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 Stenebeck from Bloomberg Radio.
So global MNA activity is gearing up for a spring renaissance, with more than twenty billion of potential transactions emerging since the weekend, the latest charge being led by merk which agreed yesterday to buy Prometheus Biosciences for about ten point eight billion works out to about two hundred in cash, continuing a theme of large biotechs looking for ways to boost pipelines and portfolios of new drugs. It's an old story,
We've seen this before. It is also the latest boost for deal makers in healthcare, which is one of the few sectors justice to fight.
The global slump.
At M and A.
We are seeing activity here.
And with more on that, we do have Sam Fazelli, who's the senior pharmaceutical analyst at Bloomberg Intelligence on Zoo from London and Sam, I'm looking at shares of Prometheus Biosciences. That's tickersible. Rx DX is about seventy percent on peace Sport's best day since early December. Breakdown this deal for us.
Yeah, Hi, So basically what we've got is merk is going after a drug that has shown which is the key asset that Prometheus has, that has shown very good at efficacy, accepting that his cross trial comparisons or either not being competitive to head, it seems to be the best efficacy that we've seen so far in treating inflammatory bowel disease, and that's a big market.
J and J alone has a drug called Stellara.
Where of course it's used in other indications too, and that could be the same for Prometheus's drug is doing close to ten billion.
Dollars expectation this year. So you know, then when you put.
That into context, ten point eighty billion dollars doesn't stand like a lot at least from this basic assessment. But of course commercial dynamics could be very different when this drug comes to market in twenty twenty six.
Yeah, I'm just going to say, right, that's a few years from now, and you know better than most sam about the you know, drug trial process. You know there could be some stumbling blocks. So but you would assume that Mark has done its homework in a big way here.
Sure, but this is a this is an early stage trial. When you go into larger base three trials.
Different kinds of things can surface. But I'm not necessarily worried about spiderfecks.
I mean that is a risk that drug companies take day in, day out, or the efficause it doesn't pan out as well as it did in the smaller trial. What I think is interesting going to be interesting is that the same drug that I mentioned earlier, Johnson and Johnson's drug.
Stillara, is going off patent imminently.
So this is this peak year and in twenty twenty four it's going to be going losing.
Market share to buy a similar drugs it will be cheaper.
So when Mark comes to market with this drug, where will it be positioned? Will you people be forced to use the Laura first and if they fail, then they use permifew drug, which would then take longer to ramp up sales.
Sam, I know MRK is really focused when it comes to oncology, but I know it's key drug, key Truda. It's estimated to bring in around forty three percent of its revenues by the end of twenty twenty four. Now, as far as the expiration is concerned, it's still wilder. But is this really a key play as far as the patent front, as far as what it can do to still boost those revenues once that patent does expire.
Yeah, So the patent expires in twenty twenty eight, and we don't think that they're going to be able to push that much further.
Of course, it doesn't.
Expire everywhere at the same time, so it's going to be a relatively speaking, at that point, expectations are about thirty three billion dollars of sales, but we think that it could lose about seventeen over the next two years, and that's what consensus has in their expects.
So will you be able to replace seventeen billion? That's a big ask.
There are other drugs in this pipeline that are looking really good from previous acquisitions and this will help, but we don't think that it's going to be quite enough to make up that difference. That therefore they'll need more deals or at least more drugs coming out of their own pipeline.
Hey, Sam, I mean we've seen this movie before, right, you know, the big pharmaceutical companies have drugs coming off patent and then they got to figure out how to beef up their patent pipeline. I mean, is that what is at this point once again driving so the acquisition mode if you will, among the big drug companies.
Yes, it is exactly that.
You know, we've got estimates of over three hundred billion dollars worth of drugs exposed to pattern the experience by twenty thirty.
Now that doesn't mean that's the sales that lose, but that's a big number. Over some period of time post twenty thirty.
They will lose some of those sales to competition, So they're going to have to be able to replace.
Is that some people will do a better job of replacing than others.
Time will tell, but they certainly need this and there's going to be more in Mana to get through this.
I am also curious Sam that kind of what's on everybody's radar. We talk to various folks in the medical community and just in the innovative space and disruptive space, and they talk about the human genome and you personalized, individualized drugs, and I'm thinking, also, we're coming off the pandemic and I'm thinking about what we might need next and messenger RNA right, that led to the development of
those drugs. What are some of the things that are on your radar that you think are probably on the radar of you know, a mercer, a Pfizer and others out there.
Yeah, I mean there are. There's so much going on in science. Prometheus is an example of that. This is a completely new target.
Being developed for this inflammatory disease, which has seen quite a lot of innovation.
There are patients with psoriasis, which is pretty bad.
Disorder that that see one diseaser mission or skin clearance with some of these newer drugs. So immunology is exploding. Our understanding of immunology is exploding, which frankly touches every disease that there is. And so the more in depth understanding of immunology will have, the better we'll be able to target some of these diseases. At the same time, the modalities that we can do it with are expanding protein degraders, things that can downregulate the amount of a protein.
That's produced, even if it's not a standard way of doing pharmacology. So there's that element. There's the modern a vaccines, there are the gene editing technologies all targeted at trying to stall single gene diseases.
Or targeting immune system disorders, which, as I said, is involved in every pretty much every disease that there is.
And Sam I was curious about what you think this says about the macro and the economy as far as a sign of confidence if you have these c suite executives that want to put more money to work, and particularly obviously when we're talking about the pharmaceutical.
Industry, yep.
I mean, look at the end of the day, when you have that drug that's been become such a success, not just for your P and L, but also for patients. And I'm talking about Key Truder here as an example, you need to do something.
You can't just sit back.
And let's not forget pharmaceutical companies are not impacted by the macro environment as much as consumer stocks or tech or etc.
They are less.
Sensitive to interest rate rises because they're very high cash generative, highly cash generative, so they're in a position to exercise this power. And thank god, because at the end of the day, we do need the drugs that they're bringing into market, and they are making a difference, putting the pricing discussion aside, because that's a whole different kettle of fish.
Yeah, it's pretty remarkable though you think about what Pfizer was it last month bought Siegen for forty three billion. I mean, there's so much going on in the space. Hey, any thoughts if you will, Sam, on Prometheus, it's trained below two hundred. We know that two hundred in cash was what Mark put out for it. Does that mean anything significantly to you just quickly?
Not really? Not really.
I mean if you look at Merk's current areas of activity in this disease area.
There really don't. I don't really think there's much competition. The drug is early stage, is high risk.
I think this is just six months of waiting for it to close, or a few months of waiting for it to close on that gap will likely close.
So I don't read too much into this.
Okay, well, good, good to get some perspective and fun to have kind of another m and a Monday, which we don't always have, or it has it feels like we haven't in a while.
Hey, Sam, thank you so much.
I know it's a little bit later out there in London, so appreciate you hanging around so we could talk with you. Sam Fazzelli, he's Bloomberg Intelligence senior pharmaceutical analyst, as we said, joining us zoom from London. Check out Bloomberg dot com for some of the additional research by Sam and the team and some of the other reporting when it comes to this acquisition. But it is typically you know about the pipeline, Jess. That's what it's about for these big
pharmaceutical companies. You know, if you know covering business news a lot, you see this, these cycles that go through for these companies that have these blockbusters that bring in so much money, and then they go off patent and then they've got to think about, okay, what brings in revenues from right?
And when you think about how much cash these companies were sitting on in the pandemic, Carol, and then wondering what do we do with the money? Well, particularly with the pharmaceutical giants, maybe more M and.
A yeah, exactly, and we've seen a fair amount already this year.
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It's not easy being green, having to spend each day the color of the leaves.
All right, everybody, a little kermit for you, because we're all talking about being green, We're going to talk about farming and growing green something. This next company knows a lot about it, and I've got to say, you know, we've been talking about this a lot here Jess on air. We recently caught up with the founder and CEO of the ag tech company Regrow, and a lot is going on when it comes to farming, food and the AG space, which is really seeing some disruption and also growth in
terms of the market size. So let's get into it with someone who's well versed and embedded in the agg and farming space. We welcome Irving Fine, founder and CEO Barry Farming, which is backed by GV formerly Google Ventures. He joins us via zoom in New York City. Irving, I've been looking forward to having you on air. Welcome and good to have you here. First of all, how should do you think the world think about modern arming?
You know, it's it's an important question, and I imagine at some point you all have talked about. You know, we have a big and important farm bill that is coming up again quite soon, and so not only does the world need to be thinking about farming, but this
country is very specifically thinking about farming. And you know, one of the statistics that I think a lot of people always find surprising or often find surprising, is that agriculture is actually the second largest source of global greenhouse gas emissions, right after the production of electricity and heat. So it actually accounts for a bigger slice of greenhouse gas emissions than the transportation sector, which you all were
just talking about. And so when you think about what does modern farming need to look like, one of the critical recognition that we all need to have is there is no path to that zero. There is no path to decarbonization that doesn't lead directly through all of agriculture.
And so the question you're asking is an extraordinarily important question for all of us to answer, not only in the next few years, but in the next few decades, as we need to transition to a more sustainable system that needs to feed a lot more people.
Are we doing it yet? I mean, I feel like you're involved in it. There's definitely pockets. But I also think about industrial farming. It's massive and controls a lot.
So where are we in.
Not only thinking about it, but doing something differently that's better for our world?
So massive it is, and changing a system that is as large and embedded as sort of broad based industrial agriculture is is not something that happens overnight. And I think you can just look towards the energy sector, the transportation sector, which are in many ways far ahead of where we are agriculturally, to see how long real transformational
change takes. And you know, I think there's an interesting statistic that really answers your question more effectively than anything I can say, which is, for every gigaton of CO two that's generated annually by the combined global energy and transportation sectors, fifty one billion dollars was invested in low
carbon energy transition in twenty twenty two. So for every gigaton of CO two that was generated from energy and transportation, there's fifty one billion spent for low carbon transition in twenty twenty two. At the same period, the transition to cleaner and more efficient agriculture got two billion dollars of investment for every gig aton, so twenty five time difference.
And so are we moving, Yes, we're moving, and yes there's a lot of innovation, there's a lot of excitement, but what is very clear is we're not moving as quickly and as aggressively enough as we really need to. When you think about how substantial the food and agriculture ecosystem is for the entirety of the global population.
Irving take a step back and talk to us more specifically about Bowery Farming and specifically what your company does.
Absolutely so, our belief at Bowery is that wherever food is needed, we can grow it, and we do that by growing in warehouse scale smart growing environments. We stack our crops from the floor all the way up to
the ceiling. We grow under lights that mimic the spectrum of the sun, and we grow in a totally controlled and contained environment, so we can grow three hundred and sixty five days of the year, independent of weather, independent of seasonality, so it's reliable, consistent supply of pure produce year round. On top of it, we grow completely pesticide free and agrochemical free food. And whereas in the field that not only hurts your quality and productivity in our case.
First of all, our produce is really the purest expression of what you would imagine came out of your grandmother's garden, and it's one hundred times more productive than a square foot of farmland, all the while using a very small fraction of water compared to traditional.
Agriculture packed on the environment, the footprint much smaller. Forgive me for interrupting, but so absolutely, how does it compare. I'm just thinking for people who are listening, how does it compare from traditional in terms of the impact.
It is fractional, so ninety percent plus less water than traditional farming, uses no pesticides, no herbicides, no fungicides, no insecticides. And there's even more benefits beyond this, because number one, we locate our farms close to the actual points of consumption, so our product is harvested and delivered within twenty four to thirty six hours versus weeks of time in the
traditional agricultural supply chain, and oftentimes even months. That means you're wasting less food, it's fresher when it shows up, and it's more nutritious. You also are reducing all the transportation miles that are required in today's existing supply chain.
So in many respects, what we are doing is actually reinventing the fresh food supply chain, and we're building a supply chain it's simpler, it's safe, it has much more surety of supply, and it's a lot more sustainable than the existing system today.
How does this exactly reshape the food patterns if we're talking about either gen Z or millennials.
In a number of ways. I think this is meeting consumers where they are and what they're looking for. So Number one, what allows us to do what we do at Ballery is leveraging an enormous amount of technological innovation that's occurred over the last decade or so. We certainly leverage improvements in lighting and LEDs, but it's also leveraging artificial intelligence, computer vision, software, center and control systems, automation
and robotics. It forms the intelligence layer across our farm and allows us to automate the entire process from when we plant the seed to when we harvest the product and put it into a package. And the reason that's important is it both allows us to be more sustainable, it allows the product to be safer, and it's using technology and smart and effective ways to produce a more sustainable system that we sell a product today at or below the cost of field grown organic and so consumers
are looking for that sustainable solution. They're looking for technological solutions to age old problems and systems that we've lived in. But they don't want those solutions to cause them to have to bend their lifestyles an excessive amount. And that's where and how we can use technology effectively to deliver the solution. We do about and cost.
Remind us about cost differentials between what you guys are doing and what kind of the rest of the are much of the ag space is doing.
We are selling at or below the cost of field grown organic products today, and we sell across We are the largest into vertical farming company in the US now eighteen hundred plus retail doors. We work with Amazon and Whole Foods and Walmart and safe Way, Albertson's, and I'll hold so many of the grocery stores that you all shop and.
Know and Irving. I know I've had the benefit of talking with you earlier this year at this incredible dinner that you and your team hosted and you brought together you know, people from different walks of life, I feel like, and it was just a really rich conversation about what's going on in terms of food, food production and how we think about wellness and the importance of food production in our wellness.
So when you think about.
What's going on in the food space, it's going to require a lot of parties right in order to get it right.
Absolutely, And you know, like any large scale system that's global in nature and that in essence touches every person on the planet, the notion that there's a single silver bullet, a single industry, you know, let alone a single company, is of course false and would never be the case. And so again not the point to the energy decarbonization and transition. But there are so many different companies and
approaches that we're seeing play out in that space. And similarly, we are going to need many different ways to approach the new agricultural ecosystem. We're going to need lots of different solutions, and we're gonna need to look at every aspect of the agricultural ecosystem as well. And you know, we're talking today about farming and fresh food production, but equally we have to look very closely at animal agriculture
and how that is transpiring and taking place. We need to look at food waste in general and how that's handled. We need to look at developing countries across the world and the way they're farming, their actual availability of not only capital but actual tools, and the types of understanding that we have and the access to equipment and to inputs and things that we have in the developing world that they may not have access to which can raise yields.
It is a large scale problem that will need many people, lots of capital and a lot a lot of focus and attention in the coming decades.
Well, and what I.
Wonder too, and I think this came up at the dinner that you guys hosted, is that when we talked about plant based proteins which haven't necessarily lived up to what thought they were going to be and they're ten years, you know, right old and counting whether it's beyond impossible and a lot of other players. Everybody was so excited,
but it hasn't quite worked out how we thought. Is there going to still be you know, a really important role for plant based protein in your view, because I know you reach out and really are looking at things on a bigger level.
So you know, I don't in some ways there was a structural disadvantage that plant based protein had, and you could argue whether or not they created this on their own, but this notion that they themselves and the set of companies were going to be able to displace the entirety or even a huge portion of the traditional meat industry, that's a really tall task. That's difficult, and more importantly, is it possible. Absolutely, But something like that will take
time no matter what. And so what plant based proteins absolutely have been able to do is they've shined the light and they've brought into the forefront the conversation about how animal agriculture is affecting the planet, how it's affecting our health. I mean, we spoke about this at that dinner. But the calorie calculation is about ten calories in for
one calorie out when it comes to meat. So if I said to you, Carol, hey, listen, I'm going to give you a dollar and you give me ten dollars, I think that that would not be a trade that
you would want to make. And that is essentially our current trade in the industrial agriculture system when it comes to meat, and plant based proteins are helping people realize whether it's animal welfare, whether it's the environmental impact, and it's not just the animals themselves, it's all of the crops that we have to grow to feed the animals, many of which we grow in this country and we end up sending overseas to support ecosystems in other countries
and other regions. There are better ways to do this. Plant based proteins are shining a light on it. And what you're going to see now, in my view, is cell based agriculture is really beginning to grow. It's beginning to take shape. It's very early stages, but it's the ability to essentially grow animal protein in a laboratory that is in many ways indistinguishable from an actual animal protein
that comes from an animal. It just has a fractional environmental footprint and actually doesn't require the land, the feed and everything else that we need today. Is this a next year's solution, right? Absolutely not, but this is coming absolutely irving.
Having said that, then do you envision a world and I don't know whether it's five years, ten years, twenty years, where most of our food is produced inside in labs in you know, gardens like you guys have hydroponic inside because climate change is unstable and in terms of just productivity demands that we're going to have to be you know, making everything kind of inside.
So it's a great question, and I think it's worth just taking a step back for a second and realizing the problem that we are solving ultimately is that the world around us, in particularly our climate, is becoming increasingly unreliable and unstable. And all you have to do is look at what's happening on the west coast of the US right now. We were talking about the twelve hundred year mega drought in California and the southwest of the US, which still very much is present, had very real impacts
on agricultural output over the past three years. Now, over this winter, we have these atmospheric river events, and we have record snowpack in the Sierras, and we've gone from heavy drought conditions to enormous flooding in the fields of the Central Valley where the majority of our food, our fresh food comes from, over the course of the next
six eight months. It is a different problem and a different extreme on the other side of the spectrum, and meteorologists and experts in this area say we're not done with the drought that will be back, and so this increasing amount of unreliable and uncertainty is going to demand that we put systems in place that can actually much more effectively hedge against that. What we're doing at Bowery and indoor agriculture is absolutely important and will be a
very large part of the agricultural ecosystem moving forward. But I would never tell you that all food will be grown indoors. It is too large of the industry, it is too broad. We're talking about a global industry, a global problem, and there is places for outdoor agriculture, indoor agriculture, traditional animal proteins, cell based proteins, plant based meat. This is a many lead bullets and no silver bullet problem, without question.
So is it easier to do this as a private company or is it make more sense to go public.
I think what's exciting about what we're doing is food and the opportunity that we're going after is enormous and it's durable and irrespective of what's going on cyclically in an economy, people need to eat and this is important. And when we look at our opportunity just for crops that are good candidates for us at Bowery a trillion dollar plus a year global opportunity. So there is an enormous amount of to growth. Still, we are fractional compared
to the opportunity in front of us. And so right now, as a private company, investing in innovation, investing in the foundational technology that we need to develop to do this effectively is the right decision for us. But you can absolutely see what we're doing at Bowery as a standalone public business. At some point.
Hey, you know one thing I'm thinking about.
We're getting ready to head out to Milkin and they are, you know, the Milk and Global Institute, their annual big event, and it really is this cross section between finance and wellness, and they often I've monitored moderated panels out there about food and food production in particular. Is the money flowing in too where it kind of needs to do to get to a food system that we're going to need in the future, that is better for the environment, that is much more productive and also healthier.
I think this points to the stat I mentioned earlier. Is there money flowing absolutely, But when you think about the fact that twenty five times more investment is going towards in twenty twenty two energy and transportation decarbonization, and yet agriculture is the second large green gas by a very not far behind that twenty five times delta. To me, doesn't speak to a recognition and acknowledgment of the urgency and size of the opportunity in front of us.
What's holding it back thirty seconds? Serving do we need, like an Elon musk to just kind of rip off the band aid?
What do we need?
Strangely, we all interact with the food system every single day of our lives. Yet I'm often amazed it just people don't know a lot about what's underneath the products buy. We go into the grocery store, we pick something off the shelf. I mean, you think about early COVID, when we were all shocked that our grocery store shelves are empty because we'd taken for granted that when we needed
a product that would be there. But in fact, it's this long, complicated global supply chain that allows that to be a reality. And people are beginning to understand really what allows our food system and our agricultural ecosystem to exist in the way that it does. But increased knowledge and increased awareness and increased understanding will only lead to more investment, more entrepreneurs focusing problem and the returns are there. It's about that.
Well, so glad we got to catch up and I look forward to next time already Irving Fain, Founder and chief executive Officer Barry Farming joining us via zoom from New York City.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern 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, play Bloomberg eleven thirty.
Here's some data points for everybody. According to the latest estimates, nearly three hundred and twenty nine million terabytes of data are created each day. It's a lot, and no doubt about it, Chess. We're living in a data centric world.
We get that.
We talk about it constantly. We talk about retail using it, you know, to learn more about us and our buying habits. We talk about, you know, all the search giants they use it in terms of advertising, right it is kind of everywhere.
It does, it follows us and obviously are different types of patterns, so you can't really escape it at this point, Carol.
No, and it can be put to really good use when it comes to maybe creating better software.
And we know that.
And so that's where our next guest comes in. Whose company just raised fifty million in a series dfunding. So let's get to it. Christine Yan is co founder and CEO of Honeycomb. She joins us via zoom from Rena Reno. Excuse me, Reno, Nevada. I always say Nevada wrong, and I always have all my friends Christine yelling at me like, don't you know how to say it? And so instead I scribed Reno, Reno, Reno. I can't believe that.
Welcome, Welcome, How are you?
I'm excellent, happy Monday?
How are you happy Monday? I'm doing okay too. Tell us about your company and how like kind of tapping into your time at Facebook specifically maybe helped you create I feel like almost a face book for tech engineers to kind of work together and create better code.
So talk to us about it.
Yeah, in a nutshell, my co founder and I met actually had a company before Facebook, and we were, you know, two engineers on opposite sides of sort of the spectrum of engineering, if that makes sense. She was very focused on back end infrastructure. I was building our analytics product. And you know, this company that we were employees at,
we're building this very complex software system. We beating the engineer supporting that had to all the time figure out what was going on, why our software was not behaving the way that we expected. And you know, when when smaller companies get up by bigger companies, it's coming for the bigger company to push all the big company tools on a smaller company and say here, here are the big kid toys. And for the most part, we were skeptical that, you know, Facebook built for Facebook would make
sense for our system. But there was one and this one tool that sort of shed all of the typical patterns that we'd seen in how tools can work with data to help engineering teams make sense of why is the software misbehaving? And despite being skeptics to begin with, we found that this internal tool changed changed how we thought about software, changed how we thought about what it meant for code to go life, and when each of
us were thinking about leaving Facebook. You know, we both had the thought of I don't want to have to do that thing again without this internal tool. And so really what brought us together is wanting to bring this tool to the masses through the lens of folks who are skeptical about it to begin with.
So how does the tool actually work.
Well?
With any of these data tools, we take in massive amounts of data and really effect in the end we allow users to ask questions of that data. What's special about this particular UH this problem space, and then I'll talk about the tool.
Is that.
Some of the examples of data use that you described and the lead into this segment are all you know, on the business side, they are all assuming that the software is doing what the software does, that if you click check out on your shopping cart, that you actually, you know, you're able to check out with that item. Our software UH is intended more for the software engineering teams who are on the hook when you click check out and you can't actually check out with your with
your purchase. When that happens, the engineering teams go, oh, no, you know, what assumptions do we make that we're wrong? Do we have a logical error somewhere, is the person is the you know, is it not actually a person clicking checkout?
Is it a bot?
It should should?
Is it behaving correctly and not letting the bot check out? All of these questions rely on a massive amount of data as you touched on, but really that really quick response times. You know, if your e commerce site not able to let your customers check out, those are real dollars flying out the window and speed really really matters.
So this tool brings people together, engineers specifically, right too, Okay, there's a bug or something or I can't check out. Oh my god, Carol's got to be really ticked off, but we got to fix this, you know what I mean? Like, So that's what your tool does.
Right exactly exactly, And what.
Does this mean exactly for the growth in your business? How's it spurred more of that?
Well?
One of the things that seems to always be true with engineers is we want to build bigger and better things, and as new technologies come out, we want to play with these new technologies. And many of the recent changes in this in our software space have made the systems that we've built more complicated. And when when the building blocks that you're using are more complicated. The tools that you use like Honeycomb to make sense of are these
building blocks put together in the right way? Also need to need to be also more flexible to manage that complexity. And so, you know, we've all seen the world as moving online as consumer, I know my expectations of you know, how fast and reliable a piece of software have increased. That shifts a lot of the expectations onto these engineering teams that need to ensure that their software is behaving in the face of all this increased complexity and increased expectation.
Christine, you guys shared some numbers. Momentum in twenty twenty two achieved another consecutive year of two times revenue growth, drove over one hundred and sixty percent net revenue retention for six hundred plus customers globally. Has Generative AI changed that, like, are you even in more demand? Because this is complicated stuff and you're going to need those engineers really working together. And just got about a minute or so left short answers.
Yes, I think that we're just on the cusp. We haven't seen you know, right now, engineering teams everywhere are thinking about how to incorporate generated AI. But absolutely, anytime you incorporate a black box into your system, you know that the AI is making decisions, engineering teams needed. Are the humans are going to be on the hook to figure out why they made those decisions and what are those are the right things? So absolutely I think that this space is only it has only just begun.
So your space of this observability which I had never heard of, this concept, you know, how is that thing or not? When you create, you know that is going to be something even more important in this more kind of complicated AI space. And I'm just curious, does that mean you are already seeing more demand for your products? And just get about thirty forty seconds.
I think the demand for our products is correlated with just general instant interest in cloud generative AI. Absolutely is increasing, you know, cloud commitments and clouds to spend across the board, but it's still early and absolutely I think that there's a lot of exciting times ahead of us.
Now.
It makes sense and in terms of a space where these guys can work or these you know, women and men everybody kind of work together on a program really makes sense. Christine very cool, Christin Yah, Chief executive officer co founder of Honeycomb. Joining us from Reno, Nevada by zoom.
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.
Bomarcle.
The Journal. Now about you, let me drive?
No no, no, no, honey, please.
Wait, I want to drive. It's a good question.
This is the Drive to the Clothes dot Com.
Well by around each other down on Bloomberg Radio.
All right, everybody, just got about eighteen minutes left in today's trading session.
We've got stocks hit.
We're in the green, so we're off our worst levels of the session, as you just heard from Charlie. But just call it a little changed on the day. We really are just getting into the thick of earnings and trying to make sense and just on guard about any other problems in the banking sector.
So, I mean, Jess, volume, what's volume like today?
I mean, still it's not as high as you would think relative to the last twenty days, and I think a lot of that is just the same things we've been talking about, Carol waiting on those more regional banks. Let's say on Thursday we're going to get clear Third Key Corp as well US Bank. So I think that's really more of the focus leader on this week.
All right, So let's get to it with our guests. Back with us is Doug Cioka, CEO and partner at Kavar Capital Partners. They've got over a billion in assets under management, based as you know, in Leewood, Kansas and joining us on the phone once again actually.
Via zoom via zoom, Hey we can see you. How are you?
I'm great? How are you do it?
Okay?
Trying to keep up with the flow here and trying to make sense. You know, it's funny. I wanted to kind of kick it off with you, Doug. Earlier with Romayne and Scarlett, the four of us were talking about and Scarlet brought up what's going on with the VIX and it's what below eighteen? I think seventeen and change. I don't quite get it. Sixteen ninety seven. Do you care about the VIX? Do you think it's a reliable
indicator of something? Because it just feels like we're in this market environment where we're not quite sure what's next, and yet there feels like a fair amount of complacency.
Yeah, and we may have used a little bit of maybe pulled forward some of this year's last year, Carol.
I think last year there were forty.
Six different trading days with two percent moves up or down, and actually it was twenty three and twenty three equally divided, which is pretty fantastic.
And this year I think we've had two.
So I think we saw so much fitful trading, indecision obviously, credit exported equity volatility, and this year, even though you know what, the Fed may have one more hike and maybe they won't cut as much as the markets and pricing in, I think there is a set of a bit of complacency that's setting in.
I think more than.
Anything, it's just that an exhaustion with the type better day training activity that become the norm throughout twenty twenty two.
Is it exhaustion or is it signs of we're kind of finishing up or getting near the end of this market cycle.
Yeah, I think nothing's been as bad as had been anticipated going into twenty twenty three, even when you throw in the issues that had transpired with the banking mini crisis, right, And I think when you saw what had transpired with this fear of contagion, that very anxious weekend, weren't sure what if any additional deposits are going to be covered by the FDIC of the FED.
And then it just kind of played.
Itself out and we realized that some of the additional liquidity could be a bit of a sav or otherwise deeper wounds that could have transpired, even though it may have been kind of the sword that caused the affliction to begin with.
Doug, let's talk about earning seasons. We've gotten a number of these bigger banks as well as regional banks. Now, I know you're thinking more this is obviously more backward looking, but you look a year out, earnings growth is supposed to be back to double digits. What are you expecting? And is that why you might have a little bit more of an optimistic look when you are seeing earnings improving a year from now.
Yeah, it's a great question, Jessin.
I think one of the things that's been so pronounced this year and it's only been one quarter, but patience has been kind of the enemy of performance.
Right.
The valuation gap going into twenty twenty three between international and domestic closed very quickly. High tech sector went from like incredible laggard to darling leader. The banking issues pulled for the bulk of the Bond movie that we'd hope
we'd see throughout all of twenty twenty three. So when you consider what's happening in earnings, we try to overlay this whole concept of a rolling recession, right, And that's just another way of characterizing right relative value of certain sectors based upon a few things correlation with interest rates,
with underlying economic growth, and with sentiment. So when you're an environment for which we think is going to be higher for longer interest rates, slowish economic growth, sectors that benefit from scale, from inelastic demand, from low leverage from multinational distribution networks, those should hold investors' interest, and we're starting to see that as they're coming to kind of the earnings reporting table in healthcare, staples, communication services, and
then even outside of those within the royal recession camp, you have idiosyncratic sort of tackle opportunities and sectors like energy and IT sectors like agriculture, because even those supply lines have improved supply hasn't. So we're seeing that an overestimation of just how negative kind of the economic client twenty twenty two is going to have and impacting their profit models and it's just not materialized.
So is this a market where we can kind of make smart decisions, Doug, based on fundamentals versus kind of a technical trade?
I think so, right everyone, It's probably overused expression on every program of our biggest stock pickers market, but I do think, right if you look at the last.
Three years, what's underperformed quality company has been left behind.
What's underporting more than quality sort of a subcategory dividend paying stocks.
So if you have those two subsets that.
Are providing comfort in balot sheet income statement and valuations, then yeah, I do think there can be specific spots where you can actually see identifiable alpha generating opportunities.
No question, Doug.
You're talking about quality companies and dividend paying stocks. What specific sectors or some industries are you recommending clients by right now?
Yeah, So, going back to healthcare, staples, communication services, definitely dipping our toe into some financial services companies where we think just the valuation we're just blown out way beyond anything that could have been deserved because of the expected contagion with Silicon Value Bank and Signature Bank, and then even like in places like agriculture, we think there's a lot of opportunity.
Yeah, no, it's interesting.
You know, we've been spending a lot of time here, Doug talking about kind of agriculture, what's going on, disruption, innovation. We're going to have somebody on from Bowery Farming later, but just there's a lot going on in that space as the world tries to make sure there's enough food for everybody where. Don't you want to be in this fee That's a good.
Question, I think. You know, we were excited about extending duration.
Are fixed income portfolios, and then with the massive rally we saw coming out of that second week in March, issues with the financial with the banking sector, that was kind of arbitraged away. So we don't want to be too long in our duration right now in our fixed income portfolios. You know, we don't want to be too aggressive in growth sectors of the market because we just don't think there's going to be any type of multiple expansion, not when you.
Have a slower growing ecconomy and higher interest rates.
So even though it's been exciting to see what's happened in tech, I think it could provide an opportunity to take some profits in that area, particularly if you're in a sector or a company that's seeing a pretty significant expansion.
They're multiple, all right, So more optimistic or more pessimistic bottom line about the outlook sounds like optimisticistic.
Oh my gosh, but by a lot, right. I think there are some interesting lessons we learned from the FED coming out of this little banking crisis. Right, you can't live in the lab and I think regulators are really good and in plenting implementing policies to prevent.
The previous crisis.
And because of that, the messaging really really matters when it gets convoluted, and when you see sort of babies and bathwater indiscriminately sold and thrown out, that's where opportunity really really lies very heavily with us. There's a really cool piece you guys price over the weekend. It came
from Bloomberg Intelligence talking about this regime model. Yeah, it's so obsessed about how we going to a recession, how deep recession is going to be twenty three to twenty four, What they talk about with really liable inputs is we may have been in.
One yeah, and we really have to creating a lot.
Of reasons for being optimistic, which is depicting games.
I love the new quote the next story.
I wrote that love story.
Oh Jess wrote it?
Dogdoka? How great is that?
All right?
Doug b Well. Doug is CEO and partner at Kavar Capital Partners, joining us from lee Wick, Kansas.
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