A Look At China's Tech Crackdown, Consumer Sentiment

at Bloomberg dot com slash podcast. Now we have with us one of the most respected names on the street when it comes to analyzing companies in terms of I guess um future cash flows, and he's done the pretty much the best as far as I can see across the industry in terms of his returns. Dan Ives joins us from web Bush Securities, where he's managing director of

Equity Research. Dan, I'm gonna kind of rip up the script here because I know we want to talk about the China tech crackdown, and I definitely want to hit on Tesla as well in a moment, because Elon Musk is here with me, not with me personally and physically, but you know, within a twenty mile radius in Berlin at his Big A factory. But we just got a consumer sentiment number that um the U miss Director Richard curtain called stunning. The loss of confidence, he said, was stunning.

He said over the past half century, the sentiment index has only recorded larger losses in six other surveys, and it's dropped the most since two thousand eleven. What is

going on in the U S economy? OK, I think what we're starting to see really coming down of COVID, it's very uneven in terms of this recovery and and I think it really is cause almost more and more of a move to some of these safety blanket names, especially in tech by the large cab names, because investors right now they almost have a flashlight in a dark tunnel that they're still trying to figure out what the fundamental stories look like consumer as well as enterprised second

half of the year, and and we continue weave this is going to be uneven, but you have to focus on the secular winners, and we've we've tech. It's still a risk on train a green light to intact and

to your end. Dan, on that note, we're taking look at shares of Microsoft right some of the big tech companies that you cover that are trading at record highs, and I am curious how much of this is a defensive move wherewith yields falling, we like the discount cash flows or these valuations really justified in your opinion, Yeah,

it's a great question. I think there's definitely a bit defensive on some of these tech names, like a Microsoft, But a lot of it really comes down to we are in the midst of a fourth in DSHA revolution. I mean two trillion of digital transformations spend on the

enterprise and on consumer. When you look at what they're doing in Redmond, when the Delawad and the Charge, Microsoft continue to gain more and more share in the cloud, and that what we're seeing is just a further rereading of the stock from Microsoft, but you're seeing across the whole tech sphere in terms of names like Apple, names across cybersecurity and cloud because in so just starting realized this wasn't just to pull forward we've seen the last

eighteen months. It's called first second inning of what really what's going to be a transformation in terms of the tech sector. You have a thousand dollar price target. I believe on Tesla you have as an outperform. You've done much better than your peers in terms of rating the stock with a nine percent return. Your peers average return

is down. What is happening though, in terms of boosting production, in terms of getting out the solar cell business, in terms of you know, achieving all that he's promised, Like the mack truck, I guess it's an eighteen wheeler that he that he wants to bring out. I mean, can you really do all this stuff? Or does that not matter to you know, it's this kind of cashlow is also not matter to Tesla. Yeah, I think for right now in Tesla they almost have a high class problem

because every car that they meet they sell. It's really more of a supply capacity issues, which is why he's in Berlin right now, and which is why there's such a focus on the build out of Berlin, having that flagpole in Europe instead of just shipping cars from China, which is a logistical disaster, as well as Austin. Because right now we're in the green title leave, we're just in the early stages of it. And Tesla when Musk is looking out, of course, we have cyber Truck talking

about long haul talking as well. These are aspirations. I don't I don't think they're just aspirations. I think these are models that we will continue to see come out, But for now, for the street, it's about Model three, Model Y and of course the rebound in China for Tesla, that is what will continue driving stock A part of the overrang on Testa this year after Cinderella Story last year.

It's more competition from GMS two v ws to the pure place and that's been I want to see the cyber truck what I want to see on the street, Dan, you know, speaking of China, go out there for us, but but go broader. I think what is fascinating is the rewriting that you've had to see on change it, you know, with a stroke of a pen. Beijing has told us in the last month that they can entirely change the rules. How do you evaluate that on a

fundamental basis? With all the headline risk of China tech crackdown well right now and for investors not just in the US but globally, you really can't go in China tech here. I mean, the rules continue get changed, and

it's really been a horror movie. You know, for investors in China tax factor more and more that money is routine to US tech, even though there's regulatory risk of course within the Beltway, this just doesn't compare the scale and scope of what Beijing is doing with this crackdown. And it's something where you know, if you own these names on Friday, you don't know what's going to happen Monday morning. And it's really the risk off in the

China sectors. One. It's hard for us to look someone in the mirror and own some of these broader themes have regulatory risk, like to Baba's, the d d S and others. All right, thanks so much for joining us. Dan is always a pleasure to get you on and uh, I think you had a lot of insight for our investors, also for our listeners. Also point out to people that they can check out the A and our page for Dan Ives and just see um how he has crushed

it in terms of picking stocks and setting targets. So always good to talk to web Bush Securities Managing Director Dan Ives. We're gonna continue to cover this massive drop in consumer sentiment for you. The you Miss index falling to a reading of seventy. We were looking for more than eighty. This is Bloomberg. Now. There is a lot going on in Washington. Despite the fact that I believe

they're currently in recess. Um. They need to figure out if they're gonna pass this one point two trillion dollar spending bill before they look at the three and a half trillion dollar resolution moves or reconciliation moves or um. If they're gonna, I guess hold hostage is a bad term, but basically, um make sure they can get the reconciliation

passed before they agree on the bipartisan bill. Nonetheless, it looks like we're gonna get a lot more money spent on infrastructure eventually, she tell Prasade Joins, a small and MidCap growth portfolio manager, as well as equity research analyst Jennison Associates to talk to us about where investors can take advantage if we do, and she tall this is an interesting market because it does look like there's gonna be a lot more money spent, at least for now.

We do face the possibility of a fiscal cliff in the future, and there are supply chain issues that are really jamming things up a little bit. How do you see the investment environment? Well, it's great to be heroris to thanks for having me, so I guess what I would say on the Infrastructure Bill specifically, is I think it's meaningful that for the first time as you as you talked about things in DC, that we're actually able to get something done. Uh. It does show that we've

got bipartisan support for investing in our own infrastructure. And I think there's some parts of that bill that are bipartisan. As I mentioned that, you know, whether it's UM investing in bridges and roads, high speed internet for rural communities, electric vehicle charging stations, etcetera. Having said that, you know, on our team, UM and even I think the markets are not really assuming that this will go through. There's still a lot of wood to chop UM from the

House in terms of getting this passed. And we've maybe been burned once before on the promise of an infrastructure package. So I don't think we are getting in over our skis on this spending specifically. Having said that, so UM, I think that's a pandemic and just what we've seen in terms of the supply chain clunches that you mentioned, UM companies want to have their supply chains closer, and I think we're about to embark on a real onshoring, reshoring,

capital investment renaissance. In this country. I hate to try to bring a a contrary opinion here, though it was interesting yesterday one of them was one of the first times I finally heard someone say, uh, except taxes have to go up if we're going to pay for all of this, and the markets haven't yet priced that in well, or growth could pay for it. Yes, if we can

grow our way out of our debt. But if we can, you know, how are we are there are the markets prepared for potentially higher taxes in order to pay for this. I don't believe that the markets are ready for higher taxes now. Certainly the Biden and Is station is saying that there is enough pay force for the infrastructure bill by you know, some of the COVID relief funds and unused you know, assistance to the states, etcetera. But I think we know from I think the CBO scoring that's

it's going to cost a lot of money. Um, And I don't think and you know, and I think that certainly some members of Congress are really resistant to increase in taxes, whether it's gas taxes, usage taxes, etcetera. So that almost seems like a non starter quite frankly, to

pay for it. But um, you know, again, even without the one point two trillion UM, I think that the the you know, the doors open, the gates are open, and we're just going to see a lot more investment in the country, regardless of what happens in the US. You know, from from the government standpoint, you know, the the best way that the government throughout history you found to get out of debt is inflating their way out. As someone who looks at you know, especially small and

MidCap stocks, what's your take on inflation. I so we've just come off of a second quarter earning season, and I can tell you almost universally, every single company is talking about inflation, and that inflation is are there in the form of raw materials, it's in the form of wages, it's in the form of freight and logistics, and and for some companies they can you know, pass it through to customers and whether that's consumers or whether that's you know,

business to business customers. And so I do think that inflation is real. And you know what I'm perhaps a bit more concerned about is that the alleviation that many companies were hoping for in the back half of this year and into two seems to be maybe being pushed off to the right. And the reason I say that is, you know, the delta variant um. You know, for for certain companies that have supply chains still in Southeast Asia

where plants are being shut down for weeks. Uh, you know, they're just not yet seeing the looseness in the supply chains that we would hope for. So I do think that inflation is there. I do believe that companies are going to price it through as much as possible, and

it could, as you said, inflate the economy higher. All right, I think that's all we have time for unfortunately, but hopefully we can get you back Schtel, because it's fascinating, um to get your take on this, especially as you know, typically people come on here and talk only about the big cap stocks. UM. I guess in this market it's all about Mega tex, right, So it's great to hear

from a small and MidCap growth portfolio manager. Sheetile Prasad from Jennison Associates talking to us about the expected impact of the infrastructure deal, the possibility of more taxes. I think, sadly, that's always almost an inevitability, um, right. So I mean sadly for those of us who don't like to pay taxes. Well, and with the evaluations, I think she had a good point of the markets might not be ready for and

she had a good point. With the five fifty billion dollar bill, we're not looking at it, but with the three and a half trilling dollar bill, we could be looking at higher taxes. And it's just all a matter of how the markets can be prepared for that. Mad absolutely um, and I think that's one of the problems that a lot of Congress people have with it. Like James Rosst Joins, a ce IO and founding partner of

Coast Capital and James Bitcoin. You know, everyone is calling for a crash at thirty grand and now we're back up at forty six thousand, three thirteen. What's going on? I nice to do, nice to be with you. Look, I really wouldn't call myself an expert on bitcoin. We really are focused on gold and gold miners where we have some very specific thoughts journey and so far as

inflation is concerned. The problem we have with bitcoin is um It's adopted by a lot of people who really want to see go up, but there really are no natural buyers for it. I don't think over and above financial speculators, um. And there seems to be a lot of financial speculators, more than ever before, and the amount of capital in the hand of speculators is much greater than ever before. And you can probably blame very low

interest rates for that. The problem with with Bitcoin rather than things like etherium or other coins is it's just flawed. It seems to us destined to be worth if not worth less, then worth certainly a lot less than where it is today, simply because you know, it's a very inefficient still mechanism for for the transfer of value from one person to another, which is what you need as a currency, and that is the store of value. You know. I just don't think that Bitcoin is the best blockchain

based cryptocurrency will ever come up with. You know, Etherium is already a superior um platform um. And so why would I want to buy bitcoin when I know that, you know, and also at the point with a better technology is guaranteed to be developed, already has been developed, and let's all that bitcoin too or ethereum, and I know that something even better will be developed. Why does anybody want to buy gold? Uh? Well, people look a

number of reasons. First of all, have you ever, you know, gone to a really nice dinner with you know, like like like you know, someone who were very nice jewelry and that makes a certain impact. Have you ever gone to Paris and marvel that how beautiful it is? And have you noticed how the rooftops are guilded? Have you you know, when you got married? What did you you know? If you if you are married, and and and anyone

who's married has my sympathies man or woman. By the way, when you got married, what is the how did you convey your love? You know, gold is and has been and will doubtless remain the one that commodity that has been a store of value that has been chair is by people around the world for millennia and will continue to be. And guess what Central bankers who know a whole lot more about um um financing stores of value than than I do. Certainly you know, are not buying bitcoins.

They're buying goal and they're maybe they're they're doing their best to outlaw bitcoin, you know. And I think that from never mind uhum the concerns that I just expressed, but from environmental concerns perspective, and also because central banks want to have an ever tight equip on their local economies. From that perspective as well, I think that they will want to see people certainly not adopt bitcoin or not adopt you know, these blockchain based currencies with which to

conduct transactions in the countries. I mean and just yeah, there are so many hurdles that bitcoin, blockchain based currencies, uh, cryptocurrencies face. Um, but tas you know, you know, Matt's not going to be happy. I'm going to digress a little bit from bitcoin and blockchain. You mentioned inflation when you're talking talking about gold. We've had a lot of moves in the commodities as of late. You had lumber up and lumber down, copper up and copper down. What

are the moves and commodities telling you about that inflation? Well, inflation is upon us and it's real. I have I have a lot of land in upstate New York that I bought a long time ago, and I have a lot of trees. And the prices that I'm getting for the offered, Um, I'm fancy myself and environmentally, so I'm not selling my trees, but the prices that I'm getting offered. You know, are are are getting to be very attractive.

Um So, even now with lumber prices having come down, they're so meaningfully above stating what I'm getting offered is meaningfully above where where I was maybe about two years ago. Um. You know, I think that inflation is upon us. You come up, have the most important injection of money into global systems and not have it impact the prices of goods that are limited and supplying limited and production you

just cannot. And here's where I think that gold, if I may have just finished up on that topic, is specifically interesting. Gold has been the barometer often creation for a long time. It certainly isn't acting like it now. And I think that that's because one of the main mechanisms of that clock currently is out of order. That mechanism being industry of demand for gold and consumer demands for gold. Seventy percent of the gold that is produced

around the world goes into the jewelry market. People. Um uh, And you know I would, I mean give me I'm from you know, but like mostly women by gold, you know, to to as as as part of the way that you know to to basically in the form of jewelry which they like to wear, and you buy jewels and you wear jewelry when you're interacting with others. Um uh. And because of lockdowns still in effect. Um if not

formally then at least personally around the world. You know, jewelry sales are down up to you know, depending on the geography year over year, right, And so I think that when we come out of this and people begin to circulate, you have a double whammy of It's it's a stounding if you think about it, that the gold price hasn't crashed, given the fact that like over fifty of sales going to a sector where demand is down

like year over year. So we've been thinking about I've been thinking about getting a grill myself, but I wasn't able to get out and I might do it now. It's not just the women, you know, sometimes I like some big gold chains. You could pull it off, you know, maybe in Jesus with the ruby eyes. That's always a good look that never goes out of stop. But all

joking aside, I mean, it's astounding to me. You can buy you can go to Subby's or Christy's or auction houses and you can buy big admittedly gaudy you know, gold jewelry or whatever, for like less than the cost of the actual medal um. And so I think that there's anyway with cold. I do think that the one

part there are two things people don't think about. A jewelry demand down has been weighing, and we'll continue to weigh until we basically come out of this and decide, you know, and have her the immunity, or basically get to a point where we at to full circulation, whatever

it is. I think they will get there over the next couple of years, and I'm not on the hurry for us to get there, because the longest gold prices the press that happier I am becau I'm buying amazing companies that I'm buying at two times cash you're buying the I'm buying miners at two times cash flow. But I'm assuming that I only get fifteen hundred pounds of coal. We're at eighteen hundred now at fifteen hundred, I'm buying

them at two times cash flow. So but the other thing that people don't understand about gold is, you know, quite like bitcoin, although in the case of bitcoin it's artificial. In the case of goal. It's it's it's got made um if you believe in God. That's a whole lot of discussion perhaps for as getting dangerous. We're getting dangerous here. Look, by the time you talk about grills and heavy chains, you've already already waked right on tread on. Davis there soory,

So I'm just following your cues. But with gold, what people don't understand is production of gold is declining around the world, is declined by fifty over the next ten years. For every ounce of gold that we're taking out of the ground. Were only discovering your point two ounces. So the companies that have long reserves, long mine life and safe jurisdictions, these are ever more precious assets whose prices and valuations have never been as low as they are today.

It's it's a you know, so we're huper excited about the work we're doing in the space. It's a it's a technically very difficult space to get your hands around, thinking about five years to put together our internal due diligence competencies. But but avoid it's it's super attractive sector. James, go cross asset with me, and let's get away from some of the gold in the commodities and take a look at Europe. I think what always stands out to

me is the lower valuations in Europe. And people come on the program and they say, yeah, but valuations are lower there for a reason. Some of that is the tilt towards cycle goals and value. As we know in the US you have more of a growth weaiting with this delta variant sort of creeping up. Do you buy Europe just because it's value cheaper or is it cheaper

for reason? Well be the important question, you know, some of the most look we I've been investing in Europe for most of my for twenty five years now, um um uh, and that's what I live in even breathe. And here's one sort of unofficial answer to the reason why you buy Europe. So much more fun to business companies in Italy than in Idaho or Iowa. And no offense to my friends and Idaho and Iowa. But I think everybody aprees that it least just a much more fun part of the world to go to. But there

are a lot here are a couple of things. So the most sophistically investors we point the fact is European markets have never treated at this kind of discount to the US markets. Right, since the American New York Stock Exchange was was created in seventeen two, valuation discrepancy has never been as high as it is today. It was a little bit higher earlier this year. I think you peaked in January, but it's declined by five percent since.

And so some of the most thoughtful people will come back and say, well, that's just because America is just much more greatly weighted towards technology and faster world and companies. Right, But in fact, if you look at cross industry analysis, but we've done, you look at there is there isn't a single industry where the average company in Europe is trading at a tent or lower discount compared with its peers in North America. And by the way, margins, tax rates,

cash flow profiles very comparable at this point. So I think that's from that perspective in the world that like it or not, as ever more uh integrated globally. We're buying some of the biggest waste management companies in the world that happened to be based in Europe at like, you know, single digit multiples of EBITA here in North In the US, we're buying the same companies at twenty times plus. You know. It's it's just so there's a

valuation arbitrage that is impossible to ignore. And I think that for us, there are so many ways to answer your question, but for us, the answer ends up being a micro one. It depends on the company are there and to release value back to investors. Maybe the company is just kind of you know, we're buying tech companies in like re baring some of the leading software companies in the world and fields that are going a year wind them at three times revenues, ten times mortalized arts.

You know, these companies, if they just dealist in Europe and read US in North America, you could see theoretically a tenfold increase in evaluation. So it's it's just it's pretty nutty, and it's as nutty as it's ever been, James, and it's been nutty having you on, but fantastic, Thank you so much for joining us. It's want of the point out that I once interviewed Mr T on Bloomberg Television and that guy was wearing like forty pounds of

gold chains. So news you can use man now let's get over to Bloomberg Intelligence senior US retail analyst Pooam Goyle. She joins us on the phone from the Garden State Punham. Let's let's talk about the consumer sentiment number. I mean, was it a shocker to you to see consumer sentiment

fall by this much? Yeah, I mean it was definitely a surprise, But if you put thing thanto perspective, we are dealing with high inflation right now and the delta variant is rising, so it's not too much of a surprise to see that the consumers are getting worried what's coming next? You know, do they have to worry about

not having things and stuff again? Because shipment delays around the globe are dealing deliveries of some essential some non essential items, So there's a lot still moving that the consumer is not sure about. That said, we do think that the consumer is still spending. I mean, we're seeing people travel more, We're seeing people eat out more. We are seeing people spend more, whether it's in stores or

even online. You know, it was interesting this week when we had Disney earnings come out, we were thinking of how well that portrays where the consumer is right now. Whether we're staying home or literally going out in to theme parks. How are you taking that as we push forward to t J Max, Walmart, Ross, Target, Lows, Home Depot next week. I know, of course in your coverage you're keenly focused on t J Max and Amazon and others.

Where is the health of the consumers? We think about retail sales and where they are shopping and what that is telling us. Sure, So I think there's two things to think about as these retailers report next week. One is the tougher comparisons that they're all up against from last year, because last year and two Q was when online shopping surge, especially for retailers like Home Depot and Lows where you did a lot of do it yourself and a lot of home renovation. So they're up against

a very tough comparison. In light of that, though still we do see spending being robust and that people are still continuing to spend on their home So while things may dip a little on a relative basis, there is still strengthened that's space, partly driven by inflation also, where we have seen prices go up. So when you move forward and you look at like a Walmart and a Target.

I think it's a little bit of a mixed situation where online sales will be pressured because of the tougher comparisons that they have from last year, but we do still expect to see sales um rise and that's predominantly driven by increased trafficking stores and also as consumers go out and spend more on discretionary items, which is a parallel home toys, etcetera, and back to school, all categories

that have a higher margin element to it. So it will be interesting to see the dynamics and how they play out between a wal Mart and the Target UM. But we do think that you will still see underlying

consumer strength on an overall basis. And then when you look at TJ Max and Ross there it's not a story of tougher comparisons because last year in two Q their stores were actually closed, so they're expected to post some very robust, robust numbers, not just over but even over For example, at t j X, we're actually expecting to see an acceleration in the pace of games versus one Q in two Q. TJ Max here in Europe is actually called t K max. That is correct, It's

kind of weird until you get used to it. I don't know why, because I think t J max works well. It's like someone's name t J max, but t K max. What's that? I guess you don't spend as much time thinking about it as I do. In any case, Um, Punam, thank you so much for joining us, Punam going out senior US retail analysts covering those companies as we await a slew of retail earnings and we see what consumer sentiment,

what what inflation expectations? Due to consumer sentiment, I will point out that, you know three, I feel like that's still bang in line with the historical average, right, so we're just used to such low inflation of the past decade til I'm still trying to get over the hard questions you asked, Punam, t k X t those questions, why is it t K max? Anyway, I'll find out. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple podcasts or whatever

podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three pt On Fall Sweeney, I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio