Bloomberg Audio Studios, Podcasts, radio news.
This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus gloom wal Business finance and tech news. The Bloomberg Business Week podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
She has been.
Consistently reminding us that we are seeing earnings growth with analyst raising estimates and growth outside of the Magnificent seven, including growth and financials. She is out with Research today saying stop blaming earnings for S and P struggles. It's mostly about tech. Back with us as Gina Martin Adams, who is Bloomberg Intelligence, Director of Equity Strategy and Chief Equity Strategist. She too has had quite a week or so. She's back here in our Bloomberg Interactive Brokers Studio. I
keep leaning on you. We keep leaning on you because I feel like I want to keep understanding fundamentally how companies are doing.
Yeah, and I think that's fair, thank you very much. I don't know that that mays or that interested in the fundamentals right now, so rare though nonetheless, I do think that most of this if you go back to when this really started. It really started with tech valuations at extreme levels. Earning season coming all the tech stocks for the most part, with the exception of a few
key like Intel. You know, they generally beat expectations, but there were nuances and did they beat on their cloud component? You know, that's the Microsoft story. On the Amazon story. We nitpicked into little details in the earning statement, and that's just a symptom I think of a market that got too irrationally exuberant about this space. The companies are
still doing fine, fundamentals are still pretty solid. They're guiding us to expect a little bit less margin growth going forward, and that's left us with this kind of dearth of where do we go next. We are seeing some emergence of positivity in the rest of sectors, but I think we're at a point in time where we're not terribly confident that that's going to last, and at least in terms of market psychology, that's creating a lot of weakness
and some degree of panic inequities. As the big stocks turnover, where do investors go. They're not really looking at buying a whole lot of these risky stocks that have lagged in this cycle, Joe.
Well, when you say risky, are you talking about the S and P four ninety three? Are the other four hundred ninety three stocks little risky companies compared to the big It is amazing.
Right, That's basically how it's played out is the seven have become so big and so dominant and have gathered so much mind share, market share, investor dollars that they are their own segment, and.
They've represented all of the earnings growth.
Absolutely all of the earnings growth for the next six quarters. I think that's so important and so key is when you look at the earnings growth trends, you've had this mass divergence between the seven and the rest. And sure there's some of the rest that have done fine, but the seven have so thoroughly dominated earnings growth that that's where we've been focused. All of our attention has been focused. Now, the four ninety three are emergent, this is the great news.
I think we still need to gather confidence that that emergence can endure over the next several quarters. And that, to me is what last week was about, is the tech stacks were already melting down. We were starting to get a little confidence that the four ninety three might make up for some of that tech loss when suddenly you got some pretty nasty macro data and everyone said, oh no, the four ninety three can't possibly survive that kind of macro.
Are you not so.
Sure going forward?
Because we've talked a lot about that. Beyond the big tech that we have seen earning's growth elsewhere, and that anamals we're ratcheting up or moving up.
Estimates, right, and that gave us that opt we're still seeing that. We're still seeing it in guidance. Our guidance momentum score for third quarter actually continues to improve. So we're not seeing any evidence that would suggest the macro is yet overwhelming even the four ninety three's individual company performance or improvement or general trend growth into twenty twenty five. I am worried that maybe we will see that if we get bigger deterioration in the job market, what does
that do to filter through? But we're not it yet. And you know, I've learned a long time ago that my forecast is worth about as much as you knows mine. So I will be happy to just take the guidance from the internal dynamics of the market itself. If the broader four ninety three starts to turn over, then we have to generally change ourselves.
By the way, there used to be a great function on the terminal loss go, so I could pull off like Google and I could type loss go and it would show me a stock chart.
And then when they fired people.
Yeah, do you And I'm asking this because you know the the unemployment number rows to four ero point three percent, But in listening to Powell or in talking to Mike McKee, I know that a lot of that is because the labor market has grown, the supply of workers have grown.
It's not because of mass layoffs.
It's different.
And you haven't seen that now, and you point that.
Out, and I think that's yeah. I like to watch challenger layoffs and initial claims. Actually, I think you could get a lot of really false signals out of the unemployment rates. So I tend to view that as a lagging indicator and generally ignore it, understanding that the market occasional keys in on that as the end all be all,
as in Friday. But nonetheless, when you look at challenger layoffs and initial claims, we've had little bumps up this year, but they still fail to surpass the bumps that we saw in twenty twenty two or twenty twenty three. So it appears that in the broader landscape of things, we're going through another sort of mini macro weakness in a series of mini macro hills that we've had to sort of surmount or surpass over the course of the last three years. This has been a very consistent story in
the market. Is the macro's just week and sometimes it gets a little weaker, scares us, and it still stays weak.
Well, this is what And you keep bringing this up, like we've all been around for a little while and we've seen a lot of different market cycles. And this doesn't feel like great financial crisis. This doesn't feel like, you know, a COVID outbreak, a global pandemic shutting everything down. And I understand why the markets fall off. It doesn't feel that nervous. However, things can when they start to go bad, Yeah, can move badly quickly.
They can.
And the interesting thing about this cycle that I think has been so hard for how many people, myself included, is that it does appear to just be this rolling weakness followed by many strength rolling in it's this constant
rolling environment as opposed to a big cyclical sect. That's what I feel like, something like a rolling recessionary kind of experience, with many bouts of optimism that emerge occasionally, And in the S and P five hundred, that optimism was really entirely focused on the Max seven.
Kind of rolling recession. Because you've talked about earnings recession already happening. Yeah, can it? Is it a better environment for the equity market because it kind of moves around?
It does appear that, at least so far, it seems to be resulting in more corrective processes that refresh the bull trend. I mean, we've definitely seen that since the twenty twenty lows. We had a pretty big corrective process in twenty twenty two, we had another ten percent down draft last year. We're in the midst of yet another ten percent downdraft this year, and yet we're still trading above our two interney moving average on the S and P five hundred. So, at least so far, it's tough
to stomach for a lot of people. Yeah, but that's sort of a lack of we just can't seem to develop the irrational exuberance for the broad market at large. I mean, certainly, even if you go back a month ago, you wouldn't hear everybody say I got to own the S and P five hundred. They just had to own the mag seven. So there was a pocket of optimism. But did it overwhelm the equity market at large, which usually characterizes tops. I would say no, All right.
Kind of leave it on that note.
Thank you.
Gina Martin Adams, Boomberg Intelligence, Director of Equity Strategy and Chief Equity Strategist, joining us right here. Let's get to what I feel like is the bell of the market ball, and that is the rate environment.
Yeah.
Absolutely, I mean to me, it was made very clear this morning that we were watching and unwinding of the yen carry trade, and I wish there was a way maybe I just don't know, and there is to gauge how big that trade is and to watch it over time. I mean, you could look at the balance eat for the Bank of Japan, for example, but I don't know.
Only we had someone to ask.
We do have two people to ask. Let's get to it with us. As Bloomberg Economics Chief economist Tom or Like In our DC Bureau and Bloomberg News rates reporter Michael Mackenzie here in our Bloomberg Interactive Broker studio. Michael, Good to have you back. Tom Good to have you back as well. I do want to ask and feel free to like bring in what match just to ask, But I am curious about the rates trade today and how significant was and does it tell you that the Fed made a mistake last week?
Well, the right straight to day has certainly wild.
You've seen another thirty day, a thirty basis point range in the two year, which kind of is just extraordinary of volatility, and the two years now a little bit higher, and yield on this session ten years a little bit lower. We were briefly positive between the two year ten year curve. We now come back to me about minus ten eleven basis points. So you could sort of look at it and go, oh, nothing's really changed, But actually under the
surface a lot has changed. And I think it's coming really from as Matt said, Japan, when we've seen the carry trade unwind. And I say this is experience because I was on a trading floor in nineteen ninety eight in Tokyo when LTCM blew up and I watched Salomon Smith Barney unwind a huge amount.
Of carry trades.
It will it just essentially compels everyone to go and buy what is the one thing I can own, and its treasuries. And you saw that. You saw the Tokyo stock market dropped two percent on Monday after a six percent drop on Friday. This is a huge onwine going. As someone said about a year ago Jim Grant's Observer conference here in New York, he said, Japan is the
most dangerous peg in the world. And I always remember that a year ago because he was sort of setting in terrain that when the Bank of Japan finally starts to go, it's going to have global consequences.
And it's having that now for the FED.
So the Fed, of course, as Austin Goolsby said today, they're not going to react to just one number. Payrolls has a big one hundred thousand plus or minus discrepancy, so they're going to have.
To wait for the data.
What I think would worry the FED right now, though, is it sort of harkens back to what we saw in nineteen ninety eight. When these trades start to unwind, someone is left holding the bag. And just how big a financial accident is out there, because that's when it becomes systemic, that's when markets stopped functioning properly. We've heard a lot of people speak on the Bluemberg TV and radio today talking about liquidity. As long as liquidity, markets
is fine and Marcus can function. And again, as Gina just said, the S and p' is nowhere near it's two on a day moving average. This is a contained correction that's working its way through the system. If it stays that way, the Fed can keep washing the data and then the bomb market will be judged on whether or not they've got too far ahead or not.
Tom morlic I want to come bring you in on this in terms of you're listening to Michael McKenzie talk, and I am curious also about kind of the global economic backdrop and the differences that we're starting to see. Come on in on here and what's type of mind for you.
So it's an interesting moment, Carol.
We had the Fed last week send some pretty dubvish signals. Powell was pretty clear that a rate cut was on the agenda for September, and then we had the U unemployment data come in and that big downside surprise on the jobs numbers and upside surprise on how high unemployment had headed, and that kind of made the markets believe that the FED had made a mistake. Perhaps the FED was behind the curve. Perhaps they'd made a mistake by
not cutting in July. Perhaps they'd need now to be more aggressive, delivering maybe a fifty basis point cut in September, maybe an intermediate cut even ahead of that September meeting.
And then Japan, as Michael was suggesting, kind of compounds and accelerates the kind of the dynamic in global markets, because the yen carry trade had been a huge driver for prices of risk assets through that whole period where interest rates in Japan had been pegged at zero and the yen have been reliably depreciating, and suddenly, with the banker Japan hiking and the FED suggesting it was going to move pretty quickly in the other direction, we saw
yen strength, expectations of higher yen rates, and that yen carry trade began a rapid unwind, hitting the nick really hard and hitting global risk assets. So that's the environment which the FED and which global investors and I confronting it's going to be an interesting few weeks ahead.
Michael walk us through.
I guess a carry trade is a broad term for it could be you could execute that trade in a number of different ways, and equally, I'm sure you can unwind it in a number of different ways. But is there any way to explain to our listeners how it gets unwound and how like how long that takes? Because this is not just one year of a carry trade.
This is kind of a generation of traders who have become addicted to this pool of cheap money out of Japan to buy assets, you know, our yields in higher yielding economies.
It's interesting actually because when we had the Mexican election result, the carrier trade got a bit of a wobble in July, and then suddenly it came roaring back and got very close to the peak just before the Mexican election, and then it's just gone down again, and it's gone down hard. So you've seen, I mean, clearly you can. One way to think about the size of the carry trade is
look at the move in the Japanese yen. It's moved from one hundred and sixty two yen to one for two today, it's a huge.
In like two and a half weeks.
Yeah, it's just huge. But it's again if you go back to LTCM, that happened in a couple of days, like a twenty four hour period, so you can see the comparison there. I think in terms of the carry trade, it's it's essentially Japan. It doesn't cost you any money to borrow in yen. It's zero interest rates for years until recently when the Bank of Japan began rates, but even then it's still very, very low compared to the
rest of the world. So you can effectively borrow in yen and go and buy T bills in America and pick up five percent, and as long as the currency keeps weakening, you're happy.
So that's why it should have done that.
It becomes a self reinforcing mechanism because the end keeps weakening. And then suddenly when you aid a last week said oh, actually we're raising raids and we're going to keep going potentially, suddenly everyone goes, ooh, this is going to hurt me. And the best analogy I can think of is you've got to think about markets. It's all about crowds, and you know It's sort of imagine a group of people sitting around a table eating donuts. Then one person decides,
you know what, I've eaten a lot of donuts. And I'll use the example Warren Buffett owning Apple. He'd eaten a lot of donuts and you know, and suddenly, after a nine hundred percent gain on his Apple stock, he does what any good investor does, They rebalance a portfolio. His Apple holding was way too big compared to the rest of his portfolio, and so he moves and leaves, and then suddenly everyone looking it sits at the said goes, oh, I got to leave too, and it's that rush, and
the carry tray gets really really bad. Because liquidity is great when things are nice and calm. When liquidity, when volatility starts to get going and people start heading for the exit, the price of liquidity imbalance becomes really really expensive. And that's what people are discovering now.
So Tom Orel like because part of what I think is smart to have right now is kind of what is the economic backdrop globally. Right we've been talking about how the US economy is doing really well compared with the rest of the world. Maybe we're starting to rethink that. We just talked to Earnings with Gina Martin Adams about the US earnings picture, and yes, a lot is the mag seven, but there's also been some earnings growth in
the rest of the sector, in other sectors. The question is whether that continues when you look at the global economy. Is the global economy coming undone? Is the US economy coming undone?
It's interesting, Carol, I think the the macro dynamics look very different in Japan to how they look in the United States. We think about what's happening in Japan, Well, it's kind of a perfect storm for the NICK. You've got a yen going from weakening to strengthening, which reduces foreign earnings for japan Inc.
You've got interest.
Rates going from zero to something above zero, which increases the opportunity cost of holding equities. And you've got growing concern about weakness in the United States, one of the biggest customers for Japanese firms. So pull all of that together and it's easy to see why you had a pretty outsized.
Reaction from the nicking. What do you think of you? Sorry, sorry, go on, go on.
For the United States, though, many of those because they're actually pointing in the other direction. We've got a weakening dollar, we've got falling interest rates, we've got an economy which, even on the sort of more pessimistic forecasts, faces something which looks a bit more like a kind of bumpy landing or mild.
Recession than a severe recession.
So global macro environment, I'd say it was mixed, but I certainly wouldn't say that the drop in the nick A was a kind.
Of canary in the coal mine for global macro.
No, but that's I mean, when Carol talks about the nervousness around the Great Financial Crisis or LTCM or COVID, that's what last night's nick A drop reminded me of. Still, I woke up this morning and thought, that's crazy. I mean, we still added jobs on Friday. I know it wasn't as many as we thought, but unemployment at four point three percent is not awful. Why are so many people
calling this morning? I watched Jeremy Siegel on CNBC call for an emergency rate cut of seventy five BIPs and then another seventy five at the regular meeting.
That's way overblown.
Is anyone really tom calling for an emergency rate cut or are some people saying it may happen, but it's a horrible idea.
So it's interesting.
Michael mentioned LTCM and the en carry trade, and of course the en carry trade also played a cameo role in the global financial crisis.
There was a kind of dynamic back and forth.
Between deteriorating US credit conditions, unwinding of the en carry trade, further deteriorating US credit conditions, and the collapse of the subprime mortgage market. So if we look at the last twenty twenty thirty years of sort of global economic and financial history, and we think about the yen carry trade, there is a reason to kind of be paying pretty close attention to this right now.
Now. I should also say that.
Financial markets are more dynamic and more responsive to sharp changes in circumstances than economists are. Right when the market's turned down, often that's before the economic forecasts have turned down. So when the markets do have these moments, it does sort of behoove us to pay pretty close attention. All of that said, Matt, I share your assessment. We think US unemployment is heading to five percent in twenty twenty five. That's a pretty high number. Relative to consensus. But we
don't think that's a catastrophe, right. We think that's a bumpy landing, a mild recession. It's not a catastrophe for the US economy, it's not a catastrophe for the world.
Michael McKenzie is saving you the last forty five seconds. Has anything out here in terms of what you're seeing seem catastrophic.
No, not at this point.
I think it's the market has certainly got itself worked up trying to work out just how bad is this carry trade on one going to continue?
And do you expect it to continue?
I think it will.
I think people need to probably recalibrate and consolidate their positions once these things start that. I mean, it's been so cheap for so long, there's a lot this It's going to take a while for this to burn itself out. You may get days where it comes back a bit correct, but generally this has to burn itself out because central banks are in or on the move.
Ninety percent of what we're seeing today in the move in terms of treasury is it because of the carry trade.
I think a lot of it played a role. We got down a three sixty five on twos. We're now back around what three three eighty eight? I think, yeah, eight, So yeah, I mean, and then don't forget we're gonna have auctions coming tomorrow Wednesday, Thursday. There's very little economic data, only a couple more fits speacause really the bomb market's on hold until we hear from Chap Howell at Jackson Hole, and it's just going to be reacting to whatever markets
are doing here in terms of risk, assets and liquidity. Again, if liquidity continues to tighten, that will raise the stakes for the fit here.
All right, super smart guys, Thank you both of you, incredible Bloomberg Economics Chief economist Tom More like out there in our DC bureau and Bloomberg News Rates for reporter Michael Mackenzie. Right here in our Bloomberg Interactive Broker studio.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then Bright Auto with a Bloomberg Business app, or watch us live on YouTube.
Carol Master along with Matt Miller. Matt in for Tim here on Bloomberg Business Week. Just take a look at shairs of Apple Charlie mentioned down four percent, down almost eleven percent at their lows today amid that broader really market sell off, Berkshire Hathaway selling seventy five point five billion dollars worth of Apple stock on a net basis. That's a big.
Number, true, But you know what, last week, the market was down.
Apple was up last week, So what's your point.
So this was a freakout piece of news that we got over the weekend, And to me, like it's super exciting because Warren Buffett is the oracle of Omaha, right, He's the guy who you think is like behind the curtain, the guy who knows everything that.
Utilize and holds, and he buys the holds.
But now he's selling not only Apple but also Bank America, and he's like raising this massive pile of cash.
And I'm thinking, what does he know that I don't know?
Is he going to buy a country or something or several? I don't know? All right, So let's get more on the Berkshire move, what it may say about Berkshire and Buffett's macro think on the markets and perhaps the global economy or US economy. We welcome in Bloomberg's cat Daugherty covers banks and financials. Also with US is Bloomberg Intelligence senior industry analyst Matthew Palizola, both here in our studio.
All right, guys, cat laid out first. First of all, what do we know about what Berkshire and mister Buffet are up to?
So what we know is that he was unloading these shares as the S and P was rallying significantly and it was setting a record high in mid July. But now what we know is that as a result, he has this huge pile of cash that he now could deploy.
So the question is will he and when.
He's been trying to deploy cash for a long time.
He has, and he's In the most recent Berkshire annual meeting, they reference that they have all this cash and that there has been issues of finding places to park it, and that's because deals are very few far in between, and the prices have not come down, so they're waiting for the deals that make sense to them as not the most risky investment, a solid investment that doesn't have quite as much volatility, something that would provide a steady,
long term investment, which is what Bank of America was for Berkshire for all of these years, since twenty eleven. This was something that they bought and they held, and they continued to hold until now. I would also note though, that the selling is not the most significant cut. It's eight point eight percent through mid July through August.
First of their Apple stake of their Bank of America Bank America.
But they're still the largest holder of Bank of America stock.
But why were they selling bank again?
All right, so we're going to talk to Matt in a second about why they would sell Apple, and he kind of knew they were going to, But why would they sell Bank America. It's not like they have a huge concentrated position there.
So it's above it's today at around twelve percent their speculation of standing shares. There's speculation that Berkshire at the firm is trying to get below the ten percent mark. At that point, they don't have to report every time they sell like they're doing now and signaling to the market. And there's also, yeah, porting, there's a lot of reporting and public there's a lot of eyes on speculation when you do that, and you're such a large holder.
And such a smart guy like he likes to buy low and sell high. Right, maybe this is high, maybe this is the top, or maybe this is what Warren Buffet is telling it, and he's in the top.
Of the he was selling in the beginning, it was at the top.
The stock was trading at forty four dollars, and then their last statement that came out was showing that they were selling around forty one. So if you just think about that three dollars price difference. But now the stock is dipping well below that. So the question is is he continuing to sell.
Thirt districts and change.
So you want to talk, well, yeah, exactly, because Bank America, Yes, they have a big concentration in terms of Bank America, they have twelve percent, right, but the Apple trade is a big position on their balance sheet. Right, they have a massive weight of Apple, and you need to when it grows that much kind of rebalance your portfolio. And Matt, that's sort of what they were doing with their Apple shares, right, how should they sell their stake?
So they sold half of the shares that they held, and they had sold some in the first quarter as well, so they sold fifty percent of what was remaining in the first quarter. Apple was fifty or forty percent ish of their portfolio. So one stock is too much, too many eggs in one basket exactly. And I don't want to damper in your enthusiasm, but I don't think he was calling a top or anything necessarily on the Apple stock. He looks at these companies as companies versus stocks, right,
so he wants to own the company. It could be a comment on what he thinks about the earnings power going forward, and he has some concerns about China as well, doing their dugal business and China.
But you know, it looks like he's calling a top right and fair from today, I don't disagree. Like Catherine said, from today, if you look back at where he sold it was.
He's not the greatest investor of all time for no reason.
To be fair. From kind of mid April, the stock Apples are up almost thirty percent, so you kind of can't get some of it. Is there anything though? You, as someone who follows bloomber of Hollis Berkshire and you follow Buffett, that he's making some statement in terms of the macro environment China or elsewhere or more globally.
So I would say specifically to Apple at the May annual meeting. He got questions because they had sold I think it was like ten to thirteen percent of their position at that point, so they got some questions on why would you do this?
And he talked.
About really thinking that corporate tax rate would go up in the US, so maybe he wants to harvest some of these gains beforehand. And he talked about really aside from the not the US environment, but the Apple's dependence on China was a concern for him. So I don't know if it's necessarily a call on the macro environment. I think the timing of these the meltdown and this happening is coincidental.
How much of this is Buffett? How much of this is the other players?
I think this is mostly Buffett this call at least, so he's got the Apple call. The Apple call, yeah, I think the original in twenty sixteen when they first bought it. His investment deputies Welsher and Combs, I think played a role in bringing it to him. They have about a discretion over like ten percent of the portfolio, so this is clearly more than that. So it might have been a group decision, but I feel like not confirmed, but I feel like he would have been one of the driving.
So now he has two hundred and what sixty seven billion.
And seventy six point nine two hundred.
And seventy six point and I was going to think, like, I'll recommend him to put it in Marcus, and then I get a better rate for the recommendation. You get like five and a half percent. There, what's he making on all this cash?
So, I mean one of the things with the rise in interest rates has really helped take the pressure off holding cash, and their interest income, which comes through their insurance operations, has skyrocketed. It was something like one hundred million and then went up to over two billion, right, and just the interest on the cash that they got from the Apple investment could help their earnings next year by like over five percent.
So it's putting it all in private credit, right.
I mean, it's it's all in very short term fixed income and you know treasuries.
Yeah, I don't know, Kat, come on back in here. I mean, you know, as someone who watches, you know the finance space, and certainly what Berkshire is up to. I mean, how are you thinking about what he does with the cash. I mean, he's been trying to put this to work for some time.
I think today all of the notes that I've been seeing from the banks analysts that are suggesting that now is or we're getting close to a time more bargains might be coming, And the first thought that comes to my mind is, oh, well, Buffett, is he going to jump on the so called bargains or have we not yet seen the bottom? The time is?
I mean this is not new.
Timing is everything, but any signal that can come between, any signal from Berkshire going forward is going to be like the most watched signal in the marketplace I think of have we seen that bottom? Is this the right time to deploy? But again, Berkshire is looking at the fundamentals. He's looking at these companies as a long term investment. So he's not just going to think about this as oh, is this week or mid August the right time to
deploy the cash. It's it's really still the fundamental work that they're doing on the specific investments the companies, and not just is it a reflection of how these companies are doing next quarter. It's it's the long term outlook.
And so a lot are I think that the jitters were seeing if you're looking at or if you're looking at the sentiment and maybe drawing the connection to Berkshire is is this a reflection of the US economy and that Berkshire is signaling that there's more pain to be felt. That's why Bank of America as an investment in the US consumer is something that folks like to draw that connection.
So really, any big question marks that he might be seeing might be digested by the marketplace or by investors today.
By the way I'm looking at we're talking about it right. You know, if you type.
Mm FA index GP on the Bloomberg you get a picture of all of the US money market assets or all US dollar money market assets around the globe six point one trillion dollars. And I just look, so Warren Buffett is holding basically five percent of all money market fund assets.
If that's where he parked his money.
That's pretty crazy.
Yeah, I mean, it's respects. It's easy for them, you know, to to park it there. And one thing I'd like to note, they did buy a bunch of Chub stock in the first quarter. That would get me excited. That mega insurance deal in that world would be something that would really get.
Me good, they buy all of Chubb. I mean they could six billion market cap.
I don't know if Chubb would sell, but you know, if they're looking for a you know, precursor to their insurance operator.
Kicked me out as a customer Chubb. I used to be a CHEB customer, but they will no longer a chure.
Me r to be continued. There's obviously word of that cut Dougherty, Thank you so much. Finance reporter of Bloomberg News, Matt Palizzola. He's Property and Casualty insurance senior Alice, hence the Chubb comment. Here at Bloomberg Intelligence.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday. He's starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business Ad. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Kind of a crazy day, I feel like for the semiconductor space. I don't know if you noticed it, but the socks actually was positive for like a second.
I did not notice that.
I did notice that video is the biggest drag on the s and P five hundred at one point, I think three hundred and eighty billion dollars in market caps fifteen knocked.
Off in video.
Yeah, so that's kind of the chip maker to which I pay the most and almost all of my attention.
But I know there are others.
Like an Intel. Hey, it's still up one hundred percent so far this year, so let's get to it. Because Nvidia did slump the most in more than four years. The information coming out saying that Nvidia's upcoming artificial intelligence chips will be delayed due to design flaws. Information seting two unidentified people who well produce the chip and it's server hardware.
So it's trading under one hundred dollars, under one hundred dollars a share right now for in video.
That's kind of shocking, all right.
It would be shocking if Abigail Doolittle hadn't told me last week or two weeks ago that this was going to happen.
She's a technical analyst, right Watts.
She was looking at the chart technicals and she at one point, I think it came under a level she was watching like one seventeen or one fourteen, and she said, oh, it's formed like a head and shoulders, or there's a breakaway here on an know the terms, and she said it's going to go blow one.
Hundred, definitely blow.
It's Nandy day moving average. All right, So let's get some sense of what is going on in the semispace overall, specifically Nvidia and a few of the other names. Back with us, as he always does to help us make sense, Bloomberg News US Semiconductor and networking reporter Ian King. He's out there in our San Francisco bureau.
Ian good looking good.
By the way, you're on TV right now, right, you're looking like a young bald Sean Connery.
Right. The beer very much works for you.
Well, I don't know what to say to that.
A's only Matt Miller can do. I what do we know first of all about Nvidia and this delay? What do we need to know? How big a deal is this?
So there are a lot of reports out there. There are a lot of reports that have conflicting pieces of information, some of which would indicate this is an enormously serious situation that I'll have, you know, months of work ahead of it in terms of sorting it out. We have other reports out there are saying, actually, it's relatively There are lots of different versions of this Blackwell chip, and
the reports that are out there site different things. I think what you guys pointed to earlier actually should be the way to approach it, which is, when this stock opened, it was really bad, right, It was down a lot, and it got down as low as what fifteen percent. That's kind of disaster. Oh my god, this is the
end of the run for this company. Settled back at a sort of down but not panic stricken level, and I think that's a reflection of what we've seen from a lot of Wall Street analysts who've done the work as we're doing the work to try to find out what actually happened, and is saying, yeah, this is not great. This is an example of you know, problems happened, this is engineering, But don't panic. This company is still in the lead and nobody's going to catch it anytime.
Soon, certainly not Intel. And that stock is down sixty percent year to date. Obviously, it's far smaller than Vida. It's only an eighty five billion dollars market cap company, now, you know, compared to a two point six trillion dollar company that is in video or was this morning?
Ian.
I don't follow the company obviously as nearly as closely as you, but I hear every few months Pat Gelsinger out with a new plan to revive the company. I'm sure he has longer term plans, but is he doing a bad job as the CEO? I mean, is that what this stock price is telling.
Us, what the stock price is telling you, is that this plan that he put in place from the minute he walked in is not delivering the results or any sense in investors minds that it's making progress towards the lofty goals that he's set out. I mean, Thursday, the only good thing that happened was that they didn't miss
a revised down revenue outlook. Everything else, every measure, everything that they said caused a rolling thunder of increased concerns and the notes that if you did, and the reactions are pretty dark. There are people starting to say, is this a going concern? Is this an existential crisis for this company? So while he tried to fight Marc on the call and tried to be like, hey, things are
still on track. This is just a rough quarter, you know, the reaction was like, part, we've kind of heard this before. We need more positive signs that the long term fundamental issues that you've got are being fixed.
Ian, hang on for a second. Just want to mention a headline crossing the Bloomberg terminal and shares of Alphabet taking a bit of a dip on them. Google losing the Department of Justice anti trust suit over Search the Google judge or the judge in that case finding that the search giant violated anti trust laws. So we're looking at shares of Alphabet down about four point seven percent, so you know, a down day, yes, but dipping down a little bit lower on that news. Ian Pat Gelsinger.
Back to chips we go Intel, specifically three and a half years on the job as CEO, is it time for a change in the C suite?
All I can do is point out that a lot of the issues that Intel faces, whether it's the production technology, whether it's the product choices, whether it's the amount of factories they put in place, those with decisions that were made under his predecessors, right, and because of the nature of the chip industry. I mean, you know, the analogy that I saw in a note was like takes a long term, a long time to turn around a battleship where right now it feels like that battleship is thinking.
So there's there a mixture of things that would go into that answering that kind of question, and you know that the board would be the arbiters of that.
Well, what about the massive investments that they've made or the investments that they've planned. Obviously, this is the kind of business where you have to start breaking ground on a new fab years ahead of you know, production, and they have, i know, at least in the Columbus, Ohio area, made plans to build a huge capacity.
Is that still all going to come to pass? And that's a very good question.
I mean, what we've said all along in these discussions is what the semiconductor industry does is they build what's called the shell. They build the building, right the steel frame, put all of the you know, the infrastructure in it. But what they don't do is put the equipment in because guess what, when a piece of equipment costs tens of millions of dollars and you need thirty or forty of them for a product line, that's where the money is.
That's what costs the money in the factory, and that's what immediately hits you in terms of the charges you have to take. So if you can't be sure that you're going to run these things twenty four to seven, you don't put them in place. You build a shell and then you let it sit, and then you wait until you think your business is going to come back,
and then you fill it up. So what will really tell us whether this sort of turnaround plan is happening or not in these factories are going to be built is when we see that equipment being moved in right now, Ohio is not at that point. Look at the factories in Chandler, Arizona. Look at what's happening there, and that I'll tell us whether Intel is really committed to this massive expansion and is going to deliver on it.
Intel, the excuse me? I mean Ian. The socks is down about twenty four percent from the early July high. Just got about twenty five seconds here. We talk about cycles with you all the time. Is it telling us that just things are slowing down more broadly and the demand is down real quickly.
Now this isn't This is an Intel problem. And they've cut their revue, they've cut their dividend now, so a lot of funds. Even if they wanted to own Intel can't. So that's what's going on there. There's a lot of problems out.
But even the socks being down that much isn't telling you anything that's worrisome.
That, I mean, how much money came in. So it's a very cyclical industry. So you're absolutely right in that regard.
All right, I'm going to leave it there. Ian is always Ian King a Bloomberg News watching the semi space. This is Bloomberg.
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.
Umbromarcle a journal. Now about you let me drive? Oh no, no, no, no, all right, please, I'll travels.
I want to drive.
Good question? This plea is the drive to the clothes music? Well jog on Bloomberg Radio.
All right, don't go into the story. But isn't it kind of funny that on a day where the bears are kind of in charge of there's a bear story that is among.
The most read on the Bloomberg. Don't go into it. Yeah, I'm just gonna say that it's my favorite story today. And that's been the case since I woke up this morning. So nothing has been better than the Bear Show.
It's like selling on the.
Mart Mass Master Master. Have you seen Carol? Have you seen the story? We'll get into it later. First up, though, we are about eighteen s seventeen minutes away from the closing bell on this Monday. Let's get to it our drive to the closed guest Penny Pennington, she's CEO at Edward Jones, joining us from Saint Louis. Penny, nice to have you back with us. How are you?
I'm great, Carol, good to be with you. And Matt Hope, y'all are well.
What a day? Oh my goodness. It has been a day.
But we feel, like we keep saying, listen, it's not the great financial crisis. We've seen market sell offs. It feels kind of.
Orly now it does now, right, How do you feel, Penny?
Because last night when I saw the nick A open up and immediately drop twelve percent, I was like, holy Camollie.
It felt bad.
And to be honest, this did you really say, Holy Kamoly.
I said something like that.
And then this this morning, you know, when we opened up down four percent, down five percent, it felt rough.
Well, let's pretend we're all sitting in the movie theater together watching the economy in the market unfold. Our view is that we have not had a plot twist. This economy in this market is continuing to resolve toward a slightly softer economy, but also lower inflation, lower interest rates, productivity gains that we still expect as a result of technology, and AI. We really think that nothing that dramatic has
changed because of the read that we got on Friday. Now, remember, going back just a month, we got a lower than expected read on inflation, which was good news, and so we really think that this is not a plot twist. We're continuing to advise our clients to stay focused on their goals and the long term, and this will play out over the next few weeks.
So how do you make the distinction between bad news being good news for the equity markets and bad news being bad news for the equity markets.
Well, I think the real distinction that matters is around uncertainty and so any form of news can be listed as adding to certainty or elevating uncertainty. And we're in a volatile period right now. The market is seeking out certainty, certainty for interest rates, certainty for inflation, certainly for the certainty for the prediction for what's going on with the economy. What we seek to make more certain for our clients
is their long term goals. That's the job that we do, and in moments like this, I was thinking about that this morning, Carol. Under normal course of business, our financial advisors would have one hundred thousand scheduled engagements with our clients today. Now that may have increased just a little bit as people are talking to our financial India.
I was curious if your phones were beginning off the hooks this morning, where.
They or not?
If they really weren't, If we've done our job well, then the job to do in a moment like this is to listen carefully to the concerns that our clients are bringing to us, put it in perspective for them, get them focused back on the long term orientation to their goals. Certainly, do some scenario planning. We're not going to put our put our head in the sand. We're going to do a little scenario planning and say, Okay, what happens if this kind of volatility were to carry
on for just a little bit longer. And then, finally, and really importantly, where are the opportunities? Volatility like this presents opportunities to make sure that your portfolio is well balanced.
But also if it.
Got out of balance, it's a little bit to get it back and got imbalanced worn during.
A moment that really makes a lot of worn buffet in Berkshire and now a client?
Are they a client all across North America?
You?
I was talking this morning to the incoming CEO at Vanguard, and they see a little bit of a shift in the way their business is done just because of the amount of wealth that the boomers have gathered up. I think ed Yard Denny said he thinks it's about seventy.
Five trillion dollars.
And Sally Crawcheck pointed out that's going to be passed on now to the next generation. The majority of the people, by the way, who are going to accrue that wealth women, right, It's going to be a real shift in terms of what she calls the feminization of wealth. But what does that mean for a business like Edward Jones mean, you have been in business for over one hundred years.
We have one hundred and two years and are working today with five generations of investors at one time. And so we're listening to each of those families. What is the legacy that I want to pass on their wealth legacy, but also their values legacy to the next two generations of their family members. We want to be the biographer of those stories to ensure that as much as their
wealth transitions, their legacy and values transition. One thing that I would add to this conversation, and I'm glad that we're having it about this kind of transition, is the story around business owners in America. We have thirty three million business owners in America, and when you think about the engine of our economy that that is the same thing is about to happen. Business owners are thinking about the succession of their businesses.
Our research shows us that about a third of.
Business owners don't intend to have this succession conversation until just one or two years before they expect to want to transition the business. We don't think that that's enough time, and so a good financial advisor good financial advisory relationship, especially one that perhaps is with a financial advisor who has special designations associated with business owner transition. This is a really important thing for your family, for your business, for your employees, and for our economy.
Hey, Penny, I got to ask you and got to be quick ten seconds. Are people calling you those saying and video it's on sale, this stock's on sale and I want to buy real quickly. Are you getting those.
Calls to that? Absolutely?
That might be the way the conversation starts. And then the next part of the conversation is why got it and how does this fit into your overall goal?
Penny, thank you so much, really appreciate it.
This is Bloomberg.
This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you can get your podcasts. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg.
Jermale