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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. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
We want to get to a couple of tech companies for you. One that is sliding. In today's session, Tim, we are talking about salesforce.
Yeah, sure, sliding by the most in close to two decades. This after the company projected the slowest quarterly sales growth in its history, renewing concerns that the company will be left behind in the AI boom. The outlook heightening investors' fears over salesforces sliding sales growth in the past year as the company has turned its attention to bolstering profit. Joining us now is on arog Rana, Bloomberg Intelligence Senior technology analyst. He joins us from Chicago. Honourah, good to
have you with us. It was interesting because as soon as these numbers came out yesterday, we were covering it live on TV and radio. We started we started to see the selloff start, but it really gained momentum when people really started to see what that second quarter outlook would mean for the company. What's the big concern here when it comes to salesforce.
See, the big concern is the size of salesforce is too big that it's not immune to any macro slowdown. And that's what we're seeing right now. What is happening is corporations are spending a lot more money on hardware and chips right now, and they're reallocating their budgets from the bucket of other areas such as software and consulting and services, and they are buying you know, hardware equipment with it, and that's really having an impact on not
just salesforce. It's is not the only one. We saw. The same thing happened with Workday a few days ago, and you know, we envision this is going to be the same story that plays out in July when other software companies report, whether it says p Service Now Microsoft, although we think it's going to be a lot less for Microsoft and SAP, but this is going to be a common theme of prolonged spending for the entire group.
You mentioned Service Now and other software companies not being immune to this service now down twelve percent. Carol in sympathy with this.
Hey listen, so Anna rug, is it just a case of delayed purchasing. So in other words, we're spending on you know, hardware, we're spending on chips big, big time right now. But eventually we're going to get to the software and we'll be spending down the road.
Yeah, and again, you know what had happened is we saw some signs of recovery a couple of quarters ago with this entire group for sales, for example, you know, their leading indicator is a metric called CRPO. It went from eleven percent growth to thirteen and thirteen and yesterday dropped down to ten. So what happens is we were baking in a recovery in the second half in terms of the growth rates picking up. Now that's probably a twenty twenty five story. So for the next six months,
not a whole lot happening in the space. So people are basic saying, let me go find value somewhere. That's what's really happening. We still believe long term software still has a long way to go in terms of total addressable market. I think AI helps the space, but it's not going to be as quick and as easy to see as let's say in video. It's going to take some time.
Is there a cyclical nature to this? On a rock with the idea that Okay, maybe we won't see spending on software and services right now, but we'll start to see it pick up again once these companies have purchased the hardware that they need to sort of make the transition to AI.
Yeah, that is actually the waterfall effect. It's usually semiconductor and hardware first, then it trickles down to software subscriptions, then it trickles down to services. We have seen this game over the last twenty twenty five years. It's not the first time, but we were surprised by the degree
of this what happens. And I think in addition to the reallocation of budgets, I think the macroeconomic situation because of the geopolitical concerns, probably also force CIOs and CFOs to say, you know what, let's wait and wait for that you know, million dollar software purchase or expanding our footprint right now.
Hey, we just want to mention a headline crossing the Bloomberg terminal. This is coming from routers TikTok is preparing a US copy of the app's core algorithm. So again this is coming from Router's Hey, anaag before we move on to another company. Any thoughts, I know this isn't necessarily your world, but to hear that again coming from routers TikTok preparing a US copy of the app's core algorithm. We talk so much about the importance of that algorithm to TikTok.
Any thoughts, I.
Think this is a lot more about politics than that's actually technology. So you know, well, let's leave it at that. But I think you know this story is not going to come to an end very soon. It's going to be dragged out, all right.
Good to know.
Hey, listen and appreciate you weighing in on Salesforce. Salesforce and rag Rana is Bloomberg Intelligence senior technology analyst.
You're listening to the Bloomberg Business Week podcast. Catch Just Live weekday afternoons from two pm Eastern Listen on Apple car Play and then brout Auto with a Bloomberg Business app or wants us live on YouTube.
So you know this Inn Muss, who's the bus of Tesla, the world's largest ev maker, Tesla though in disarray. Layofs are mounting, morale shattered, stock cratering, sales are anemic. Here's the thing. Carol Musk also runs five other companies, SpaceX X formerly known as Twitter Xai, that Ai intell, that Ai Venture, the Boring Company, It's the Tunnel Company, and then the brain machine startup Neuralink.
Yeah, he's got his hands in a lot of different pots. He oversees more one hundred and thirty thousand people around the world.
That's a lot.
And while he burns brightly at the center of this corporate universe, a less visible coterie of consultants, fixers, board and family members really orbit around him. Which it gets us to today's Bloomberg Big Take, which I highly recommend you check out on the Bloomberger at Bloomberg dot com because it's interactive and fun.
To check out.
Yet it is one of the most read stories on the terminal, and it maps out the people who make Elon's galaxy of companies run. The story by Bloomberg News senior technology reporter Dana Hull and Bloomberg News technology reporter Kurt Wagner. Dana joins us from San Francisco. Kurt out there in Denver. Kurt also the author of Battle for the Bird, Jack Dorsey elon Musk in the forty four billion dollar Fight for twitters Soul. Check out this story and more from the Bloomberg Big Take on the Bloomberg
Terminal and at Bloomberg dot Com Slash Big Take. Great to have you both with us. As Carol mentioned, it's a fun interactive piece that you should definitely check out online and click around a little bit because you can learn a lot with your cursor. Dana, I want to start with you, and I want you to set the scene here from the Tesla perspective, just how bad are things at Tesla and in the musconermy, I.
Mean they're pretty bad. You know, to lose thirty percent of your you know, to be down thirty percent at this point in the year is pretty significant. And we've seen globally sort of a slow down and ev sale and Tesla you know, got rid of nearly twenty percent of its workforce in April, so just a lot has happened.
LinkedIn is full of people talking about how disappointed they are at the way the layoffs went down, and simultaneously, Musk is like out raising money for his latest startup, So there's this kind of growing consternation that he's not fully focused on what's happening at Tesla.
All right, Kurt, come on into the conversation, because you know, we think there's six different companies, right, and I guess they're not. They all maybe don't seem compatible. But what really matters, right is what's going on in Tesla and the profitability. Because if things are going well, maybe investors and individuals look elsewhere. But when things start to go wrong, Tesla the money maker, if you will, things are maybe looked at differently.
I mean, we're seeing this right now in terms of the complaints that we're hearing from Tesla investors about Elon's time, Elon being distracted right when the company. When Tesla's doing well, when the stock's going up, Elon's allowed to sort of tinker with all these other businesses that he's running, and people sort of just accept that and they let him do that. But when things at Tesla aren't going well, all of a sudden, his time is called into question,
his attentions called into question. And you have to remember almost all of Elon's wealth is tied up in Tesla too, right, So when the stock was doing bad, that effects the loans that he takes out of That affects his liquidity, his ability to finance some of these other businesses. So Tesla truly is like the engine behind this entire universe, and so when things are going poorly there, it really does have a trickle effect.
All right, So, Dana, how did you guys figure out I've been playing with this. Tim's been playing them with this online.
Trying to count how many names we lost.
We lost track, right, and some of them work for him directly, some of them don't. So how did you guys kind of figure out how many or who you wanted to put on this list?
Yeah?
So, I mean Kurt and I spent a lot of time kind of going back and forth with this spreadsheet of names, and it was tricky because it's by no means definitive, right, And you know, if you did a traditional ORG chart for X or Tesla or even SpaceX, it would be obsolete in like a week because executives
come and go, there's layoffs. So we didn't want to publish something that was going to be immediately stale, and so we really kind of tried to focus on the key executives at each company, but more than that, the kind of stable of investors, family members, advisors, legal strategists, people like Jared Birchall, who oversees Musk's family office. Kind of like these long time loyalists who are with Musk through thick and thin and pop up over and over again.
And then we just sort of had the idea, well, let's make it a solar system that's kind of fluid and dynamic with Elon at the center. And I think it turned out really well. You know, I think you can learn a lot about a lot.
Of these people.
I mean, Kurt knows this as well as I do from working on his book. A lot of these names come from trials, depositions, you know, a lot of them. Like when Musk was first thinking about buying Twitter. I mean, there was a trial transcript that had all these text messages from all of these friends, and so, you know, we pulled these names from a lot of public records.
Okay, So I want to go through some of the names here and then start with the folks who are closest to Elon's orbit.
Danny.
You mentioned Jared Birchall. Kurt, I want to ask you about Kimball Musk, Elon's brother. By the way, there are a few folks on this list who have the same last name as Elon, which we'll talk about in a minute. But Kimball someone who's been close to Musk his entire life, and he's also served on boards various boards of various companies.
Kurt, that's right, And I think he's one of those people, one of the few people probably in this orbit who has been known to push back on Elon right and actually call him out in certain things. We know that when Elon was looking to buy Twitter, for example, Kimball was there basically saying, are you sure you want to do this? Like this feels like a bad idea, And that's not the kind of thing that Elon hears very often.
And so I think having someone you know, who is a family member, who obviously is a huge supporter of his brother, you know, Kimball is certainly an ally, but at the very least, is you know, willing to sort of challenge some of his ideas, I think makes him sort of a unique person within this orbit. Dana could correct me if I'm wrong, but I feel like that's a unique role that he sort of plays as compared to some of these other folks.
Oh for sure. I mean, you know, the sort of wrap on Elon is that he's surrounded by yes men, and that Kimball, as his brother, is like one of the few people who can actually tell him no or feels confident in telling him no.
Yeah.
I also should note Kimball makes a pretty good steak. I was out in Colorado a few weeks ago and I went to one of his restaurants, just randomly. A friend wanted to.
Go there, you touch, Yeah, this should I try.
To expense the meal? I think I should. I was doing some serious Kimball was not there. I did ask the bartender if he comes in much, and she did say he's been known to make an appearance. Remember he is a chef. Okay, okay, I'm getting off topic here a little bit.
That's okay.
We like that.
It just shows, you know, interesting folks in.
Elon's orbit, Dana, who would you consider when Elon has to think something through beyond maybe Kimball?
Like who does he go to?
Well, that's a really good question, and I think it depends on for what. So if it's if we're talking about geopolitics, or the twenty twenty four presidential campaign, it's probably people like David Sachs. If we're talking about a lawsuit, it's probably Alex Spiro. If we're talking about raising money for xat Ai or one of his other adventures, it's probably Jared Birshall. So I think it sort of depends
on what the topic is. But you know, I think what's interesting to think through about Elon is that this is a guy who became a millionaire when he was in his twenties. I mean, he made his first millions when he sold his PayPal shares and started SpaceX back in twenty two thousand and three, I think for two thousand and two, and then you know, when you become
very wealthy at a very young age. I think it's hard to trust people, and so the people that Elon trusts tend to be people that he's known for quite a long time, and a lot of these friendships date back to those very early days.
Kurt.
And one of the things I was thinking about is we went through this story that you guys put together, is that often.
When we bring up anything to do.
With Elon's orbit, we talk about Elon, but there are really important you know, I think about the cover story I think that was on BusinessWeek about SpaceX a few years ago that really talked about, you know, Gwen and how much she was behind kind of the.
Success of it.
And I just wonder, I think about our audience who they should know about in Elon's orbit to kind of build on what Dana just said.
Yeah, I mean, I think the whole reason we did this project is he was running six companies. You can't actually run six companies and be president all the time, right, So there are people like Gwen Shotwell who you alluded to, that are sort of, you know, holding down the fort when Elon's out and about, and so I think Gwen is certainly a great example. It's Linda Yakerino is the CEO of X. We've talked about her often and she
is on the list. So I think, you know, Dana has a handful of Tesla executives that are very prevalent and important to keep that company running when Elon's off to another thing. So the whole purpose of this project really was to give people a sense of like who is running the day to day of these companies when Elon is is at one of his other businesses and they are very important, very relevant people on this list, and so I think it's you know, for people who
care about Musk or the muscotomy. As you mentioned, it's a good you know, it's a good universe to have a familiarity with.
Is it also important?
I think it was the Wall Street Journal that was talking about inside Donald Trump and Elon Musk's growing alliance, and you know, Dana, do we need to be thinking that maybe Elon could find himself in some kind of significant position in the White House and so these people become even more important in terms of Elon's businesses.
Yeah, I mean the Wall Street Journal story was fascinating. Pushed back on that a little bit today early he tweeted earlier today that there is there has been no discussion about a role for me in a Trump white House. But you know, the election is still several months away, and clearly Musk is going to have some kind of influence, whether that's a cabinet position or just being an informal advisor.
I mean, we already know that Musk served on President Trump's business councils during the first administration, so it would not be unprecedented for him to play some kind of role, even though Musk seems to be sort of throwing cold water on that idea. But yeah, I mean I think I think that Musk's role in the election is going to be key. You know, we know that David Sachs, who's a friend of Musk's, is hosting a fundraiser for
Trump here in San Francisco next week. And you know this is I mean, influential people tend to influence each other in all kinds of ways. And you know, again, we just really hope that people will take time with this interactive graphic and get to know these other names, because if you're an investor, or an employee or a customer of any of these companies, she should really get to know the people beyond Elon who have a lot to do with how the company is operating.
I was struck by the two names around Neuralink. Chavon Zillis, who would be familiar to two people who've been following Elon closely for a couple of years, because she doesn't just work at Neuralink, She's also connected to Elon in another important way.
Kurt.
Yeah, she's the mother of I believe two of Elon's children, and so it just kind of goes to show you, you know, the relationships that he has with these people oftentimes are much broader or much deeper than just the
business aspect of things. And I think one of the you know, if you read the accompanying story with this graphic, what Dan and I tried to do was give people a sense of like, if you work for Elon or if you have a relationship with Elon in one capacity, you sort of are expected to show up in all of the other areas of his life where he might need you. And so we saw that probably most prominently
with the Twitter takeover. Right he shows up, walks in the building with the sink, and all of a sudden, all of these people from the various corners of his universe show up with him. And you know, Chavan's a unique example, not everyone's, you know, having children with Elon, of course, but the point being is that it's not just like a one relationship thing. You know, if you work with Elon at SpaceX, you might have to help
out at Tesla X in the future. And that seems to be a pattern that we've noticed over the years.
We're going to ask you to of you and I'm going to start with you first, Kurt. One name you want to leave kind of our audience with, because you guys have done the homework in a big way and put out names that we don't typically maybe talk about when we're talking about Elon's orbit. So just you know, thirty forty seconds here one name.
Sure, this is a little bit of a well known one, but I just think he's so important. Which is Jared Birchall. And I was just literally writing a story last night. He's, as Dana mentioned, Elon's sort of money guy, his business manager. And I was just writing a story last night. He's been named in lawsuits alongside Elon. He anything that's to do with money and Elon, Jared's involved, and so I just think, you know, he is so incredibly important to understanding the broader universe.
Here, okay, Dana, same question over to you. One name you want to leave our audience with?
Oh Mead afshar So. Oh Meied works for Elon and like he's he's like this kind of like chief of staff role. He was at Tesla. He oversaw the construction of the Tesla gigafactory. Then he was on like a weird leave of absence, and he popped up at SpaceX as like a vice president and he's just always around like, oh Mead. Is is kind of like the new Sam Teller if you remember who Sam Teller was, but Omeed has a very influential role.
Love this.
This is gonna be a go to I know for us as we go through different Elon related stories.
Maybe Elon Inc. Also, this is like epitomize.
This is great.
So appreciate it, you guys, Thank you so much. Danah Hall.
She's senior Technology reporter at Bloomberg News in our San Francisco bureau, along with Kurt Wagner, Technology reporter at Bloomberg News, also author Excuse Me, A Battle for the Bird. Joining us from Denver.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa, playing Bloomberg eleven thirty.
It is time to tell the tale of Charlie Mullins, from a working class background and working in a toy car factory to living in a multimillion dollar London penthouse with a view of the Thames and I'm la along the way kind of building a very very successful plumbing business that employed many in his own family. And then Timmy ended up cashing in when private equity came along. He made lots of money.
Okay, so life is good?
Right?
Yeah?
Sounds like it or is it?
The story Carol among our most read on the Bloomberg terminal and in the latest issue of Bloomberg Markets magazine, co written by Saba Mettings and Michael Sasso of Bloomberg with More.
Michael joins us.
He is Bloomberg News Economy reporter in our Atlanta bureau alone at Bloomberg Market's features editor John Hecknuer, who edited the story, he is in Boston. Mike, let's start with you. You reported it out. Tell us about Charlie Mullins and his success story.
Yeah, well that was largely does by my colleague Sabbah in London. But yeah, she found him. He is quite the presence in the UK. I understand he's a bit of a personality, has some controversial comments on political topics often, but yeah he does. He came from a very working class background, built the largest plumbing business in the UK. I think it. He sold it for something like over one hundred million pounds or so, and he's I guess, living the life. He has a penthouse in London. I
think he lived near Tom Jones, the singer I love. Yeah, a plumber just down down on below Tom Jones. So very interesting. Yeah.
Okay, So Michael, why why does private equity want to you know, quote unquote roll up home service businesses because these are businesses that I think have been pretty tough to scale historically. Whether or not you have you know, four folks working on air conditionings on your team or four hundred, you still got to send them all to homes and offices to work on those air conditioners.
Yeah, well that's true. But there's a few things working in their favor. There, there's a there. It's a very fragmented industry. I mean, you don't have a dominant player like a McDonald's or a Starbucks, and so imagine it's kind of low barriers to entry. You can buy you know, a plumber or an h VAC company in Phoenix for example, and then add you know, just add onesie twosie around the country, and certain some you've taken a small company in Phoenix and built it into a fairly large company.
There's a firm I interview based in Atlanta that went from one acquisition, built up twenty six or twenty seven. Suddenly it's a one point five billion dollar a year company. So it's it's it actually can be scaled. It's it's so it's a very fragmented, and it's so low barriers to entry.
As I said, well, John, I mean, Michael, you know, talk to us a little bit more about like I feel like this is something that we see private equity do, whether it's vets, whether it's you know, as you report on plumbers, kind of these home service companies, hospitality. I mean, we have seen private equity go into these industries, you know, doctor's practices, right, and kind of roll them up into one big business.
Yeah. Yeah, Well it has happened in a lot of industries, and for for sure the last several years, it's caught fire in the home services industry, and we don't know how it's going to play out. As we mentioned in the story, there's some concern about are these your taping a family business that has a personal relationships with with with thousands of customers, millions of customers around the country and the UK, and you're creating corporatizing it, and so
there is some pushback. There's some some of these owners are kind of angry. They think that when they went corporate or they're bought out, sometimes the service is not what it once was. Certainly that's what mister Mullen's in the UK thinks. Here in the US a little bit too early to say. I talked to a number of owners who are fairly happy so far. They think that they like some of the changes that have been made.
But what I'm saying is that this is something we see private equity do.
Right.
They find industries that are often kind of just separate small business owners, if you will. Whether it's veterinarians. I've seen it with our vet they became part of a large practice and then private equity got involved. I've seen it with healthcare folks. You know, where there are individual practices and then all of a sudden you see private
equity buying up. And they're doing that with plumbers, right or you know, electricit putricians like these are areas that they are finding opportunities we're seeing this increasingly.
Yeah. Well, like I said, some of that goes back to the fragmented nature of it. It's hard to go into an establ a business where there are huge businesses, dominant businesses, and to roll them up. It's a lot
easier when it's a fragmented industry. And also money has been a little bit tighter in recent years with a higher interest rates and whatnot, and so it's a little bit easier to digest a company that you're maybe a fifty or one hundred million dollar plumbing or h vac shop than it is acquiring a multi billion dollar company. So interest rates kind of play a role in this a little bit.
Hey, Michael, I'm curious in terms of the reporting that you did around the United States what you heard from the large home services providers slash mom and pop home services providers you spoke to about why they've resisted selling to private equity or to a larger company.
Yeah, that's interesting. There's a fella here in Atlanta where I am, Jake Cunningham. He owns a very large plumbing services firm called Superior Plumbing, and he has resisted multiple times. In fact, he says he gets offers, you know, sometimes once a week, sometimes more to sell out. And he's frankly, he's got five members of his family working for Superior Plumbing.
He's concerned. He's concerned that these companies will will slash heads. Uh, you know, basically overly corporatized things, take out, you know, take local control out of local people's hands. And he told me he pays one of his top people, his general manager, a half million a year. You know, would would one of these corporate firms see this person as a cuttable overhead?
Uh?
And he's worried about at least he said, he's worried about his people.
John heckinjer we want to bring you into the conversation you edited this story. I was talking, you know, we were talking with Michael about this idea of how this is kind of out of the pe playbook of finding an industry there's opportunity and kind of rolling it up into maybe a larger holding, investment holding. I am curious how this story came on everybody's radar and and you know how you guys wanted to report it out.
Walk us through a little bit of that.
Well, Mike had had sort of identified this trend last year and did sort of sort of a shorter story about what was going on in the US, and then when Slappa came on to the story of Charlie Mullins, it was sort of it was irresistible. It's rare that you can have a photo of a guy with the Rod Stewart haircutt in a purple suit, and Business magazine were we were delighted that he was he was available, he wanted to talk about it, and also that he
would very openly talk about his regrets. It's not easy to get people in the industry who've sold out to say what it's what it's really like. And he had hoped that his children would work at the company, as many founders do once they're bought up by private equity firms, but they found that the culture just changed too much and it wasn't a place for them anymore. So they're actually deciding to open up a business to compete with KKR headquarters right down the street. So he's not giving up.
Hey, John, I'm wondering if to you this sort of signals any kind of pushback to private equity or our trend that we're starting to see. I mean, I was struck because early this morning there was an article publishing the Wall Street Journal and the column heard on the street about the headline is you can thank private equity for that enormous doctor's bill. And I'm wondering if we're starting to see some sort of pushback here to private equity.
Well, there has been some, all right, we have some problems with John's line, so we're gonna see if we can fix that out.
Michael.
Going back to you, though, it is interesting right as Tim brought up in terms of some of the blowback, I do feel like we've covered some of this blowback in terms of private egy.
Yeah.
I want to send the same question over to you, Mike, because you know, talking about this today, we're you know, a sixty million dollar check for a plumber, a plumber in Atlanta as a pretty darn good payday, and you have to have some serious conviction to not accept a check like that that could you know, set somebody up
for life with truly generational wealth. And I'm wondering if you're starting to see any sort of pattern when it comes to the folks that you're speaking to that they're like, okay, well, you know, an exit would be nice, but not this type of exit.
I did. I did get some of that, some of your certainly, mister Cunningham. I will say I spoke to some people, let's say, privately, off the record, who had some concerns they did sell out, you know, maybe they didn't feel comfortable kind of telling, but they did have some reservations about some of the ways that their people
were being treated. Again, they were reluctant. Some frankly, most of these people that I think we're under some kind of no disclosed, non disclosure agreements so that we're not creatives. But there certainly is there's a lot within the industries. There's a deep reservation. You will, it's very split. You could talk to people who have not sold out, and there's almost the feeling like this person, this competitor caved or sold out within this coder this continued that have not sold out yet.
Yeah, and I will point out in your story, you know, the Wall Street controlled companies who are doing this and picking up some of these companies say they're professionalizing these businesses while preserving their.
Connection with customers. So just putting out anyway.
There's a lot of fun details in this story, including mister Mullin's custom.
Made red Stoneway piano.
So I highly recommend you read this story. Michael Sasa, thank you so much, and of course our thanks to John Heckinger.
This is among our most read the journal.
How about you let me drive?
Oh no, no, no, no.
All right please, I'll do gravel.
I want to drive.
It's a question.
This is the drive to the globe. Well, bother it on Bloomberg Radio.
All right, everybody, eighteen minutes left to today's trading session. Shortly we're gonna head over to our TV colleagues. Caun't you down to the clothes on this Thursday. In the meantime, Charlie, of course.
Just breaking down the numbers. What do you laughing?
As?
This is like the longest shortest week ever.
It's like, come on, yeah, there's a lot.
I mean, look, there's a lot happening. Tomorrow we get PC it's the Fed's preferred measure of inflation.
Yeah.
Yeah, And our next guy says that getting inflation to the two percent target is going to be a challenge over the next year without some real deterioration in the economy. Sorry I cut you off here, you know, I.
Kind of cut you and I. You know, that's kind of the kind of day we're happening.
But it does feel like FED speakers or was it former New York Fed President Bill Dudley questioning maybe that target right, Yeah, yeah, maybe it's not. Maybe it's not two percent. I don't know, and others maybe that two percent isn't real. Let's see what Brooke May has to say. She's managing partner at the wealth management firm Evans Maywealth. They've got about a billion dollars in assets under management, and she joins us from Indiana. Hey, Brook, good to
have you here with us. I don't know, it's a funky little week. It's a funky little environment. Top of mind for your customers, your clients when they are thinking about their assets, their money to invest.
Right now, they want to know where the economy is heading. There's a lot of mixed messages out there, a lot of mixed signals, and just trying to decipher through the noise and figure out what direction are we going really weighs heavily for investors right now. As you alluded to, you know, we don't think that getting to two percent is going to be very achievable in the near term.
When we look at pce it's kind of plateaued. It was on a steady decline for a prolonged period of time, and just recently it's kind of settled at that two point seven two point eight percent level. That's where we expect it to come in tomorrow, and we think it's going to be a grind from here to get to two percent. So if we see two and a half percent on PCEE, we think that the Fed could feel comfortable starting to indicate at least that rate cuts are coming in somewhat iminent.
Brook How long of a grind is it going to be to get to two percent.
It'd be a while, you know, it could be another twelve to eighteen, maybe twenty four months. We do see inflation starting to slow down. When you look at CPI, for example, there are quite a few components that have really settled and aren't really giving us issues. But you've got housing, for example, that makes up about thirty percent of CPI and shelters up I think about five and a half percent year every year. So it's kind of
a story of a bifurcation within the economy. Some areas, you know, have settled in our tame and others will continue to be hot.
Londa Fed President Raphael Bostic indicated last week that officials are rethinking their estimate estimates of neutral end quote. There may be reasons to think the baseline steady state is higher. John Williams of the New York Fed, his predecessor at the New York Fed, Bill Dudley, did write earlier in a Bloomberg column that he believed the neutral rate had risen substantially. I guess the big important discussion to have around this brooke is not will it get there?
Will it not?
But if we are seeing growing narrative around that it's going to be maybe above two percent, how does that make you rethink how to invest? Does it really change strategy a lot?
It does.
There are clearly areas of the market that are more sensitive to interest rates than others. And if we're going to be in a higher for longer camp, there are areas, for example, like small caps Russell two thousand companies that you may want to be light on in this environment or be very selective about. Forty percent of small cap
companympanies are not profitable. Therefore they're relying heavily on debt and a significant portion of Russell two thousand companies have floating rate debt versus the SMP companies that have only about ten percent floating rate debt, So that weighs heavily on earnings, and we don't think small caps are going to be the leadership over the next twelve to eighteen months.
Doesn't mean you won't make money, but we do think that there are going to be companies that have stronger earnings growth and a clear path forward that are going to do better.
I'm wondering what you're seeing in terms of asset allocation, or what you're going to do in terms of asset allocation, given that this is your outlook, this is what you're seeing over the next year or so, how does it change the way that you position your.
Clients individual companies, not necessarily sectors. There's clearly a bifurcation, not just in the market, not just in the economy, but within specific sectors. Retail is a great example. You look at Walmart, Costco, Coal's, Amazon Target, They're all telling very different stories and it's clear that some corporate management has been able to navigate this environment better than others.
We know, for example, the low income consumer is struggling more so than the middle of class and high income consumer. And so you would assume that Walmart is struggling, and they're not.
They're doing well.
And so you have to be very selective in this environment and really take a bottoms up perspective. We want companies that have strong free cash flow, low leverage, and really strong balance sheets.
Yeah, that's a really good point.
We've definitely seen that in a big way in the retail sector in terms of some that have done well, some that have not. Tells you a lot about kind of what's top of mind for consumers, and you're right, fundamentally, you got to look at what their businesses and how it's doing, because you can't kind of throw them all in one bucket. Having said that, you do like Amazon, tell us about your thoughts on that one, and I mean the Beheamoth.
It feels like when it comes to retail.
It is it is, and you know, it's very broadly held when you look at Amazon, though historically it's really it's gone through trading ranges and then it's broken out, and then a trading range and it's broken out breaking out. And so when we look at Amazon. It's trading right now at the same level that it was in twenty twenty one. And so when you peel it back and you look at the different divisions with an Amazon, they're all hitting on and they're hitting on all cylinders. Aws.
For example, we expect sales to be up seventeen percent year every year. We see expanding margins in the e commerce business, and for their digital advertising, we expect it to be up twenty four percent year every year. So Amazon's doing a lot of things right, And if you don't already own it, we think you should.
Okay, no, it's not you don't think it's too late.
No, No, Amazon, it's trading around forty times forward earnings. And again it's trading at the same level that it was in twenty twenty one. Amazon's always trading at at an expensive multiple. It doesn't mean you won't make money in it.
Yeah, it's an interesting chart, right, I'm just pulling it up on the Bloomberg and just to paint a picture.
It's kind of a v chart.
If you will, you look at where it was back in twenty twenty one, you're right, like, we're back at the levels we are today, and it took a big hit going all the way down to kind of late last year, which we saw with a lot of names certainly kind of bottoming out last year, and then we've seen it come up, so a.
Real v if you will, can you give us thirty seconds on Goldman Sachs real quick?
Goldman's one of.
Our top pics right now. When you look at CEO sentiment, it's improving. A year ago, three quarters of CEOs thought that we would see a recession in the next twelve months. Now less than a third believe so. So when we see M and A and IPO activity pickup, Goldman is going to be a beneficiary. They're already doing well on earnings from their advisory business, and we think that that activity will spur additional growth.
It's cheap.
It's only trading at about twelve times earnings and about one point one times changeable book value, so we think it's a good investment.
Just a basic metric.
It's up about sixteen percent so far here in twenty twenty five. I look at the KDW Bank Index. Not always apples to apples, but none else. It's only up about seven percent. There's a lot more names in there, including some of the kind of maybe smaller players. All right, Canna leave it there, Hey Brook, Thank you. Brook May managing partner at the wealth management firm Evans May Wealth a billion in assets under management, joining us from Indiana firm.
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