Best Technology Opportunities Lie Away From The Herd

with her tech. Are we heading toward some sort of peak in the valuation here, especially as we see chips start to lose some luster and as we start to have some questions about the likes that you got that down grade. Yesterday my key Bank Capital they were talking about Cyper Semiconductor n XP Semiconductor, both downgrading because they're awarried about things like autonomous driving and automobile tariffs. Yeah, well, I think Kevin Landis might be a little bit get

worried about autonomous driving. He's the CEO and Chief Investment officer at Firsthand Capital Management, also the CEO Firsthand Technology Value Fund, which trades on the NASDACS s vv c UH, and he is based typically in San Jose, California. Thank you so much. For being with us, Kevin, thanks good

to be here. So I want to get your view on the autonomous driving because we really have seen some choppy valuation there, with the likes of dime Ler investing a lot in it not getting rewarded, and Tesla perhaps arguably getting rewarded too much. Where are we with with this area. Well, I think, like a lot of complex problems, the way it's being tackled is to break it into smaller problems. So, for example, Uh, we're all very familiar

with cruise control, that's no big deal. But in the last few years, people have started noticing that their new cars had adaptive cruise control, which would uh take into account how close you are to the car you're following. Uh. Similarly, we were now getting comfortable that our car can do parallel parking, which is better than most of us can do. Uh. So they're they're putting the pieces together. They haven't got

the whole thing quite yet, but they're getting really close. Kevin, Landish, just to maybe offer people a little bit of your background firsthand, was a pre I p O investor in Facebook, in Twitter, in Solar City, in Yelp, in Roku. That's a pretty good track record, any dud's in there that we should just be aware of. Oh none, zero? Right, Yeah. Well, the reason I ask us because sometimes you learn a lot more from your mistakes than you do from your winners. Absolutely,

success is a poor teacher. And uh, for better or for worse, we've had ample opportunity to learn along the way. Uh. And you know, you you try to take a lesson uh from every loss, and when you have a winner, you try to remind yourself that there may be a little bit of luck in there too. Alright, So in that context, tell us a little bit about this world of electric vehicles, alternative few vehicles, as well as autonomous driving.

Because I want to note that the Dinler's chief executive officer, Dita zet Um, he's no longer going to be the CEO. They're turning to Ola Collenneus, who is really the head of research and development. That certainly points the way for a dimeler. Well, so the way you relate to your car as a human being has has changed, right, I mean, in some sense a lot of us in the rest

of the country are turning into New Yorkers. We just want to get into the backseat and uh, and and read or listen to music while a car takes us where we want to go. And and that's that's kind of a natural thing. And uh, we're gonna be in this heterogeneous environment here where you've got some people driving, some people in self driving vehicles, some people who have decided they're never even going to get their first driver's license. And uh, and then they've got you'll have this underlying

technology that gets relentlessly better. But we're not. We we can't and we won't wait for perfection before we put it out there. So there's gonna be some bumps along the way. I want to talk just about your investment process us, especially right now, given how much money is being funneled into the tech industry. Are you seeing any opportunities, especially in the non public markets, given how much cash

is flowt in. Oh sure, I mean there's lots of great new startup You could spend your entire day just listening to new startup companies. Uh. And that's I think that's been true just for my entire lifetime here in the valley. Um. But what's interesting is the big bucks flowing in tend to pile up in front of the really popular ideas. So today everybody wants to invest in AI some form of a are you everybody is putting an AI slide in their pitch deck so that they

can say they're an AI company. Uh. And typically, as you could imagine um, as with any investment, if you're chasing after the same thing that everybody else is chasing after, you're not getting a very good price and you're probably not being compensated for all the risk that you're taking. Sorry, well, I just wanted to follow up that, because then where

are you seeing money not flowing that it should be flowing. Well, when's the last time you heard somebody say it's time to invest in semi conductors um private semi conductor startups? No one says that. And because no one saying that, we're having to look there, because you know, we're not having to go to an open auction every time we

want to fund a company. And you know, when you're talking about the evolution of the car, one of the things that's going to happen there is that the power electronics within the car are going to get a lot more challenging, and you're not going to be able to do it in silicon and you have to dive deep into the advanced materials of silicon carbide or gallium arsenite or something or I'm sorry, gallium nitrite or something like this.

It's really deep, basic fundamental underlying tech. It's pretty interesting, pretty exciting, and I run into basically zero other investors when I go to visit these companies. Kevin, I'm going to give you a choice to talk specifics. Pivotal Systems, intra opt Medical Corps or Revessum. I don't know if I'm pronouncing that correctly, but Reversum is a Australian company, right and it is a company that makes what is described as chemical mechanical planarization and grinding tools for the

semiconductor industry. What does it do well? So I get to take myself off the hook on Vossum because they're exploring an Australian listing right now, and uh so because they're they're out on the road, but they haven't filed their perspectus yet. I'll have to come back and tell all right, fair enoughther details another day. But let me tell you Pivotal Systems beat them to the punch. They went public on the a s X on June that's

when they're their ip A was priced. And for us, this is the first time we've ever invested in a company that went public, but not here in the US. They went down Under for it, and the reason was that that they were less than fifty million in revenues and really didn't have the size to make the big enough splash to have a nice sexy NASAC listing. Um. But for the Australian market is a good fit, okay. But this is what a company that does controls for

the for the semiconductive manufacturing industry. Right. So, the manufacturing process of of wafer semichnactter wafers involves in a lot of times evacuating a chamber, putting a wafer in there, and then pumping in a very specific type of gas at a certain type of pressure, and then you know, you're basically baking the wafer, that's how you process it, uh, and you're baking different gases into it. They have dozens of different types of gases and dozens of different process steps.

And so just the market for mass flow controllers, which is what Pivotal does, it's about a five million dollar market and Pivotal is a little company with the better mouse trap taking market share there based in Fremont, California. That's right, Yeah, thank you very much. Kevin landis joining us as the chief executive chief investment officer of Firsthand

Capital Management. And just to note that the Firsthands Technology Value Fund trades under the symbol s v v C and it is publicly listed and publicly traded, and the shares of s VVC they're up more than eight year to date. The topic right now though, the housing industry, and we've got Brad Hunter, chief economist at Home Adviser, to tell us about the housing industry and whether rising interest rates are going to curtail the acceleration in housing sales.

We've got new home sales today, Brad. They were up three and a half percent month over month, upcent year over year. Also saw an increase in mortgage applications. They were up nearly three percent. What's the role of housing right now, sin, thanks for having me on. Yeah, demand is strong. The problems for home builders are all on the supply side. Demand might become an issue once mortgage rates get above five percent, or if home prices go

up faster than I expect them to. But household formations are are well over a million, really in their one point three million range. Now you add on a replacement of two hundred thousand or so units the year or more, and demand is well above production, and most markets are still affordable. But you know, pricing is is going to

become the next issue as interest rates go up. You know, Abroad, I'm struck by some of the weakness and where we've seen some of the weakness of late New York, New Jersey, Westchester places that are affected by some of the tax changes. I'm wondering how much has the tax cut and some of the alterations with respect to the salt deductions affected

housing values in the northeastern particular. I don't think it's had much of an effect at all, because most people do not itemize, and so even fewer are going to itemize the future given the standard deduction change. So I don't see that as a big deal um in terms of policy changes, I see the tariffs as more of a concern. Really, do you think, well, yeah, when when you think about the home builders and how much production

they can bring to bear in this undersupplied market. They're facing what they call the three ls, land, labor and lumber, and lumber is really shorthand for materials, so um, lumber, steal aluminum. These are things that are being affected greatly by tariffs, and it's gonna had a couple of thousand dollars. These arteris are gonna had a couple of thousand dollars

to the production costs of the average home. And so it's getting harder and harder for home builders to serve the millennials and other people that are just trying to get into homes for the first time. Well, Brad, in that context of rising lumber prices, does that mean that it is now time to buy home building stocks because

they've already sold off in response to that increase in price. Well, I don't give advice or a commentary on what you know whether to buy or sell stocks, but what I can say is that the home builders are facing these constraints, and one of the biggest constraints that they're facing is actually the other l which is land um and the land and lots supplies extremely tight. The prices of land are really making it prohibitive for them to serve the

lower echelons of the market. I'll give you an example in Dallas Texas, a new home demand is under two hundred and fifty dollars, but the percentage of lots that are available that are suited to that price range are

much lower. In Dallas, the percentage of developed lots, according to Metro study, suited for homes five hundred thousand and up has risen from ten percent ten years ago to twenty three point one percent, and only twelve percent of the lots are suited for homes under two demand, twelve of the supply. Um. You know, so what that's forcing the builders to do is to buy land and locations that are more and more distant from the urban cores

and markets all around the country. And you know, occasionally when they're lucky doing an infol project in a condemned shopping center, closed air force base or golf course, but um, they are having to build farther and farther out. Rod Hunter, thank you so much for joining us. It's sort of ignites my imagination about what home ownership will look like going forward, if it really will turn it into people at the top can buy homes and people at the bottom have to rent, or or how this is going

to get reconfigured. A conversation for another time. Brad Hunter, chief economist at Home Adviser. It's time to turn to car Whicka Donna, our chief US economist for Bloomberg Economics, to give us some insight into the into today's federal reserve rate decision. And Carl, just to give you a little bit of oomph. Their new home sales coming out just moments ago for the month of August six and twenty nine thousand. The estimate was for six thirtyes, so

that was right seemingly right on target. But new home sales month over month increase of three and a half percent. Add that to a nearly three percent increase in mortgage application. Seems as though the housing markets doing pretty well well. Pim, first of all, a good morning, and thanks for having me on the program. Housing markets doing okay. If we look at the new home sales, they're up about in

your on your terms. That being said, we've had a little bit of a cold streak over the last couple of months, so uh, we we met expectations for today's forecast, but the prior months were indeed the revised lower that was troop for both July and June. Uh, and what we're seeing is mortgage rates for ex ample, if we look at the thirty year mortgage rates definitely creeping higher, and this is starting to weigh on affordability about four

and a half percent. That that's higher than most homebuyers are used to so historically, absolutely, that's still a very low lending rate, but not for folks who are accustomed to what they've seen in the market of the last fifteen years or so. And if we look at what's driving the economy right now, housing is definitely not part of it. And so it looks like interessensitive spending is indeed starting to be impacted by FED rate tightening. And

let's pick up on that. We're going to talk more about the housing market later on in this hour, but I want to get to this sort of rate hiking environment. The fact of the FED is expected to raise rates and the fact that we saw two year and five year auctions this week that we're less than inspired. And I have to wonder why are people so uncertain with a lead up to this meeting, considering the fact that it's pretty much a percent priced in that they're going

to raise rates. Well, that that hones in on a very important point and That's not the issue of whether they'll raise rates or not at this meeting, because I think that's a fate to complete, but rather what the future policy is going to look like. So those week auctions again, they were you know, weak ish, not not

you know, jarringly disappointing. But this happens at the same time that next week we'll see the FED ramping up the pace of balance sheet unwind h the e c B will be ramping down the pace of asset purchases. And all of this has consequences for the financial markets. And so why do you want to lock in rates now when you know these artificial buyers and artificial holders of assets are becoming less aggressive in terms of their holdings. And I think that factors into, uh, the the appetite

at these auctions. On top of that, in terms of the FED meeting, again, the rate increases are largely expected, but the guidance for future actions is not entirely clear. So the Feds leaning towards a December move today, they'll have the opportunity to either cast it in stone or retain some optionality ahead of the December meeting. I think it'd be wise to keep that optionality in place and

not drive market expectations higher. And also this notion of where rates are going to be going over the course of twenty nineteen and as we close in on neutral is going to be very key to how financial markets respond. If I can just add one last footnote, the rhetoric from the Fed has seemingly toughened as of late. Initially there was some notion that the policy makers would move

cautiously as they get into neutral territory. That kind of changed towards let's get to neutral and then reassess, And even some policymakers like Governor Lyle Brainerd have this notion that the short term neutral rate is higher than the long run neutral rate, and therefore the Fed may have to push rates further above neutral uh in the course of the medium term. I'm just digesting that footnote, Carl,

that is a long footnote. Um, can you tell us what role crude oil and crude oil prices at seventy one dollars a barrel play in the federal reserves? Thinking about interest rates, given that President Donald Trump spoke at the United Nations yesterday saying that OPEK is ripping people off, well, I think it plays in a very indirect fashion. And and by that I mean the FED is not going to respond to an increase in oil prices or a transitory shock in the energy price in the energy space.

But this does factor into the performance of emerging markets, for instance, which the FED. Uh, that's not you know, on the top five list of priorities. But the FED is cognizant that their actions have consequences across the globe and they want to avoid any type of destabilizing action. Uh. That's number one. And number two is through business investment.

In prior episodes where oil prices have been high, we see a lot of domestic investment into fracking and those types of industries, and that actually supports business investment in the economy. All right, thank you so much, Carl Goddon, in chief US economist for Bloomberg Economics. I know you're gonna be covering this in detail throughout the day. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio