybe, you know, pulling off a little bit of the evs, but still, you know, that's part of their core mission longer term and focusing on kind of what consumers want today. Isn't that what GM and Mary Barr should be doing as the head of a company and just kind of adjusting to the environment, maybe keeping those long term goals in place. David, how do you see it as somebody who follows this industry? Is this herd just kind of managing for where we are today in this auto cycle.
Yeah, and it's absolutely what they should be doing, because you can't go and just keep building factories to make EV batteries or add more EV production if the buyers aren't there. So I think the real story will be over the course of twenty twenty four and twenty twenty five when you see some of their evs come out, like the Chevy Blazer, Chevy Equinox, and the Silverado pickup which will compete with the F one fifty Lightning. How many of those do they sell? How quickly can they
get production ramped up? And if the volumes are there, if consumers really want them, they can continue to add production. If not, then they won't, and then they've got other decisions to make, like, for example, bringing out a new Chevy Equinox I'm talking about the gasoline powered version next month. And do they continue to freshen some of these vehicles that they thought may have gone away in the middle
of next decade. My bet is that they absolutely will, because it is going to take a lot longer than everyone thought to do this. There's another wildcard here, which is that the federal tax credit, the seventy five hundred dollars. Not as many vehicles qualify for that, but more vehicles will qualify for it, and that's just starting and it's a new way of distributing the incentive. You get it at the dealership instead of having to file for it in new taxes. So that's real money in the showroom
for EV buyers. That could have an impact. We're just not seeing it quite yet, and you know, we need to see how that plays out this year and whether or not it really gins up some demand and makes everybody think that, okay, you know, maybe there still is a lot of growth from the tax benefits to be had.
You mentioned Cruz. I want to go back to Cruz, the autonomous driving platform four GM. What is the future of Cruise, especially in the wake of the incident that I had earlier in the past few months.
This is a really tough one. So look, this year, had all that not happened and they not had some of these technological problems and even worse regulatory problems. They were going to try to deploy a robotaxi service in twelve cities. That's probably not going to happen. They've grounded all of that and they laid off all the people who are doing the development work. I think kind of near term, they'll probably go back to one city if that works well, maybe two, and they will slowly ramp
up the robotaxi business very slowly. I think the second thing they'll probably do is really continue to develop that because GM does see a real future in selling personally owned self driving vehicles, and consumers do like these things, like GM supercrews test to autopilot where they can drive hands free on the road, and they would probably like a vehicle that completely drives itself a lot too, and they probably pay good money for it. But that's a
ways way. But GM will keep developing that technology for that reason, and they'll kind of see how robotaxi goes, if consumers want it, and if they can make money off of the business.
Hey, real quickly before we go thirty seconds here, I'm David. Same thing. Some of the issues that GM is seeing here in the US same thing in terms of overseas or is there any distinction?
Just quickly, In China, EV sales continue to grow fast because the government practically mandates similar thing. In Europe, you're seeing better growth theory. The US is the laggered when it comes to consumers not buying evs.
All right, So appreciate you weigh in on General Motors, David, Thank you so much. To Troit Bureau is where we find our own Detroit Bureau Chief David Welt on this Tuesday joining us on zoom. Shares of General Motors tim still up about eight and a half percent, up ten percent at their highs today, but still holding on to most of their games.
I mean, if there's one theme that sort of defines the transition from automakers from last year to this year, from late, you know, twenty twenty two to twenty twenty three, it's the EV transition is taking so much longer than pretty much everybody thought it would.
Yeah.
Well, I think there's a lot of enthusiasm. I think those government credits certainly help and prices coming down via Tesla. But I feel like there was a period where I just saw them everywhere. But it's interesting the numbers are telling a different story.
They're expensive.
They're expensive. That's definitely holding people back.
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Speaking of that FED meeting, Bloomberg Economics, they've got their FED speak.
That's really cool, right.
They look at natural language or they've got i should say a natural language processing model. It is trained on more than sixty thousand FED headlines and it suggests that the first rate cut will come in May. That's later than markets bets of March, but earlier than the second half of twenty twenty four, which we've heard from by a lot of folks. Also as flagged in December Summary of Economic projections.
All of this is top of mind is the FED kicked off a two day meeting with the first FED decision of the year expected tomorrow. So for our interview this afternoon, we bring in Brad Case, former economist at Fannie May and the Fed. Brad also chief economist at Middleburg Communities, which buys and builds rental housing in the southeastern and mid Atlantic US. Brad is here in the Bloomberg studio and.
Then out there on Zoom from Cape Canaveral, Florida. Back with us is Steve Skanke, chief economic advisor at Keel Point. He is also a former US Treasury in White House National Security Council staff member. Brad and Steve welcome, Welcome the data buy and large continues to come in okay, if not better than okay, Consumers are still confident in spending. Brad to you first, is it crazy for many of us to continue to talk about a FED rate cut when you see things kind of humming along.
Yes, I think it's pretty crazy to think about a RAID cut tomorrow. I think you're what you were saying about, maybe it's happening in May and not even March. I think that's pretty realistic. Look, the FED is looking for things to come into balance so that we don't have inflationary pressures pushing inflation back up. They want to make sure that it's dead for the time being. They don't want on a recession to kill it. They want a
soft landing to kill it. They're they're close to that, but you know.
They want a soft landing to kill it.
They want a soft landing to mean that inflation is not going to come back, not going to come out of the grave. And they're pretty close to that, but they're not that the data continue to come in a little bit too strong.
At what point, Brad, could the FED say mission accomplished. What does the FED need to see in terms of data in order to do that?
Well, So, so we've just seen too much over demand throughout the economy. It's you know, it's strong wage growth, it's strong income growth that that drives strong consumption. It's a demand relative to supply in the labor markets. So they're just they just need balance, you know, sort of throughout the economy to make sure that they're not going to pull a pull a late seventies early eighties mistake.
Hey, on the flip side of all of this, the concept of real rights, I'm kind of obsessed. I was bothering Mike McKee or Michael McKee in a big way today, which is when you're take into account inflation. So Steve bring you into this. Even though the Fed's main rate has stayed the same since last July, as inflation comes down, the real rate of inflation has actually gone up, continuing
to put pressure on the US economy. How closely do you watch that as an indication of why and when the Fed will need to ultimately cut rates, and maybe while it could happen sooner rather than later.
Well, it's an important rate and data point to watch, and it'll be interesting to see how attent of the FED is to that. With a run rate of core PCE inflation right now at about two percent, last six months annualizes at one point nine last three months annualizes at one and a half percent, the real rate of interest is in the neighborhood of three to three and a quarter percent, which is double or even triple what
you would normally expect. And so the Fed is not unaware that this is a monetary constraint on the economy. And the question is, and they can to be confident that inflation is dead or is vanquished before they a lot up on the brakes and they're paying attention to that. Certainly we're paying attention to that too.
Steve, I'm going to kind of send a similar question over to you. I mean, what would it take for the FED to say, for you to say that your confident inflation is back to two percent consistently, and we're not going to see a mistake of the seventies or eighties.
Well, it's not just the seventies and eighties, tim The FED got burned in twenty twenty one with their declaration that it was transitory and it was going to be okay, and they got head faked, and along came inflation in a way that they had really not expected. They were embarrassed, and they don't want that to happen again. So I think it's fair to say that it's pretty much finished.
The FED gets a pass on the January meeting, even though arguably they could or should start cutting now, but they don't have to do anything now, and as a result, they get to see January labor information productivity, we get to see all of the things that are coming next before they meet again in mid March, and that really ought to give them confidence that it's vanquished or not. And I think there's a big opportunity for them to start cutting in March, but the rhetoric tomorrow is going
to be very much the forward guidance. We're not ready to do that yet. We want to see that it's finished, But what's the app start?
Let me jump in for a moment, Steve, because one of the things I'm obsessed. My whole team knows this.
I listen to surveillance this morning on radio and they head on Nadia Leavel, senior US equity strategist over at UBS Financial Services, and she talked about the nearly one trillion dollars that is still on consumers balance and she said everything is contingent in terms of the US economy and what consumers do and what she said, fair amount of that excess saving nearly one trillion with a fifty billion or so burn rate gives a healthy cushion for
a year plus. That should provide momentum and support for earnings. So Brad come back in on this. How much the FED is watching the consumer the consumer balance sheet, even though we continually talk with folks who talk about stress on that balance sheet. Nonetheless, for her to come in and say that there's still room to spend, does the FED have to be careful about pulling off too quickly and for kind of consumers to be off and running again.
Yeah, absolutely, I think she's exactly right. Consumer balance sheets. Yeah, we've heard about increases in delinquency rates, and that's all true, but the truth is that consumer balance sheets are still pretty strong, and so the FED will look for signs of signs that consumption has started to falter. The most likely thing that comes first is that employment growth starts
to falter. So you look for early warnings. But really what determines whether they can really pull off on the brakes is when consumption stops become being so strong going forward and we're just not there yet. The consumer keeps on surprising us.
Well, and let's bring Steve. Why how do you make sense of the strength and the consumer and when you might anticipate that that starts to slow down or do you at all?
Well, I think it will slow down. We're we've been seeing average hourly earnings at four percent, which is above the rate of inflation. Some of that is catch up to what we've experienced in higher prices, even though the rate of inflation has come down significantly, But consumers are spending there, they're doing it on their credit cards. Delinquencies
are increased. I think the exces savings on balance sheets is not so evenly distributed, so I don't know how much of that will continue to power it going forward. That's a good point, but for right now. And you know, we saw a consumer confidence of percent with the with the January numbers. That that tells us that consumers feel good about what's happening in the economy right now.
Hey, Brad, you were an economist at Fanny May and at the FED. So I want to hear from you if there's anything out there in the environment that you see that concerns you that isn't getting a lot of attention right now.
Well, I think you know what, Mostly what most concerns me are things that do get a lot of attention. You know, the stock market is certainly overvalued, and so don't I don't want to call, you know, a stock market decline, but that's maybe the biggest risk going forward. But the other big risk that gets a lot of attention is the fact that house prices are so high.
So if consumers start to feel stretched in terms of their balance sheets, I think what you're going to see is that they're not going to be willing to buy a house at these astronomical prices.
I mean, I don't see that ever shifting. I know that was a dangerous thing to say pre two thousand and eight exactly what would shift. The demographics show right now that there is a serious lack of housing. And this is something that Powell has talked about over the years. Right, this is not a new problem by any means. I don't see how it gets solved now.
I you know, well, I think actually my company is trying to solve that with with build to rent communities. You know, because it has always been that if you wanted four walls, you had to buy them. We're providing a different product and that provides an outlet for some of that demand.
Well, yeah, it's interesting. We did get a data point today that US home growth, US home price growth slowing as those high mortgage rates are squeezing.
To me, look what we heard from the Worldpool CEO yesterday concerned that people aren't going to be buying those big ticket items anymore in the near future at.
Least, right So that's significant. But again with you know, I guess what I'm trying to figure out, Steven. I think Tim, you and I talk about this all the time, is are we just getting back to normal? You know, all of the unprecedented stimulus and all of the moves and the new you know, moves and measures if you will, the impact on the supply chain, everything that went on
during the pandemic post pandemic. Are we finally getting companies and everything kind of back to normal, kind of pre pandemic if you will.
Well, it certainly feels like we are. If you just look across the economy, things do look pretty much back to normal. The most unsettling thing is that things actually look very very good when you look across the economy. Yes, there are the things that we've been talking about in housing and home ownership, and some of the inconsistencies in the distribution of jobs and wage growth, but by and large,
things look very much back to normal. Earnings seem to be having a bigger impact on stock market performance than what folks think the Fed is going to do. I think it'll be really interesting to see when the Fed starts cutting, the economy continues to be as generally bust as it is with positive economic growth, and how marcuts react to that. Historically, they've reacted very well, even when they were fairly priced already.
Hey, Brad, to that point of view, were actually getting in touch asking about negative payrolls. And if you start to see negative payrolls on the horizon.
Yeah, I don't see when that's going to happen or what's going to trigger that. You know, when we as we get closer to normal, you will see payrolls getting closer to zero. And that's good thing. I mean, we just can't continue with the certain kind of excess demand throughout the economy that we've had for a few years now. But that doesn't mean we're gonna have to we're gonna go to negative payroll growth. I'll give you an example. We you know, in the rental housing space, we were
expecting rent growth to become markedly negative. It didn't. Why didn't it because there was more demand for housing than we expected there to be. And where that's coming from is people moving out from their parents' basement, moving out from their trinity brothers, you know, shared apartment and get in their own place. There is a lot of room for that to run.
And so is it also the regions you play in just staying with it because you guys are building and buying in the south eastern part of the US and mid Atlantic, you're in a hots I have a lot of family members that have moved to like the Carolinas, is that because of the region you're.
In specifically, the migration story has been there for more than twenty years already and that will that will continue. So yes, But the main thing that's happening is is an increase in the number of people who are moving out and signing their own leases. That's that's what we call new household formation. That's what is still likely to run for several years now and provide this backwind, you know, you know, favorable wind for housing demand four years.
One last thing, hey to you, Steve, as we listen to j Powell tomorrow, really is the tone, the tenor the message that he tries to get across. What's the most important thing and only have about twenty twenty five seconds.
How much he he prepositions for the FED not to be cutting in Mars Arch. If he if he's somewhat neutral about that, I think that's really positive. If he's really harsh, they're really trying to buy more time because of something that they're uneasy about.
All right, well, we will all certainly be watching, listening, parsing every word that he says. Gentlemen, Thank you so much, doctor Steve Skanky, Chief Economic advisor over at kill Point, former US Treasuring White House National Security Council staff member joining us on zoom out there in Florida, and Broadcase, thanks for coming in studio. I really appreciate it, my pleasure.
Brad Case is chief economist Middleburg Communities, former economists at Fannie May and of course the Federal Reserve Board.
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All right for all of you keeping check. Still one day left in January for those making new New Year resolutions. And while many challenge themselves to a dry January, is anyone up for a digital detox? This is something you and I have talked about before. Yes, this means actually putting down your smartphone for one month.
Uh yeah, okay, So it's an interesting challenge. The folks over at Siggy's Yogurt are trying to do it, and we wanted to know more and how it relates to the business and also about the business. So we got back with us on Bloomberg Business Week the chairman and founder Siggi's Yogurt, Seggie Hilmerson here in the Bloomberg studio. SEGGI,
good to see you again. Let's talk about this digital detox because I think Carol and I we love the idea of spending less time on our phones, but the actual challenge that you guys are putting up is a month away from your smartphone, and in its place, you're gonna send what's called a dumb.
Phone clip phone phone.
Where did this idea come from?
Well, I think I think the idea is sort of, you know, connected a little bit to the brand in a way. So our sort of philosophy when I started the business like many months ago, was to strip away all the stuff that we saw in yogurt, which is like a lot of ingredients. So like our sort of tackling was simple ingredients, right, And we see a lot of that today in people's behavior with their phone. They sort of are addicted to it, and a lot of it is maybe not stuff that's useful. You know, it's
like very hard to be without your maps. For example, when you're navigating a new city. But do you ever get an itch to look up maps? Right, But you do get an itch to check stuff that sort of you don't necessarily need in the moment. So I think the sort of idea and how it's connected to the brand is sort of to strip away the sort of the non essentials of what you don't need in your life right now and sort of putting away the phone for a while and see how you do. Is one of those things.
Well, part of us loves it, part of us reaming about doing it. We want to continue with this, but we also want to mention a headline crossing PayPal Holdings is going to reduce its workforce by about nine percent this year as a company's CEO out Chris, who took over you might recall in September, is grappling with rising competition, profit pressures, and a raft of analysts downgrades. So again,
cutting around twenty five hundred jobs. Just taking a quick check on the stock and we're seeing PayPal shares still up on the day, just shy of one percent, but off its highs. So going back to we're talking about chairman and founder of Ciggy's yogurt ciggy hill Maarson. So you're talking about this digital detox, and I think it's kind of interesting, this idea, almost an attractiveness towards simpler times.
I didn't mention the ten thousand dollars, by the way.
No, And right there is a competition, a little bit of an incentive.
Yeah, pretty good incentive.
Not just free yogurt, not just for your well there's a little bit of free yogurty, but supply o yoga, true, but ten thousand dollars for yogurt.
You know, it catches people's attention. And I think, you know what's interesting, it's stuff like this that makes us kind of think about our environment right now. And we talk so much about the role of technology and how it consumes us, we're also kind of using technology as a great you know, kind of clues. Sometimes data collection gives us an idea of kind of what the environment is like. And I want to just go there if we can for a moment, just coming off that headline,
how do you see the business environment right now? How does it feel to you?
Well, at least for sick Is, we've been doing great in the last few quarters. You know, business is like a little close to three times. The categories are like around six percent, categories up around two percent. So business is doing pretty well for us. You know, we sort of see still a strong interest in our offering. We see a lot of the sort of hiccups that we went through, like everybody in COED fading out, like supply chain issues you know, on anything from freight to cardboard
was a huge issue during the pandemic. We also saw some of the sort of changes in the consumer settle that you know, like for example, the desire We had a lot of single serve business and we saw that graduate a little bit more to like family sizes during COVID going out as people are not sort of on the go going through the office. Obviously, that has since picked up a little bit because of you know, office openings. Again.
What about raw materials costs, not cardboard, not containers, but dairy I mean we're off of you know, the highs from COVID when it comes to dairy prices, but they're still elevated.
Yeah, this is there's still you know, some of those cost pressures are not going to go down. But we see a lot more sort of more balanced environment.
Well, it's interesting too in terms of your environment, and we talked about the first time we talked to you guys had just been acquired. This was back in I think twenty eighteen correct, correct, the French dairy giant like Talis.
I think I'm home saying yeh correct. But I'm just curious as your business, which you began back in a New York City kitchen back in two thousand and five, how it evolves, grows, you know, what kind of you know stands out for you in terms of that process and how the market changes, consumer demands changed, what's changed.
Well, the biggest thing that obviously has changed for Cigis since the acquisition was, you know, we're now international, which is a lot of fun, you know, Like, so Cigis is not just a US brand, It's it's doing phenomenally in France. The sales team there has done an amazing job and Canada Australia as well. So that sort of
stands out for me personally. But in terms of what stands out, like the market as a whole, is that when I started, yogurt in America had crazy amount of sugar, right, Like, the best selling yogurt at the time when I started had twenty eight grams of sugar pair cup that doesn't really almost exist anymore, so everybody has come down. So for us, that's obviously great because we sort of feel like we moved the needle a little bit on the market, but it's more competition, so it's sort of like a
blessing in disguise a little bit. But we are still the only one that sort of offers to what I call the complete package, which is that lower sugar, clean ingredients, and higher protein and better texture. So there's a lot of people who's sort of copy one element of our strategy, but nobody who offers this sort of trifecta of all the things that are good for you.
I think, how are you thinking about brand innovation in a category that has, as Carol mentioned, no shortage of competition, Like where's the white space right now?
For you?
Well, we think like the drinkable yoga space is pretty exciting, So we're coming out with some new innovation there in the coming months and years or quarters. Maybe that's like since we're here, we just say quarters, But so I think that's pretty exciting, and we're revrapping some of our older drinkable yogurts that have been doing vel and been on the market for a while, so we see interest there. But you are right, the competition is pretty fierce.
I think it's interesting too, because you know, we talk about whether it's becoming more sustainable, you know, making that so that works with the cost side of the equation. But you talked about how in terms of yogurt it's really shifted in terms of ingredients becoming much more healthy. Do you feel like increasingly consumers we talk about it. It's certainly priority for me. I know it's priority for your family. It's obviously priority for you and your company.
But you increasingly see consumers demanding their turning it around, checking the ingredients. They want cleaner products.
I mean, there's like a day and night when I moved here and when I started the company about fifteen years ago, is that people are so much more savvy and not only do they do what you say, they look at their ingredients. They know even some of the more esoteric ingredients that people use. So you know, that's sort of still our claim to fame. You know, we're one of the few brands that only uses, for example, just fruit. We don't use flavorings, so people notice that kind of stuff.
Okay, ten seconds. Is there another thing from Iceland that you could bring to the US that you think would be successful?
Well, I think the dried fish is delicious, but I don't.
You're not talking about the buried shark that ferments underground, are you?
No?
No, because that is not delicious. That is still quite moist. But I love the dry fist. I eat a lot of the dryed fish when I go home. I love it with a little The next company, I don't know. I think that might be a tough sell.
For we gotta run. Good luck at the contest. Siggey Hill Marson, of course, chairman and founder of Siggi's Yogurt. Right here on Bloomberg business Week, you're.
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Already all right, everybody, Well, all right, got a great take on youps, But we want to talk about what's going on with the consumer. It's kind of all connected because when we buy things, somebody's got to get it to us. But one thing we keep wondering about. We talked about this earlier in our FED discussion is about the strength of the consumer and consumer confidence we saw increase in January to the highest level since the end of twenty twenty one. Is Americans grew more upbeat about
the economy and the job market. That was the data point. Today we've got a great voice of Okay.
Let's bring in Alex Scaley, senior data and listed Bankrade. She joins us here in the Bloomberg Interactive Brokers studio. Alex I wanted to talk to you because you guys have a new survey out that kind of throws a little bit of water on all the positive data points that we've gotten about the American consumer. It's about savings. Talk to us a little bit about what you found.
Yeah, so we did see some positive consumer data come out today and that looked great. But our own data, bank Grade, actually found that over half of American workers say it's either difficult or impossible to consistently save enough money to feel comfortable for retirement emergencies or really any other reason given their current situation. And so we are also seeing additional data at bank Grade that shows that less than half of Americans can afford an emergency expense
of one thousand dollars or more from their savings. And so although the consumer may feel generally confident right now, they are still struggling with their savings and we are still seeing inflation play and to affect their budgets. Essentially, we've got.
A great chart for everybody who's watching on YouTube and Bloomberg originals. And in terms of your survey and you looked I think this was December eighteen through the twentieth right of twenty twenty three, and about twenty eight percent find it's somewhat difficult. In terms of saving for emergencies, You've got thirty two percent someone easy. When you look at this breakdown, how does it compare to the trend line?
I'm always interested in, like kind of trend lines? Are we building momentum to a different story or a significant story? Are we, in your view, as you guys look at these data points building towards something where you can kind of definitively say the consumer's starting to fall apart because other data points say differently.
Yeah, there's a lot of mixed research out there, and our research at bank rate, we do track this year over year, and when it comes to retirement savings and emergency funds, we haven't really seen progress on that front in the last two years. It's very similar. Yes, which I guess you could say that's not necessarily bad news, but it's not good news either, because we would hope that we would be seeing progress on the front of emergency savings or retire savings.
So is it like five years ago, I think, is this kind of like what we tend to see though in terms of the breakdown or a few years ago.
Well, you know, it really depends on what's happening in the economy at that time. So right before the pandemic, you were seeing overall stronger consumer, job market was doing well, things were going well, and then boom, the pandemic happened.
And this isn't the kind of chart we just showed everybody you would have gotten pre pandemic. No, Yeah, so people would have felt like, Okay, we're in good positions. Yeah Oka, absolutely.
Okay.
So you talk a little bit about in your report what people should be doing in the way they can sort of incrementally improve their position, and it has a lot to do with different types of psychology, and like thinking about saving differently, what do you guys find a bank rate?
Yeah, so we find at bank rate that's starting small is really the effective, most effective way to build up your savings because we often hear financial experts say you need three to six months worth of expenses. That is thousands of dollars for most Americans, and that's a very overwhelming.
Song.
Last week Jared Dillion, who wrote a new book about Yeah, and he says you should have a couple of years of catch on here.
Well, yeah, I mean it really comes down to you, and you.
Should have a spreadsheet with your wife or your husband or your partner in terms of home ownership.
But go ahead, it's an unconventional book, let's right, right, I.
Mean, it comes down to your personal finances. But ultimately, three to six months worth of expenses can feel very overwhelming, and so we recommend that you start small. Five dollars a week, twenty dollars a month, that's five hundred dollars. In two years, that's thirteen hundred dollars, and five years,
that's three thousand dollars and ten years. And although that may sound seem like small amounts, the momentum that you'll get there, you'll start to really feel the motivation and keep adding to your savings.
Alex is there's something that you guys are over being great And this maybe goes away from this survey, but just generally in your discussions when you look at data points and here we are, what three years out of the pandemic?
Yeah, I mean we're we're getting to the point where we're a four year anniversary.
Ase trying to remember where we are, Like where you say, I know that data points look good, but here's what we're hearing or here's what we're seeing that we're getting a little worried or you're not there yet on what specifically in terms of concerns about the consumer, that maybe the data isn't just showing everything.
Yeah, I mean, data isn't perfect, right, It's something that we use to help us inform us on what's happening with the consumer. But overall, I think the picture right now is that you know, the consumer is feeling the pressure of inflation. Still inflation is still well above the
FEDS two percent target rate. Those higher prices are still squeezing household budgets still going up, just not as much absolutely, and at the same time, we have rising interest rates right now, and we do see that Americans are increasingly turning to credit cards right now to pay for things. Our research at bank rate found that forty nine percent of credit card holders are carrying a balance months a month. That is up from thirty nine percent in twenty twenty one.
So you are seeing that debt really rise across American household and that debt is very expensive to months a month right now. Those high bar and costs are likely impacting American's ability to save right now as well. So there are a lot of economic factors at play. Inflation, rising interest rates, wages have not been keeping up with inflation and have not caught up yet. And at the same time, yeah, you have all this at play and it is impacting Americans.
That's interesting.
The credit card balance is like I feel like we keep and you know, some stuff is still rising double digits. Car insurance we talked about that.
I'm not gonna get you started.
Okay, don't get me started, but I good to talk to you about that. Okay, did you look at your car insurance? Okay, bad though, Okay, that's good.
Alex Keay, thank you so much. Some great insight in terms of the consumer. Senior data analystair At Bank rate jetting us here in our Bloomberg Interactive Brokers studio.
This is Bloomberg Business Week inside from the reporters and editors who bring you America's most trusted business magazine plus global business finance and tech news as it happens. Bloomberg Business Week with Caro Messer and Tim Stenebek on Bloomberg Radio.
All Right, everybody, so we just heard obviously from Microsoft and Alphabet. We talk about the shares. We've got Alphabet down about four and a half percent. Here in the aftermarket, We've got Microsoft down about one point three percent. So let's get to it and do a little bit of a round up for you. With us right now is David Kirkpatrick. He is founder and editor in chief of Technolomy Techonomy. It's a media and conference company that focuses
on technology. He's familiar, certainly to our audience, and he joins us on zoom in San Francisco. Also with us is Mandeep Seeing, senior tech industry analysts for Bloomberg Intelligence. Joining us right here in studio. Mandeep, I want to turn to you right now and Alphabet down four point four percent. What's the important part of what they just released A lot of kind of data points if you.
Yeah, search had a slight miss when you look at the top line number, but it was sort of expected given you know, everyone was talking about how the competition from chat GPT will have an impact on the volume, and I feel on the cost side, there puts and takes. Clearly they have brought down the costs through the layoffs, but when you look at the cloud numbers that have actually done better than expected. So what the GENI workloads
are doing is boosting the profitability of the cloud. But the core search business remains under pressure and that's why you're seeing that.
Really, But is it under pressure from chat GPT? I mean, are people using chat gpt the way that they use Google Search? I mean chat GPT is it doesn't provide the same service as it doesn't.
But think of the volume growth, right, So for search business to grow double digit you need both volume and ad pricing. We know ad pricing has been declining for the past six quarters, not just for Alphabet but for everyone in the industry, So you need that volume growth and I feel in this case you're not seeing that
volume growth because it's not just chat GPT. There are other competitors that are building on top of that GPT stack and really trying to disrupt search here, Amazon and TikTok they're doing it, but now there is even more competition.
To the ad business so important to Alphabet. David Kirkpatrick, come on in on this your reaction first of all with Alphabet.
Well, I love listening to Mande by the way, I would say, you know, it's interesting both companies, Microsoft and Alphabet. The CEO's statements are raving about going into the AI age, and yet I don't think in either case, certainly in Alphabet's case, we are yet really seeing that much impact on revenue and profit from AI. That's still to be
to be seen. But you know, they have done a pretty good job recouping from the perception of having been really way behind the eight ball on AI, and it just the economy is helping also quite a bit right now, much better than we might have feared it would be. So I think both companies are surprisingly impressive right now
in their results. Yeah, David, I'm really glad to know they were overbought, so you know, if people paid have been buying these stocks like crazy in recent months, and I think a little bit of decline doesn't mean anything for the long term. I'm really glad you said that about the investments in AI necessarily showing up in the
top and the bottom line. And I mentioned that just before Starbucks earnings crossed when we were with our simulcasts with our colleagues on Bloomberg TV, because it does seem like it's improved the product a lot. And I've had people talk to me about PowerPoint and just how easy PowerPoint is because AI actually makes it so much easier to build these slides, like it saves so much time.
But does that sell more power Point? Does it sell more Microsoft Office Suite when when the market is already pretty saturated with that, Well, it will sell more PowerPoint over time. I don't think we've seen that yet. I Mean, what actually I think will happen is we're going to see a leveling of all tech products that are all going to have AI infused into them, and the people that will lose are the ones who don't infuse AI
into their products. Now, Microsoft is a little bit ahead of the curve because they have this great partnership.
With open Ai.
But I mean, everybody's going to be doing it, and we might even not notice it in a year or two because we're just going to expect it.
All right, So let's flip to the other big report that we got was Microsoft. Right now, the shares are pretty much little changed here in the aftermarket. They were only slightly lower revenue topping estimates, cloud growth disappointing some second quarter cloud revenue was thirty three point seven The estimate was for thirty two point twenty one. Revenue overall was a little bit better. What do we need to know what jumps out for you when it comes to Microsoft specifically?
Are you asking me? Yeah?
Oh, I'm sorry, David, Yes, Well.
I mean Microsoft is the great execution engine of the technology industry, is my basic observation. You know, a three trillion dollar company with with you know, two hundred and twenty billion in revenues growing at sixteen percent roughly annually. I mean, these guys are just executing perbly, and you know, I think that their partnership with open ai really has proven to be one of the most brilliant marketing efforts in technology's history. Whether or not it does.
Have any concrete short term.
Profit and revenue implications. I mean, I think Saky Innadela is probably the greatest CEO in global.
Business right now. Why do you say that.
I just think that he is managing to take that company at its vast scale, unprecedented scale, and continue to point it towards the future in a way that is incredibly intelligent. I mean, cloud is the future of business, you know, AI infused cloud is the future of business. You know, they are brilliantly positioned. I mean, it wasn't that long ago that Amazon essentially overwhelmingly dominated cloud, and now we have to talk about Amazon and Microsoft and
even Google is creeping up Alphabet creeping up there. But I think also another amazing thing. You look, you know, there's hearings tomorrow morning for the social media companies. Microsoft has done an astonishing job keeping itself out of controversy for the most part. They had the controversy around buying Activision, they got through it, they bought the company. I mean, these people are not being held back.
Yeah, it's interesting, and they really you know, definitely kind of navigate as the market continues to change. I just want to forgive me, David. I just want to take another look at what Microsoft is doing here in the aftermarket. They're now up one point three percent, so the investors have at least the investor sentiment, which wasn't that dour right after the release, but the stock was a little bit lower. Now we're actually seeing Microsoft pop one up
about one point two percent. Back to Alphabet if I may, which has been down about four percent in the aftermarket, still down about three point seven percent. So let's go to the analyst call number one question that you would put to the team over at Alpha bet On. The analyst called what you would ask Sundhar Pachai.
Well, I think the key question to ask is when will you see revenue improvements because of Ai. Okay, you've got Gemini, You've come through this challenging period where people said you didn't get it. Now you apparently have gotten it. But does it matter? That's the key question I would say if I were an investor, especially buying at these valuation levels, because they have to show something dramatic going forward to justify their value.
Hey, listen, I just want to mention to AMD just crossing. Why do we care? This is one of the best performing stocks in the S and p five hundred once again in the great chip race, if you will. What I'm going to go right to is the outlook for first quarter revenue five point one billion to five point seven billion. The estimate was for five point seven seven billion. So that certainly feels a little bit like what's the stock doing in the aftermarket?
Yeah, the stock is moving, AMD down about two point two percent in the after hours, but there was a big trade earlier that took it down significantly, so bouncing around.
Yeah.
It also is talking about the first quarter adjusted gross margin about fifty two percent. The estimate was fifty one point eight so the gross margin there, the adjusted gross margin is certainly better, and expecting data center segment revenue to be flat sequentially, AMD says, positioning for quote strong product ramp in twenty twenty four.
Hey day, I thinks the concern is this first quarter revenue guidance that really came in on the right side, really right, I mean yeah, well, five point one to five point seven when estimates were for five point seven seven billion. I mean, shares dropped four percent, Carol, when that number came out.
It's still down about three percent. Hey, David just got about thirty seconds here, twenty five seconds. Any thoughts about the kind of the great chip race that's underway feels like, well.
You know, I certainly don't write AMD out. I mean, they are not in Vidia, but they are as close to in Nvidia at any company right now. Although from what I hear, even Intel is coming up with some interesting improvements that might help them in the AI universe, which is just like again defining everything. Everything has to
be seen through the lens of the AI battle. Now, you know, I've seen a m D go from the most right, the leaguered company when I used to be a fortune back in the day, to a company that really is a great exciting interest to all.
Yes, for good reasons. It's fascinating. Hey, David, thanks, It's been fast and furious, but we really appreciate it. David Kirkpatrick is founder and editor in chief of Techonomy Brother mac.
A journal. Now about you let me drive?
Oh no, no, no, no, alright, please, I'll do.
I want to drive.
It's a question.
This is the drive to the globe down to me. I think we'll buy around each other on Bloomberg Radio.
All right, everybody, less than eighteen minutes left in today's trading session, getting ready to wrap up the Tuesday trade. Just breaking down some of the equity numbers. DAL still in the green if you will, just up slightly a little bit lower on the Nasdack just down about seven tents of a percent, but the S and P call it flat right now. Everyone's just waiting waiting for the Fed decision.
Wayne, for earnings too, that too. Yeah, there's a lot, there's a lot. Hey, Speaking of earnings, our next guest says, most of the return this year has come from five large tech stocks, and they're in the midst of reporting. Two of them, Microsoft and Alphabet are happening after the bell today. He says, Carol, those five large tech stocks earnings will be market moving.
Right, We've already heard from some of them. So let's get to it with Sandy Villary, portfolio manager at Hillary and Co. On Zoom from New Orleans. The Villary Equity Fund little change this year fractionally on a percentage basis. Sandy, good to have you back here on Bloomberg. Let's go to those five large tech stocks that have been so important when it comes to momentum moves, certainly in the
trade last year. Even though we've seen a broadening out and we continue to keep a real close watch on this year. What have you learned from what we've got and so far? And how much are you watching Microsoft in alphabet when they report later today?
Yeah, I think it's extremely important. I mean, they had such a good run last year. I just think they're you know, pretty over you know, I just think it's a very overcrowded trade and they're going to put up good numbers. The question is, you know, will they beat all these whisper numbers out there? And then you know, when do people feel like finally stocks are just overvalued
and there's not much more to go from here. I think the rest of the year is actually going to look all up like it does today, where you have kind of tech a little bit weaker and maybe you know, some money flowing into things like financials and energy.
That feels to me like the way things are going to be, you know, really for the rest of the year.
So where does the where are the opportunities then for the rest of the year, Sandy.
Yeah, I mean when I look at just you know, twenty year averages again on large cap growth, you know that typically it's been around eighteen point nine times. Now we're trading around twenty seven times, so again I think that's crowded, and the place we like is small cap, where the twenty year average is closer to sixteen point
seven times, and it's sixteen point three times. So I just feel like, you know, there's going to be a much better opportunity to find, you know, undervalued securities in small cap that's really been left or dead and a good chance to sort of dig through that rubble as opposed to jumping on with everybody else and being in that overcrowded tech trade.
Here's my problem though, if you've got companies like an Alphabet where they're expected to share revenue gain twelve percent in the fourth quarter, marking the second consecutive period of double digit growth, the company benefiting from things like what they're doing in generative AI and adding to their portfolio there. I mean, if that's where the growth is while these big meg megacap tech companies, I think we talked about
this with Gina APMs. Maybe not the biggest part of the economy, but obviously a big part of the market. But if this is where the growth is, don't you want to have some exposure and then what kind of exposure do you choose for your portfolio.
Yeah, and frankly, they could be they could be younger companies that are going to use AI to become more efficient, et cetera. I just think of I used to own a three D three D printer company and it did fine, but one of its one of its customers, Aligned Technology, did so much better because they were making the Invisiligne braces and so sometimes when you use that technology, you can do a lot better than some of the videos
of the world that are creating it. So I just think a lot of those names are just price for perfection. No doubt they're going to have incredible runs. They're incredible companies, but I just feel like they're for the short run, probably on the overvalued side. Especially with my sort of macro thesis that inflation is going to be a little bit more stubborn and you may not see the kind
of the ten year fall from these levels. I think it actually gets, you know, lifts a little bit, and that's going to be a little bit of a headwind for technology stops that do well when rates fall.
Carol, to your point in terms of waitings, I looked up VTI, which is the Vanguard Total Stock Market Index. It tracks about thirty eight different thirty eight hundred different companies the entire US dock market. Apple is six percent of that, Microsoft is six percent of that, Amazon is three percent, and videos two point five percent.
So outsized presence, I mean.
Outsized presence, like to put it lightly right, exactly, it's pretty wild.
No, I get that, but it's just interesting because I feel, like Sandy, I've been there before, where people are like got to back off these big you know, omegacap tech names, only to see them coming charging ahead and then also seeing them fundamentally perform. So I kind of get some of the enthusiasm.
Yeah, it's just one of those things.
And I guess if you go back through history, and I mean I can certainly remember nineteen ninety seven, ninety eight, ninety nine, you know, and that's those are sort of the dot com era. But when things when things you know, fall apart, they fall apart quickly. And these are much more sound, you know, solid businesses, et cetera. But you know,
it wasn't too long ago. In twenty twenty two, you know, of course, in the face of eleven straight rate hikes where you know, tech was down, you know, thirty plus percent, and so you know, you just want to be you just want to be cautious. And I'm a big believer in buying individual companies at reasonable prices and trying not to overpay for things.
And I just see too many opportunities in smaller names.
So just a valuation, really, you know, call for you, all right, So let's go to some of the names that you like on holding. We have had one of the company's CFOs or the CFO on along with they think he was also coached.
Yamar Hoffman co CEO and CFO. We talked too recently just before the marathon.
I got it pretty well, fully transparent, he did. I went and bought a pair of sneakers after he was on, Like we talked about that, and I like them. I like them.
I like them.
You like them as well as a stock in your portfolio, and I think it's one of your bigger holdings. Talk to us about that play.
Yeah, I mean it's you know, Swiss, Swiss, you know, shoe company essentially. I guess I've got about five percent that's exposed to apparel. It's really a direct to consumer story. They do have wholesale. They now have fifty retail stores, so that's between owning and franchising.
So the growth is just, you know, too phenomenal.
I mean, it's a it's a brand that I see certainly you know here, you know, in Louisiana, but you see them a lot in the Southeastern Conference sort of you know areas and that sort of thing.
But you know, these guys are.
Going to do probably three hundred and eighty six million Swiss francs and ebitda this year and then you'll see you know, twenty twenty five, shit be more like five hundred and eleven million Swiss francs.
So I just think you put a twenty two multiple.
When you start looking at enterprise value to EBITDAE, you sort of get a forty dollars stock price and that's fifty percent upside from here. So I think because they have, you know, exposure to the consumer with a crazy interest rate market, you know, people are a little bit down on them, but this is a real premium brand that I think people are going back and they're very brand loyal and they're buying that fourth and fifth pair and it's it's a neat story with a great growth trajectory.
Okay, we got twenty seconds left, but let's hear about Palamar Holdings. It is a one point five billion dollar market cap company PLMR. Are you optimistic there?
Yeah?
I like the story a lot specialty insurance company. But it's cheap, right, you know, when you start looking at the large cap tech names. This is one that they're going to earn four dollars and fifteen cents you know, this year. So you're talking about a fourteen point three
multiple for a very fast growing insurance company. It came out of private equity, so great technology allows them to get super granular on their underwriting, and it's it's a business I think is going to work out well, especially from these low levels.
It's just got a high margin of safety, so we like it as well.
Yeah.
Seeing the stock up almost nine percent already here in twenty twenty four, all right, Sandy, good to check in with you. Sandy Villary, portfolio manager at Villary and Co. Joining us on zoom from New Orleans. Stock's bouncing around. We are seeing the Dow only in the green right now.
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