Amazon & Google Are Defining Consumerism's Future, Munster Says

Alphabet parent company of Google earnings with Gene Munster. He is with the Loop of Ventures and Gene Munster tell us, well, first of all, congratulations on Loop Ventures as always for your prosperity and your your upward trajectory. Uh, you're gonna match that along with what's going on with Amazon and Google, because you know, you seem to have hitched your ride

to to behemos that just keep growing. Yeah things. So, I mean, these are both megacab companies that are enjoying a phenomenal core business and have some other beds that should really reinvent these companies over the long hals, So I just want to give you two quick points. First is on Amazon, their unit growth is twenty four percent. That's the pace of the sold units. That was the same unit growth as in the December quarter, which is hard because the numbers get bigger, it's harder to continue.

That's that's the impression number. And from Google's perspective, dead paid click growth, that's the key metric in the street was looking forward was up from last quarter. So what I really want to emphasize here is these are behemoth companies. Their core businesses are doing phenomenal, but the other crazy part is that they're investing in these other optionality values

that will reinvent these businesses in the next decades. You know, as you talk about these behemoth companies that are taking over everything, I have to bring up the main theme that is on a lot of people's minds. At what point are these companies too big and are actually restricting growth in other parts of the economy and are frankly stifling out any competition that could possibly come up. Well, both of these companies have a disruptive factor on competition.

So in to both cases, they had a huge impact in the media world. Obviously Amazon what they've done to brick and mortar, and so yes, they are causing an incredible wake of heartache for other companies. But the reality is that this is how consumers want the future to evolve, and they are defining that. And so I think that

that's just the they're not too big too. They still have room to get bigger, and unfortunately for other companies, they're going to get some companies, a lot of companies will get run over teen months to just a but you know your numbers into perspective, all right, So unit growth at Amazon, at a company that is doing it, has a run rate right now of a hundred and forty two billion dollars. It's really hard to put your mind around. And we love doing this kind of stuff.

But one other thought here is that if you think about total e commerce in the US, about twenty of it today is is Amazon, as you mentioned, growing overall e commerce from the US and growing at eight percent. So these are just staggering numbers. And and I want to make sure we also talk a little bit about what some of the things that both these companies are

working on, because that I think it is equally as exciting. Well, go for you, go for it, Jim, because as you say, this is almost like creative destruction, and it is really uh, well it's creating the future now. It is so in Amazon's case, the three areas that they're really focused on our media fulfillment and then uh international, but media this basically they want to become more like a Showtime or an HBO and just continue to add content their fulfillment.

They're doing last mile. And then for Google's side, I just want to leave your listeners with a new word called TensorFlow. Tenser flow and remember that because this is the new platform that Google has that allows anybody to access it for doing machine learning and artificial intelligence. And they basically Google is allowing everyday people and companies to access all their learnings and machine learning. Their CEO mentioned

Google CEO mentioned it. So the first thing you mentioned on the call last night was TensorFlow, and I just want to point that out. This is an example of how Google is going to redefine themselves with the next decade. What about the Google Car. I know that that was something that was a pretty hot topic a while back, but now there's sort of this feeling that in Detroit, the big beheemoth automakers are really gonna have the upper hand when it comes to autonomous driving and electric vehicles.

I think Detroit is going to be in a world of hurt in the next one years. I'm sad to predict that, but I think that that they just have a lot of uh infrastructure around manufacturing and labor that is difficult for them to break from. But Google is going to take over. I think Google test lads and a great position. Google mentioned on their call last night that they see their way Motivision, which is the car division,

to also be in public transportation. I mean, this is the type of broad thinking that we're hearing from Google when you just don't hear that type of broad thinking from Detroit. You know, I just want to take you back to this tensor flow t E N s o r flow because this is really an amazing site that well, you know, you get to use words like neural networks for machine translation. I'm not sure exactly what that is.

I can make a guess, but what are the kinds of companies that will be using this so that what that is is basically Google allows you to use their voice recognition so we can just tap into them. They can listen to what we're doing, it can do a transcript of it and start to build insights from those transcripts. So that's some of the things that you're talking about there.

But other things that this uh tensor flow does is allows you to use Google's learnings by looking at an image, so uh looking at image and reading what that image my uh information about that image, and so it is uh, it's just the start of what is going to be a machine learned driven world. Yeah, Gene Munster, thank you so much for joining us. We could talk a lot about this. Unfortunately we have to leave it there. Jane Munster is the co founder of loop Venture's former managing

director and senior research analyst at Piper Jaffrey Companies. I'm Lisa Abramoid's here with pim Fox. You've been listening to Bloomberg Markets on Bloomberg eleven three. Oh. We did get our GDP report this morning. In the U S economy expanded at the slowest pace in three years. This is perhaps due to the weaker auto sales and lower home heating bills. But does this signify some kind of broader weakening that is starting to set in? We want to

find out. Constance Hunter has some answers for us. Constance Hunter is chief economist a KPMG and constants. What was your main takeaway from this particular report. Well, two things. One, I know everybody's focused on the consumption data because of course the consumer seventy GDP and it's very important. And the lower energy prices and and mild winter really contributed.

That subtracted thirty basis points off GDP. Then the lower rate of consumption of auto subtracted another forty five basis points, so we're looking at factors that really slowed consumption in a concerning way. Even if you added back those factors, we only have a one percent annualized consumption rate in

the first quarter. And the question is why. Because we've had seventy seven consecutive months of jobs growth, we're starting to see wages go up, and not just the wage data that we got today, but for example, the Atlanta Fed has an index the employment caused their employment cost index, which doesn't factor in UH benefits like healthcare. It's it's the money that goes right to the individual and only

for families earning under a D fifty dollars. So it's a really important piece of data, and that's showing at up three point five percent year of a year. So this really is a puzzle. And and so given that, I think we're looking at somewhat of a temporary blip in the consumption numbers. But the other thing that's not getting as much air time is that we subtracted almost one percent off of the GDP growth rate because of inventory declines. And those inventory declines go hand in hand

with um imports. So we saw imports increase. We also saw exports increase, which is a really good sign. Even though net imports subtracted from GDP, that increase in exports supports the idea that the rest of the world is growing in a more robust and stronger fashion. So it's going to help lift GDP overall. And so I think we have a hold on one second, I'm actually struggling to understand that. In other words, if inventories drop, that's because our imports are no, no, no, Sorry I didn't

explain that. Well. So if if we see the strap in inventories this quarter corresponding with an increase in imports, what it suggests that the next quarter we're going to see those inventories filled back up. Sorry, thank you for

clarifying that. That wasn't terribly clear. Let me see if I can just understand where we are in the cycle though, because I I keep hearing this idea that you know, we're eight years so whatever it is, seven years into a bull market, and they're this business cycle, and then you get people will tell you that it's different this time, because if you measure it from over here, you know it's not the same. What's your take on where we are in the in the business and interest rate cycle? Yeah,

I think we're at late stage. We're what I would call the aph inning, and the FEDS job is to create extra innings, all right, Um, but we are getting to a point where we're having um wage increases. We're gonna start to see labor shortages when I don't know, sometime in sometime in and that in and of itself is going to hamper how much growth we can have

going for wards. So I think we're going to be looking at the all things being equal, which of course they never are, but all things being equal, we're looking at a mild recession sometime in late nineteen because of labor shortages, because we have increased wages, and that's going to put a crimp on our ability to continue grows. So just in time, for the mid term elections, just in time for the mid term. I just wanted to

make we got that twenty eighteen mid term elections. I don't know that will happen in I would say late either, like just sort of starting at the end of twenty eighteen into twenty nineteen. I think we've got some runway. Well, we'll put you down for November two thousand eighteen. I want to just point out, Yeah, for now, I wanted

to point out. Black Rock's chief executive officer, Larry Fink was on Bloomberg Television earlier this morning, and he said that it was improbable that the US is GDP will grow to three percent given the current demographics, and said that right now the US is truly slowing down. Um, you know, Constants, you seem like it seems like you agree with the way, and not just demographics, but also productivity.

So potential GDP is the sum of the change in the growth rate of productivity plus the change in the working age population. Working age populations growing at zero point that is is immigrants by the way, and productivity zero point eight. That gets us to a one point one potential GDP. Three is a pipe dream. Constant We were talking earlier about the results from Synchrony and Capital One showing an increasing number of charge offs for credit card loans.

How concerned should we be about this? Look at it. It seems like it's it's a moderately worrying sign, and it's it's something where I would say, this is now an indicator you need to watch, whereas to three years ago it wasn't an indicator you need to pay attention to. If you have a dashboard you're looking at, you need to make sure this is on that dashboard, All right, that dash But we gotta do you think that dashboard is on everybody's desk? Do you think everybody gets we

have a doomsday countdown? Pretty much everyone here? I mean, the only reason I asked is because it certainly doesn't look that way when you see you know, when you see bonds sell off and you see people go into risky acids like stocks in high yield. Yeah, well, look

where are we on bonds to twenty right? So I don't know that looks like a bond rally from where I sit based on the last six months, right, we had that that we had that backup in the tenure year old and now we're back down to twenty and my hashtag rates low for a long time has remarkable shelf life that has surprised even me. And you're calling stuff for two more interest rate hikes one I think one more this year. So they had forecast three for this year and and I think they'll be lucky to

get away with two rate hikes this year. All right, thanks very much appreciated. Constance Hunter joining us KPMG Chief Economist, much appreciated. We want to take a moment to let you know about something new from Bloomberg. Starting right now, you can use our io s app or our new Google Chrome extension to scan any news story on any website, instantly revealing relevant news and market data from Bloomberg and other sources related to the companies and people you're reading about.

So no matter where you're reading the news, you can bring the power of Bloomberg's news and data with you. It's pretty amazing. Download our io s app or search for the Bloomberg extension on the Chrome Store to try it out. Learn more at Bloomberg dot com. Slash lens Well the zero point seven percent increase in first quarter GDP, notwithstanding our next guest says that trends and consumer confidence are healthy, and that consumers are expressing optimism regarding the

short term outlook for business, jobs, and personal finance. This all leads us to housing and Cheryl Palmer, the chief executive of Taylor Morrison. Cheryl Palmer, thank you very much for being with us, my pleasure. Thank you very much

for having me. Now. I was able to go through your conference call, and boy, there are a lot of different metrics that you use to judge the health of your business, and I don't know whether you want to start with net sales orders, just explained for people how do you determine success, and then maybe talk a little bit about the regional strength, which you say is pretty comprehensive. Yeah, no,

thank you. You know, we did report yesterday and we're quite delighted with the results we were able to share. And there are a number of metrics to your point, but they all do derive from your opening comments, and that's how people are feeling about the world today. And I think there's been very encouraging signs as we you know, came through fourth quarter and certainly came into the spring

selling season of the first quarter. The consumers feeling good, They're feeling confident, healthy, there's out there spending money, they feel good about their jobs. They're starting to see UM improvement in income, you know, affordability. So it is still very very good low interest rates. And that's know, that's creating UM an optimism in our business and it really manifested itself through UM a thirty three increase of sales

here over a year, you know, Cheryl Um. First of all, I wanted to ask if you are concerned about the pricing in certain markets, particularly Toronto, San Francisco, New York. People are saying that the acceleration is certainly slowing down. If not, uh, you know, showing signs of petering out, particularly on the highest end. Are you seeing something similar to sort of edify the concern of sort of slowed down in those markets? You know, we actually have had

great success across all of our price point. Now, some of the markets you mentioned we build, and we used to build in Toronto, we don't anymore, UM, but we do build in San Francisco. We do build in markets across the US and to a number of consumer groups, and we are seeing strength UM at the first time buyers We're seeing it in that move up second time buyer. We're seeing it with our fifty plus and those are

some of our highest average sales prices. And um, some markets, you know, they are getting back to what I would call some of the historic highs and some markets still have a lot of runway. But as we reported yesterday, you know we've raised prices and probably about our community is just in the first quarter. So could you speak a little bit about the Esplanade Golf and a country

club community. That one is in sarah Sota, but you've got a variety of them, and I want you to use that as an example of the kinds of products that you are putting into the marketplace and maybe tell us a little bit about the customer reception and cost. Yeah, that one's really exciting. Our Esplanade brand is in Florida, and we have ten of these lifestyle communities throughout Florida.

And the one that I highlighted in our call yesterday, you're right, was in um Sara Soda, and I spoke to the new amenities that we've opened and really the lifestyle, the Ritz Carlton approach and our programming that we've created with really dedicated concierge's staff, and we have seen throughout Florida and throughout the Esplanade brand building since the middle of last year through the shoulder selling season um at

a number of price points. Is even in our Esplanade communities we build from, you know, the low two hundreds, well over a million dollars. And these are very discerning folks know what they want now, when they wanted, how they want it, and they're going to get exactly that. And we've had just a phenomenal spring selling season, and I credit the team's great execution in delivering new amenities with great pulside service, antiki bar and new restaurants. That's

how I gotta say. So that sounds it sounds lovely and clearly well. But I want to also while we've got to want you to talk a little bit about where you are making new deals, where you are acquiring property, because I know Atlanta has been a focus as well as Dallas, and you've got that Darling brand, You're correct, and so our Darling businesses in Dallas and Houston, and we are certainly investing in It's it's new for us. I mean, we just introduced our Taylor Morrison Brandon Dallas.

So now we have both our Darling and Taylor Morrison in Houston, we also have both brands, So Dallas with the new Taylor Morrison brand, were investing California, were investing UM some of our newer markets in the Caroline. It's really across the portfolio. Phoenix is one of our larger are larger businesses, so that machine continues to need to be invested in UM. So we're looking for opportunities across

the US today. Cheryl, this might seem like a kind of stage left question, but in my opinion, we read a lot about, you know, potential flooding on the coasts and concerns that potential buyers might have about this when people are buying your properties. Are you finding that a lot more people are talking about that where it's located, what the potential risk would be in a flooding type

the situation. You know, we don't see that often. Certainly we have exorbitant range and some markets across the country, but I wouldn't tell you that that's top on the folks mind. Not with rains, not with raids. I'm talking about coastal properties. As you know, sees rise because we've been reading a lot about you know that this could potentially even impede valuations in places like Miami or other

coastal cities. Yeah, I'm really going to come down to once again, we don't We're not in Miami, but we certainly are in many coastal cities in California, and it really comes down to the design and the development of those communities UM and how that infrastructure has been created. And be honest, it's not something that I would tell you is on top of consumers minds. Land acquisition, Where are you doing the most acquisition? I know you try to do it organically, but maybe give us some markets.

So some of the markets I just mentioned Texas, UM's very healthy, California, Arizona, are smaller businesses in Colorado and the Caroline As. We are investing, and we're investing over the last couple of years, we've done some UM acquisitions

of new companies. Right now, we're very focused on organic acquisition to your point, and I would tell you it's really across our entire portfolio, and we tend to have our longer landbanks where we build large master planned communities like our esplanades in Florida, but we're still looking for opportunities there and then in Arizona as well. Are you concerned because this you're describing something that sounds like a perfect alignment of the stars, and I'm wondering when that happens.

Do you there's a little voice go off in your head that says, well, this isn't gonna last forever. Um, that voice is always in my head and that's why, um, you know, it might sound good and it is, and generally I am very bullish on how the market hang on. We're going to just have to break in Cheryl Palmer, Chief executive Taylor Morrison, thank you very much. Well, we want to learn more about utility stocks because utilities used to be the stocks you went to if you were

looking for yield, but perhaps times have changed. We have John Bartlett. He is the vice president of Reeves Asset Management. He joins us here in our Bloomberg eleven three oh studios. John, thanks very much for coming in. Our utilities looked upon as investments for yield or has that just been thrown out the window? Him? Principally not yield is a very still important part of the total return of um of utilities. But but they do have an opportunity for you know,

pretty pretty modest earnings growth. We see the industry growing it's earnings about five percent per year, and that's really on the back of continued investment, largely at the state level, but also at the federal level too. So UM, I want to I want to talk a little bit of it infrastructure spending because definitely your world overlaps we had heard during the campaigning season about a one trillion dollar

infrastructure spending plan. We haven't heard much more about it, but you know, is there still some opportunity from fiscal stimulus that you are expecting to actually happen in the near term. Well, you know, the good news on that front is, UM, it doesn't really matter that much to

me as utility investor. UM. One of the things we're really looking forward to right now is getting UM five commissioners back at the Federal Energy Regulatory Commission that's going to That's probably the easiest way that the federal government can get money started spending on infrastructures, just to get those uh uh, those commissioners back in their seats, because

once that happens, there's a real spending opportunity. And for instance, there's a number of pipelines that are just simply held up by the fact that they don't have commissioners in their chairs. The federal government doesn't need to spend the

time to get that stuff going. Well, you know, John, we Uh, Lisa and i UH and the Bloomberg team, we were at the Bloomberg New Energy of Finance, a summit looking into the future of energy, and the constant theme was renewables and the actual cost of generating electricity. And I'm one, I'm warning you know, your your firm has been what fifty five years in business, you specialized

in this. You manage nearly three billion. You've got an E t F that focuses on on utilities, which maybe you can paint us a picture of the utility that is the most forward thinking when it comes to embracing this renewable and low cost structure. Well, we're very excited him uh. And if you look at the portfolio UH that that's in the E t F, the ticker symbol for that is U T E S, you'll see that we're we're for us. Renewables are a very important focus

for us. We see that wind um resources will become very competitive with UH, with other forms of electric generation, even without the tax credits that they enjoy Today. Generally speaking, the price of power is going down. There's not a lot of demand incremental demand for new power. We continue to find new ways to make generating power cheaper, and

the price of natural gas remains under control. So everything from from that perspective really creates a great backdrop for investment in utilities or for utilities because you know they can go put put dollars to work and help help their customers without having to go hat in hand back to the regulator asking for for big rate rate increases above inflation. So in your almost three billion dollar portfolio of assets, what proportion would you say is tied to

renewable energy utilities versus others? And how much has that grown? Sure? Um, Well, if you look at at everything that we manage, our our largest single customers are closed and mutual fund and the ticker symbol for that is is u t G. That's about eight percent utilities. In fact, it's called the Reeves Utility Income Fund. UM. I would say across the rest of the spectrum about um would be would be utilities And how much is that up from say, five

years ago? Um, you know, it's it's probably about about the same. Um. We will always have obviously a great deal of utilities and what we do. It's something that we're experts on and spent a lot of time time studying. But what I like about this particular portfolio, just in terms of its diversity, is it not just it does not just include what we consider energy utilities. It concludes

companies such as Charter Communications, Comcast, Verizon. We forget that, you know, Verizon and A T and T. We forget sometimes that the telephone and the mobile phone operators nowadays are considered utilities and therefore those dividends are available for harvest. Well, they're not regulated in the same way that utilities are.

But but you're absolutely right. We we we consider them core infrastructure holdings and uh and we're very excited about about cable generally because I noticed also, and we were talking with Vince Piazza are US oil and Gas analyst, and one of the companies in here is Royal Dutch Shell. Now he doesn't cover but you know, I was looking at the dividend of Royal Dutch Sell and we're talking like over seven percent. That's right, and Pim, we're not really counting on a on a huge rebound in the

price of oil right now. We're we're sort of it. We try to be as agnostic as we can to the price of oil, but within Royal Dutch there is a wonderful cost cutting opportunity that's been at work and we think is going to continue to play out. Thank you so much for joining us. Truly a pleasure to

speak with you. John Bartlett is vice president of Reeves Asset Management that he is focusing on utilities with a portfolio of almost three billion dollars UH and certainly a lot of changes coming up with both the potential infrastructure spending as well as the move toward renewable is one thing that we heard a lot about earlier this week, really was trying to make money off of renewables at a time when there is so much policy uncertainty. Thanks

for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one before the podcast. You can always catch us worldwide on Bloomberg Radio