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Fry Alex Deel alongside Paul Sweeney. This is Bloomberg Intelligence Radio. We bring you all the top news with our Bloomberg Intelligence analysts all around the world. They cover two thousand companies at one hundred and thirty industries. And we also tap our amazing Bloomberg News team who are deep in the weeds of everything you need to know in all the market action. And one of them is Bailey Lipschualtz. He's been very busy. He had to actually cancel radio hosting yesterday.
I left Carol hanging the memes stock.
Crazy, give a day job. It's cool, it's cool.
So we know the memestocks did some stuff for three days and they rally and they're given back to a little bit today. Did any of them issue shares or anything and take advantage of this?
So AMC had what we call an at the market offering that was approved back in March that enabled them to sell shares at the market. Have their bankers just keep pumping and creating shares to raise up to two hundred and fifty million dollars as fast as slow as they would want.
They did about.
Half of that prior to the mania, and announced on Monday that they completed that, so raised another one hundred and twenty five million dollars on the back of Monday's what turned into was seventy eight percent pop.
For the shares.
Then today they announced plans to do a debtorate equity swap. So swap out some debt. Your debt debt holders now become equity holders. You create more of those shares, all to try to address the fact that they have a few billion dollars on their debt load. Most of that do in twenty twenty six, So the company has said they're actively talking to lenders to try to work on addressing those issues.
AMC Entertainment All right, it's down twenty percent today, but just about a billion dollars of stock has traded to day. I mean, this isn't pennies, this is real and money. When it goes back to my thing, like who's trade in this stuff, and that's what we wrote.
It in my view, a good story because obviously I wrote it, But we wrote a story yesterday that kind of dove into the fact that when I talk to people who advise hedge funds, these momentum quants have gotten more sophisticated, caught onto the playbook from twenty twenty one, and are buying and selling and trading these shares, so helping create that big rally we saw Monday and Tuesday and likely getting out of the stock whether they're in
the trade for two minutes or three days. They buy when stocks are going up, and then they quickly sell and the whole goal is to as we wrote basically.
In a way front run retail. Whoa, WHOA. I'm looking at the is this right, AMC Entertainment's got nine billion of debt that includes their leases lease, so call it four and a half four and a four four and a still they have.
It's sizable relative to their cases.
Yeah, and I'm looking at Ebithal. Let's just take twenty twenty five's estimates five hundred million, so still ten times levered. Again having bank these guys in the past four times, is the multiple is the leverage I would put on this thing. Maybe if the sub sub guys want to go above it, that's their business. But crazy, but Lisa AMC's trying it.
Yeah, I was gonna say if we don't, we like the fact the CFO is like, guys, let's do this, right, that's a good thing.
That's good and that was part of it.
Right.
So a few years ago they created these eight preferred shares because they couldn't get approval from investors to sell more shares, because you have to get approval to create more shares to expand the number of fears you can
have outstanding. Right now, according to b Riley's Eric World, he estimates the company still has one hundred and ninety one million common shares authorized but not yet issued, so they can hit another ATM, or they can continue to do some of these debt swap deals to try to address again the fact that they have a lot of debt, and they have a lot of near term debt, and Paul, as you mentioned, the underlying business is not really doing a whole lot.
Yeah, you know, you think about the theater business, it goes to the fundamentals of post pandemic. What's the demand for movies in theaters, and it is less, but it is still there. That probably the bigger issue, if you ask the theater owners today is it's just not a lot of movies. And that was in large part because of the writer's strike and the and the actors strike
pushed it just about everything back about a year. And then you've had some decisions by Disney to saying, you know what, we probably are overplaying our Marvel stuff, our Star Wars stuff, putting too close together. Let's spread that out. So stuff that was gonna be in twenty four is in twenty five, twenty five, it's going to be in twenty six. So you put all that together, and if you're a theater owner, you're like, I ain't got that much it put in my theater.
When's the last time you saw a movie in the theaters.
In the last few months? Last few months?
Yeah, a couple of weeks ago. I saw Doing two Oo.
Well, I like going to the Nighthawk in Brooklyn where they have like drinks and scene they bring to your seat.
Like I like the whole experience.
Like I don't go to a straight up AMC and just eat regular popcorn.
Wow anymore? So I do the whole.
It's cheaper than going out to dinner. You can spend like one hundred and twenty bucks. You see movies, You have dinner, you got drinks, you got dessert, versus going and spending three hundred dollars at like getting pasta and that's been though.
You can get a prosco at though.
Yeah.
See they want to raise elevor they want to elevate it. So they're making more margin, more money in terms of margins expanded on people.
Isn't like distracting though, you know everybody's chewing and eating a baunch of movie.
No, they're doing it anyway, I after eating popcorn and stuff. No, it's you get used to. It's totally fine.
The seats are awesome.
I saw a movie on Friday, I think, and the lay back seats.
I'd never been to a love shore a movie theater.
And you're like, wow, I'm laying completely horizontal watching a movie.
This is awesome. And the thing is, you know, if you're a movie theater economics of the move movie theaters, you don't make really anything on the ticket sales or as much because you have to give half to uh, the studio where you make it is in the popcorn in this that that's all your margin right for the perpection.
You can, yes, Brownie Sunday exactly so.
And you know they've been giving you crap for a hundred years. You know at some they're just finally waking up that if I ever want to get that person off the couch in front of their eighty inch TV in the surround sun, I got to up my game a little bit.
Truffle salt butter popcorn dropped that right there.
It's just beautiful.
Okay, before we let you go, what is the downside? You think you can we unwind all of the last three days or what do you think?
Probably?
I mean, if you look at fund like why not, well, what has changed fundamentally today versus a week ago, realistically versus three months ago?
Nothing?
Really, And that's been the whole argument. When we saw the big rally both stocks up more than seventy percent on Monday, all on the back of the Roaring Kitty post on Sunday evening, is that that really was just kind of like the match to get people back out and trading this. It didn't actually change things. And one of the things that I think is worth pointing out is the difference between now in twenty twenty one is
people were buying stocks for the first time. In twenty twenty one, the stock had already jumped, you know, five hundred percent for a lot of retail investors downloaded Robinhood found out how to fund it and buy call options. People who have been holding these stocks for a long time and are sitting on massive losses that if you see it go from sixteen to fifty and I got in at forty five, I might as well at least have some kind of gain as opposed to waiting around forever.
Right, good stuff, Billy, look the Schultz equity support of Bloomberg new joining us here on a Bloomberg interactive broker's studio, you mentioned what kind of pop salt do you like?
Oh?
Truffle?
Have you ever gone truffle hunting?
No?
I have gone truffle hunting in the South of.
France with a How do you with a pig or a dog?
They usually do pigs, but the smart ones use dogs because the pigs will sometimes eat the truffle. The dogs, you can train them not to eat the truffle, so they sniff them around underground, they start digging. You pull the dog away and then you dig think them out the right under the surface. Thank you to Keith Grossman, our former head of ad sales at Bloomberg, who had arranged these lovely outings two summers in a row, complete crazy Bacanelli in south of France. It was great.
And then and then and then do you like take the trouble?
You can't Coemple's home like to the US, like I had trouble.
I'm not so so everything they have troubles. Yeah. Then they have this little store in this little farm. I'm still on the mailing list. And the French couple, young couple, and they have a little French truffle thing going on.
I love this.
For another trip with at in.
This you know in may Or so that's next on the dockt.
I love all of this. I'm going to ruminate on this.
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Let's get to some of that economic data here today. Lydia user Joints and she's a senior economist at Ernst and Young. She joins us from New York City via that zoom thing. So, Lydia looks like like that inflation scare that we had maybe the first three four months of this year is maybe moderating a little bit. Is that the takeaway from the CPI data that you looked at today?
Yeah? Sure, I mean, I think the key takeaway is really that inflation continues to move in the right direction and that this inflation trend remains in place despite the bumping as that we had in the first quarter. I think the details of the report this morning were encouraging.
Both on the goods and services side. We saw that cooling and core inflation call goods prices decline in April, and that really indicates that this more favorable and normalized supply chain environment continues to be conductive of deflation in the goods sector. And on the services side, we also saw aneasing in the pace of inflation, with many of the categories also showing some cooling. So overall, that's the report that suggests that we're still moving in the right direction.
Something I'm still great happling with is why the event has such conditions, has such conviction that financial conditions are tight when you take a look at MEME stocks, when you take a look at the actual financial conditions index, do these numbers justify that confidence or no?
When we look at the economy overall and the package of economy data that we got this morning. You mentioned retail sales early.
On the show.
Retail sales work quite soft, and they do suggest that consumers are increasingly cautious with your spending. We have an economic environment that's cooling, the label market is rebalancing, wages are moderating, and at the same time, we have you know, today's some evidence that we remain and we continue to see that these inflation happening, especially on the core side.
So the progress has been slower, but overall, the economy continues to cool and inflation is likely to continue to gradually ease, you know, throughout the twenty twenty four and towards twenty twenty five. I think what will be important and important what's important to keep in mind is that we may hit the plateau when it comes to inflation.
CPI inflation in the coming months. But overall, I think the report today has helped rebuild a bit of confidence that the FED had lost in the first quarter of the year.
Liddy, We also yesterday had a little bit higher than expected PPI print. How do you kind of put that in the CPI data we got today? How do you put that Together's what's the narrative there?
Yeah, I mean, looking at the PPI data, I think some of the details were more encouraging, especially looking at some of the key categories that we feed into the PC data, so looking at some of the underlying components of PPI. But overall, I think, you know, when we look at the overall trend in inflation and what that means.
Also looking at these two reports for PC inflation, I think that we're likely to get, you know, a fairly encouraging print on the core PC data, and that overall core PC inflation should continue to gradually ease in the
coming months. I think, you know, we're coming we're coming off of that first quarter where inflation has surprise on the obside, you know, for several months, and what we need to see going forward is really softer inflation print a string of softer inflation print that will help THEE the FED feel more confident that you know, they're in a good spot and can start you know, that is in cycle.
Do you think the using cycle will be two cuts this year?
One and then what.
Yeah, so we have our view is that we're gonna get two cuts in the second half of this year. We do think that, you know, as I said, the economic environment will you know, will be you know, and will be favorable for those two great cuts. And when you think back at what Fetcher Powell said at the press conference, he really laid out three paths when it comes to a monetary policy going forward, and there are two of these paths that are leading.
To rate cuts.
You know, if you see a deteriration in label market conditions or if you see inflation moving sustainably towards two percent, our view is that, you know, the economy is going to continue to cool and that conditions are in place to continue to see that this inflation. We have an economy that's cooling and consumers that are growing increasingly cautious. We have a label market that's rebalancing and wages that
are easing. We also have signs that companies are exercising less price in power, and we're likely to see more downward pressure on profit margins as well. And lastly, we also have more rent these inflation in the pipeline and the numbers this morning, we're also encouraging in that front where you know, we continue to see that downtrend in
rent inflation. So overall, I do think that you know, this backdrop is going to lead the FED to start that is in cycle media and we see two rate cuts happening, so more of a recalibration that an aggressive, you know, rated cycle.
So we also had the retail sales came in a little bit weaker than expected. What's your read across.
There, Yeah, so the retail sales report weaker than expected. Looking at some of the details, it was quite mixed. I think there was some categories where we saw some payback. Looking at online sales for example, they were very strong
in March, so they declined in April. And you know, overall, I think what these suggest is that a consumer spending momentum at the start of Q two is going to be you know, looking software, we came out of March with significant momentum when it comes to consumer spending and you have that robust carry over that's supporting positive consumer spending.
But what it does suggest is that on the months of amounth basis, we've seen somewhat of a down shift, and we think that this is a trend that will continue because consumers are feeling you know, the impact of elevated prices, are your borrowing costs and just you know, a more challenging environment, especially for lower income hussles.
All right, Lydia, thanks so much. We really appreciate your time today. Thank you so much, Lydio bassour Ey pantheon A senior economists, We very much thank you for your time. Speaking of retail, I was really struck by those Burgery numbers. Now luxury has been burbery, Yeah, like luxury has been certain areas of luxury have been struggling, and Burbery kind of doubled down on that.
They had sort of weaker.
Sales and their outlook wasn't that great for the first half either. So even the high high end continues to kind of get dragged down a little bit, which also you find to be a bit confusing.
Well, whenever I think of retail and luxury retail, I think of the Chinese consumer is kind of the swing factor. I wonder what they're saying about the Chinese consumer.
It's always about China, but also pockets of weakness in the US as well, So it's not just a China situation when it comes to retail.
And a podcast about five percent here today.
Ye weak demand China, n US.
Yeah. So I mean it's it's you know, it's out there. It's concerning. But I mean, I guess the overall economic data is still generally pretty solid. I guess, you know. And it's is it solid enough for the FED to start pulling back on rates and if so, when so that'll be interesting.
It's still what I find so interesting is still the hard and soft data. The soft data, I appreciate the NFIB was a bit better yesterday, but the feelings are negative even if the hard data is a little bit positive or at least stable. Particularly, we take a look at how many people are benefiting from the equity rally, and there was a great uh in John Author's piece.
You really helped break it down. Oh no, it was a lu Wang had a piece where she broke it down and said, just x amount of people have money in the stock market that are benefiting and guess what, they're mostly older white people and everything else is a bit is a bit, dice Yer. It's a great piece.
You's definitely check it out.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern APO card playing Android Otto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex Steel alongside Paul Sweeny. This is Bloomberg Intelligence Radio. We cover all the tap news in business and economics through our lens of our Bloomberg Intelligence analysts. They cover about two thousand companies and one hundred and thirty industries worldwide. We also sometimes take you outside the Bloomberg Intelligence world to those that work on the street. And for that we're gonna go to Marie Shore. She covers senior equity
analyst over at Columbia thread Needle Investments. They have a great team over there. We love talking to these guys. Let's get breakdown after retail sales. Thanks for joining us, Mari, It's great to see you.
Thank you so much for having me so.
Breakdown two things. One where in the retail world makes sense and two do equities a record highs make sense.
Yes, it's a great question.
I think.
You know, when we look at the retail sales print today, I think we see more of what we've been discussing, which is still a choiceful consumer still spending more on services over goods and needs over wants. So overall, my outlook for spend on more discretionary goods is more cautious.
We still see things like home and electronics really weak versus strength in certain channels like e commerce and value retail, and in certain categories, like I thought today in the retail sales print, the improvement we saw in apparel was interesting, and we've seen some new trends in apparel, and it seems that some of the traditional apparel companies are taking share back, maybe from some of the athletic apparel companies. So that's I think an interesting trend to watch In
terms of the valuations on some of these names. It definitely seemed like the group was a little over extended in the earlier part of the string following the rally that started in October, and now I think you really need to be selective, so I would say we're still willing to pay a premium for consistent quality growth that we see in names like Walmart and the off price retailers,
which are all gaining share right now. I think, you know, given the relatively weak demand backdrop, we are willing to pay more of a premium for those retailers that are taking share.
All right, Usually we chat with you via zoom, so yes, nice to have you in our studio, usually of Boston, right, yes, yes, okay, very good coming down to the big town. Okay, marishare you cover the equity space for Columbia thread Needle? We got Walmart tomorrow, and people who like me who don't follow the retail space, I looked at that name as kind of a barometer for how the US consumer's doing. What are you going to be looking for tomorrow?
Well, I think we're likely to hear from Walmart still a more subdued tone on the consumer overall. You know, their core lower end customer is still under pressure. They are, however, taking share across category among higher income consumers, and that's been something they've been talking about for several quarters now. So I think that says a lot about the overall consumer, and you know, how they're looking to save money, are.
They taking a share from them like Target and stuff like that.
I think they are yes across category. You really see it from from Target and others, And I think that consumers are really looking to stock up, you know, and do that one stop shop at value retailog you know, you see it Walmart, you see it at costs go right. Their results have also been extremely strong, So I think that the results from Walmart tomorrow will show us what's
happening from a macro level. But again I want to be mindful that any any strength that Walmart does show, I think is likely to reflect not just what's happening at the category level, but what's happening in terms of their share position within category worries.
So how about the dollar stores? What happens to the dollar stores when the lower end of the economic environment is in fact struggling they are dealing with inflation. Does that benefit their business or does that hurt them even more?
Yeah, it's sort of mixed. I would say it does hurt their core lower income consumer, and you've seen all the dollar stores talking about weakness in their discretionary business among that consumer cohort. However, there is the potential for them to capture that trade down from a hire income consumer, and so that is an opportunity I think for the dollar stores, for off price retailers like Burlington and Ross stores.
But again, I feel like Walmart has really been the name among those value players that has captured the most share from that higher income consumer.
So some of the dollar stores are just a disaster in terms of like shelf stocking, in terms of employees, like it's a real us, like it might be good to get a deal, but only if you actually find a product, John Tucker, why are.
You laughing at me?
One dext to me and I loved it. Just they closed up, it was gone. It was just like what happened like overnight, it's it's and they only had one employee in a pretty large store, and it was just like, you want to steal.
Something, pretty much, go ahead like that. We can't do anything about that.
So I don't know if you guys know, if we've talked about this, that I am the counter indicator for retail somorrio. So here's the deal.
So I only shop on sale period.
I will not ever pay full price. So usually where I'm shopping, the joke is is that I'm an indicator for what stock you want to short, because I'm only going there because the deal is really good and it's an inventory thing. So I definitely went over budget this weekend. I went to Northstroum Rack, but I was buying work clothes.
So I felt okay about it.
Am I an outlier here? Like are the discounters gonna win or are they gonna lose? And how much will I be spending for the rest of the years.
Yeah?
No, I think And again we saw it in the retail sales data today in the strength and the general
merchandise category. I think all of these value retailers, whether it's the mass players, the off pricers, the dollar stores, the clubs, they will all continue to take share in this in this environment, in terms of the you know, in the hunt for deals, I would say I would expect more modest deals going for it only because you know, last year we saw inventory much better controlled, much more closely aligned with sales, and all of the retailers are
really focused on protecting margin, so I think you will see lower markdowns going for it. Of course, the retailers will always use promotions to drive traffic, but in terms of those major markdowns. Yeah, probably won't see as many of those going forward.
That's definitely gonna hurt a little bit there.
Yeah, we went to this anecdotal obviously went to Tjmax, which is usually my life go to store.
Inventory was horrific.
There was like nothing that was really surprising, and I wondered if like they're if they're waiting for a cycle to come back, or if they're just really good at getting step off their shelves.
Interesting. How about I'm just asking for John Tucker here the luxury sector accent. I'm just talking about Berbery. Yeah, some disappointing numbers. I thought luxury was kind of a relatively area of strength for retail Yeah.
I mean, I would say over the past year or so, we've really seen a slow down among I would say, both like the true luxury segment and that more aspirational luxury segment, right, Yeah, and I think I think it really reflects, you know, those consumers now spending again on things like services and travel, and so we've seen, you know, there's not a lot of public retailers at this point in the true luxury segment in North America, but we've
definitely seen a slow down, really globally, you know, across China, Europe, and I think it's that customer spending in other categories and also some of those brands that do have exposure to the wholesale channel, where you know, all of the department store is still managing inventory very tightly, so if you're selling into that channel, you may also see pressure is.
In that business, and they did call that out there.
Yeah, so I think it's.
Really a combination of those two things. I think long term luxury is still well positioned, but we're still kind of coming off of this period of you know, excessive growth that we saw during the pandemic and watching demand normalized.
I don't know, man, twenty six hundred dollars for a raincoat, please, well what kind of raincoat?
Burbery raincoat like that?
I appreciate that's aspirational, but hell no, that just feels like a waste of money.
But don't you have some budget or clothes?
Oh oh yeah, yeah, So like I give myself a budget of oh yeah, but not a trench coat and that definitely would not be in the budget.
Yeah, they have a budget for wardrobe. Again, another benefit I don't really yea, no makeup, Nope.
They don't send me to travel.
Bakeup on you.
You don't let them be you know, I don't know. Yeah, downstairs is a wardrobe room. We get our clothes picked and everything.
Really I don't know that.
Yeah, they don't chop on sale, but you know I do.
All right, Marsha, thanks so much for joining us. Marish Shure, Senior Equitiana. She covers all the retail space, one of our go to voices for retail. She's a Columbia thread Needle Investments. They get they're all over the place. I first hit thread Needle, they're in London. Then there's been all these mergers with the asset managers and now it's all under like Columbias and they're good.
Like they got some serious talent there.
Up in Boston. But she joins us here on our Bloomberg in Act, the Broker Studio. Maybe she's walking up down Fifth Avenue and Madison. I'm kind of checking out the stores. That would be my guest.
Let me know where the sales are, Yeah, exactly.
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This is Bloomberg Intelligence Radio. We bring you all the top news and economics and finance, and with the help of our Bloomberg Intelligence analysts, they cover our two thousand companies and one hundred and thirty industries all around the world. We also bring you the view from the street. And what do you do in this market when you're at record highs and the direction is higher? You just buy the stuff. You buy stocks, you buy bond, you sell a dollar. That seems to be the trade. Let's get
the trip with James Demert. He's chief investment officer at main Street Research. He joins us via zoom from New York. All right, James, do you buy the at a record? Simple question?
Hi, Alex, you do? I think you do. I think investors have made a huge mistake for the last few quarters of just waiting for something to break before they buy, and it's been a mistake. I think it's going to be a mistake going forward.
So what do you buy? James? Let's let's say it to the next level there, what do you buy? Do I just load into my big tech stocks that are work so well for me over the past couple of years, or I try to get a little creative.
Well, I think that investors, you know, a lot of investors are focusing on the wrong thing, which is the FED, and they should be focusing on what's driving this market. It's what this market's doing. It's a discounting this new AI tech led business cycle in ball market. And so when we think about what to buy, even with at levels like this, we want to think, well, if this is the case AI tech led biz cycle, it's going to be productivity growth in fast growing earnings, where do
I go for that? Right, there's ten eleven sectors in the economy, and if rates stay where they are, which we think they will, you want to go to tech for sure, you want to go to telecom in everywhere this AI productivity growth can affect. I think healthcare is
definitely one of those. I think the utility senttor is sort of interesting here, very inexpensive industrial companies, financials, right, Jamie diamond saying a few weeks ago, how AI as impacting JP Morgan, So I think you kind of want to think about this as an allah nineteen nineties, if you will, where that's the last time we had this huge boom of productivity growth. That was a different technology, obviously the Internet. Now we're in the AI phase.
Something to say on that, because nineteen nineties didn't always end well on that end. But before we get there for utilities, I find that so fascinating because usually you think of utilities as just a straight up dividend yield play. Right, Are utilities a growth sector right now? Can you play it and value it like a growth sector?
Yeah, Alex, this was my grandmother's favorite sector because that's no volatility, very predictable.
Dividend you.
But here you have a different story, right if it's an AI tech led business cycle, particularly with evs, and you've got these AI chips just churning away, needing so much electricity. We're looking at the utility industry as potentially a their a big growth area. So the grid is going to have to get way bigger to support what we envision is a seven to nine year business cycle.
It's led by AI profit growth, productivity growth. And I'll tell you not just the utilities, but who's going to build that grid the industrial companies, and I think that's one of the reasons you see, you know, the caterpillar, tractors and that sort of thing doing quite well over the last few courts. Discounting not what the Fed's gonna do, it's discounting. Hey, this is a new era, a very different type of business cycle.
James. One of the names you have on your list is Apple, and it's on a lot of people's lists, but it's obviously facing some headwinds, notably China. But one thing that it hasn't yet quite gotten into its multiple is AI. Do you believe the AI, you know, pixie Dust can find Apple at some point.
We do, and I think that Apple's on a lot of people's lists. As a bearish call, we are absolutely the one hundred and eighty degrees opposite bullsh and and we think they're late to the game, there's no question,
and that's frustrating as a shareholder. But you know, as we listen to the conference calls and read the tea leaves of where Apple's going here, and you can see it with their recent sort of partnership with chat GBT, we think in June eleventh is going to be a big call from from Apple in Cooper, Tino and Cook, and I think they're going to talk about, hey, we're bringing AI to the iPhone. We we envision it as a supercharge sery, you know, like a personal assistance series,
which is way better than what we have now. Might start with subscriptions. Think about the giant installed base around the world they have, and then it probably is going to force us all to get a new iPhone, maybe a few core to support it. So we are fans twenty seven times earnings neglected. You know, one of those that you want to you want to add here.
Yeah, I know, it's like I haye one my phone just one day is like we're done here, take us to the store.
We have to get a new one.
You also like, ASML, why would that be a why do you like that for the AI trade? Like, there's tons of of those kind of guys that we can start playing with. Why is it that one for you?
Yeah?
ASML work global investors. We love the overseas exposure right from the Netherlands. But this is a company no debt, and this is an integral part of what makes an AI chip work. Right, So there's just a handful of companies that actually do the design that Nvidio uses. Right, So Nvidia is buying ASMML technology to design and fabricate these chips. So they're really at the beginning of the cycle of making the chips. Absolutely important company to own,
not just a chip maker. They're the ones helping the chip makers make them make the chips. So very important to be at that front end, the most important company on that end.
How about in a fixed income space, James, do you guys allocate there? And if so, how do you do?
So?
We do a third of our assets under management, we manage about two billion are in fixed income. And our you is the FED may not do anything. And so here's where you want to say, Well, if rates have let's say they peak, but they're not going to go down, you want to go out here in duration. I think it's safe to do that. I don't think the Fed's raising rates anytime soon. I think, in fact, at some point they'll lower them. I don't think it's this year.
And so you want to go individual bonds high credit quality based on your tax circumstance, either own muni's or corporates. I love corporates in a non tax will account, and you know, don't feel uncomfortable going out twenty twenty five thirty years. Lock that yield in, make sure no one can take it away from you, because yes, eventually rates will come down and those will not be available. So we sort of ladder a little bit on the short end, tons in the middle, and lots on the long end.
Very different than what we were doing three or four years ago.
Our stock's expensive right now. How do you price that in?
I mean, there's so many different metrics, particularly when you compare it to say, the yield you're getting on the ten years, So I might say, yeah, you're not getting compensated at all.
That risk is not priced in.
What do you think, Yeah, Alex, I think people are misunderstanding pe ratios. First of all, when you're at the beginning of a business cycle, pes can be sort of an illus right because we're looking at we look at four earrings and that E is underestimated all the time, so it sort of makes the pe and seem a
little higher than it is. And more importantly, and I think this is the real problem investors are having is if you look at the S and P five hundred or any normal index, you've got seven stocks trading at thirty five times earnings, and you've got the rest of the market trading at fifteen. Now, anytime that you have financials at eleven times earnings, which is what's going on today, eleven times is almost historic for financial stocks and the
rest of market trading at fifteen. That is a value proposition as we move towards a growing, expanding economy, and one that we view as GDP plus four percent, not GDP plus two, which is what we had for the last twenty years. So higher growth fifty teen time journings absolutely, and particularly all these sectors that I mentioned earlier, they have not yet been impacted by the power of AI and productivity growth.
All right, James, thank you so much for joining us. James demmertt He is a chief investment officer at main Street Research. Joining us from New York City via zooms. We appreciate that.
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Alex Dee and Paul Sweeney were live here in our Bloomberg Interactive Brokers studio. We're streaming live on YouTube, so you can go to YouTube dot com and search Bloomberg Podcast and that's where you find us. All right, let's turn now to a conversation on artificial intelligence. Last Thursday, I attended the Boston Consulting Group EDGE Expo in Boston. A lotic great conversations with the execs at BCG. One
was with North America Sharon Marshall. She speaks with CEOs daily about what they are dealing with with their own company, and one big issue that keeps coming up, Sharon said, was AI. I began by asking here what question she's being asked most by CEOs. Let's take a listen.
I speak to CEOs on a daily basis, and I think the good news is there's cautious optimism. If you speak to most CEOs, they see a very very strong potential, some say infinite potential in terms of AI. Obviously, the economy is here in North America is performing very well and creates more stability in terms of capital investment. And I think the unknown is about the geopolitics and our current political environment and how that will all play out.
But you know, in speaking to them, cautious optimism thinking about AI, how do I scale it, how do I get value out of it? And how do I fund the journey?
So looking for opportunities for cost efficiencies.
Well, let's go to that AI because that's been a topic here today. A lot of smart people we've spoken to from BCG about the AI business, about the ethics of AI, which is something folks really need to think about. But the bottom line is it requires, from my understanding, a lot of investment and over a long period of time, a real commitment here when you talk to CEOs, do they get that and are they willing to make that commitment?
So, Paul, if you click back a year, we were doing a lot of conversations with boards and with CEOs, and there's a lot of experimentation that was going on. But it really it was just experimentation. It was use cases, and I think people were learning a lot. Now you flash forward a year and I think companies and CEOs are thinking, how can I create competitive advantage using AI? And what are the areas I'm going to pick to invest in? Because you can invest every it would be
cost prohibitive to pick everything. And so it's interesting as you see some companies are picking what you would consider more strategic aspects of their business. So if you think about insurance, either claims processing or underwriting core processes which are strategic to really lean into and invest. Some other companies actually have chosen more of a backed office route.
So really thinking about customer service, how can AI fundamentally transform how we do customer service to make it better and more efficient.
So companies are in different journeys.
It's going to be expensive, and they have to pick the places which is going to pan out for them and give them real advantage in the marketplace.
And on the people side of the equation, there's concern out there in the marketplace that AI will take jobs, or if it doesn't take jobs, it's going to require a tremendous amount of retraining. How do the CEOs think about that? Are they again, are they concerned about that? Are they willing to make those investments in their people?
I think that's exactly right. So AI is going to change a few things beyond the technology. It's going to change in many cases actually organization structure, it's going to change process and m process and also skills required. We often talk about the ten twenty seventy and the seventy percent of the change is going to be people and change management. If you speak to CEOs, I think they feel like it is worth it. It has to be done in order to stay at the head of the
curve and to provide competitive advantage. But again being choiceful and where you choose to scale, because you can't change everything all at once.
I was mentioning to my young producer that is one age is one has to really make the commitment to embrace change and be open to change. I'm case in point. When you go talk to the boards and to the CEOs, is it a tough sell to say, hey, Ai, this is an inflection point in what you've traditionally understood to be your tech spend.
I think they understand it.
I think they're not as familiar with the technology, but they're pushing themselves to get there because you're absolutely right. I mean, look, if we look at our own data WITHINBCG, the greatest adoption is with our less tenured people, and the adoption there is very, very high. But we I think all of our partners are most senior people as well as the CEOs and the board members realize they have to get the comfort level and upskill themselves in order to be relevant in the future.
Are there some industries that are maybe doing a better job of kind of leaning into this AI and what it really means in the long term versus some others?
Know, if it's versus some others, I mean, we're seeing a lot of activity, a lot of interests across all of our major sectors. So really thinking about healthcare as an example, so drug research would be an example, or medical records writing. So there's a lot in the regulatories
here that can be improved through AI. If you think about insurance, there's an enormous amount of documentation and review and so in areas, specific areas within each industry and within each sector where there's a lot of documentation review, those are the areas that are.
Being focused on all right, Speaking to CEOs, you have to talk about particularly for your global clients, I would think geopolitics, for better or worse, is at the top of their list or on their to do list. And you think about what's happened in Ukraine, the Middle East, and you know, you can never take your eye off Taiwan in Asia? Can you plan for it? This is a little bit different world than we had four or five years ago.
It's interesting we did more work exactly on that topic last year than we're doing this year. I feel like there was a lot of preparedness and scenario analysis that was done last year. It's continuing to be done and updated. I think many companies are on that journey. And actually our recent CEO survey showed that sixty three percent actually felt much better prepared for a geopolitical event at this time this year versus last year.
All Right, how about BCG in particular, I was thinking back way back to my days. Is the Fupal School of Business at Duke meeting with all the consulting companies. A couple of things that I remember. They paid pretty well, but they worked pretty hard. They travel quite a lot. How has your business changed since? Maybe since the pandemic, maybe with the advent of some new technologies.
Great question. So look, you know it's super important that we travel and that we spend in time time with clients and at sites. I think the pandemic has also, just like many industries, given us a little bit more flexibility. I think our clients are sometimes very happy to meet with us on video and we do that quite a bit as well. And you know, of course, like any responsible business, we are trying to lower.
Our carbon footprint.
So it's something as we think about, for example, internal travel that we really try to manage. So I think it's better than when I joined BCG, but it's still a pretty demanding job.
Still the demand job. It's still a lot of big NBA pipeline there. So talk to us about just kind of the business of consulting today. Hey, just how's business.
Business is good.
So if you if you look at last year, we we actually registered another year, which is twenty straight years of growth in terms of BCG. And I would say in North America specifically, our fourth quarter was our strongest quarter last year, and we're off to a really strong start this year as well, both in North America and globally. All of our regions are growing and all of our practices are growing.
So that's Does that tell you that the c suite the board has some little of confidence that they're either willing to engage with you to make the investment in your type of services, they're looking to do stuff that's right.
We always say that.
Certainty in either direction, either optimism or pessimism, is good for our industry.
What is bad for our industry is uncertainty.
So if you don't know if there's going to be a recession, if you have fear but a lot of uncertainty, that's a tough time for our industry. I think there's greater certainty and energy and CEO is feeling they have to.
Move, they have to move. Yeah, I would think with technology that would make it even more so, more pronounced than this whole AI thing. I have to get smart on it really quickly.
Indeed, indeed, a big, a big part of big part of our business continues to be cost and resiliency, but a very big part is AI.
All Right. That was Sharon Marshall. She is the North America chair for BCGOS chatting with her last week at conference up in Boston, and you know, I mean her job is basically just to take phone calls and field fold calls from CEOs their clients and try to help them with their problems. And she says, boy, it's like every single call is about AI. That types of investments that their clients should be making in AI, how they should be making those investments. How do you weave the
whole ethics thing into this whole AI discussion? But it certainly top of mind for her and her you know, all the other consultants up there.
Does BCG feel like they're behind that curve or on top of it because just as it's their clients are panicking, I would assume that they don't have all the answers either.
No, they don't, but there's they have a lot of people there that are spending a lot of time on it and they're getting and the people I spoke to their at BCG were, you know, seem very well read in but acknowledged, like you said, way early in the game. But I think one of the key takeaways I had was you have to put the whole ethics of it first before you spend dollar one, which doesn't usually happen because usually people are spending on the tech, spend on
the tech. But you really have to think about how you, as an institutions, as a company want to frame this investment in terms of the ethical applications of AI. You have to have a really strong call on that before you put the shovel in the ground, so that's kind of how they begin the discussion with their clients. But again, big dollars being spent, big commitments, that's for sure.
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