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So what's the state of the mysterious world of crypto now that you can jump in with an ETF? Sandy call is head of Digital asset in Investor Advisory Services at Franklin Templeton. Our next guest. You know, Gary Gensler kind of made it clear of the regulatory approval of bitcoin ETFs. That's no sort of implicit endorsement by the regulators, I imagine though that hasn't dampened any of the enthusiasm, has it?
No, definitely has not. A record launch for an ETF over three billion and that new inflows into the products over the last just week.
And how do you view some of those inflows? Though, I'm looking at Bloomberg Data, black Rock and Fidelity dominating in terms of flows, both north of a billion. I'm looking at least according to the terminal Franklin Templeton closure to fifty million. So how does that play out?
Yeah, I think that it depends who your audience is. Out of the gate right now, you're seeing a lot of the direct self directed investors coming in and accessing this for their own personal portfolios. Moving these new products on to the wealth advisory platforms is going to take a few months as they do their due diligence see how the new product works, and so there will be a slower buildup of assets in the discretionarily managed and
in the professionally managed accounts. And I think you will see this continue to grow throughout the coming year, so kind of an out of the gate with the self directed and then over time you will start to see more of the advised assets having an allocation to Bitcoin in many of these portfolios.
What are your fees? Is there a fee war?
Well, our fees right now are zero, So I don't think you can beat that.
You actually could, but I won't go into that.
Well, we believe that, you know, we want these early investors who come alongside us in our new etf offering to really get the one hundred percent full benefit of movements in bitcoin. We think we're coming up to an important period fundamentally in the bitcoin market, with the upcoming having event where the supply is going to tighten systematically.
This happens through an algorithm, and it's coming right at a point where these new ETFs are creating demand in the marketplace, and we think it's going to be an exciting period for bitcoin. So we want our investors to get the full benefit of any price movements that might result,
and we're not taking any fee. We believe in the long term nature of this opportunity and we're willing to be in it for the long haul, so we're going to wait and take our fees later down the road as the product becomes more established.
I have a host of like wacky questions. You guys have ESG offerings. I would imagine, right, okay, so how does this conflict with that? Because in order to generate this stuff you have to run computers which take gazillions of tons of electricity or gigawatts or whatever. That's sort of indirect conflict I would imagine with the environmental goals of the company.
You know, intuitively, it would seem to be but what's been kind of very exciting about this is that a lot of clean energy launches have been held off because there has not been a clear use case for them. And what we're seeing is a lot of these bitcoin miners that have relocated from Russia or from China are relocating into areas and they are using clean energy incentives that are being offered by the government to build their
mining facilities. So actually it turns out that bitcoin mining is starting to be a use case for introducing clean energy technology. And of course not all bitcoin miners are at that point, but we're seeing a very positive trend in this movement towards cleaner, cleaner users of energy for bitcoin mining, which we think is a great thing to see.
And Sandy you mentioned kind of taking the long term view. Eric Balchunis are Bloomberg Intelligence analysts coined it the Cooinentucky Derby.
Which I'm a big fan of.
I enjoy betting on horses.
JT.
I don't know about you, now, A little pun for you.
Well, I'll go back to my wacky questions. But it's just like I go to the barber shop. That's topic dujoure of people who can't afford to lose money and who don't know what they're talking about. I don't even know this what a bitcoin is. I can't explain it.
Well, Ceady, I'm guessing I'm just wondering Coinentucky Derby, use your punt, whatever pun you want. There are nine new spot bitcoin ETFs. How does the race for money impact kind of success and whether or not people are going to be pulling out of it?
Yeah, so I look at it this way. There's two sets of offerings that are coming to market through these nine. I think it's even eleven. One set is coming from firms that have been digital natives and have kind of grown up in the crypto space. One set is coming from traditional asset management firms. I think Franklin Templeton is a little unique in that we're actually both right. We have been active and operating in the digital crypto native
space since twenty seventeen. We operating across five different public blockchains. We do our own node verification, We really understand and are a part of the ecosystem, create our own research on individual coins, including bitcoin, and put together portfolios of multi cooin portfolios through separately managed accounts that we can work with investors to access. So we've been in this
space for a long time and really understand it. Yet we are also a seventy five year old asset manager who is trusted and who has been there for clients through many market regimes. So I think it's the coming together of the crypt natives and the traditional financial services, really epitomized by Franklin Templeton, that I think is creating the excitement about what's going to happen. And I don't know if it's going to be a derby and some aren't going to finish the race. I just think it's
going to be a long race. Right. It's a new asset class. Some of your questions are showing people have yet to kind of start to understand it. But once they do, I think it's hard not to get excited. I saw that in my own career when I had my AHA moment. It's like my eyes opened and I really saw this new opportunity and potential.
Sandy, this may be a dumb question. Bitcoin trades twenty four to seven. If the token crashes on Saturday and Sunday, do I wake up Monday morning with a huge loss on my TF?
Well, the good news for you is if the token crashes on a Saturday or Sunday. We've got portfolio managers and traders trading it on a Saturday and Sunday and working to keep the spread between the Bitcoin index and what's happening in the ETF in line. So we operate twenty four to seven in these markets just like the markets operate. So it would be like any market. You know, if there's a move over the weekend, you'll see that
move reflected. But the fact that the ETF is closed and the market is open isn't going to be a problem in this case because we're running a twenty four to seven trading desk around this.
You you mentioned the next big step that includes derivatives with respect to bitcoin.
That's a lot of people are looking already at derivatives. I think that, you know, building the education and understanding of the opportunity is more important as the next step than really thinking about the next product evolution. I think a lot of people have yet to really internalize. We've been in a period where we're used to platforms being
the way of the economy. Network effects are built around platforms like Amazon or Uber or airbn be and now what we're seeing in the crypto domain is that we're seeing protocol based networks right where anyone peer to peer can access it. Just like when you type HTTP into your browser, that's a protocol. Everyone in the world can use that to access the Internet. And these networks that are being built like Bitcoin, are protocols that anyone in the world can use and everyone can participate in. So
it's different than a company owning the platform. This is all of us collectively owning these new networks, and this is a new way to access that ownership. So it's an education process and I think that that's where the focus should be to really help investors understand why this can be an important opportunity for their portfolio.
Sandy, I got to ask about the Franklin Templeton x profile. You've got laser eyes on Ben Franklin.
I would say, there's not in the marketing department. I just make it clear.
I just want to like some of them's weird third tweets that I've seen, even in tweet saying the lawyers won't let us respond to comments, but we hear you posting about the sixty to forty plus bitcoin. What what is the marketing plant like, what's going on.
Well, this is really you know, as I said, we really are part of the crypto made and ecosystem as well as being a traditional asset manager, and our analysts, interns employees that are in the digital asset unit really understand what matters to people in that community, and the laser eyes was an important signal to them that we stand with them in believing in the future of bitcoin.
All right, Sandy, thanks for something. I appreciate it. Sandy Call had a digital asset in investor advisory Services at Franklin Temple. Did I sound too skeptical? It's too harsh.
Talking to the youth.
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Well, let's make a deal. What's the outlook for M and A in twenty twenty four, Bailey Our next guest Mitch Berlin. He's vice chair of America's Strategy and Transactions with Ernst and Young, and I gotta say I think he wins the prize for the coolest looking office on zoom today. Are you looking at question? What are all the ribbons in the background.
They're actually dog show ribbons.
Oh don't shool, I mean you're interested, right, we've just changed.
We've just changed the topic. So you're gonna get.
More accomplished than I am. So you know what kind of dogs?
What are the dogs?
Portuguese water dogs?
Oh beautiful, Yeah, those are the ones that are like hypoallergenic. They don't show right at his office anyway. Okay, so we'll get back on topic. Is this an environment right now in twenty twenty four that's conducive to deal making and kind of what's driving it?
It will be?
So twenty twenty three was a reset to the pre pandemic deal volume. So if you look at major deals, those are those deals that are above one hundred million. There are approximately twelve hundred and fifty in twenty nineteen and twelve hundred and fifty in twenty twenty three. So we were trying to understand what does M and A look like going from there now that we've reset to
pre pandemic levels. And so we looked at the last thirty five years of M and A and we correlated that to information such as GDP growth, inflation, corporate profits, the bond spreads and such, and we did see a correlation. And so if the predictions for those same metrics hold true going forward for twenty twenty four, we should see about a twelve to thirteen increase in M and A over the twenty twenty three numbers.
Does the feeling I spend most of my day job Mitch covering the IPO market, and the main sense is that something's got to give? Is that kind of your sense? We have a need for deals, We have cash on the sidelines, We have companies who are kind of nearing the end of their maturity in one sense or another.
That's exactly right.
I think that we're at a point now where people have been sitting on the sidelines for two years. There are a lot of private companies or portfolios or private equity that are coming to maturity on their debt to refinance, we put them in a very different position from an ROI than they are today. So they have to do the math and figure out should we monetize now or do we take the risk of refinancing hoping that we can get a lower rate soon enough that it doesn't impact our ROI calculations.
Okay, so who's coming together in twenty twenty four. You don't have to name names, but like, well that would be nice, but industries, I.
Can name that.
The industry sectors, the sectors that we're going to see the most activity are the ones where the deal multiples have gone down. Because in a time where you have a very high cost of capital and high multiples, it's unlikely that you're going to see a significant amount of M and A activity. But if you look at the sectors where the deal multiples have gone down, that includes life sciences and technology, those deal multiples have gone down
down about eight points each. And if you look at energy, those deal multiples have gone down about four points here over year.
Those are the areas where I thought energy it.
Was pretty much exhausted, like in twenty twenty three with all those deals.
Well there's still and it may not be the major players, but there's still players out there, and they're cost of the constant capitals high, but the multiples are going down, so they can be attractive targets.
When you're talking life sciences, we saw a number of deals coming out of JP Morgan a few weeks ago is that biotech. Are we seeing smaller Bolton deals? Are we going to see potentially a return of.
Major M and A.
You're going to see both.
I think the when you look at major M and A, there's still patent cliffs looming and they'll need to buy an R and D pipeline to continue to turn the profits that they want to turn. So I think you'll see it on both on both sides and some of the smaller biotech deals as well.
What's up with the FTC and some of this antitrust though? Is that something that's it feels like every deal has some kind of a tie up. I don't.
Yeah, stuper with that, Yeah, I know.
It's a good quest. So the new guidelines came out. It's been thirteen years or so since they've come up with since they've revised the guidelines. The clients that we're speaking to understand that it's going to make things a little bit more difficult and take longer, but they're not
shying away from deal making because of many choices. They really in many cases, they really don't have a choice, and so more will come under the radar because the threshold of what they consider to be a movement in the consolidation index has tightened, so more will come under the radar. They're going to require more information, so the timeline to get a deal done is going to take longer,
so more is going to come under their scrutiny. But we are working with clients every day to come up with multiple scenarios that they can look at around reshifting the portfolio of the combined entity into something that would be more appealing to the FTC and DJ Okay.
You want to weigh in on spirit, I mean, what happened there, it's maybe you take not specifically, maybe a broader view.
Well, my guess is that the way that they shift to the portfolio of the routes may have not been exactly what the FTC is looking for. But it sounds like they're going back to the drawing board from the From what we're reading in the paper, it sounds like they're they're going to go back for another try at it. So I imagine they're going to have to reshift their portfolio into something that's more appealing.
Well, looking at I robot that's coming from Europe, are they more stringent typically, like what's to read from one of the biggest technology companies not being able to buy the maker of a robotic vacuum.
Yeah, so I can't speak on behalf of the FDC. By are the European regulators on that one? I think the concern was around having a market dominance and being able to shut other players out because you know, the buyer of that has such a significant marketplace that they can control who's competing with their own products.
And I think that there's some sensitivity around that.
Okay, So twenty twenty four overall, you think is going to be a pretty hot year for M and A, Can we say that?
We do?
We think again, you know, twelve to thirty percent increase, which would be nice because the last over the last two years, M and A has gone down thirty to forty percent depending on what sector you're looking at.
And M and A is not just for the big guys. You can have much smaller, even businesses you've never heard of, right right, and we would And I mean, how does that work? How is that different in terms of funding or whatever than the big deals.
Well, the smaller deals are easy to get fund and sometimes you can fund them off balance sheet, but you probably will see a pickup in some of those smaller deals because quite frankly, they're also coming up with maturities on their debt that they're trying to figure out how to refinance. And often again it's the constant capital is too expensive for them. Now they struck these deals five years ago, when you know the cost of capital is almost free, and now they're paying five six percent.
That's a very different economic scenario for them.
Is that is that one of the bigger drivers behind these some of these deals that you know, we got a big debt coming up, but whatever, and this is the way we can fund that.
It will be for sure.
They need to exit, they need to get they need to refinance that debt, and to to increase that interest rate by four or five percent is significant.
What's going on with private equity?
Equity?
Do we call it private equity anymore?
Though?
Pe?
Do we still call it that because it's morphed into something else.
If we change the name, we'd have to change a lot of thought leadership. So we'll continue to call it private equity. But they're they're in a in a difficult position right now because again, their deals are leveraged. There were you know, those that were struck five years ago. They were probably hoping to monetize by now. But they're coming up with the same maturity cliffs, and so they have to do the math to say, shouldn't you know, should we lower our valuations and try to sell these
port codes now? Should we refinanced hope that we can get refinanced for a lower cost of capital and a year or two and keep the valuations high. You have to go, you know, you have to go port code by port cone, really do the math to see what makes sense whether you move now or hold on it.
Okay, the question everybody's been waiting for, how many dogs and what are their names? Games?
No, so I have five dogs.
Oh my gosh they are.
So we got Loot, Tiki, Greta, Berta, and Irma.
Yes, all right, so if you want a dog, I can ship one over to you right away because I have too many.
I will take any and all that I googled. I didn't know we have a snowshovel yet, dogging dogside.
All right, I will leave it there. Mitch Berle and Vice chair of America's Strategy and Transactions with Rinstin Young. I don't think he's ever going to come back with us for that.
The real question is would you rather have a dog or a shovel I'd rather have talk.
How about you get a dog that you trained to shovel you out or something like that.
You're listening to the tape catch are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Bloomberg eleven.
Let's take a deeper dive into these risk assets, Skyler winand is CIO at Reagan Capital. Let's stretch you off with the bubble question. Does this feel like a bubble to you?
It sure does.
With stocks back to all time highs, short end rates up five hundred basis points in the last two years, long end rates up two hundred and fifty basis points. You do the math on where stocks should be given that rise in rates, stocks theoretically should be down all boards of forty percent over the last two years.
Wow, so you just took Bailey's breath.
Yeah, No, so what breaks than Skyler?
I'm just looking.
You know, we've got the for the swaps pricing in just under six rate cuts next year or this year. We've got a lot of analysts and strategies talking up twenty twenty four earnings and looking into twenty twenty five.
What happens.
You have to look at leverage first, and the most levered players out there are going to break first. We've already seen that in banks. Then it goes to private equity and very leveraged companies.
The last folks to lose will be the least.
Leveraged companies, companies that are using a half a turn or maybe over only eternal leverage. So I think the market's going to be really bifurcated. You hear a lot of folks talk about let's stick to high quality. I like that, but look to leverage to break before anything else.
All right, two questions then, off as Skyler, going back to your initial point, are you shorting the market? And then are you shorting some of these levered stocks?
How are you playing that?
I think you know we're not stock guys, but but in my stock investments, I think you know it's it's one of two things. A sometimes the only way to win is not to play and to wait it out and maybe stick in mid to high single digit inc plays, but b own the entire market as well, where I don't know when the next in Nvidia or Tesla or Monster beverage is it going to come along?
So I want to own them all.
Who's who's most overleveraged? Is that the right phraseology?
Definitely?
Banks?
You know, banks are are are government sponsored hedge funds so to speak, allowed up to twelve x leverage. Now, what's happened over the last.
Time you're talking the majors or regionals or what or just the entire.
Allowed the same leverage. But regionals and community banks got a ton of cash in post COVID, post PPP, Right, So folks got all this cash, they parked it at the banks.
Banks sat there for eight months. What are we going to do?
Okay, let's go out and start buying treasuries and mortgage bonds. What's happened is a lot of those down upwards of twenty points, right, And so if you were levering that up ten times twelve times, your effective equity now went from ten percent down to about four percent, So you're
upwards of twenty five x leveraged. So what you have to look at is you have to look at tangible book value, tangible equity, right, and if that percentage is at only four or five percent, divide four into one hundred that's twenty five x, so you're twenty five x levered. So moves like we've seen since the start of the year, the bond markets down a point point in a quarter. Multiply that times twenty for a regional bank or a community bank that owns treasuries and mortgage bonds.
So who's who's least leverage? Then, on the opposite end of the.
Spectrum, JP Moore, the big guys, the big guys who had a lot of money, they took it in. They focused on on fee paying product product like credit cards. They weren't immediately incentivized to go out and buy really really long duration paper and so on the flip side of the large guys, Via of Alcy has huge amounts
of unrealized loss of sitting on their balance sheet. JP Morgan looks like a genius because they didn't really go and invest in all that all of that money into you know, Fanny to Fanny two point five qpon paying mortgages, which two years ago the market thought everybody was going to refinance, and something like seventy percent.
Of all of all mortgages.
Have been issued in the last two years, So now the market thinks nobody's ever going to refinance again, nobody's ever gonna move. Everybody's stuck in these two and a half percent qpon mortgages.
So it's who owns that stuff and who doesn't?
And JP Morgan stuck really short duration, and now they you know, they're they're coming out ahead of everybody. You know, the time to own money markets and T bills, honestly was when rates were zero, not when rates are at five and a quarter five and a half.
Well, sky that we've talked a lot about what you don't like, what do you like?
So now there's two sides of the coin, in terms of equities and in terms of real estate. Most things, it's do you want to be the equity holder or the lender? Now is a great time to be a lender, okay, And you can be a lender on real estate.
You can be a lender to.
Equities i e. Bonds that can you can be a lender to municipalities. So now is as good of a time as ever to lend. The market's been hoping. Savers have been waiting for five plus percent yields on high quality fixed income for what sixteen years now, and it's here we should be jumping into this like Scrooge mcd up.
Okay, I've always been told you don't fight the fad, but certainly the bond market has been fighting the FED, or so it would seem your impression. Get a been a minute left.
Yeah, the market, the FED has been saying for the last two years now, but we have been There's going to be a lot of pain, right, and we've seen pain. Bonb market was down thirteen percent last year, came back the last two months of or I'm sorry twenty twenty two, came back the last two months of twenty twenty three to make it a positive year. And the Fed is still saying rates are only going to drop two to
three times this year. Yet the market has priced in six drops this year, in eight drops over the next eighteen months.
So it's a really good time to sit.
In floating rate paper that'll hugely benefit from the FED. What's the FED saying happening versus what the market is saying. If you're in fixed rate paper right now, what you're along is rates drop being seven, eight, nine times over the next eighteen months.
We'll a letle bit there. Skyler, weinmand the CIO at Reagan Capital.
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They always told me don't fight the Fed, but it looks like somebody's fighting the Fed. At least the bond market is with the markets, and the FED interact with how they're going to interact. In twenty twenty four, Hans Olsen is CIO at Fiduciary Trust Company, joining us now I think from Boston to discuss so the market, as I said, the bond market at least is fighting the FED. This has set us up for some kind of disaster.
Now, you know, I do think that this market is certainly overbought and overconfident, and I think you see it bought a view when you look at sort of the
the S and p's RSI right, the relative strength. It has had one heck of a run and it's corrected a bit from that, but now it looks like it's making another run to a real overbought position, and the overconfident bit is really clean, clearly seeing when you look at the difference between what the market expects for rate cuts and what the FED is telegraphing, and so far the economy is suggesting that perhaps the Fed is more right than than is the market.
We were talking about it this morning. What do you make of the University of Michigan sentiment data and how does that kind of impact your view on the path forward for markets and also the Fed.
Yeah, that's that's a good question. I tend to focus on what people do versus what they say, and especially in markets, right, you follow the money and without a doubt, I mean it was it was a good read. I look back at what happened in with retail sales in December and that was pretty good. If you look at what's happening at with excuse me, with employment, that's also quite good. So people I think are in pretty good
rude economic health. At the moment, housing looks like it is going to be just fine exception of today's numbers. But I think if you look forward permits in the like, that all suggests that the economy is and rude health. So if that is the case, then one has to rethink sort of the timing and the extent of the interest rate cuts. And as you know, that's sixteen percent run toward in the end of twenty twenty three was
powered in large part by expectations around rates. It wasn't powered by earnings.
So we are headed for soft landing, no landing, hard landing, And which one of those scenarios do you think it's going to be and what is that going to mean for risk assets?
Man, John, That's an interesting question because if I had told you last year at this time that we would have interest rates where they were without some sort of resetting of economic activity or certainly in the marketing thought it'd be back barking mad. But that's exactly what happened. So last year in many respects, was a year of no landing because we didn't hit the FEDCE target and
market was fine and the economy was fine. I think in many respects there's a good chance that this year is going to be a year of either a softish landing or indeed possibly no landing, maybe a go round right where we don't hit that FED target. The economy is actually stronger than people are giving it credit for right now, and the markets can do pretty well with that. I think, though, the way that you make money in that environment is different than the way that you made
it last year. Returns last year, we're all driven by a multiple expansion, and it really happened in Q four on the belief of rape cut. So really that powered, but it was not powered, was not assisted at all by earnings. This year, I think it has to be assisted by earnings, so and it's I'm not sure that we can expect much on the multiple expansion front. So this is the year where I think stock picking really starts to matter. A focus on profits is probably the.
Way to go here, so you get away from necessarily incredibly high valuations but more high quality profitable companies being the prominent feature that people should be emphasizing in their equity portfolioers this year.
Yeah, Hans, let's stick on that note in terms of what areas you do, Like you mentioned profitability, maybe lower multiples. What areas, industries or sectors are you liking for twenty twenty four when it comes to the equity market.
Yeah, I think it's important because it'd be easy to talk sectors, but even within each sector, there are companies that have these features of what you would want this year. So even some of the the higher valued sectors, you would find companies that are incredibly profitable, really good allocation of capital uh and which will drive some nice returns.
I think from a sector standpoint at this juncture, you know, software, banks, oil and gas computers, those would be areas that we can see companies living in that have the features that we want. And you can see that if you drill down into companies like an Exxon Mobile of Berkshire, UH and Nvidia and the like. These are these are companies that you know they should have the wind at their back because the earnings are there and they're likely to grow.
So so I think that's how I would come at it, rather.
Than just sort of do a you know, the the passive s and P five hundred exposure.
If we agree we're in a disinflationary environment, what does that do to earnings and sales.
Yeah, that's that's an interesting question because it's disinflationary to what right, So if we went from nine to three, I think we've seen that largely play out. If it goes from you know, three down to where it had been for the last five or six years, I'd be in another case. But I don't think that that's going to happen. I think it's really going to be now
about margins and earnings growth. And to the extent that your cost of goods sold has some mixture of fixed in it versus floating, right, so you're not as susceptible to your input costs rising as much. If you've hedged some of your inputs and the like, you can actually interestingly see your earnings rise in an environment where there's a bit higher inflation. So the details will matter in an environment like this.
Thanks a lot. I appreciate it. I was gonna say, snowy Boston, but not yet. It's not its way Hans I bet he has a shovel cio fiduciary trust company joining us from Boston. Right now, you're listening to the tape.
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Bubble or no bubble. That's kind of the question that raises for me. Brian veddig Is, the president at MJP, advises. He joins us, Now, from where are you Connecticut, Westborth, Connecticut. Job, what'spury? Oh lovely to discuss the outlook for the market. So what's say you when I say, oh, my gosh, maybe a bubble, Well.
I don't think that's necessarily true, John, when considering all parts of the market. I mean, we look back at last year. We know that the majority of the games came from megacap tech, and we did see a broadening
out in the market in the fourth quarter. But really, when you look at areas like small cap stocks, some value oriented sectors like healthcare and industrials, I really think there's some other parts of the market that again, you know, to the points that you and barely mentioned about, you know, earnings growth, you know, in twenty four I think the market's going to come back to fundamentals, and we're looking at some earnings numbers over the balance of the year
that can help those areas quit a little bit of catch up. While at the same point in time, I still think there's that longer term trend with AI innovation that that is going to play out in aspects of the technology sector.
Yeah, I wanted to ask talking about the ketchup trade has been something I feel like has been top of mind since really the October bottom second best performer in the SP five hundred is in Vidia, up seventeen percent. Obviously that coming after the TSM number. So when you look at that broadening, what areas are going to are we going to see strength broadening out to and what does that mean for the likes of an Invidia, which still seems to be red hot.
That's a great point, Bailey, I think on the video side of the house, I'll just address that first. I mean, it's that expectation of growth moving forward. So when you look at the forward pe for Navidia, as much as the share price has had a nice run, the forward price to earnings ratio is actually quite reasonable, you know,
with a twenty handle or so. But when we talk about the other areas of the market, let's just be fair when we take a look at that disparity of return, going back to the S and P versus let's say the even weight SMP for example, we know that a market cap S and P forty percent is in those those magnificent seven names or so, and when we look at an even weight and we really strip that out, we see that the forward price to earnings ratio of the market is actually quite reasonable in some sectors under
their historical average, so healthcare, small caps, mid cap stocks, looking at some areas in the industrial complex. I mean, these are things that we know that there's some some breath and some trends there and the outlooks for growth are actually looking quite promising.
Okay, since you guys brought up AI got to ask when does it start to jail in terms of the sales. Well, we've already seen that you mentioned in video. But along with the productivity gains that are promised by this new technology, when does it all come together?
Yeah, no, I think it's all that's a great question. It's almost like when does it come together where we start to see, you know, market expectations on rate cuts line up with reality from the FED, right, So there's so I think that the AI trend is a five to seven year trend. I mean there's a there's a high multiple of sales that's being put on a lot of these companies right now, which we are a little
wary of, and you have to be selective. I think it's looking at it from that productivity point, which is why we like areas in technology that are focusing on workflow management, data management, thinking about how AI might create more productive outcomes when you think about cybersecurity, you.
Know, things of that nature.
Then just saying hey, we're going to invest in you know, a certain aspect of hardware that's probably going to be used because you know AI is going to be coming, I think. I think it's a longer term trend. So will there be volatility in the space, Will there be the natural winners and losers kind of play out over the next five to seven years. Yeah, we think so.
But don't forget that again, This is the point I'm trying to make, going back to Bailey's questions, don't forget about some of those other areas that have stable balance, these predictable cash flow margins, that look strong and they're still innovation. And that's why I want to remind people about healthcare, because healthcare did not perform well last year, But it's one of those those areas of the market
where you're concerned about economic expansion. This year can be defensive, but we know there's a lot of innovation coming from healthcare companies as well that could be supportive for growth moving forward.
But where in healthcare do you particularly like Are we talking biotech, medtech that seems to be where innovation would be versus something like managed care.
A great point I think to be selective in healthcare, we are looking at areas of some of the biotech, some of the big pharma space areas because the big pharma companies they're building out, they're going out and acquiring other companies right now and building out their pipeline for new therapies and drugs. And I think as rates change, we might see a little bit more in that m
and A space from healthcare. And I also think at the same point in time, we have a demographic shift that we know that is going to continue to play out in the United States. The baby boomers, they're not getting any younger they're still demand for services and care that's out there. So even looking at some of the larger healthcare networks, healthcare providers, insurance providers, I know they've had a rough week this week when considering concerns around
Medicare costs. But those that can execute and move through that, I think also are areas of healthcare that makes a lot of sense A bailable.
Yeah, and I got to I'm not a brown nose, but I got to point out the bosses. The big boss is editorial today. The healthcare system, he writes, is more short staff than ever, even as it faces its next big shock and aging population. So tackle that one from an investment perspective, since you brought up the healthcare industry.
Yeah, definitely.
I mean, I think there is a concern around let's say investing and let's say hospitals that are trying to run their staffs at certain margin. But we have a labor shortage, and we also have issues in quality of care which might suffer, which that then causes demand shifts
around that space. I'm focusing more on the ways to deliver the care and helping them to support productivity, whether that might be software and technology in the healthcare space again, the insurance providers, you know, helping to provide a wider network or better products or policies that people can take advantage of. So I'm not focused so much on the labor side. I'm looking more at the solution side to try to get through some of these problems.
John, all right, Brian, thanks a lot. We'll leave it there. President at MJP Advisors from Lovely Westport, Can I think that's isn't that where Martha Stewart lives? Head on Sport. You're not that demographic. I'm not going to you're from California. I'm in California.
Kids.
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