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All right, let's go to our good friends out in Omaha, Nebraska. Berkshire Hathaway, Mister Warren Buffett. He got all the accolades together in Omaha, like he does once a year, and people look forward to this. It's like, you know, they're super Bowl the investors in Berkshire Hathway.
Matthew Polozola. I believe he was there.
I was there and he is a senior ANALYSTY covers the insurance companies for Bloomberg Intelligence.
Matthew, you went, tell us, give us a lay of the land.
What's it like after in Omaha when these people get together to talk to Warren Buffett about his investment philosophy.
Yeah, it was crazy this year. Actually it was packed.
So as in like a big arena arena.
Yeah, it's it's the Chi Health Center arena there. They said they expected around forty thousand people this year. It was in previous years where I've been there, the upper bowl of the arena's kind of empty. It was every seat in the house was taken this year.
What was the vibe without Charlie Munger? This is the first time in many years. I mean he passed away a few months ago. Warren Buffett wasn't up there alone. He had two deputies with them, very important deputies if you followed Berkshire Hathaway.
But what was the vibe like? Yeah, it was sad for sure. And they usually they start with this movie, right, and usually the movie's kind of funny and it's got a bunch of comedic elements to it. It was it was a whole tribute to to Charlie, and it was it was, you know, touching. But also Buffett really talked a lot about passing a lot of things on to Greg Able and how you know, maybe the next CEO can do this that. So it was, you know, just a kind of passing of torch. Seemed like moment two.
So not just said because Munger wasn't there, but said because Buffett really seemed to be, you know, moving on all right.
He's got a quote unquote problem in that he has one hundred and eighty nine billion dollars of cash on the balance se do.
You have that problem too?
I don't have that problem.
I mean I do carry an impressive cash in the pocket, that's true, not one hundred eight ali and large.
I mean, realistically, did how does he put that in?
I mean, I guess with t bills at four or five percent, that's not a terrible thing anymore.
What's he saying about that?
So that took a lot of pressure off of holding cash for them. They made like a billion in investment income before and it went up to like six billion, you know, just from holding cash. They talked about their retained earnings. Just just having retained earnings and investing that in treasury bills, you should have earnings growth from the company. They really talked about it's really tough to move the needle.
It didn't seem like anything was happening, you know, in terms of where to put a lot of money to work.
Is this it's time different in terms of Warren Buffett sitting back and looking at businesses out there for Berkshire half the way to buy. Have there been dry spells like this in the past.
Yeah, I mean, look they bought Alligating a couple of years ago for almost twelve billion dollars, so.
From my good buddy Jeff Kirby, Yeah.
And it wasn't you know, so that wasn't an insignificant deal. So they did something. They've put about fifteen billion dollars to work in Japan as well, so it's not either doing nothing. It's just these things don't move the needle that much for them when they have, you know, so much capital to begin with.
You know, one of our listeners earlier today, Pingban said Boeing, Boy, would that be a great deal in terms of size it's one hundred and ten billion market cap and could they use a steadying hand? I'm thinking Goldman Sachs great financial crisis.
I don't know if they want to be in the air They had done a couple of equity investments in the airlines years ago and kind of gave up on that. They also own Precision Cast Parts, which is a big supplier to these companies, So I don't know if they want to be that far in the value chain for airlines.
If you guys missed what Paul was talking about on Friday, Thomas black Over, who's over at Bloomberg opinion. He's got to call him out. That says, how crazy would it be if Buffett bought Bowing? It was among the most read on Friday. Everybody was talking about this story. Okay, so if not Boeing, what are the types of businesses that you think could be next? I mean, I know you cover property and casualty insurance, so that's certainly like where your mind is. But any other sees candies out there?
Any other apples out there. We'll talk about Apple more in a second, But if.
There are, I think the next thing they're gonna buy is gonna be something like we haven't heard of, right, or it's gonna be you know, they own Lubrasol, a chemical company, right, and they make They're like one of the only companies that make these specific chemicals for ev engines and things like that. You know, so I think that's what they look for, you know. I just I don't think Buffett. I don't think he has it in him anymore. For the for the last kind of elephant hunt,
I don't know it could happen. I mean, they were int just did in a data company a while ago. It was kind of like a data broker they talked about at the meaning being interested in a Canadian company. That was kind of all they said. They also have several billion dollars of an undisclosed position, which they've kept confidential in their last thirteen f's. So there's stuff cooking. It's tough. I you know, I thought they were going
to buy all of oxy. They kind of threw cold water on that, so maybe something the energy space was a big thing actually at the meeting. Okay, Buffett and his annual letter had said, you know, more or less, if we're going to get pinged for these wildfire losses, we might not want to be in this business. But they kind of counterbalanced that at the meeting, saying a lot of you know, energy demand's going to be through the roof. There's very few companies in the world with
the capital to invest in this. We're one of them. So it was kind of a little bit of a good cop, bad cop situation.
So on the Apple thing, Yeah, what I mean, I was surprised to well, I don't know, yeah, I was surprised. I mean, it seems like something should be a core holding now, So how did he kind of phrase it all?
So Tim Cook was there and he was, you know, up in the crowd like he had like a normalcy. He had a front row sack. Okay, I just big sure, definitely on the floor front row. Buffett more or less said he was worried about taxes going up and that was part of the impetus for selling the position. They sold about thirteen percent of their Apple shares. The stock was up a lot last year, and that was pretty much what he said. He said, we think tax rates
might go up from here. We have big unrealized gains and realized gains, so it seemed like that was the push for it.
How do we look at why, like, how do we look at Berkshire Hathaway selling out of a position, because typically you'd sell out of a position for one of two reasons, and you think you can use that cash better elsewhere, or two you think that investment is not going in the direction you want it to go in. Obviously, he has no use for the cash to use it elsewhere. So the only other way to read into this is he doesn't think the investment is going where he wants it to go.
Is that a fair assessment is possible? I mean he had also said he expects Apple to be their largest holding in a year from now, and when Greg takes over, expects it to be a large holding for them. So, I mean, I think the taxes, the tax i location was it. I don't know. I mean, the valuation of the stock is probably plays a role in it. You know, just taking some off the table, you're definitely right with. It's not like they needed, you know, fifteen billion dollars
more on the one eighty nine. But you know, besides the taxes, that's really all had the points.
Does Berkshire buy backstock?
They do. They only started doing it a couple of years ago. They bought back two point six billion of stock this quarter. Buffett talks about a lot. They just can't buy back a lot because of the float. There's just not a lot for them to buy back. So they buy back more, I think, But it's been about you know, two three billion one two three, and I don't see it going up from there.
How was Omaha in May?
It's fine. The weather was fine. It was it rained a little bit. You have to line up at like five o'clock in the morning to get in there, so uh, that was tough, but it was It's a spectacle. You should you should go on yeah, I mean the first the day before you get so you have to be a shareholder. They give me a a an analyst thing, but they don't really you know that. You still wait online.
And the day before on Friday, all the companies are in the the the arena and you can go, you buy stuff, you can talk to some of the managements. It's really great. And it's like I said, it was packed. Everything was packed. Seas candy they said they sold four tons of seasca.
I was just gonna end with you. Did you eat any of the peanut Britle?
I did.
I don't like peanut brittle. But seas candy, by the way, not sheep. SE's candy box a box and they were just hand over fists and they've got it down to a science where you step in the line, they give you the candy, you walk.
On the thing.
The other thing was squish mellows, which I've talked about before. My kids love these things. They bought when they bought Alleghany Allegheny almost coming to call Jazzuares which makes toys, yep. And these things are just again they can't sell them fast enough.
All right, good stuff.
Mata Alizola, senior analys who covers the insurance business ostensibly, and he might be our candy analyst.
He was after an Almah. Does it all for Bloomberg Intelligence. We appreciate that.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Otto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station Just say Alexa playing Bloomberg eleven thirty.
Seeing stocks up for what could be a third week in a row. We'll have to wait till Friday to see about that. Let's see what Brian Crowez has to say about all this, president of Sharf Invests. He's joining us from beautiful Low Scottos, California. Brian, good to have you with us this afternoon. I'm going through your thesis here, and you argue that there is too much optimism when it comes to tech out there right now? What's going
on here? Because you say that S and P. Five hundred levels of concentration of tech go all the way back to a concerning time the Internet bubble.
Yeah, thanks for having me as you know, tech has been a very strong performer really for since the twenty twenty two bottom. And you know, last year, for example, tech was a fifty six percent despite the tech sector really having pretty mediocre earnings growth in total. And so if you look at the tech sector relative the SMP, it's actually at highs above.
Where that was in nineteen ninety nine.
And as a percentage, the S and P five hundred tech sectors thirty percent of the SMP, which is which is higher than.
It was at the peak of the bubble.
But that doesn't even include Amazon, Google, Tesla or Meta. If you add those in, it's now forty one percent. To put it in perspective, you ten years ago, the tech sector was about seventeen percent of the SMP. So really, tech is a huge waiting now in the SMP.
Did they not earn their way into that type of waiting here? I mean, you look at it in a video for example, the bulls will tell you, boy, the multiple today is cheaper than it was before the run up because we've seen such a surgeon earnings. I guess that's just a way of saying, you know, is AI really a thing here?
I mean, certainly the tech sector has earned some of its stripes by having better earnings growth over the last ten years than the other sectors.
But you know, we'd point to nineteen ninety nine end in ninety nine, there was a lot.
Of great companies Cisco, Intel, Dell, Sun, Micro, Qualcom, AOL.
These are all companies that are in the top ten.
And I, an investor, bought those companies despite what we all know was the tremendous growth of the Internet, you would have underperformed dramatically over the next twenty.
Years as an investor.
So, yeah, and Video's growth is great right now, tremendous company, tremendous CEO.
But there's always competition to knock you off.
To the top, and usually those largest companies underperform over the longer term.
So would you argue that there is actual competition coming for in video right now because it does seem like they have something, at least at the moment, that nobody else can offer.
Oh, there's one hundred percent competition coming. I mean, we're based here in Silicon Valley. You know, the talk around the water cooler and barbecues is one hundred percent. I know people that are working at Microsoft and Google and they're all working to find a cheaper chip. I mean, the one thing tech companies don't like to do is people holding to other tech companies that.
They can avoid it. Now, that's not to say they're going to come up with something in.
The next year or two or even three, but eventually, you know there's going to be competition, and you know, competition is very fierce in tech.
Hey, Brian, if if tech is not going to lead this market, what will Because there's a generation of investors out there that know nothing but tech leading this market higher.
Yeah, it's kind of kind of amazing. You know, it's not just tech, it's growth in general. You know, we look at we looked at interest rates, and if you look when rates are below three percent, growth outperforms. When rates are above four percent, value outperforms. And actually, if you look back to nineteen sixty, the average of the ten year treasury has been about six percent, and today
it's you know, around four and a half. All of the instances below three though, have occurred since the GFC, and so a lot of younger investors only know a time when when tech and growth outperform. However, if we're going to higher for longer environment. You know, we think it's a good good environment for value and if you look at growth versus value right now, it's about a ninety percent premium, which is well above you know, what
you usually pay. So we think it's potentially a good time for value stocks.
What are some of those value stocks that you guys are going after right now?
Yeah, I mean, you know, an example of a value stock that's kind of really beaten up people don't like right now is Comcast. It trades at around ten times earnings. Obviously, there's there's some worries around not only cable sub subscriber disconnects, but also the broadband has been weak coming out of the pandemic. That a very strong pandemic, but broadband growth has gone in reverse recently because of you fixed wireless competition. But we think that longer term, this is a you know,
really great asset. Actually, interesting enough, over the last ten years, Comcast has grown earnings at the same rate as Apple, and yet obviously trades at a huge discount.
So, you know, we think this is one of those names.
That investors are ignoring, but that should be a pretty high quality, good company over the next years, and a.
Great management team.
I could say, you over from experience, talk to us about dividends here, Brian, how important are dividends to you in a market where ten year treasures four and a half percent.
Yeah, dividends are are one of the unsung heroes of investing. I mean, if you look over the long term, dividends are a significant contributor to to investors' returns.
It's not something we absolutely look at.
In other words, we're not saying, oh, we only want to buy a company with xyz dividend, but it fits into capital allocation strategy. And capital allocation is you know, the holy grail for investors. Companies that do bad capital allocation can really ruin, you know, the future returns for investors.
You know, Berkshire Hathaway just had.
Its annual meeting, and you know, one of the things that's made them one of the best reforming stocks over the last you know, fifty years, is is.
That Warren Buffet's been a tremendous steward of capital.
Even though they don't necessarily pay out large dividends, you can trust that the management is going to do the right thing with the capital.
Well, that's interesting.
We were just having a conversation with our insurance analyst here earlier. One hundred and eighty nine billion dollars in cash, By and large, that doesn't sound.
Like being a good steward of capital.
Although the interest rates today make it seem a little bit better. But shouldn't it be returning that to shareholders?
So I think a couple of things from the Berkshire meeting takeaway is remember, first of all, remember they're an insurance company, so this is they have a lot of float, and so they've always chosen to be conservative, although this is this is sounding likely going to be more conservative. They had mentioned one hundred and eighty nine billion in cash going to potentially two hundred billion, So you bring a good point, shouldn't they just be returning some of that? Well,
first of all, some of that is float. Second of all, they're earning five percent plus on that capital right now. So what Buffett's really saying is, hey, I'm not seeing a lot of great opportunities better than that five percent. I can get it's risk free. I don't have to the risks. And he also talked about the ability to really step in in a crisis, and so there's not
only the five percent he's returning. But there's also the option value, and no one's better than Berkshire Hathaway in terms of when events happen getting really good deals.
So we look at it as you're.
Getting five percent today with no risk, and you've got the optionality if something were to happen that they could really take advantage of that for sure.
Holdstill one hundred and nine billion dollars. That's a that's a pretty big pile of cash. Hey, I know we you talked a little bit about tech, but there is one tech company out there that you are bullish on. You argue that Oracle is a sneaky AI play. Why are you bullish on Oracle?
Yeah?
I mean Oracle is not cheap anymore. You know, it's still around an SMP multiple. But the thing that makes it interesting is they have really done a lot of behind the scenes in the cloud, and so people don't really think of them as a cloud player. But now they're with the purchase of Cerner, they're getting really big in healthcare.
You've finally seen their cloud revenue really growing.
I think the last quarter was up twenty six percent or so, and the cloud is starting to become a large percentage of their total total earnings. You know, management on the last call was really giddy in terms of how much money they were able to spend and basically said they just didn't have enough capacity for all of demand. So we think it's it's sort of an under the radar cloud play that has a lot more room to catch up relative to some of the other big players.
All right, Brian, thanks so much for joining us there. I really appreciate it. Brian Krawez. He is the president of sharf In Investments, joining us from Los Gatos, California.
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It's called litigation risk, regulatory risk for a big tech It's always been out there, but we're going to get some high profile cases coming very soon that's going to be really important for a lot of companies, including Google. Jennifer rejoins iss. She's our senior litigation analys at Bloomberg Intelligence. She joins us here in our Bloomberg Interactive Brookers Studio. So Google antitrust trial about to begin. Can you give us the background what's happening here with Google?
Well, the one that's about to begin is an ad tech suit, but the one that you just finished up is the search suit. Very good, Okay, So I think it is.
To be fair, it's kind of hard to keep all these things.
It's so hard to head a straight right. And we have many others too, right, Google has other suits beyond that. But the thing is, I think what the ruling, the first ruling that's going to come out will probably be this search suit, right, because they had the closing arguments. The trial actually ended about six months ago. The judge put a lot of space in between, I think to really understand the facts and get through all the evidence. And I think he'll be deciding in a few months.
And it's a really big deal because Google pays over twenty billion dollars a year to other companies to set Google as the default search engine. They pay Apple, they pay Mozilla, they pay the OEMs that make the Android phones. And it may be that if the judge decides those agreements are exclusionary and that they're anti competitive, that they arise to the level of exclusionary anti competitive conduct. He says, you can't have these you can't enter these agreements anymore.
And the ones that are hurt are really not Google because we all know Google Search. You know, we're all going to keep using Google Search.
Yeah, it's a verb, yes, exactly, it's the Kleenex.
People aren't jumping to switch over to Bing, at least not yet. Maybe they will with.
Je does he bing?
Yeah, because he does. He's a big chap GPT guy.
Oh yeah, in the Microsoft he always and that could change.
Things, you know, the market could change. So you know, that's kind of out there too. Although this judge is looking backward in time, not really looking forward. They're looking at the conduct that has occurred in the last ten years.
But in the greater scheme of things. Is that a huge threat to Google? Because if it is indeed the default search engine, just because so many people are spent you know, decades using it on their devices, on their computers, then if you know, when you buy a new phone, Apple says, Okay, which search engine would you like to be the default one? Won't people just choose Google?
Anyway?
Well, I think that's the case, which is why the remedy is going to be really important here. This judge is going to have to get creative. And you know, one of the things that he might do if, in fact, he rules that Google's broken the law. I mean that hasn't been determined yet. I tend to think he will,
but it's very close. What he could say is, look, you've collected there's this flywheel, and you've collected so much data through scale, through so many searches that's allowed Google Search to get better and being Inductucgo and other potential in nascent competitors out there can't get to that scale to teach the search engine to get better. So maybe what you have to do, Google is share all that data and let others have a chance to actually become
better and show what they can prove. Maybe let an ascent competitor come into the market, something like that, and in that way there could be a threat, right, I mean, it's not unrealistic to think with all that data that Google's a mast over the years that some other company could come in and compete.
So has Apple actually come in and maybe communicated to the judge somehow like who whoa whoa whoa whoa, what if you do what you could do, that's really going to hurt us unintended consequence? Maybe has Apple appined on this at all?
So both Apple and Mozilla executives testified, and Apple actually believe it or not, when they signed this agreement to get paid to set Google as a default, also agreed that they would defend it if ever came under attack. Now if that's not a little bit suspicious or defensive, I don't know what is. But they so they did come in and they defended the deal. They said, look,
it makes the Apple phone better. A user opens the phone, they go to Safari and they do their search and they have the best search engine, and that's better for our users. And Google's the best. And that's just the bottom line. Mozilla actually said, look, this is really going to hurt our business. We depend on the money that we get from Google. We're small, you know, Firefox is really small, and we need that money. So they did testify like.
That, Okay, like you said, this is not the only legal challenge company. Why do the lawyers always get paid by the way, always matter what it doesn't.
The right and a lot and a lot.
Yeah, I don't know.
Jed if you cover, if you cover that. But but I'm curious where this falls and sort of the scheme of lawsuits that Google, for its part, is facing right now. Not to mention, I mean the lawsuits facing Amazon FTC issues facing Amazon Apple as well Meta.
You have FTCV Meta at right. All of them right now are facing big monopolization suits. They have a suit coming up that challenges their ad tech business. It's it's not a really business that consumers generally know about, because this is a business to business supply chain right that
they kind of control. And it's about actually advertisers, digital advertisers and publishers the software that they use to come together to place ads right, to find the space, to buy the space, to get the right ad to the right consumer. And Google basically owns the entire supply chain. They have nom and many pieces of it, and it's about manipulating that to take extract as much money from
publishers and advertisers as they can. That's the allegation. That trial is coming up toward the end of this year, and I think that's actually kind of a bigger deal, right because it's in front of a jury now that doesn't happen very often because the DOJ can only go in front of a jury when they're looking for a monetary remedy. They're looking for injunctive and monetary remedy because they themselves were advertisers. So they're saying us was hurt
by what Google did. We were advertisers, and we paid more to do that advertising because of Google's conduct. But when it goes in front of a jury, I think it's really hard for a jury to kind of parse out all the stages that have to be proven to prove an anti trust violation. This judge, who is studying really hard and the Google Search case is struggling. You can tell this is hard for him, So determine that line between conduct that's anti competitive and conduct that's just
hyper competitive is very difficult. And I think with a jury there's probably a tendency the DJ just to paint the company is a big dominant bully rather than kind of getting into those nuances, and a jury's probably going to go that direction. That's what I think. So I think those are scary cases.
All right, give us the timing on when some of these things are going to happen here, because I'm looking at the stock stacks up twenty percent this year, it's up sixty percent over the trailing twelve month. The market's not worried about it, now worried. What's the timing here of some of these?
I think on liability, a decision will probably come out on the search case in a few months. And then if that happened in a few months, that's what I think. And if that happens, he's going to the judge is gonna have a separate hearing on remedy, separate process to determine the proper remedy. I think he'll give them a few months to get prepared for that. Experts will be testifying in that So I'm thinking maybe a remedy comes out sometime in fourth quarter. That's what I think.
Okay, we only have a minute and a half left, but do you want to talk Apple? Meta is on your pap?
Okay, madam, let's say the least risk is Meta. I think I think the FDC will lose. All they're really seeking is a divestiture of Instagram or What's app, And I just don't think it's it's not going to happen. That would be a big deal. It would be a big deal. I don't think it's going to happen.
I don't.
I actually don't think the DOJ suit against Apples all that great either. I know people would disagree with me, but I think the allegations I think Apples change some of the conduct that they're challenging already, and I think a lot of pro competitive justifications which can outweigh some of those anti competitive allegedly anti competitive conduct.
Lena Cohn versus Amazon.
I also don't think that's a great suit. Wow, I think the best suits that I think the suits against Google. I think I have some teeth, have some possibility. I don't really think the other three suits are all that great.
Okay, interesting, this is their time to get big tech, right. I mean, you know, never know what the next administration.
Is going to be, That's right, you don't know. Although there are some gopiers in the Congress that like what Lena Coon's doing, It actually said Donald Trump's keep her around.
Yeah.
I feel like Republicans and Democrats like they don't agree on anything except for going after big tech.
Yeah, for different reasons, yes, live career, but they do agree.
Yes, but if you ask the consumers, we're like, we like it. It's all good which works the Yeah, I don't know, I mean.
I mean it's Amazon case in particular. I yeah, Amazon, they brought a lot of pro competitive benefits to consumers in the market since they started right, And so I think again, with these monopolization suits, it's always the anti competitive harm weighed against the pro competitive side when you've got a strong pro competitive side.
Yep, all right, Jenniferree, thanks so much for joining us.
Jenry, she is a senior litigation analyst for Bloomberg Intelligence, joining us live here in our Bloomberg Intelligence office. She doesn't mail it in like BI management does. She comes into the office, which we appreciate. In New York City as well.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecard Play and Android Otto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Tyson Food reported some numbers here. Let's break it down with Jen Bartashis. She covers all of the retail stuff, all of the food companies for Bloomberg intelligence.
She's based down in Princeton, New Jersey.
I think she's using that zoom stuff that the kids use these days to kind of, you know, phone into.
Us, Jen, talk to us about Tyson Food here.
What did you see from again? What I just learned was the largest meat producer in the US.
Yeah, good morning. So Tyson is one of the biggest meat producers globally actually, and by all accounts, they had a pretty decent quarter. They did raise their full year outlook for adjusted operating income off of strength in the chicken segment, which has been long awaited. But the stock is trading down, likely on commentary that they may see third quarter be weaker than fourth quarter, which would buck
historical trends. And so a little bit of a mixed report coming out of Tyson today, but generally a pretty solid quarter.
Is the current quarter usually strong because we're getting into summer, We got Memorial Day coming up, we buy the meat for the barbecue. I mean, why is it typically stronger?
So it's seasonally stronger for meats like you like your chicken, or you're in historically for beef specifically because of grilling season. But that does translate into a weakness for prepared foods and for the pork segment generally, And so they're saying that the weakness in prepared foods and pork may outweigh the strength coming for the grilling season for chicken and for and for beef.
All right, I'm looking at the PGeo function for Tyson Food TSN. Is the ticker percentage of revenue thirty seven percent beef, thirty three percent chicken, nineteen percent prepared foods and nine percent pork. Which business do you like? Which business does the street like? Is one better than the other? Better margins, better growth? How do we think about that?
So, historically speaking, prepared foods is a much higher margin business within the company, and there were intents from Tyson to grow that considerably. That has great long term potential, but they are going through a little bit of short term turbulence with regards to additional startup costs associated with
new plant lines and things like that. The chicken segment, which is a big part of the company's business, has been underperforming for years, and so what's encouraging coming out of today's earnings is that the chicken segment is finally showing improvement. Margins are up they're doing better with efficiencies, and even though overall volume is down, it's a much
healthier margin that they're achieving out of that chicken business. Now, remember they've closed a bunch of plants recently, They've been resizing their processing footprint, so all the things that they need to do seem to be underway to help make that a much more profitable and bigger contributor to the overall company.
It was interesting to hear Noura, and actually I would say we had I don't know if you Jen heard this, but we had kind of an interesting conversation about Tyson Foods just moments before we came to you, because Nora chose it as one of her market movers, and we all were all talking, well, we don't necessarily know necessarily the brand of whatever we're buying when we're in the store, and Tyson has much more than just Tyson Foods. Is
this at its core a commodity company? Or do the brands Sarah Lee, Ballpark Hillshar Farm, Jimmy Dean, Tyson, Bosco's Gallo Salami do these matter to consumers?
The brands do matter, and it depends on which consumer demographic you're talking about but Tyson has intentionally over the past several years moved away from being a strictly commodity driven company. That has helped smooth out earnings volatility. That helps make it a much healthier margin profile overall. And so that progress I think is going to continue. So those brands are very central to that long term, that
long term plan that side. You're right, there is a lot of Tyson meat out there that you eat and you don't even realize it's Tyson. They you know, obviously will supply retailers that then have that as their private label brand. There are things like that that happen. But overall, what we're seeing is the consumer, especially lower income households, have been trading more into private label and that has left these brands a little bit lower in terms of
overall volume that they're being that's that's being sold. So so that's where we're seeing a little bit of a little bit of that brand volatility in the last few quarters.
Jen, you need to talk to investors in this company.
What's the call here?
I mean, are they do they own it for the dividend? Did they own it because they're bullush on Chicken? And I mean what's the investment call for owning a food company like this.
Well, the dividend has been something that's been of appeal in recent years. The good news is that Tyson is back to where their free cash flower generation will cover the dividend, so that's that That also appeases some concern that the dividend might be cut. So generally it's been it's been along those lines. There is also long term growth.
You know, Tyson has been slowly expanding international operations. When they get the formula right, meaning they get the right productivity and the plants that they've opened up overseas, there's a long runway for potential growth for Tyson outside the United States as well as within the United States. So that's a little bit of the appeal as well if you're a longer term perspective investor.
Anything that investors have to keep their eyes on when it comes to supply issues out there, any bird flu avian flu type stuff that's getting into their production line that we've seen hit other types of companies.
Yeah, so the bird flu or avian flu is certainly something that's in the headlines lately. It's been impacting. It's you know, we've seen outbreaks in very specific areas. Thus far hasn't really had a major impact on Tyson this year, but we are watching that very carefully. One of the longer term issues Tyson's going to face is just the beef cattle cycle. We're at the bottom of a cycle.
There's very limited animal availability, and once that he starts to rebuild, things are going to get a little bit worse before they get better. With regards to apply, that means that the profitability of the cattle, of the beef segment within Tyson is going to remain pressured well into twenty twenty five.
Wait a minute, are we are there not enough cows out there?
Well, no, no, there.
There are slaughtering them for food.
That's the problem exactly. We're at the bottom of the cycle, which means that the supply is just very limited and because you know, cows take eighteen months two years to reach slaughter size, it's a slow rebuild and right now we're not seeing the initial signs of herd rebuilding that we need to really to.
To really research analysts, How do how do you decide as an analyst how the herds are like you go out and cow cows out in Montana.
Well, no, I look at USDA data, you know, so that's that's you know, USDA expectations. But you also talk to people who are who are in the industry right and there are things that affect you know, when those those herds are going to be rebuilt, the price of hay, the drought conditions, interest rates, you know, all of these things impact ranchers and their ability to take on the cost of rebuilding herds. And so you know, once those things start to optimize a little bit, then you'll start
to see herds grow. Then you'll start to see a much higher in terms of supply that'll be coming to market in the next couple of years.
What's the and this kind of goes back to Paul's question, But I thought chicken was like the hottest thing out there right now in terms of what consumers want. We saw Chipotle, Chick fil A running low. Chick fil A is huge, raising canes is absolutely huge right now. Why is chicken only gone in twenty nineteen from thirty two point two percent of revenue to thirty three point seven percent of revenue That was twenty nineteen to twenty twenty three.
Well, a lot of that has been priced depreciation, so there's been oversupply in the market. When that happens, prices are down. That's great for consumers. It's great for restaurant chains in terms of buying, but it's not great for the producers. And so, you know, part of what we're looking for is, you know that prices start to stabilize a little bit, which will lead to, you know, opportunity for revenue growth to renew in the chicken segment.
I'm sorry, Paul, did you just say priced appreciation? I thought everything was getting.
More expensive, Yeah, the commodities, I guess.
So what I learned here, Jen is chickens are short cycle, cows are long cycle.
Correct, all right, boom so you.
Learned something farm great stuff senior retail anels for Bloomberg Intelligence. I do remember for my days living down in Virginia, North Carolina. You know, you're out on the interstate and flatbed after flatbed after flatbed of these trucks would have chicken crates strapped on there and feathers are coming out all over the places, so you can't trap behind them, and it's not a good day for the chickens. I don't think the chickens going is not a good place
for you. Yeah, but that's where I think you get a lot of chickens some North Carolina.
Not a truck you want to be on Necessarily. I thought you were going to go somewhere else with the whole, like you know out in Colorado. You know you've got family out in Colorado. Like you go north of Boulder to Fort Collins, Greeley area, huge cattle area, right and you can you can smell it, Yeah, you can smell it exactly. Same with the central part of California.
Yep, yep, very good.
So anyway, we learned what we needed to learn about chickens and cows and pork bellies. You know, I always have to look at the pork belly, all right, I was Jim bartash Is talking about Tyson's food.
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You know, Tim, A lot of folks were saying, you know, coming off of.
That October base level had that big twenty five percent plus move up in the S and P five hundred, A lot of folks are saying, well, we could use a nice pullback that would be healthy percent.
Did we get it, Paul?
I don't know. We kind of don't think we did.
From the end of March through you know, kind of mid April we kind of had a four or five percent pull down, but here we are moving higher.
Was that it was? I don't know, man.
Yeah, I mean with these with these pullbacks, it's kind of like blink and you'll miss it?
Can you miss it?
Christina Hooper joins US chief Global market Strategist for in Vesco.
She looks at the big picture for a huge pool of money.
Christina, what do you make of that little pullback we had in the SP five hundred, What did you make of that?
And did we just march higher from here?
Well, I think that pullback and the quick ending of that pullback reflects just the changing views on the path of monetary policy this year. When markets got pessimistic and they felt that cut was far away and that potentially a hike could come sooner, we saw a sell off.
But the problem with the sell off was that there's an awful amount of cash sitting on sidelines, and many investors are overweight cash, and so the reality is that with fundamentals looking fairly good, earning season going well, it's hard to sit on the sidelines if you see something of a bargain, even if it's not a kmart level blue light special. And so as a result, this was not necessarily the sell off that many wanted to see. But I think it's a function of the environment we're in.
Where's that cash on the sidelines, Christina? Is it in high yield savings accounts that are still giving us five percent? Is it in money market funds?
Where is it?
Interestingly, it's in a combination of places, and so certainly some are enjoying higher yields, but not all relatively speaking. But the key is that I think this money was never intended for a long term cash savings. It always was sitting waiting or at least had a good chance of going back into the stock market once investors felt
more comfortable. And I think we've gotten to that point, especially with last week, where the narrative has changed somewhat, and I think we'll see more cash moving into equities as investors get more comfortable with this changing narrative.
Christina, I know what investco. You guys really take a global view broadly defined. You know, given where the various central banks are in terms of their posture aback cutting rates, it seems like the ECB and the Bank of England, maybe even a little head of the FED here.
How do you think about the US versus non US?
Well, the US has clearly been more resilient. It has been not as significantly impacted by aggressive rate high and so as a result, we are at a place where the Bank of England and in particular the ECB look poised to move sooner and I think that's going to be the case.
It's just a.
Function of the greater resilience of the US economy, which in turn has to do with in my opinion, two key reasons First, the US gave its households more fiscal stimulus. Certainly there was fyscal stimulus flowing in Europe and the UK,
but it was more significant in the UUs. In addition, we have this wonderful phenomenon called long term fixed rate mortgages that not a lot of other countries can participate in, that can enjoy, and as a result, one key part of household finances, one's mortgage payment wasn't impacted by the
very aggressive rate high cycle we experienced. We can't say that, for example, for our Canadian neighbors and for European neighbors, they experienced changes or increases in mortgage payments for the most part.
Christina, we spoke earlier to Brian Crowees over at Sharp Investments and he said that investors here in the US are too optimistic when it comes to tech. Do you agree with that?
Well, I think you have to ask the question what timeframe are you talking about? Because we've seen this before where investors can get very excited and if they have a short time horizon, they can easily be disappointed. But for those investors that have a long time horizon and are employing some kind of selectivity in their investments could
very well benefit a lot of it. Though, is having that patience, having that longer time horizon, Because we could see periods where tech stocks become very highly valued, we could see periods of disappointment in terms of earnings, but certainly there's a lot of innovation going on in tech. Reminds me very much of the late nineteen nineties and the excitement over the Internet. Investors through their money at
Internet stocks. Some worked, some didn't, and it was about essentially ferreting out the areas of opportunity and sticking with them even though there were some certainly periods of disappointment in there.
Christina, our listeners are viewers.
They've been hearing this term a lot recently, stagflation. What does stagflation mean to you and is it a concern for investors?
Well, I think that Jay Powell closed the book on that last week, although I will say that we did see a lot of internet searches on the term stagflation before. To me, it's an environment like the nineteen seventies right where growth is really disappointing. It's stagnant, but inflation is high and it's very sticky. And while We've certainly seen some kind of aspects of some components of inflation that have been stickier. This disinflation journey has been very imperfect.
I don't think this is an environment where we have high sticky inflation. I think we're going to see some nice progress in disinflation this year, and we can't say that growth is stagnant. Certainly, there are some cracks appearing in the US economy, but that's what the FED wanted. It wanted to cool a relatively hot economy that has had sub four percent unemployment for a very significant period of time.
Christin, where do you think we'll see that disinflation? I mean, it's been pretty stubborn in many areas, and certainly the last mile has proven to be just as tough as many people thought it would.
So we're starting to see a little easing in wage growth. If April's jobs report suggests a trend, I think it does. I think that will filter into and also I think we are seeing an increase in unemployment. I think that all filters into moderation and services spending. I mean, we're already hearing in a number of earnings reports that the consumer has become even more selective in their purchases, is even more concerned about expenses and the prices they pay
for certain items. So I think that we'll continue to see progress in terms of disinflation on the services side that has been I think unusually hot for a long period of time, and over the course of the year, I think the situation will get significantly better.
Christina, just looking at today's price action, we've got the S and P up a half of one percent, but the rustle is up about one point two percent. How do you think about some of the small MidCap names here Visa VI, you know, the big tech names that been such powerhouses for this market.
Well, I think there's room for more participation, and I look specifically at smaller cap names as an area of real opportunity. If one believes, as I do, that we are going to see a stabilization, that this slowdown is going to be relatively brief. We're going to see a reacceleration in economic growth, and that's a reacceleration globally. By the way, the OECD you've been updated it's forecast last
week for global growth. That's that creates a real opportunity for small caps, and I think that's why we're already seeing improved performance from smaller cap stocks.
It's so interesting, Paul. I'm just looking at the top function here in Bloomberg and one of these stories that just came out is this great story bi own Michael mackenzie and Liz Capa McCormick at two million dollars per minute. Treasuries are minting cash like never before. Finally, for the first time in nearly a generation, fixed income is living up to its name. Christina, how much does that hold back equities?
As I said, there's a lot of cash on sidelines, so there are a lot of places for that cash to go, and it's not a mutually exclusive situation. Investors can put money into bonds and can put money into equities, and I suspect that's what we're going to see. There's a growing recognition and actification.
I'm just curious, like, if we do see rates come down, do we see that cash then move off the sidelines and into equities or is that the type of cash that wants to stay in something that's more predictable.
I think the cash will probably the majority of it will go into equities, but I suspect that it's also going to go into fixed income, just because there's a recognition that that fixed income is more attractive than it's been in years and years, and that's going to continue. And also I think we're going to see more money going into alternatives.
Again.
Diversification is so important, and I think investors are recognizing that more and more as they see the unpredictability of the larger environment.
Christina Hooper, thank you so much for joining us. Always appreciate getting your thoughts. Christina Hooper.
She's a chief Global market Strategist at Invesco.
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