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Looking at Boeing, Boeing burned through three point nine to three billion in cash in the first quarter. That's a less dramatic dream than analys had expected. That's accounting for the stock moving higher as the embattled planemaker continues to slow output to get a handle on its manufacturing issues. So I guess trying to really focus on quality as opposed to as opposed to quantity. George Ferguson, he's been helping us along the way here with this Boeing story.
All along.
He covers airspace, he covers the airlines for Bloomberg Intelligence. He also is enjoying our Princeton campus.
With Hallie Lucis sate show from Princeton is coming is strong.
Yeah, we're going to We're going down to Princeton.
Absolutely, God forbid you take a train into the world's financial capital.
George Ferguson doesn't have to do that. People come to George. George talk to us about what we saw from Boeing in their results. What were the key takeaways for you?
So I think we saw it not a lot, not a lot of detail inside here about what matters most going ahead. We did see cash burn for one Q, like you said, you know, combined with capex free cash flow usage, well three point nine billion. CFO had sort of told us that we would see something between four and four and a half billion. That came in lighter than that. The markets, I think are a little bit happier about that, but you can't live here long, right.
I guess the big takeaway here too, is that there's about seven billion dollars in cash and equivalence on the balance sheet that's dwindling pretty quickly. They paid four point four billion I think it was in debt during the quarter. So something has to happen, right. They want to they want to buy Spirit Aerosystems. I hear all kinds of conflicting reports, but essentially I think it's break. You know, there's a lot of challenges around negotiating getting Airbus out
of Spirit Aerosystems. So Boeing can buy it. They've talked about using cash to buy Spirit or I guess debt maybe. I think it's a company doesn't want to add a lot more debt to their balance sheet. Spirits market cap around four billion, you only have seven billion left in the balance sheet. Something's got to happen. You got to raise some capital here. You can't do this soll cash or you got to use Boeing stock and just the numbers they're getting small, right, the cash numbers are getting small.
You're running out a runway here. They need to come up with this plan with the FAA and how they're going to stabilize production, start building airplanes, start generating cash because you can't do this many quarters.
So, George Lyne, do you think that there's a risk that we could be hearing about some kind of financing activity from Boeing coming up? I mean, like you just said, I mean it's I think it'd be kind of hard to envision them doing a debt sale right now. That sounds like a little bit of maybe a red flag to me. But if they would do, I don't know. The equity is not worth a whole lot, Like what do you do from here?
Yeah, so agreed, I think you know, what I heard from you is that could be hard to do a debt deal here. I think so. I mean, I think they wouldn't let four point four billion get repaid without sort of plumbing the markets and thinking about whether they would do an issuance here. But I mean, you know, you wouldn't want to raise equity here. I feel like it'd be hard to raise debt. You got a lot of You got a lot of money wrapped up at inventory on the balance sheet. Airplanes that have already been
built haven't been delivered to customers that they've done. They've shipped some of those in the last quarter, which is free up some cash. But I think you really got to get the manufacturing, you know, process going again and genering cash that way. I think that would get folks more comfortable about giving more debt or equity.
I don't know I could get a debt deal done in this marketplace.
You personally, Paul, I could go sell.
Some Boeing debt back in the day, if I had my seat back, Maybe some investment debt. Sure, no problem, all right, George, talk to us about deliveries. Where are we today? I'm kind of focusing on the seven fifty seven.
That's kind of the main beast is, as you've told us in the past, where are we all on you know, deliveries.
Today and where do they want to get to? And you have confidence that they can get there.
Yeah, So I think we don't necessarily know where we are on deliveries today. We're going to find that out, I hope on the earnings call here in a couple of minutes. Again, I think that a number of the airplanes they delivered in in uh March and in February, we're probably out of inventory that we're already built. So you know, what I'm getting back is what the real build rate is. I've heard numbers in the twenties ish
where they want to be. They should be at thirty eight, and they right now a month in the seven thirties Evan breaking to forty two, you know, near the end of the year, had they not had this problem with the panel blowout in the Alaska Airlines. So what I think we heard from the CFO at the Bank of America event, you know, a conference earlier this quarter and one quarter sorry one Q was that they want to be at thirty eight by the end of the year.
Look around thirty eight. I think they were doing okay financially. They need to be breaking up into the forties and fifties. That's going to make them a lot more healthy, that's going to make their supplier base a lot healthier. Spirit couldn't really survive down at that thirty ish, you know, thirty eight level of build rate. So again, I think where they where they want to be is up in you know, up in the forties and fifties, where Airbus is. Airbus is getting ready to break into the you know,
fifties and sixties. They want to be up there, but they're I mean from a fifty rate, I think they're or a year and a half away at least right now.
And of course Airbus has just been like riding this whole Boeing disaster wave quite nicely to their benefits. So going well for our friends abroad over there. But you started off, George by saying that, you know, there's not a whole lot to go off of here that you know. Of course, Boeing didn't provide earnings guidance for the year. We've got some management changes coming up sometime within the year. We know that CEO Dave Calhoun is going to step
down by the end of twenty twenty four. Do you think we'll get a little bit more guidance on that on the earnings call?
Not sure, right? I think that. I think that if we knew something about the next CEO, I think they probably would have even told us before the earnings call. That's such a huge overhang in this company right now, right, I imagine, you know, we got this announcement. What I mean, it seems like we move in dog years here at Boeing, right one day is like seven anymore? I don't know. I think we got this a month ago, a couple
of weeks ago, you know. I imagine there's a lot of work going on the search right now and feeling out constituents as to whether or not the folks they identify are the right people. So, and I think as soon as they know what they that they have someone in place, they'd announce it, because again, it's such a huge overhang. I think they need to get someone in place, and they need to have their plan fleshed out and
bring that to the marketplace as soon as possible. I think that's going to create again a lot more comfort with investors. So I don't think they would hold that back. And I don't think that Dave Calhoun's going to be the one that's going to announce it either, And so I don't think anybody on the call would be a person announcing it. But I could be wrong. But again, I don't know that they're anywhere on that right now. And that's super important.
Hey, George, Boeing's customers, the big airlines, what are their needs these days?
Do they need more aircraft?
Like if Boeing was it fifty or sixty percent production, would there be demand there for that?
They need more faster, you know, as soon as possible. I guess. Look, I think if you take United as you know, one of the core customers, you know, there's sort of a there's a demand to fleet refresh around the world. Right The new Max is fifteen twenty percent more efficient than the old seven thirty seven or the A three twenty. Airlines want that efficiency as soon as possible in their fleets. The market I think is going
to is looking fairly competitive. It may not, you know, this summer may be a little bit less competitive than we expect to give in Boeing's problems and some of the geared turbofan problems at raytheon that knocks on airplanes out of service. But fuels rising, airlines want to be very competitive. They need the most fuel efficient aircraft, so they want them as soon as possible, And like in
the United's case, almost everybody is increasing size right. Size of aircraft are rising because pilot's got twenty percent plus, you know, wage increases. You got to find a way to drive down costs. One of the things we heard out of Jet Blue yesterday they're looking for ways to drive down costs. One of the things you always do is increase aircraft size, and therefore you're flying more passengers for the same cost of that pilot up front. That
helps you improve efficiencies. They all want it, so they're all trying to find bigger aircraft to fly with more seats. And so yes, airlines want airplanes as soon as possible. If you're a Boeing customer, what also really ticks you off is you look across the street at the folks flying the Airbus airplane and they probably have little to no interruption this summer in their schedules. You're worried about what deliveries you're going to get. And your ability to
fly your schedule, and that hurts if you're the bowing customer. Right, the airbus customers.
Are smiling all right, George, thanks so much again for giving us an update there on the aerospace airline industry. George Ferguson he covers all the airlines and airspace for Bloomberg Intelligence.
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Right smack in the middle of earning season.
I'll tell you that was a very very important earnings release and conference call last night for one Tesla, and.
It looks like Elon Musk got the job done. The stocks up fifteen percent.
Here today, let's break down what we did see from Tessa and what we did hear from mister Elon Musk.
We'll check out with Steve Man.
He's a global autos and industrials and analyst for Bloomberg Intelligence. He's down in Princeton, New Jersey. Very comfortable down in Princeton. He's not coming in to New York, he's not taking the train, He's done all that malarkey.
But we love the studio guests. When we can get one.
Yes and we need to go down to Princeton to our OFFICEA I got to show you that it is awesome.
Especially with all of our BI friends, and that we should do a remote broadcast.
We're going to do that. I'll put that in the books.
We're going to great food and that's where we built BI from day one. Hey, Steve, thanks so much for joining us here. What are your takeaways from what we saw from UH Tesla and the results and what we heard from Elon Musk.
Well, thanks, Paul.
Uh.
It's a sigh of relief. I think for a lot of investors. You know, if you look at the valuation of Tesla, there's actually two groups. You can actually break it down two groups investors. One who thinks is just a Tesla, is just an automotive company. The other really believes in the long term, the AI, the tons vehicle.
I think yesterday's call and yesterday's announcement it sues a lot of the concerns that both parties had Yesterday especially with the announcement that they're going to pull forward, not just launch, but pull forward the The launch of the affordable EV.
Is that something that you give a lot of credence to Steve because I feel like with Elon and with Tesla and the past, there have been these promises and you know, maybe not all of them have quite come to fruition.
I think the you know, so, I think the affordable EV is is a real thing. You know, like you guys talked about earlier robo Taxi. I think there's still needs time for development. But if you look at the affordable EV actually kills two birds in one stone. You know, it actually increases a scale for Tesla, and you know, we're going to see revenue growth, we potentially see profit growth from that affordable EV. And that's exactly what the
market needs. It's more affordable vehicles to increase penetration of EV's the other thing that's really important with this affordable
EV launches. It actually helps Tesla increases reach globally because you know, you have a lot of emerging markets that you know a lot of people, a lot of consumers there cannot afford an expensive fifty thousand dollars vehicle forty thousand dollars vehicles, So up twenty thirty up thirty thousand vehicle is the right product for them to expand geographically.
Steve, what do we know about the economics of such a new or lower cost vehicle? Can they produce that at a profitable basis on a per unit basis?
Yeah, there's there's a couple of ways they can approach this. I think, you know, they can develop a totally new platform. But you know, in the other segments I've done with you, we've talked about vertical integration, and vertical integration has actually reduced the cost of you know, car production. So for them, you know, for TESTA, it's the only company that's profitable
in producing evs. So the other option is actually think about, you know, what they can do with the three and the Y. You know, can they offer you know, lower trims, maybe even you know, you know, a smaller battery that's going to allow them to cut costs and also you know, make that available to the consumer at a lower price.
So this obviously was the best part of the report. This is what the stock is rallying on right now. But you still had elsewhere in the earnings report, we had falling vehicle sales, we had worse than expected revenue and profit and a pretty significant cash burn figure. So I mean, Steve, are you totally optimistic here? What kind of concerns do you still have here?
I've always said, you know, I think this year and even into next year, there's some bumps on the road. You know, cyber truck is still ramping up. It's a very difficult vehicle to build. They're still working on those issues.
You know.
We don't think the EV market actually, especially in the US, will pick back up until twenty twenty five, late twenty twenty five, in the twenty twenty six because the market really needs a lower cost, more affordable EV to entice kind of more new buyers into the market. So long term, long term, I'm very positive. I think I think this this company has done everything right in terms of you know, looking at AI, looking at AV. I still believe the e V, the the e V, uh, you know, shift
has actually sailed. We're gonna have evs for the long terms.
Uh.
And I think that subscription based software based vehicle that they're trying to build is is the right move right strategy for the industry.
Steve, what did the elon say or to what extent did he address just kind of the developments in China, how things are developing there from a competitive standpoint, a sales standpoint and all that.
Yeah, it's uh, I actually see that. We'll continue to be bumpy.
Uh.
They probably likely to lose market share, continue to lose some market share there. But I think you know, Tesla is leveraging China, not just for sales, but it's a low cost manufat actoring base for the company. The Shanghai factory still pumps out a million vehicles, close to a million vehicles a year at a very low cost. They still are able to source battery from companies like c at L, the largest EV battery maker in the world, at a very attractive price given their volume. So, you know,
China sales will probably slow. There's it's a hyper competitive market, shall me, which is a you know, a major cell phone maker in China. They're launching a vehicles that's also very affordable, so they're gonna see more competition in China. So but again, China is not just a sales for sales, it's a manufacturing, low cost manufacturing base.
For them.
So something else on the call, Steve that Elon had took a dig at the car makers that are pairing back on the EV production plans and going more to the gas electric hybrids instead. You didn't call them out, but GM and Ford are among those ones. And but it's that really where consumers are going more proportionally right now, more into the plug in hybrid space, or maybe non plug in hybrid, but just hybrids in general versus full on evs.
Yeah, I think the consumer I think you know, we did a survey not so long ago. I think what we got from that survey was that I think the consumer needs to trial evs. They actually need to be educated on, you know, how to make EV works work in their daily life. So, you know, PHVs plug in hybrids hybrids is actually good transition into full evs.
They alleviate some of.
The concerns in terms of range, in terms of the lack of infrastructure that that we you know, that that's for the EV market right now. So PHIV and EV are a good transitional product, but it's not a long term product because if you look at some of the emission standards, it's continued to continue to be tighter and tighter. Eventually hybrids and phgvs are probably won't even meet the lower, the more stringent emission standards down you know, in the next decade.
Steve thirty seconds. What's the call here on just Elon? Has he focused on Tesla?
He has focused on task Site. There was a question last night on that and he reiterated that, you know, I mean this is his baby, you know, AI his baby, that's his that's his I want to say, that's his dream YEP is to make cars, robots and timeless. So he's he's laser focused on that.
All right, good stuff, Steve Man, thanks so much for joining us as always Global Autos and Industrials research channels for Bloomberg Intelligence, joining us from Prince New Jersey via zoom here.
And the investors certainly liked what they heard last night. Molly, oh my gosh.
Yeah, that stock is ripping today, and how didn't Nora just send I mean it was down quite a bit on the year, so this is uh, I mean, remember, I mean the job cuts too have been like really quite something. In our colleagues, I'm out in San Francisco, Dana Hall and Ed Ludlow and all over that. So I think the marketing division that was the most recent one to go right that we've decided that ads are no longer worth it. Ye, people are just gonna buy the car.
Word of mouth.
Yeah it's yeah, it's word of mouth and it's the it's the strength of the brand out there.
So the stock is up fourteen don't.
Know if I really disagree with that.
Yeah, I don't.
Yeah, I don't you known, you know.
So anyway, it's got a market cap of four and twenty five billion dollars, So we'll see how this plays out.
So a good day for the shareholders of Tesla.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Car playing Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Down Paul Sweeney. We're live on our Bloomberg Interactive Brooker's studio, and we're also.
Streaming live on YouTube so that you can hit over to YouTube dot com search Bloomberg Podcast and that's where you find all right. Facebook kids call it.
Meta heads the professionals Facebook for me.
Stock's up forty percent, year to date, it's up one hundred and thirty percent over the last twelve months. When you see stock that's had that kind of performance.
Since the bar high bai, I mean what else do?
Yeah?
And it means they better, they better really deliver on their earnings. And they're going to report earnings I think after the close tonight. So let's get a little preview. Man Deep saying Joints is here a senior technology channels for Bloomberg Intelligence, joining us here in studio as he does. He does not mail it in from home or from Princeton. He comes into the world.
Capital of Big gold Star for that as opposed to his management team, which will leave that Man Deep, Stock's had a heck of a run here. What do they need to do here with their next earnings report?
Just keep executing.
I mean what they have done over the last eighteen months is one you know, really the focus on cost cuts and the eurof efficiency which was twenty twenty three has really paid.
Off aka job cuts.
I mean, look, I think you could argue with a lot of the tech companies their cost structure was bloated coming out of the pandemic because they overhired.
Looking at the growth and so they had to course correct.
In the case of Meta, I mean, this is a great business model, over fifty percent operating margin, and for good reason. I mean, the fixed costs are almost negligible after you know, you have the infrastructure of the scale of what Meta has created, you know, for their family of apps. And so the way I look at it is Instagram clearly still has a ton of runway. The blue app is losing engagement, but they have been able to make up for that with their reals product, and
Reels was the equivalent of TikTok. Remember, TikTok really was a scary proposition for them in terms of taking away engagement. They managed to create a product that was comparable to TikTok. And now if the TikTok app is banned, that's actually a great positive because they're gonna get a lot of the creators come over from TikTok to Reels.
Is that a lot of why the stock has had the run it's on right now because of the prospect of TikTok being banned or is it really more the Ai story.
It's actually the execution that they have shown over the past twelve months, and as I mentioned cost cuts have played a big role because now their EPs expectations have gone up forty percent. So in their case for share earnings for share, it's not just multiple expansion, it's EPs. Growth expectations have also caught up. And I think in terms of the top line, they've been able to grow top line twenty five percent after laying off twenty five percent of the staff. So that tells you how much
leverage there is in the business model. And look, their scale really is what differentiates Meta from like a Snap or a pinterest Snap and Pinterests are still struggling.
With that pricing.
Not so much for Meta because they have the best at targeting and that's what gets reflected in their numbers.
All right, So you mentioned the TikTok issue, and again that legislation, the financial the Aid Package, ninety five billion dollar package signed into law by the President today.
Part of it includes TikTok.
So we spoke to Matt Shuttingholm, he's our litigation analyts for Bloomberg Intelligence yesterday.
He says, this is going to court.
When you talk to investors that invest in Meta YouTube, all the competitors to TikTok, is there feeling in the marketplace.
How this might play out.
Yeah, I think overall it's a net positive for both those companies, I mean, Meta and Alphabet YouTube because even if let's say the court overturns or decides, you know, the app needs to make some remedies and can still operate. I think TikTok has a tough problem in terms of retaining their creators. So it's one thing, you know, Yeah, you've got you know, viewers who come to your app for content, but ultimately it's the user generated content that's
what makes TikTok unique. And if they lose those creators over to YouTube or to Instagram, then those creators aren't going to come back, even if the app can operate down the line. So in the case of Internet, it's all about engagement, and the way you maintain engagement is through unique content, in this case user generated content.
So they can't afford to lose those creators.
Definitely. Yeah, they drive a lot of views in the ad space for sure. I mean, I just taking a guess. I'm not on TikTok. I'm not that young, cool person, but I've heard.
Our young and cool as opposed to John Tucker. I mean assumption that John Talker is not on TikTok, I haven't said anything.
Well, as John John likes to fly through anonymously through this John.
J YouTube guy.
He goes on and he he You watch the like the professors who teach classes and stuff like that.
You learn a lot of physics courses and you know, oh, that's.
Really what YouTube was created for. Anyways, keeps moving with Meta. Thank you John for joining us today. Mandy coming back to Meta here. So we've been talking about this stock rally. It's added like close to almost four hundred billion dollars in market value on this run. But this stock compared to the peers that you were mentioning snap Pinterest, Reddit.
This is cheap.
How does that work? Tell us about this earnings multiple? And how that's why this stock is trading at a discount.
Well, so large caps always trade at a slightly lower multiple than your small cap companies, and for good reason. You know, there's only so much runway you have as a company that already generates over one hundred and fifty billion dollars in annual revenue. So look, I think in the case of Meta, the sentiment yes can be positive if they deliver on not only their core business but also AI. So right now everyone is focused on what
additional revenue you can generate from AI. And in the case of Meta, they were losing sixteen billion dollars a year on Metaverse. Now they seem to have made that pivot where they're more focused on AI. They've released a third version of their Lama model, which is what everyone is focused on.
Myself, we have to ask what is the MAMA model? Please tell us.
So in the world of generative AI, it's about having your own foundational model. Think of open AI as GPT. What powers chat GPT is an underlying foundational model where you have got a very large size model with you know, billions of parameters and weights, and that's what makes it intelligent. Now Meta has actually trained its own model using in video GPUs and that is comparable to GPT or you know,
Google Gemini in terms of performance. So what it tells you is they're not dependent on anybody to deploy their technology or they don't need to partner. In fact, we did a survey at BI and Meta emerged as a contender for GENAI based search. So think of what chat GPT is doing or perplexity is doing. Meta actually is being used as a search platform now because they have rolled out Meta AI on whatsapppen on Instagram, and over time maybe they take share from Google Search.
And that's what's called Lama.
Lama is the model.
We also know why that just harm That's cool, Silicon Valuay that Lama model can be used for all types of use cases.
Search is just one of them.
I'm clearly not an engineer.
That's beyond me exactly.
Fortunately, Man deepsins we get to chat with it. Thirty seconds left a metaverse.
We're all on that. You mentioned that it was at a Runwright loss of sixteen billion.
I mean, as long as they keep growing over twenty percent, market is forgiving. When it comes to losing four billion dollars a quarter, they don't care.
And that's still the kind of that's still the and we don't have any more he's not backing away.
If he's not backing away and we.
Don't have any markers on what he's losing four billion dollars on, maybe he's subsidizing all the v are in the ar glasses that.
People are buying, and that could be one way you justify that.
I haven't seen what. I don't know if someone single person who's on the metaverse, I couldn't tell you a single thing about it.
No, And I think ar glasses.
I think some people I was talking to that Murray she owns one of the air glasses, and there's few people who what do you do with them?
Well, you use it to consume content or to you know, just like convenience is laughing here.
I think he's a use that. I also have no idea what's going on.
You're the same boat as I.
I'm all right, well just look, I think for the stock as long as they don't talk about it, yes, that that's good for the stock. Man Deep saying thank you for again explaining what's happening in the world of technology. Man Deep seeing one of the best tech animals on Wall Street, and he covers all the tech stuff I've got Anna rog Rana. Also they're doing it from a senior perspective. We got technology team all over the globe following technology in Asia, Europe.
What is in Europe? And certainly the US man Deep seen.
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Bloomberg News.
Along with Morning Console, they have an ongoing poll where they do some polling data as it rates to the current political situation and key battleground states.
That's the key part, right, It's been a really good series. Yeain, Gregory Cordy has been all over eighties, our Bloomberg News White House and political correspondent, and he's going to join us now. Gregory, what can you tell us about the big takeaways from this iteration of the poll.
Yeah, So, as you said, we've been doing this every month. This is the seventh iteration of this poll in seven key battleground states, and for the first five months it was a pretty stable race with former President Trump with
a slight lead over President Biden. Then after the State of the Union address, we got a little bit of good economic news and we saw last month President Biden pretty much bring it even he was winning or even in the ross belt states, the blue Wall states we call them of Michigan, Pennsylvania, and Wisconsin made it, gave
him a fighting chance. But now we're seeing in this month, in the April poll sort of reversion back to the mean what we had been seeing all along with former President Trump having across these seven battle ground states a six point lead, and that's significant. Biden can't win this without getting at least those blue Wall states and probably another one. And he's now down in Pennsylvany within the margin of error, but significantly down in Wisconsin. Michigan. Interestingly,
is this bright spot? And who would have known because there are a lot of concerns there about a large population of Muslim voters union workers, but he seems to be holding his own there.
Gregory, what are the key drivers are key influencers in his poll? What what kind of moves the numbers around?
It's really the economy and with that, you see that with any incumbent president, their numbers move up and down with the economy. And what we're seeing in this poll is deep pessimism about where we're going to be by the end of the year. You see here the numbers, UH majorities think that the inflation rate is going to be higher by the end of the year, that the economy overall is going to be worse, and UH also that interest rates are going to be higher by the
end of the year. Now, these are are this, These are voters talking, and they're they're sort of giving us their perspective within this political framework where this this might differ a little bit from the University of Michigan survey when we're talking to consumers and and people making different kinds of decisions. But the fact that President Biden is so tied to the state of this economy and that people are pessimistic about the economy is not a good sign for the president.
This is so fascinating to me as somebody who covers the economy, just like the I mean, this is something wait, you know, Gregory, we're no stranger to this, but just like the mismatch, and like where the economy is actually performing and how people actually perceive it to be performing. And it's so interesting to me that like this mismatch continues. Hear me, We're about to get a GDP report tomorrow that's gonna be is it tomorrow? Yeah, tomorrow, it's gonna
be pretty pretty strong. I mean you're gonna have growth like what up in like you know, near the two and a half three percent area. The unemployment rate is below four percent. Yeah, inflation has been stalling. I guess when you say to me that, you know that. So a majority of swing state voters see the economy worsening. I just wonder, like what metric are they referring to? And I know that they're not looking at the economy based on like, oh, well, we think manufacturings this, but
like what what what are they looking at? Is it really just inflation?
Yeah, voters look at the economy differently than economists look at the infla economy. And one of the interesting things even in this poll, there's an inconsistency and it's a little inscrutable. But when you ask people about the national economy, two thirds of them to say it's bad. When you ask people about their local economy, a majority say it's actually pretty good. And so people are differentiating between their own personal economic situation and what they see in the
economy writ large. Why is that it may be because of their king off of negative political coverage. It might be because we have this political polarization where when they're saying the economy is bad, they're really trying to make a statement about the president who they don't like. It may just be that the they view inflation as a
national issue and inflation is high. Unemployment they might see as a local issue because they have a job and their neighbor has a job, and so they might see as local issue, and so therefore their local economy is doing well. There's a lot to parse out there, but certainly people are giving us mixed signals about the state of economy.
And what do you think the Biden administration needs to do?
Perhaps differently, going to Molly's point about saying, hey, the economy is in pretty darn good shape.
Here's what we've done. How do you think they should be messaging this?
They have been trying with that message for months now, and it's been a tough message to get across. At one point, they tried to take this pejorative label of the economy that Republicans try to brand it with of Bidenomics, and turn that into a positive. That did not work. They did not change the public perception of Bidenomics, they
moved a little bit away from that messaging. Right now, they can talk all they want about the Infrastructure Bill, the Inflation Reduction Act, the Chips Act, all these things that we know we've been tracking is starting to make a difference, and we'll make a difference in manufacturing on sharing a lot of technology. But those aren't really resonating with people. People don't really connect with bills being passed. They want to see actual stuff getting done, and some
of that is on a longer time ramps. So maybe it's just giving it time. We have six more now. But the problem for Biden is that now the second quarter of an election year is really when people start to make up their minds about the economy, really sort of solidify how they think the economy is, and they're going to carry that with them into November.
And another problem with all this too gregory and that you point out in the story, is that it really doesn't matter, like for whatever reason that the economy is performing the way it is, but voter's perception is that if it's doing poorly, you put that blame on the president, whether it's you know, deserves to be there or not. So you know, Biden tried shifting that a bit, you know, saying the inflation stuff is stemming from you know, Russia's
invasion of Ukraine. That message didn't really sit Can he really shift the blame elsewhere anymore?
Yeah, we asked that's a very specific question. In this iteration of the poll. We asked who is responsible for the economy? And the number one answer, of course, it's the president. There is some political polarization there. Republicans are more willing to hold him accountable than Democrats. Democrats are more likely to say, well, you know, Congress also plays a role, the Fed plays a role, Wall Street corporations all role. For Republicans, they want to put this entirely
at the feet of the president. So the issue is going to be how to independency, How those swing voters see it. Do they give Biden a little bit of a pass given that this post pandemic economy has had a whole bunch of struggles that may or may not be outside the president's control. That's the debate that we're going to have to have in the next six months or so.
Gregory, how aware do you think the White House is of polling data like this than you so much.
I don't necessarily want to get into every conversation that I have with the White House and the Biden campaign on this, but suffice it to say they're very aware. You know, the public messaging is going to be. We don't dictate policy by the way polls are from day to day. But look, they look particularly at these polls. You'll see a lot of poles out there that have the national number, the popular vote number, and that's actually pretty even. Trump and Biden are pretty much neck and
neck in those national numbers. But because of the way the electoral college is constructed, it's these seven states that are most likely going to decide this and that's where that six point differential makes a difference. And so they're looking not just the national numbers. They would obviously like to see an upward trend in the national numbers, but they're looking state by state by state to see where
they're doing, where they're up, where they're down. And this is going to be especially important going in the summer and fall into where they deploy the resources, where they spend money on ads, where they put volunteers on the ground, where they knock on doors, where they do they get out on the vote efforts, and this is going to be a very shifting campaign over the next six months.
We're going to see both the Trump and Biden campaigns look at these polls and decide where the poy of their resources because this is actually an awfully small chessboard. This is not a fifty state campaign. This is a seven state campaign and maybe even smaller than that at this point.
And Gregor, is there any reason to think in your polling data, do you say anything about the president former President Trump's legal issues being a weight on him?
Doesn't appear to be.
We asked that, not this month, but the previous month. We asked whether people would change their minds if the president's convicted on anything, and a majority said that they would not vote for Trump if you were convicted on something.
Now we'll see if he were to be convicted whether people might change their minds and discount these Obviously, President Trump is out there every day trying to dismiss these as partisan political persecutions of him, So we'll have to see whether an actual conviction changes that dynamic at all. People really aren't differentiating between these cases at all. The Alvin Bragg case that's going on Manhattan. Now, the two
federal cases and the Georgia case. People kind of throw them all in the same bucket, and so we'll just have to see if there's an actual conviction. How people process that information.
It certainly is a lot to keep track of from a voter's perspective, So I can't necessarily say I blame them if you do lump them altogether. Something else you touched on in this version of the survey, Gregory, is abortion and how important that will be in deciding the next president. How did that one rank versus the economy.
This poll was in the field when we had that Arizona Supreme Court decision that upheld a nineteenth century abortion restriction law that was in effect up until Roe v. Wade, the Supreme Court case in nineteen seventy three, and so we're reverting back to the pre row law in Arizona. Very controversial, obviously, and we do see an uptick of voters saying that abortion is a very important issue for them, and especially obviously among democratic women, among independent women a
little less so. But suburban women is the key demographic that we all look at. An uptick there and especially in Arizona. Now the question is going to be whether these are people who already those votes were baked in, Those were votes that President Biden was already going to get.
It may help him, though in terms of enthusiasm. There seems to be an enthusiasm gap here, and so Joe Biden, even if he's not winning any new voters on the abortion issue, he needs that issue to really motivate those Democratic voters to show up in November, because there might be a lot of reasons why they they Otherwise, Mike decide to set this one out all.
Right, Gregy, thank you so much for joining us. Appreciate your reporting.
Gregory Cordy, white House and political correspondent for Bloomberg News, joining us from Washington, DCU.
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You know, Molly.
One of the most amazing stories to me in financial services over the last decade or so has been the growth of ETFs.
Huge just can're.
Amazed at the fun flows to ETFs and it makes a lot of sense.
And fortunately we have people like Eric.
Pauchunis at Bloomberg Intelligence who keeps us update on what's going on there. But we wanted to talk to one of the practitioners in the business. Jennifer Grancio joins us. She's global head of distribution at TCW. Little firm on the West coast, huge firm on the West face and they're into the ETF business.
Jennifer, thanks for joining us here in our studio.
What is the TCW ETF business? Tell us kind of how you guys are in that business.
Happy to you, great to be here. So from a TCW perspective, a lot of people think of us as you know, the core of the fixed income portfolio, which we are for many investors with the TCW or met West funds, and now we're growing the equity business as well, so a lot of that will be ETFs, and we also were going to do ETFs in the fixed income space.
When you say you do ETFs, are you the one that you're like deciding what goes into each one or like tell us, like what your role is in this marketplace? Yeah for sure.
So so from an equity perspective at TCW, we have some great core strategies we run in mutual funds and SMA through the end to number one acquisition, and then also we're converting a couple of legacy TCW active mutual funds. We're going to have a very impressive range of megatrend thematic products for clients. And if you think about why and what's the role and why does the world need that.
There's a lot of index ETF option out there. A lot of people are very indexed in their portfolios, which has this real concentration bias now in large tech, and so we're offering the market a range of ETFs on energy and power transformation, reshoring of supply chains, artificial intelligence that let you take some money out of the core and really go after outperformance in alpha in portfolio.
So by definition are those active ETFs.
They are very concentrated portfolios and active. And if you think about the markets, money's not free anymore. Rates you're much higher. So we think the next ten twenty years are our great market for active managers that can outperform. So all of these ETFs on the thematic side will be active. Yeah, so let's talk about some of those themes. I mean you had mentioned, you know, related to energy
transition supply chains. What are some of the ones that you guys are really paying a lot of attention to right now. Yeah, I mean, those are two big ones, and they're not small, tactical, narrow trends. They're huge. They're going to be here for many decades. And so one of the ETFs is net Z and etz and that's about energy and power transformation. And so if you think about that, we are going to need to more than double our power and energy in the next twenty years.
So think about that, more than double. And so companies that are at the forefront of how we service the need and demand and kind of monster demand we have for power, as well as companies that are more efficient, have a huge opportunity to outperform and so that's a big theme. And now in that theme, we own companies that are energy better, energy producers. We own Vertive, which
cools data centers. We own waste and garbage companies that are finding ways to create natural gas and energy out of landfill.
Well.
So it's a very diverse portfolio and very complementary and different than what you might hold in an index fund.
When I started my equity research business way way back in the day, it starts within eight you know, back in the eighties, it covered railroads. Really, we wrote the first research report on Consolidated Railroad, which the company which the government, US government was privatizing via an IPO. We wrote about two hundred page report on that owned that.
Stock for you, you want to give us a nice summary of that right now.
Yeah, it was a great cost cutting thing. Taking railroad crews from five to two tripled your margins.
And that's and the other big trend is supply the supply chain.
That's it.
So I know you've got an ETF on a railroads. That's why I bring it up. Is that again I think about the railroads in supply chain. I guess we all got really smart about supply Chaine and the delicate nature of supply chains during the pandemic.
How do you guys think about that.
Yeah, So the sort of reassuring of supply chains and manufacturing to America and North America is again it's a monster trend. It started during COVID. So if I'm deer and I'm trying to make a tractor and my bolt is made in Asia, i couldn't get my bolt. It was really bad for business. So we're seeing that trend already having started. And then on top of that, we've now got geopolitical issues that make us more nervous about doing things like semiconductors outside of the US. So again huge,
very broad multisector trend. And what we own in sup or the reshoring of supply chain ETF is all the way from railroads, So how are we going to transport things if we're manufacturing all over North America. It's fantastic for railroads and they've been undervalued. So that's a big performance opportunity. And early in the cycle where I think we have three trillion of committed projects of new manufacturing,
more than we've ever had in the US. Early in the cycle, we invest a lot in what we call picks and shovels, so Martin, Marrietta, Vulcan companies that make materials. So as we build all of these factors factories, pardon me, and then we own a lot of semiconductor names as well, because all of these factors are going to have AI and rows and they have much higher demand for content from a semiconductor perspective.
I wanted to ask you about the AI theme next. That's certainly got to be a big one of these thematic trends that you're focusing on. So how are you positioning around AI right now?
Yeah, So in the case of AI, it's in those two portfolios to some extent. And then we have a mutual fund at TCW which we're converting to an ETF, So watch the space for that.
And the advantage of that is it just like you know, I guess, because ETFs tend to be a bit cheaper for like a more consumer friendly product. Is that the idea?
Yeah, in this case it's an active fund, so it's not a sort of a cheap index fund. But the argument, and I think you see a lot of active managers converting where it makes sense, is that the market likes CTFs, It likes the ability to click through and see the underlying holdings on the website, It likes the tax advantages of an ETF, And so in the case of these mega trends, we see the market in general buying ETFs,
not funds. So we have a very long track record on the TCW Artificial Intelligence Fund and we're converting it to an ETF and a little bit like what we talked about in the case of net Z and sub, the AI fund has an ability to invest in different things as we move through time.
So it's not all big tech.
It's also systems and enablers and hardware that is going to grow aggressively as all these companies are doing more in AI.
So it's safe to say, you, guys at tc there'll be a big believers in AI. We are, okay, because I was.
I guess my skeptical self SI and analyst nature is like, where did this come from?
Is this just big data from three or four years ago? Is this just big tech?
Is growing as a percentage of GDP of twenty years ago? What's new about AI?
I think we're in We're in the next evolution of training systems, asking systems questions with all these models and natural language models asking questions in a way that we just get faster and faster and better output. And so that's really that's good for everyone. And so it'll start slowly, but as more people learn to get that leverage, I think we're going to see is it going to see a boom?
Yep?
And it's you know, we hear every company in the S and PT on their confer without it on their conference call talking about you know, AI and how it's getting to be critical to their business. Jennifer Grancio, thanks so much for joining us. Jennifer is a global head of distribution for TCW. We appreciate her coming into our Bloomberg Interactor Proper Studio in New York City.
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