Paul, we have Welcome to the Bloomberg Markets Podcast. I'm Paul Sweene. It alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with the essential market news right to talk about Bloomberg Markets.
Podcast podcasts or wherever you listen to podcasts and at Bloomberg dot com slash podcast.
And then Dan ives over at web Bush, who, as we know, is definitely someone who's a well known tech bull. And you actually released Wait.
You have to do a fashion update before you do anything.
We have to take a look at this disturb and Dan streaming on YouTube, so you can't hide the shirt. It's out there.
Okay, I love it.
It's great. So you were talking to your clients about how you still see tex stocks againing about twelve to fifteen percent in the second half of the year even after this gang buster riley that we've seen in gross stocks, obviously led by Ai. Tell us about your case when it comes to continued strength there in the second half.
But look, we believe it's a new tech bowl market that's forming and ultimately something that's covered tech. Going back to nineties. This I view as a nineteen ninety five Internet movement, in other words, not nineteen ninety nine dot com bubble burst. You know, I believe based on everything we've done, this is the biggest transformational tech trend that
we've seen. And we were talking about a trillion dollars of incremental spend that's now coming into the tech ecosystem, which is why, in my opinion, this is a green light to own tech. I think it's gonna get broad and broader in terms of the rally. And many of the bears that continue to say this is hype, they're not talking to the CIOs, the CTOs, the it spent where well, I think it's something unlike I've ever seen.
And that's kind of where I wanted to go down because you've got this perspective, long time perspective in the tech space. In your words, when you're talking to your institutional investor clients, and I know you've been on the road a lot, what how do you define AI Artificial intelligence? Because I hear it thrown about by every company that walks through that door, whether they're selling pet food or whether they're a tech company. It's everywhere.
It seems like, well, ultimately, it's really like when you think about the shift to cloud and what we've seen with data processing power, it was all about you have data, whether it's coming in consumer tech, but how do you ultimately monetize how do you ultimately mind that data? When you look at the models coming out, of course it's Nadella, Microsoft Chat, GPT really lead in Nvidia in terms of the foundation, this is the start of what I'll cause
an AI revolution. The use cases now that we're seeing, Let's give example, developers, they potentially now could do things in an hour that.
Took them three weeks.
Advertising could Ultimately there's there's use cases things that could take a month now could take basically two hours. And the and who benefits it's the software, it's the chips, it's the echo sit That's why I believe this this is a gold rush that really is going to define, in my opinion, a new bowl market for tech that's just starting.
When you were talking about how you're having these conversations with these industry players, what specifically are they telling you and where are those pockets of strength when it comes to say enterprise spending.
Yeah, and I think part is we go back.
We sat here in January right hard Landing, dark clouds, Armaguet and the whole. So obviously none of that's happened. But now the differences at enterprise from a CIO perspective, they've gone from yellow light to now potentially green light. And you're starting to see ultimately they're looking, they're looking over the road and they're not seeing cars company and it's ai that today is less than one percent it spend. We think next year that's potentially eight to ten percent.
Wow.
And that's that's.
Ultimately look in my view, and it's totally in PA. I've talked about it for decades. Is that the transformational tech themes if you put them in and you talk about you know, evaluation, downgrade today and meta, you put them in a little pe box on some historical doing your spreadsheet valuations from your office building. I get it
to me, you can't put them in that box. That's why ultimately you've missed the Apples, the Tesla's, the Netflix, the metas and everything else if you don't understand the transformational growth theme. And that's why right now I think it's the fourth Industrial Revolution that's planning out.
Now what we've seen, and I guess it feels to me, Dan that we are in the very top of the first inning here, and what we're saying, what we're hearing from people like you and from others in the tech space, is just buy some of the really good tech names that receive the tech spend anyway. They're going to be on the forefront when and that's a Microsoft for example, and some others, and in the chip companies, when do you think there will be that Facebook moment, that Google
moment where we're a company born of AI. Like Google was for search, Facebook was for social, When do you think we'll have that first big AI born company and where it come from?
Well, I think also a lot of those AI born companies potentially might get acquired before they're actually born.
And I think that's why.
You can see massive consolidation across tech right. A lot of these tech companies have more cash in some countries. But then I think if you look at it by the d I think over the next few quarters, we're gonna have what I'll call that Apple two thousand and seven iPhone moment, that Internet nineteen ninety five moment. We saw it with the guidance heard around the world from Jensen and Video the four billion dollar guidance raise. But I think that's what we're starting to see right now.
Even when we come to earnings over the next month. Of course, investors are going to focus on what numbers look like guidance next quarter or two, But there's a much bigger story playing out here, and that's why I think a lot of these technames continue to be Rock or Gibraltar Lake.
I'm glad you brought up Apple because there's a lot of companies like that where during the Internet boom you might not have realized certain companies to that would have benefited years later. Where do you think are the winners that might be getting overlooked and where do you think potent? Are the losers right now that are just behind the game?
Sure, and I think when you look at Apple, cook continues to play chess where others play checkers, and I think it's an installed based play, best install based in the world. From a consumer perspective, iPhone fifteen, I believe it's going to be a mini super cycle AI. This is just the start of what's going to be that drum roll in terms of what I've us as an AI App Store over the next twelve to eighteen months. I think that's being overlooked as an AI play. I
think salesforce being overlooked from an AI perspective. I do think you have some pure play AI names, even like you look at names like palan Tier and others that are really from a use case perspective, and I think it's really the software echoesis. I think it's the software names right now that I really put an asterisk around, because that's going to get the predominant amount of Aspen.
What about Adobe, because I feel like that was a player maybe people weren't focusing enough on and then all of a sudden we had that strong report when it comes to that AI potential there well.
No, I think you saw from Adobe, you song from Mango dB, and I think those are the barometers that were now starting to see Adobe that's been just a phenomenal job that they've been able to mine into the install base. And I think that's just the tip of the iceberg of what I believe we're going to see
over the next month. Look, we can maybe start to do some sort of you know, clock to see who could actually say AI the most in their conference rights, and that's why Krueger and to that maybe because some get above one hundred.
But that's why the big question is going to.
Be who are the fakes versus the real ones?
So what do you think are the risks to your bowl case?
So the risks clearly macro things take longer. You've had multiple expansion for six months. Investors are patient, but then all of a sudden if it doesn't come to fruition, you know, and then I think the geopolitical situation US China continues to sort of be that you know, when
dark cloud. But this is going to be patience. And that's why I view it as these are moments that happen every twenty thirty years, and right now we just happen to be living through what I view as a nineteen ninety five Internet movement.
All right. We mentioned Google earlier and to Just's point Losers. Initially when this kind of hit my consciousness six months ago, AI I said, oh, that's gonna be a real competitor, maybe the first real competitor to Google. And you think about just search in general, how do you think about Google and its position visa.
Clearly at first black Eye in terms of coming out. They missed in Microsoft, you know, beat them to the game. I think for Google the golden goose, it's actually not Search. I think it's really the cloud. I mean that is what from an enterprise perspective, they could potentially redefine themselves on AI. And this is also it's not a zero some game. It's not just one player. We're talking about We view conservatively eight hundred billion potentially in the trillions of now incremental it spent.
We're six months was not here yep.
Just it's extraordinary and you've got to think, you know, a winner like Google with the engineering chops, not to mention the balance sheet, we'll be a player there. Hey, Dan, thanks so much for joining us. I appreciate you coming in studio. Despite the shirt, despite the shirt, it's good stuff. Dan ives. He's a senior analyst at wood Bush Securities, And what we love about Dan is a he's very
clear and his his points and his convictions. Definitely, we've got the perspective to say, hey, let's put this into context of what we've seen in past cycles.
Hey, he's been doing this a long time.
He's been doing it a long time, and it's certainly helpful to us newbies trying to get our heads around what is a I looking at this market here, you know, kind of hanging in here. We're about one thirty one percent on the S and P five hundred getting in a nastac up about a half a percent. So tech is, as Dan has been saying for a long time, continues to perform.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app and the Lower Business at or listen on demand wherever you get your podcasts.
You know, one of the numbers that always sticks out of me is when we look at the Jolts number, you know, the job opening Yes, that's the number that historically ran five six million job openings, but it's been.
Close to ten right consistently.
You know, I'm like, where did all these people go during the pandemic. And one issue that comes up is there's some ages, maybe some people are kind of aging out of the workforce. But I want to get a sense of kind of you know, what ageism means in the labor market and for the economy. And our next guest did a lot of work on that. Mikhaela Grimm, senior economists for Alliance, joins us via Zoom. So, MICHAELA, talk to us about kind of what your work showed
as it relates to agism in the workforce. Are people just simply aging out of the workforce.
What we saw, especially when we looked at the pension systems, where we see the need that people should work longer or should stay longer in the work in the working
age population. To cussion the demographic effect on the pension systems but on the labor markets as well, is that when politicians propose the increase of retirement age, it's often answered with protests like we saw in France, because people are afraid that they don't find the job in higher ages and that any increase in retirement age just means longer unemployment before retirement and in the end a kind of a hidden pension cut.
And these fears.
Are not out of the blue, because we see that in higher ages the chances to be unemployed for longer are higher.
The long term unemployment.
Rates of the age group fifty five plus are much higher than in the average workforce population between twenty five and fifty four. For example, and if older workers apply for a new job, they are often facing stereotypes about older workers. And given these environment, many people who get unemployed after the age of fifty five either drop out of the labor force or decide to go into a retirement.
How does this differentiate when you're looking on particular regions in countries, say the US versus Europe.
In the US, we see a lower rate of longer unemployment in higher ages, and it's already a little bit higher the activity.
Ratio than in the U, for example.
And we see also that in countries where the retirement ages are already higher, like in speed for example, on Singapore, you see much higher activity ratio is among the older workforce population.
So, MICHAELA, you know, I guess I was surprised when I saw the you know, the incredible uprising public uprising in France when they were talking about raising the retirement age. I think it was from sixty two to sixty four. It didn't seem like that big a deal to me. Maybe that's just the US bias. Did that surprise you or is that consistent with some of the some of the data you've seen.
Well, from the open point of view, we were surprised as well because our government agreed to increase the retirement age to sixty seven already. But we see also that in France the unemployment ratio of all the workers is higher than in Germany, for example, and therefore that was the concern, for example, that if the government pushes the retirement age sixty four, it just would mean a higher
rate of our longer term of unemployment before retiring. In the end, we saw that in surveys that this was one big concern of the working edge population.
When we're looking at the US specifically, what's been the main catalyst that's keeping older workers out of the workforce longer and how much did the pandemic end up exacerbating this.
We we saw in service as well that many older workers decided to retire early. But we also seen in in in service of from r P that they face age discrimination. That there's example, for example, a wish to participate more in training measures, that there is a wish to have more flexible working hours, to be able to choose word to work.
To have more chance to work from home, to work remotely.
And still I think companies or many companies that are only not only in the US as we did not face the impact of demographic change until recently and uh it paused for example in many countries, uh at now baby, we must start to retire. Now companies feel more the pressure to adapt to the needs of an aging workforce population.
That was not the case in recent years.
Therefore, I think, since many workers since still face age discrimination, the step to say okay, I drop out or take a lower page job, or even have to they take a lower page job that does not fit to my qualifications than earlier time.
It is an opten What subsidies are, what support? I guess can governments provide companies to maybe you know, hire more older workers. Is there anything that is there a role that governments can play in this.
Well, we've seen in some countries they are already kind of advertise think campaigns in place like in Singapore.
Where the there is a company, the government.
Tries to to push for a cultural change, for change of the perception of all the workers. But what governments can also do as we see a need for reskilling, for upskilling, for lifelong learning.
It's especially.
Smaller companies who often cannot afford, for example, these kind of measures. So it would be one measure to UH support companies when offering training trainings for their workers. It could be also possible to support subsidy or grant subsidies of when employing all the workers coming from long term unemployment. It would also be a measure to support part time employment.
UH. It could be a measure to say, okay.
We reduce contribution rates or taxes for workers after after specific age. Then other measures could be when we look at the pension systems to make it possible to combine work and retirement, part time retirement, or as I said, to come get away from the mental retirement age, make retirement ages more flexible and for example grand and right to work.
Yep, all right, all interesting stuff there. Companies, countries, politicians have to think about this as the global population continues to age.
You're listening to the tape cats are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
Yeah, we'll get straight to our next guest who's a veteran investor, George Bass, chairman at Sanders Bors Harris joints us on Zoom to discuss all things markets and his stock pick.
You know, just when I came on Wall Street in the mid sixties, George was, I believe, the chairman of Prudential Base, which Bach company proceeded, and then Prudential bought Base, one of the top from One Street, and I'll tell you what, one of the best research departments on the.
Street at the time, and we're excited for him to be here. George, I wanted to pick your brain because in the last couple of months you had been making some comments about how you thought the big tech riley had run its course, but you still were thinking the broader equity market would approach new record highs this year. Are you still thinking that'll be the case for the second half of the year.
The majority of the experts, the pundits seemed to be on the side of the market weekening. As we get further into the year, there's a bit of a war between what I'd call Morgan Stanley on the one hand, which is predicating a one hundred and eighty some dollar earnings on the S and P five hundred and then the more optimistic to twenty plus s and P earnings estimates of Golden and Sacks, with again the majority of the experts, and they are smart people, falling on the
more negative camp. I do think that they're wrong. And by the way, I'll say that they interest to Wall Street was more in the nineteen seventies and the sixties. But back then, way back then, five percent interest rates were common. They were accepted by business, and businesses operated very profitably with comfortable profit margins with interest rates at
five percent. That's happening again today. Over the last decade, we sort of forgot that managements and consumers and the economy can live all right with interest rates at a five percent or so level, And that I think is an optimistic note for the market and earnings and the economy going forward.
George, you know, technology has been such a leader of this market really since the Great Financial Crisis. I mean it just felt like, you know, really leadership position in the marketplace. Do you still think that's the case here in a world where again you've got rising interest rates into your treasuries at four point seventy five percent, Can tech still be the leader.
Technology stocks have been balancing with interest rates on the assumption that the futurejourneys of technology companies will be a function of dividends paid well well out many years from now. But get back to the base case. Technology and the changes in technology are what's driving growth, productivity, constructive change
in economies worldwide. That's not going to fold. My supposition is that the big, big technology companies, the fang pluses, the seven stocks that have driven almost all the games in the SMP this year, are so darn big that they can't grow very rapidly anymore. They're great companies, they're doing extremely well, they're financial fortresses, but simply as a matter of scale, they've reached the point of diminishing returns.
And so I'm looking at what I term mid tech companies as the next wave of fundamentally justified, high growth, high contributor companies, where the stocks are way down from the perhaps unjustified levels of last year, but have an enormous amount of upside potential, and that's going to start to be recognized as we get into the second half of this year. So I'm saying by mid sell the big fangy type stocks as we get into the second half of twenty twenty three.
George, you've held leadership positions on Wall Street for decades, again going all the way back to E. F. Hutton and Base, some of the all time iconic brands on Wall Street. What's your view of the business of Wall Street these days?
The business of Wall Street is much more commoditized these days than it was back then, but it is still the found from which money for companies to grow and to expand and to diversify comes. And it's also probably the best place for individuals to put their savings, their excess cash to work. So Wall Street continues to be a marvelous place, much less humanistic than it used to be, but vital to the economy and by the way, one
of our big national advantages. We have the ability to create money for growth much more efficiently than other economies, and it's apt to give us a competitive edge that extends into the next twenty or thirty years.
With that said, George, we got to know what are your top stock picks.
Well, again, consistent with my mid tech theory, I would use as example specifics but also as examples Teledoc. Teledoc reaches over fifty million Americans. It's a company that is not yet profitable all those cash flow positive. If they can take just a fair slice of their client or patient base and convert it to a subscription model at fair economic prices, they have enormous ability to earn a
great deal of money. Trade desk is what the ad agencies were back in the nineteen sixties and seventies when I started. Trade desk is a way of placing advertising or seeking advertisers on an efficient basis, and its ability to grow exponentially over the next ten years is I think almost unrivaled. Mercarlil Libra, the Amazon of South America and Central America is very profitable, but it's just scratching the surface. So that's a trio of mid tech companies.
They're sizable, but they're converting from a revenue growth model to a profit growth model.
George, one of the themes that's really come into this market over the last year or so is artificial intelligence AI. And we had a well regarded Wall Street analyst earlier says this is like the nineteen eighty five Internet Aha moment, or you know, kind of like when a Google came on and we said Oh boy, this is a big moment for the internet. He said, it's something akin to that. How do you view this thing called artificial intelligence AI?
It really seems to be the theme of the tech world these days.
I'm going to sound like an old fogy and that really bothers me. They don't want to do it. I'd rather take a different view. Yeah, AAI is a marvelous step forward because it's going to give people access in multi dimensions to all of the wealth of knowledge of the world, and it will write things that will seek things that will display things brilliantly and very helpfully. But
it is not predictive. It is a look into the database of what's known up to now, and so I don't think it's going to be transformative in the sense of being the fuel cell of growth the way many people are predicting. I don't think it's a fat or a bubble. But I think it's importance in the economic future of our country and of the world is overstated. You know, the past is destructive, but it's not predictive, and so AI is important but not transformative in my perhaps geriatric view.
No, it's a perfectly relevant view. And but lastly, George, I have to ask, are you an Aspen Colorado right now?
No, I'm in the Salt Colorado. If you can't quite afford to be an Aspen, you've got ten miles down there.
All right, wherever you are in Colorado, I'm just where I am.
All right.
Wherever you are in Colorado, I'm just going to suggest you might be a little overdressed. You look very solid for Wall Street, but I think the Colorado and for Bloomberg Markets next time you can certainly go a little bit more casual if you're in Colorado. George Ball everyone just literally an iconic person on Wall Street. He's the chairman of Sanders Mars Harris, but has really been a leader on Wall Street for decades, I mean CEO level leader,
and it's just amazing the career he's had. Again, it goes all the way back to E. F. Hutton and you kids can look that up. Base Company another fantastic firm, bought by Prudential Securities when it became Prudential Base and then Potential Securities and again one of the leading firms on the street. So George has seen it all. We appreciate getting a few minutes of his time.
You're listening to the team Ken's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
All right, let's talk about our good friends at Amazon. We've all got boxes probably sitting in front of our doors as we speak, are good friends at Amazon. And then there's a little thing called Prime. I'm a huge fan of Prime. Free delivery, gets created, the audio video service, all kinds of stuff kind of wrapped up in there. But apparently the FTC has taken a look at this thing.
Matt Sheltenham, he's a senior litigation analyst. That means he's an attorney, but he's come over from the dark side and he's working on Wall Street and giving us some good research for Bloomberg Intelligence. Here, Matt talked to just describe what the issue f the FTC has with Amazon and its Prime business.
Yeah, Paul, we saw this this emerge somewhat surprisingly last week when when the FDC filed this lawsuit on Wednesday alleging that Amazon has tricks or duped millions of consumers into signing up for Prime and and and in particular for the automatic renewal of those Prime membership and and and the allegation is that that violates a federal law and that Amazon's potentially on the hook for, you know, hundreds of millions of dollars or more in damages for
or tricking consumers into staying with the program that they don't really want to be a part of.
And it's interesting because going through this, it says the FTC was talking about how consumers must click through five pages on the desktop web store or six on the mobile app to cancel Prime, so clearly making it pretty difficult right for consumers to try to cancel this. I mean, how much and how far do you think this potential case could potentially go?
Yeah, so, I mean that's exactly the allegation. What's really the big unknown here, though, is what is simple? The law requires a simple mechanism for subscribers to cancel automatic renewal plans like this.
How about the time to the cable telephone company, cable television companies? How hard is that to cancel?
Exactly? And that's exactly what you're going to hear from Amazon in the case is look at all these other businesses that make it so difficult. You got you want to cancel your gym membership, You got to go into the gym to to you know, find somebody to talk to. Other companies require you to call somebody on the line. Here we're talking about six clicks and and yeah, there are some extra hoops along the way, but there's very little guidance in the law on what is simple and
what isn't. And so you know, I think there's a there's a real argument for Amazon to make here that the FDC is really straining to argue that that that the six clicks process violates the law.
I mean, to me, first of all, I don't feel like like I was duped.
I actually had an issue when it came to Audible when it comes to their podcast. I actually went through this a couple of months ago where I canceled and then kept getting charged and had it called up and go through this. So it's interesting now that but I kind of felt a little miffed there when that had happened to me.
So, Matt, what is what's Amazon's mo when dealing with regulars? Do they just like settle these things out of court or do they fight them to toth and nail.
Yeah. So, I mean for a company like Amazon, it's really hard for a suit like this to to be too threatening. But one reason it does matter is that the FTC's power to impose penalties is very broad. In theory, the FTC can impose fifty thousand dollars per violation, and that can be counted by user, So you start to go one hundred million times fifty thousand and you get to some gigantic number with lots of zeros at the end.
So Amazon has to pay attention to this, especially when when the leader of the FTC, Lena Khan, is looking to be very aggressive in grow going after companies like Amazon. So, you know, I think Amazon would be happy to settle it for a small you know, a small figure, you know, relatively quickly. It's it's it's unclear whether the FTC would go on you know, be on board with that right away.
But you know, I really do think Amazon has a good chance to prevail in this litigation, but it's going to take time, and so I do expect it to play out for a couple of years before we see a resolution. But it's really hard to see the FTC winning a material damage amount against Amazon here.
Ultimately, so the timetable, like you said, being potentially a couple of years when it comes to this.
Yeah, that's what I think. So I you know, this was just filed last Wednesday. I think you're likely to see a couple rounds of this litigation. And you know, the big risk for Amazon is this gets to a jury that that could could potentially offer you know, a damages award in the millions or even billions of dollars. That's what you can't let happen. But there are two
steps in the litigation and process before we get there. One, Amazon can file a most into the myth, the whole thing and say, look, this doesn't even state a valid claim. I don't think that will work. It has a chance. But then even after a year or two of discovery, when they dive into the evidence, Amazon can say, look, the FTC collected all this evidence and there's still not
a case that should go to a jury. That's point I think Amazon has a really good, good argument to the judge to say, look, Amazon's process may not have been perfect, but you know it's probably enough to qualify as a simple mechanism under this unclear standard under the law. So yeah, I think that's going to take a couple of years before we see any action, and certainly before it goes to a jury in a trial like setting.
Hey, Matt, We've been talking to jenre who covers antitrust for Bloomberg Intelligence, and just talking about kind of the regulatory environment out there for businesses, particularly big tech, and it's really tough for big tech companies to really do anything here from your perspective, from the litigation side, what's the environment like out there for business? Is it tougher to do business as a government really taking a harder line.
It's certainly there's been a change, certainly in you know, the past five to ten years in Washington, d C. On the regulation side, you know, we had this idea that for for a couple of decades, look, it's best to get out of the way of the Internet, let
the Internet thrive. Everything is sort of changed in terms of policy in terms of okay, maybe we went too far in that direction, And you're seeing the same thing on the litigation side, where class act and lawyers the opportunities to go after companies like like Meta and Google for you know, potentially addictive social media you're seeing second in two thirty, the liability field that has long protected these companies suddenly people suggesting, maybe we've we've read that
liability field too broadly, maybe we should be able to do these companies about harms and so it's it's it's an on thlought of different attacks that they didn't face five or ten years ago. That doesn't mean they're going to lose these cases. The companies have strong defenses to a lot of the claims, but it's definitely a more difficult and vironment than it was a couple of years back.
And that's why Bloomberg Intelligence has a bunch of analysts and lawyers and smart people down in Washington with their fingers on the pulse of what's happening down there, so they can provide some very valuable research to Bloomberg customers. So Matt Shunholm is certainly one of them. He's a senior litigation analyst for Bloomberg Intelligence space down in Washington, DC.
So we'll have to follow that. For Amazon, the numbers, you know, relative to its market cap arn't material, but it goes to one of the one of their core business practices here. So we'll see how they continue to fight this. But again, it's tough to fight the government and the Federal Trade Commission. But I guess if anybody can do it, it's Amazon.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, tune in app, Bloomberg dot Com, and the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Let's get right to our next guest because we get to live to the instrument.
Yes in studio.
I love this.
I know Kevin Time and senior automotive analyst for Bloomberg Intelligence. He's based down on our Printson campus. But in case he gets up to the big town, Kevin, thanks so much for joining us. Lots of ways to go here, but first I gotta start your Mercedes that you drive as a V twelve it is does that means it has twelve cylinders twelve Cylin, and I have six in my car. That's right, So you have twice as many, that's correct.
Why it's and it's Here's the beautiful thing is it's a two thousand and one Roadster V twelve with I don't know, ninety six thousand miles on it. So my carbon footprint is actually smaller than anybody who.
Made them build a new EV.
All right, that's all I say. I had to clear that up there. I thought I was a tough guy with six cylinders, but you got your driving around twelve. Great, all right, let's start with Ford. Ford cutting some jobs here.
Why yeah.
You know, what I thought was interesting about this was that you don't have this condition in the industry, or at least in North America, of oversupply, right like too big, too much product, too much production capacity, and we need to cut back.
You know.
Inventory on the ground industry wide now in the US is about half what it was at the peak, which would be peak volumeer was twenty sixteen, seventeen and a half million. Yep, we'll do fifteen this year, fifteen and
a half at the outside, you know. So inventory is really in line with demand for the most part, and you're seeing rationalization of costs still, which my conclusion is is that this industry is very different than what it used to be, which was a lot of fixed costs, a lot of overhead produce produced, produce, figure out how to sell it tomorrow by giving it away incentives, discounting,
lease deals, whatever it is. And to me, these job cuts really show that the mindset of the manufacturers auto manufacturers is we're not going back to that world.
I wanted to toward Tesla because we are seeing at stock higher more than one percent today, so that is pushing discretionary shares higher, and obviously it's waiting in the S and P five hundred close to about two percent. We did see that downgrade from Goldman Sachs on Tesla earlier this week, just because of the difficult pricing environment. But we saw that huge run Tesla had been on that was snapped earlier this month. Obviously it was a
thirteen session span. Stock gained over forty percent. I know that Paul's been watching RSI levels very closely, so it actually got to around eighty eight eighty eight earlier this month, obviously above seventies that overbought level. But what are you seeing when it comes to Tesla's stock there and doesn't make sense that we've seen a little bit of a pullback after such a strong run like that.
Yeah.
Well, the difficult part, you know, as an analyst is is to make sense of what the Tesla stock does it's its own product, right, compared to what the fundamentals of that company or of the industry are. So, you know, I think the longer we go, we see that this is an automaker, right, there's obviously big technology competitive advantages, at least perceived, and we saw the idea of the charging with GM and Ford signing on with that.
That pushes the.
Stock price higher, But ultimately this is an automaker with automaker demand issues. I was actually driving around with my wife this weekend and we drove by one of the malls, the Quaker Bridge Mall, and there's there in the parking lot there's overflow Tesla inventory as far as the eye can see. Actually made her pull over and I got out.
And took pictures for myself.
But you know, so when you look at it in the from the perspective of a metal bender that needs to produce and sell, and you take some of that technology angle away from it, you're going to have those periods where the stock just just adjusts yep, and then you you're gonna have periods where there's an announcement and it makes a big difference to the upside.
And one of the things I don't I'm still trying to get a sense of is if I were Tesla investor or an analyst, is kind of where it fits into a world that's going completely electric. They get all the credit in the world for being first and being really, really really good, But in a day, as you suggest, it's a metal bending business and Ford gm VW. So when I think about Tesla, Rivian, Lucid all these other ones, how do you think this industry is gonna shake out?
Yeah?
I think we're through a period where where markets investors talked about the auto industry like it was the tech industry or these were tech companies, and they always have been right. Automakers have always been ahead of the curve of technology wise developed some great things over the years, and I think there was this belief that because of Tesla, that this entire industry was now, all of a sudden,
a technology industry. So what you get is you're either going to get every other automaker that is essentially doing and can do the same things as Tesla, Beee considered tech companies and deserve those valuations, or you're going to get the ones that had the wild technology valuations, you know, recalibrated down to automakers. And I think that's the that's the greater likelihood. Ford and GM are never going to
be and have never been valued like that. And I think the reality would be more that the EV and technology companies would be valued more as automakers than the reverse.
And our friend Matt Miller actually interviewed Ford's CEO Jim Farley, about a month ago, it's actually toward late May, about cost cuts, auto prices, evs when it comes to Ford in position to some of these other competitors that we're talking about, and obviously it's outlook for the next few years, do you think that's sustainable and do you think it could happen?
Well, yeah, I mean I think profitability is going to drive I've adoption, right. These these are automakers, the legacy automakers are making a lot of money doing what they're good at, which is trucks and SUVs, and then being asked or forced into this transition to EV when it's not really ready. And I understand the concept of disruption, and that's what happens, and some things are messy during
the transition. But you know, during the period where we transition to truck from car, that was profitable on the first day. Right So now you have you know, Tesla leading the way, but the governments starting to get involved with credits and infrastructure spending, motivating the consumer to demand these things that the manufacturer can't necessarily make money.
On just yet.
And it's and it's a it's a messy transition period right now because you don't want to give up profitable things to do unprofitable things in this market right now.
You know, I drove the Ford F one fifty of electric one and as first time I drove a pickup truck probably the last. I'm a Wall Street guy, I'm not dry. My son's got one and it was my first electric vehicle, and boy, it blew me away in terms of the power and it's work and things like that. Is the belief in Detroit that the average pickup truck driver will demand an electric version.
Well, I guess it's going to depend. I mean the towing capacity of the range. You know, there's and look and what I would say is this is that it's why we have segments. It's why we have vehicles with different capabilities, you know, so different drive trains. I got twelve cylinders, you got six, you know, like that, and
to make the world go round. So the idea that maybe the technological singularity of internal combustion being traded for the singularity of electrification, for me is a difficult concept because I feel like there is a place, there's people that need, but I'm not sure we're ready to say one hundred this is your only option in terms of drive train technology.
I hear you're speaking at a Bloomberg Intelligent event to date right upstairs.
Uh right, and what are we doing there?
That's uh the bi Lithium conference. So I'm the I'm the square you're the that's right here, the auto guy.
I'm the square peg And just what what is the we got thirty seconds? Okay, what's the consensus out there on the street about lithium batteries? Are Is there going to be enough stuff? Are we going to be able to get them all?
And no?
That's and that's one of the things that I was out last week speaking at a couple of dealer conventions Louisiana Dealers, Virginia dealers. And that's the big question is you know, we hear this one hundred percent by whatever date you know, and and it's when you when you total up the market share and the volume, it just doesn't compute with the materials that we have access to,
you know. And and the most cynical of them would say, look, we're essentially trading our dependence on foreign oil for our dependence on China materials.
Yep at this point.
But a lot of people don't want to talk about that.
But you will. Yeah, that's why we've read Kevin Log, Kevin Tyne, and Old School Auto Kevin Tiny, senior automotive analyst for Bloomberg Intelligence, joining us here live and our Bloomberg Interactive Broker Studio. We appreciate that.
You're listening to the tape. Cats are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty one.
Thing we don't talk about we've already should is signific it at you know asset class. If you all alternative asset class, which is jewelry. Our next guest can help us do that oncoor Dagga joints us he's the CEO of Angara and he joins us here in O bloombergetting Arrective Broker Studio. Thanks once for joining us.
Absolutely great to be here.
Tell us about your company. What do you guys do it?
And Kara, So we specialize in colored gemstones, so ruby, emerald, sapphire. We are vertically integrated, so we do everything from buy from the mines, cut in polish gemstones, design jewelry, manufactured jewelry, and retail over the web in over thirty countries.
And you grew up in the jewelry industry. Talk to us about how you got started.
Yeah, absolutely so I did.
From the age of five. I was going to my dad's wholesale business and I inutially vowed that I would never come back into the industry. It was quite antiquated, and like Paula worked at Credits weeks before and then McKenzie. My largest project at McKinzie was turning around a jewelry retailer and I was like, wow, there's a lot of opportunity here and then there we are, all.
Right, explain to me this thing. I know nothing about it. You know, I'm gonna say natural mind diamonds versus lab grown diamonds. I didn't even know there was really a thing for lab grown diamonds. Talk to us about lab grown diamonds.
Yeah, So they've been gaining popularity over the last three years. Twenty eighteen, the FTC said a lab grown diamond is a diamond, just like a natural diamond. Is the only caveat is you have to disclose that as lab grown. Since then, the industry has really taken off. So in twenty twenty they were roughly two point three percent of all diamonds sold. Now they're over ten percent, and the growth rate obviously is fantastic, but in terms of unit volumes even more so.
Now.
I think part of why they are so attractive is now they are trading at seventy five percent to ninety percent cheaper than their natural mind equipment.
Really, and what do they look like?
How did they So they are optically, physically, chemically identical to natural so they really are a perfect substitute.
So what's that done for the price of natural.
Diamonds, that is, that is a significant issue. So our industry generally has not been prone to technological disruption. This is the first time. So over the last twelve months, diamond prices have gone down anywhere between eighteen and twenty four percent, and I think they're going to go down by another twenty to twenty five percent over the next.
Twelve mile And how did COVID play into that in the direction of diamond prices.
So COVID was another anominally for US, as many other industries. Acid prices for diamonds specifically went up by twenty five percent between let's say June twenty twenty and June twenty twenty two. But that demand has now moderated. During COVID, people couldn't go out, they couldn't eat out, they couldn't travel. A lot of that stimulus money went into luxury, especially jewelry,
and now we're seeing a moderation of that. But what's now causing the further dip is really technology and lab grown diamonds.
And what exactly was the catalyst for those prices moderating.
So demand has receded a little bit after the pandemic has come off because now people are traveling a lot more, they're eating out a lot more, so they're balancing where they're spending their money.
Again, So your company over four hundred employees, where are they and what do they do? Sure?
So we have now ten offices across the world. LA is our headquarters. India's our largest operation, followed by Thailand and then Ireland, UK, Australia, Canada to add interesting.
Okay, so talk to us about kind of some other gemstones and how do they compare us investments? Because I know a lot of people think about them. It's not just what I wear around on my finger or around my neck. It's an investment for me. How does how does those gemstones perform? That's right.
So colored gemstones as opposed to diamonds, are seeing a great boom over the last three years. So the S and P three year kieger is around eleven and a half percent. Rubies have gone up by seventeen percent per year, sapphires by twelve percent a year, emeralds by thirteen percent. Some of the more niche gemstones like opals and turmalines are up anywhere from twenty percent a year to thirty six percent a year, so they are crushing the S andp.
So there's this growing appreciation for more colored stones as an asset class.
That's right.
Yeah, So there's a few tailwinds that colorstones are experiencing. I think one is we're kind of going from this unipolar world where the US dominated. So ten years ago, the US was by far the largest consumer of color gemstones. Now we have India, which has historically been what I would describe as a as a gold jewelry market. Now as they get more sophisticated, diamonds and gemstones are catching up, and China gemstone consumption is even more so than in
the US. So we have other tent poles across the world that are consuming more. So there's a supply demand imbalance. At the same time. On the supply side, mines are genuinely running out of material that they're mining. So for example, the Burmese mine for rubies has shut down effectively, the cash mind for sapphires has shut down. Columbia major emerald producer, is really reducing output. So at the same time the demand is rising, supply is reducing and we think that's
going to continue over the next few years. I think the other thing for gemstones is when people are now realizing that diamonds are depreciating it as an asset class. Traditionally, both diamonds and gemstones have really been inflation hedges. But because colorstones are appreciating, more and more money is going there that we see.
You think about some of those spy movies where right, you get payment in diamonds, you know, because you can take all that can, right, But now that's not such a good thing, right.
Something I was curious about is what happens if you have it juxtapost where diamond prices are falling, but then you have these gemstone prices that are rising. Is there a triptical something that can happen there with the swings and prices when you have them diverging like that.
Yeah, I think what we are seeing is much more of a transition to color because it is a better investment over time. The other thing is I think just in terms of culturally, color is becoming much more commonplace. So for example, Rolex Automarpiget Petek Philippe, they're higher end watches, their most coveted watches now have gemstone bezels around the dial.
We think we also have. A part of it is we're typically now known within the industry as the Debiers for colorstone, and the idea is, you know, starting nineteen forty eight, Debiers came out with the Diamond Is Forever and the Four Seas, and there was this idea that there is a singular perfect diamond, which is a de flawless. Now, US as a society we've changed considerably. Where we're celebrating uniqueness,
we're celebrating diversity. We're also celebrating what we like rather than what we're told we should like, and that transition, we're moving the market towards color with really a focus on education and customization of jewelry.
All right, thirty seconds left. What's the future of your company over the next few years. You've got what one hundred million revenue roughly, that's right.
So we've grown four x in the last three years. Our next target is a billion dollars. I think we can achieve in five years, so that's the goal.
Really awesome, that is good. We're going to keep in touch with this guy.
I'd forget back.
Yeah.
Awesome, that well, congratulations, fascinating discussion. I learned a ton there, particularly about the lab grown diamond prices. So do you I mean, do you go to your fiancee and kind of slip in a like real diamond but it's a lab grown one. I don't know what do you do there?
I mean, look at these emeralds. This is my Bruce Snows. I keep looking at that. Up about thirteen percent?
Yeah, good stuff? All right Oncrutondagah. Thanks so much. CEO of Angara joining us here live in our Bloomberg Interactive Brokers studio talking about the jewelry business. Fascinating discussion. We will follow an Encore's company going forward.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever.
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I'm on Twitter at Matt Miller nineteen seventy three.
And I'm Paul Sweeney.
I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio