Elon Musk, Tech, Retail Sales, and Subway (Podcast)

York to watch wrestling and State Wrestling. Now, granted they're one of the best in the country, but Dan Ives he covers technology, uh for wet Bush Securities and mandep siting here from Bloomberg and in Tellvision they're in our Bloomberg and act the broker studio. Dan, let's start with you, Tesla. I follow you on Twitter, and by the way, folks follow Dan Ives on Twitter. He's got a good Twitter game there, um, and you're not too happy with him

sticking around at Twitter. El So Tesla. So the problem is Elon Musk is supposed to run Tesla, right, but he's obsessed with Twitter to the point where he like changes the algorithms that we all have to read all of his tweets. He said, he was gonna pick someone else stand down before Christmas, and now it's like the end of this year, maybe beginning of four. Dan, what is the deal with your dog? Yeah? I mean look the goal post from Musk because we've seen four continue

to get pushed out. And I think when it comes to Twitter, you know clearly that's been less of an overhanging the last few months. But I think investors want to see Musts Weezer focused on Tesla, on SpaceX and some of them. Any kind of focus doesn't have to be a laser, just a little bit of focus on Tesla. Right it was, And I think what we've seen the last few months like part of why Tesla stockstone where

it has it. They meet strategic decision in terms of the price cuts, which have been massive home run successes. But I think when you will get the Twitter cut prices and they raise prices, what are they doing over there? Look, I think they're trying to find the equilibrium unsupplied the man. I mean, I think in China throwing spaghetti at the wall. I mean, come on, man, it's Tesla. Why don't you just make a decision and stick to it? Because there's so many questions I have. I'm so glad you came

in here. Dan, It's great, it's great. I was listening to Ross Gerber last night. He was on Bloomberg Business Week with Carol Master, and I think he made a ton of great points without being a jerk, you know. I mean, he doesn't want to offend Elon, but he is a big shareholder who's trying to get a board seat right now, and he was saying, we gotta rain this guy in, we gotta get him back to Tesla, and we need a succession plan, right because if anything

happens to Elon. Musk talk about key man risk, he has nobody in place. Kimball is not gonna come and run it. Right. Look, I think the bigger thing, as Ross has talked about, is really more as competition grows, you know, in the U S and globally, you just want to make sure that strategically they're both defensive and offensively positioned. And I think from Musk, you know, his investors, that's a huge part of the premium. We saw what happened with the Twitter situation, you know, call it from

October to December. Big part that was the Twitter overhang. But that's why you need sure that strategy and it must is going to talk. We'll be there in austin March first the big plan. So I think investors are trying to see what is that? What does that mean about production in the future? All right, so good. I mean there's a ton of tech news out there. We could just spend all day on this stuff. The one that got my attentionous Airbnb. I've used it once and

it was because it was a Bloomberg sponsored Airbnb. I'm still in the hotel mode, man, Dave, talk to me about Airbnb, their business. I mean, I mean the stock at great number, stock up twelve point four percent today, well, and talking about raising prices. This is a company that has benefited from you know, pent up travel demand price increases. They don't have to take down prices to drive demand.

And look, it's a very robust business model. Out of all the marketplace companies you you don't include Ruber, Lift, Door, Dash, this is the model that generates over even dumb margins and and that is what investors like it can convert you know, free cash flow. On our ten billion dollar run rate, you've got two billion in free cash flow every year. Now, granted, they're going to run into tougher

comps because they did very well during the pandemic. Well guess what, coming out of the pandemic, they did even better. And so now they are running into tougher comps even though they have the category leadership in alternative accommodations and they are adding users like you and they will continue to do. No, no, they're not adding Paul's money. Is not an alternative accommodation. I'm a four seasons guy, but I did stay at a Verbo condo out in Veil

last week. But that's only because I didn't make the reservation. Somebody, well, how was it awesome? Fantastic? But that's just because Veil was amazing. Yeah, but I mean, are you guys like Airbnb people? Are you? I have gone both ways in terms of accommodation, and um, yeah, I don't really. I'm like you, though I would prefer to stay at like the bierssha half. I don't need I don't need to

stay in somebody else's apartment. But there are a lot of shitsu wations where people have some sit condos that they're they're only investing in to do. Airbnb or Verbo is Airbnb who owns verbo. Verbo is owned by Expedia. And look, they have competition, but the repeat rates in that eighteen to thirty four year old cohors that's what my kids. That is where Airbnb is really hitting off, and and they continue to do very well the repeat transactions. That too, they don't have to spend much on sales

and marketing. The Google marketing span for Airbnb is the least out of all the O t A. So it's that's why you see that high leverage in the business model. That's it. My daughter travels the world nothing but Airbnb. I don't know actually does it Anyway? Dan, what's your best idea out there? Credit card? No, they are off the doll They're off the doll. I was very good for the first X number of years. Alright, So Dan, what's your best idea that you're talking to clients about

these days? And well, I mean, look, Tack, as we've talked about, it's is under own is either going to the year since two thousand nine? Is that right? Yeah? I mean look to sell off. Right. The New York City cab driver was barrassed on tech coming into this year, and that's why in my opinion, I still look at names like Microsoft. I look at names like Salesforce, which is one where I think activism puts a floor in and I think there's a huge some of the parts

that you could see significant movement there. And our top pick continues to be Apple. I think it will again regain that three trillion mark cap. Are you ever gonna get an Apple car? Is this ever gonna happen? Look, I think the big thing now as you're talking about this AI arms race, Game of Thrones, Chat, GPT, Microsoft, Google, the disaster last week with bard Apple, They're gonna come out we believe this summer, you know, with significant AI functionality.

But it all is leading and Germans talked about this, you know, we believe the car. It's a matter of when not if that comes out. Two thous What are they gonna do with their AI product? We've had Siri for more than a decade, right, and she's not very smart? Um, not nice? Well, I don't know if she's intended to be as smart as like an AI chat bot. Um, But does that mean series gonna be able to do stuff beyond you know, say, shall I google that for you? Well?

I think Look, they've been spending. We've eight to ten billion on AI and they have something that no other company in the world has. It's two billion, and that's the installed base. So I think when you comes to AI, this is something I think Cooper Tino is extremely focused on. And it just goes back to many of the innovations in rear view mirror. Yet again, Cook and Apple, you know, proved the naysayer is wrong. Man, Deep One are the biggest AI bets right now. I mean, it's been so

huge in the news. Dan talks about the cab driver negative on tech, but has got to be positive on chat GPT, right, I mean, everybody's tried this thing. I think there is that hype aspect around chat GPT. But at the same time, you can't take Google or Alphabet out of the equation. I mean, I know their disaster, it was a disaster, the bar demo, but look, this company still is the leader when it comes to the data.

The number of apps that have over a billion dollars billion users, you know, so they have almost five or six of their apps that have over a billion users, has a lot of proprietary data. I mean, how can you be negative on Alphabet if you're positive on chat GPT. They have a monopoly of search, so I mean, who doesn't want a monopoly? And and look I I think I mean it talks about incremental you know, negative in terms of being taking some share. But I still think

Google is the powerhouse when it comes today. I learned from their Cardshact moment last week that ultimately to improve on the AI functionality. But it just shows that's why Amazon and Jassy Apple they're not rushing anything out, but no doubt in the della popping the champagne. In terms of Chat GPT, Hey mendep just real quickly, um, Meta, Google, Digital advertising? What's the call for this year? I think the sentiment is too negative talking about you know, tech

under owned. I had the pocket that has done the worst is digital ad companies and Meta has been a cost cutting story so far. But I think there will be a cyclical rebound at some point with digital ads, and it's more likely given what we are seeing, you know, in terms of the overall sentiment that these companies have hit trough valuations and now it's about just you know, sequential increase in top one well Meta just picking that stock.

It's kind of the poster child for digital advertising. Still down to a trial and twelve month basis. That's a bad news. The good news is it's up forty seven percent this year in so maybe some of the buyers coming into this name on a longer term basis. Sorry,

good stuff. Tech round Table kicking off this two hours segment with Dan I've senior equity analysts at wed Bush Securities, wearing the casual wear very well today in the Bloomberg in an Actor broker studio, plus Mandy of Saint Bloomberg Intelligence, senior tech anles. We're like getting these guys together, they know what they're talking about. I'll be like the round table off things tech. We're gonna more coming up. This

is Bloomberg. Good Morning. We had some pretty strong retail sales number the consumers still out there, so maybe the Fed can uh, you know, maybe keep rates higher for longer. That's kind of seems to be a little bit of a bet out there. Robert Teeter, head of Investment Policy and Strategy Group at Silver Crust Asset Management Joints us here in our Bloomberg Interactive Broker Studio. So Robert, busy time for you professionals out there, We've got lots of

earnings to deal with. We've got lots of ECO data, CPI yesterday, retail sales today. When you put it all together, what are you telling your clients these days? I think we're sort of sorting through a matrix here of on the economy side, are are things getting better or worse? And things seem to be getting a little bit better. And on the inflation side, which is a critical influence for evaluation, uh, things seem to be slowing a bit

in terms of their improvement, but also getting better. And so I think that the back and forth here is largely between the interaction between those two and assessing whether this this good news that you get on the economy side, how bad is that for inflation right now? I don't think it's too bad. But you see some of the reaction that we had yesterday to the CPI data, the

reaction today to strong retail sales. I think that tells me we're going to be in a bit of a tug of war here as we continue to fight through these two issues. Well, doesn't the Fed have to raise rates further? I mean, I got a great message um yesterday, who what NEIL data sent me a message saying, like, what does the FED have to show for four or seventy five basis points of break takes? I mean stocks are down what fifercent from their highs, So that's that's

one thing, I guess. But um unemployments at three point four percent, right, we're all spending like crazy. Airbnb has after the last month they were up. I mean, that's just a sign of what's going on out there. It sure is, and I do think it indicates that the FED will will certainly continue to increase. I think in twenty five basis point increments, maybe another fifty or seventy five in total, and stay there for a long time.

I have a little bit of a contrarian take on the economic side of things, and that I feel that that each month that the economy UH stays robust, it's more time for inflation to come down. So well, all those things that you stated are true. The FED hasn't made progress in financial conditions, hasn't made progress in uh, you know, softening the labor market, but there has been progress in inflation, and I think so long as that continues without the economy falling apart, we have a chance

for a pretty good outcome. All right, we're about I don't know away through this earning season. Um, what are you takeaways? Yeah, I think there's been a lot of strong signals from earning seasons. So while earnings haven't been that exciting, under the surface, there have been some pockets of strength, and I think the strength is coincided with the message we're hearing from the economy. So consumer discretionary

has clearly been a strong source of earnings. You've heard from the banks in terms of the consumer remaining resilient. I think that's encouraging. And we've seen some strength in the industrial space as well, and I think that plays into a couple of themes that are unfolding right now. You know, first and foremost among those reshoring, and so I think there are some pockets of remaining strength in the economy. I think you have to be very careful

in terms of earnings. That top line number might not be too exciting, but there are some areas to find a good earning scrop. It's intu. I'm just looking at the a function that hooked me up with a while. Uh. And for the SP five hundred, again we're about companies in SP FID of reported five point three sales growth your year, but earnings declined by two point four percent. So there's that margin pressure. Certainly is some margin pressure,

and I think coming back a bit to normal. So you know, my mapping of it is to say margins get back to where they were in twenty nineteen, which says there's still a little bit of downside pressure on margins. I think revenues will continue to remain strong in those areas that I mentioned, and so it does playing a picture of you know, basically flat earnings growth in terms of outlook for this year, but with some opportunities below

the surface. Flat. So SMP earnings flat from two. That's better than a stick in the eye, right, I think it is, I really do. I think there's there are a lot of transformations going on. And so whether it's this theme of a you know, a rolling recession or I prefer to think of it as different parts of the economy, in different parts of the economic cycle. There are these areas that are continuing to produce strong earnings growth. It's just not enough to boost the overall level. Consumer

discretionary industrials are pretty small relative to tech and financials. Yeah, I'm looking at energy just again on this e A function, earnings, a revenue of fifteen percent year over year, earnings up sixty seven percent year of a year or so. You know, it's kind of goes the question, boy, energy has been good for the first time in a long time over the last couple of years. Have I missed it totally? Just go back into my you know, two year treasury

yield at four points six. It's it's an interesting question to ponder. I mean, I don't think that the upside is going to be what it was in the past. But I think if you look through all those all those sectors on there, and I love the e A function as well, Uh, the areas that have had strength, all indications are that they will continue to have strength.

So the key question is just valuation. And in my view, the overall valuation on the market will be influenced a lot more by the interest rate and inflation picture, which I see improving. So to answer your question, I do think there's still some opportunity in energy as well as those other areas that are showing learnings growth. What do you think about other regions? I mean, we focus on the US obviously because we're here, but um, there could

be you know, something we're missing out on. Overseas. E M was very popular at the beginning of the year. Everyone said, Oh, Europe's gonna avoid this recession. How does

it look to you now? I think all of those have been an an interesting sort of one time time trade that maybe has a little bit of of of legs left to it in terms of evaluation disparity against the U S and that recovery in Europe, the reopening of China playing into e M. So I do think there's still a bit of opportunity there, but longer term, when we step back and look at the demographic picture, when we look at the productivity picture, where we look

at where companies are locating that are producing growth, most of those opportunities are in the U S. Yeah, I mean we're talking to e A function. So I noticed obviously there's a yellow drop down box you can choose your index. I put in the stock six D instead of the S and P five and it's dramatically different. Um,

and well, look it's the same trend but stronger. So sales growth is like super boosted up twelve percent, and earnings the declines are only one and a half percent, So I guess that's really kind of a reopening story for Europe as well. I think it is. I think both Europe and Asia a little bit behind the US in terms of the reopening cycle, the reopening cycle from from the economy, So again, there may be a little bit more opportunity there, but longer term, the demographic picture

and productivity in the US just looks a lot. By the way, are you worried coming back home, um about the housing situation here, because we really haven't had, um uh, any serious injuries from raised rates so far. Right, six percent seven percent Mortgage rates make affordability kind of off the charge, so anybody who wanted to sell is gonna maybe rent instead, and anybody who wanted to buy, um the same goes for them. But if we start to see job losses, we could start to see four sales

and then big price drops. That's that's a great area of focus for US. I think we're not in the danger zone yet, but we could be if these rates continue to remain high towards the end of the year and if we don't see progress on inflation by the end of the year. For now, you have a situation where a lot of people who bought homes are are still in very good shape. They bought them, you know, to three years ago, before the move higher in prices,

and you have a slowdown and activity. Of course, we saw a few green shoots in housing earlier in the year when rates cooled a bit, so we think there's the potential for that to happen again as we get later into the year, more progress on inflation. Well, look, I about to close on a property. Uh, and I'm paying a much higher mortgage rate than I would like or I would have paid a year ago, but I fully expect to refinance in twelve months, so hopefully that

still works up. I look, you know, I'm trying to get Tom Keene out of the triple leverage all cash fun and now I'm saying, hey, you can go buy a two year note and get four point six. How are you guys thinking about fixed income ine after just a brutal Yeah, I think there are some good opportunities in fixed income, and you don't have to be too aggressive on the duration or credit front to pick up

pretty good returns. So that's an area where we've been constructive and encouraging clients to to not go into all cash, but rather to go out a little bit. Uh, not be long duration. You don't have to be to get good returns and not take a lot of excessive credit risk. There's no reason to. And it plays a much more constructive role into portfolio than it did three years ago. See. Yeah, no, I've this is what we've been hearing U and it

makes sense to me for sure. Um, I just wonder it doesn't really help financial conditions if I'm getting four point six percent of my two year right, So the fed I inc Is going to be the variable that could blow down this house of cards because they either have to keep raising or we have to all wait through what another year of another two years of inflation

that's just unacceptably high. I mean, we have the smartest people in the world coming out and now suggesting they raise the target, and I'm thinking, wait, this is not good. Two percent is already too much inflation, so three percent is worse. Yes, I think that's right. I don't think it makes a lot of sense to raise the target. I think you hit on the key theme, though we

do have to be patient. I don't think inflation is coming down quickly, but as long as it's heading in the right direction, I think it gives people a lot of encouragement in terms of planning for businesses or planning its consumers. While the problem is is getting better, that's

much more important at the pace. I agree with you, it may take a while, and so we may be looking at a situation where we're getting out towards the end of the year and we're still not uh near the two percent target that the FED is set, although there are pockets within the CPI construction where you do see those numbers coming down a bit, and I think you've seen share pal starting to refer to some of the progress that's been made, and I think that's a

good thing. I think out will continue through the year, but it will take some patience to get there. Just about thirty seconds. How much more earnings risk do you think is still out there in terms of estimates, Yeah, it's it's it's another area of focus for us as well. I do think the pressure is there on the margins side. I've been a little bit less focused on that top line number and willing to accept the sort of flat outcome with the recognition that there will be some big

positive and negative numbers beneath the surface. There. One theme that we heard throughout the earning season was companies really focused on efficiency. So whether that's being careful with regard to labor costs, are continuing to deploy technology, efficiencies are there,

so companies might manage a bit better than expected on margins. Alright, good stuff as always Robert Teeter, head of Investment Policy and Strategy Group at Silver Crest Asset Management, and I think you can see him on Bloomberg Television at one thirty pm today with Cretty Guptas. So if you want more Robert Teeter and his good thoughts on the markets, that's where you can find it. Lots of earnings already under the belt. We've got some more to go here.

But this market, as we've seen over the last couple of days, still focus pretty intently on the federal Reserve, on lation. We've got the CPI print yesterday, we got some really strong retail sales today. Let's check in with the professional kind of looks at this stuff for a living, trying to Pence, chief Investment officer for Pence Capital Management. Uh. He is an Army veteran, so we think driving for his army service there driving thanks so much for joining

us here. Lots of ECO data, lots of earnings. When you sift through it all, what are some of your takeaways here as you look towards Well, I think there's two There's there's two big things. The first one is no one told the consumer don't fight the FED. When you look at retail sales and coming up, and we had just a good report today and with employment strong, uh, with with basically balance sheets in good shape, you know,

consumers not necessarily slowing down. And I think that that's that's beginning to put some pressure on the FED of what they're thinking about going forward with it with interest rates. So I think that's a that's a big issue. Consumers still see to be strong and they still can still have their buying. So how high do you think the FED has to go to get real traction on financial conditions? Well,

I think you're probably looking at you. For the longest of time they're saying terminal rates was you know, maybe between five five. We think that that now may move out a little bit to five fifty. But uh, one of the things that people aren't quite paying attention to his lag effects uh. And and where you know company the market. You know, FED does something in two days, market adjust in two hours, but consumers and businesses it takes them weeks and months sometimes to adjust to they're

changing capital cost. And so I think that we're under appreciating the fact that this last hundred fifty basis points of hikes, uh, really haven't worked their way into the market yet. Uh. And I think this is why at some point the FED does need to pause, and the pause is going to be long because the consumers and businesses kind of have to catch up with the decisions of wants them to make. Give us a sense of dryden? Does you think here we see rates moving higher for

a lot of folks. That makes fixed income much more attractive relative to the last you know, decade and certainly relative to last year and performance was so terrible. Um, how do you think about fixed income? What's your kind of your strategy there? Well, you know, absolutely, I think that this is quite significant. You know, we went for decades where the market was the Tina market. There was you know, there is no alternative, and now I think we're in what I call the baby market. Uh. And

that stands for bonds or back, y'all. Uh And and I think it's true when you can get when you can get a two year north of four percent and trasury, I think that changes that gives It gives really invest or something that they really haven't had in over a decade. And so it makes a much better alternative to you know,

what's going on in the market. And they have, you know, for a retail and ester to be able to get a two year treasury north of four it changes how they think about risk, It changes how they think about long term investing. And I think that that's exceedingly important for advisors and people pay attention. We're getting back, like said, bonds are back, y'all, and we need to pay close

attention to that. And we have a cross asset reporter, Katie Greifeld, she's coming on and about ten minutes to talk to us about the fact that investors can earn more in cash than they can in the S and P right now and and and everyone hates this rally um. You know, even people who are in it are saying, this is just a bear market rally. It's gonna falter um. What what signs do you look for for that, you know, market pivot to happen. Well, so there's a difference in

the market pivot and true true, true. I'm talking about the market like what signs do we we're up fiftcent from the October lows, you know, does that hold or do we come back down? I think we're ahead of ourselves. But I think one of the big things is you cannot discount human emotion. Everybody was so happy to see the end of it. Basically was a sea change. You kind of took off that jacket and put on the new one. So I think we saw this early rally uh,

more like a relief rally if anything else. Uh. And so now we're going to have to look through the rest of this quarter for validation of that and also the realization that we made. You know that I think that the idea that a bad recession is coming uh maybe coming off the table, and that it looks like a little small recession or no recession. And we're kind

of in that camp. But I think it's important to pay attention to we haven't seen the last hundred fifty basis points of hikes really work its way through the business decisions yet. So I think that that's why we have to be a little cautious. So I don't mind the rally, but I think that we have to make sure that we're being cautious to have this first and second quarter. But I don't see I don't see a

technical recession occurring first or second quarter. You know, we have positive GDP grow, so you're not gonna see if it happens. It's not having a third quarter, so's pushed out, tried. And what are you doing with new capital coming into your firm here? How cautious are you being? How are you allocating it at this time? Well, first, the first thing we're doing is allocating the fixed income piece because we think that that's almost a no brainer, right uh.

And that we are looking at putting the fixed income to work in the in the two year uh, and things with short of that, because if we get a pivot, you know you're gonna get it based on clipping a good coupon and some and some capital gains out here, you know, twenty four or six months. But then what we're really paying close attention to is the fact that you know, on the consumer side, you have a Barbell consumer, so you have the luxury goods doing fine, you have

the low into the retail doing pretty good. Uh. It's in the middle we're staying away from so your barbell consumer. But then also we take a good close look at payments. Uh. You know, as inflation rises, ticket you tickets go up, right, but payments are being able to maintain their margins. So companies that are involved in payments uh and travel in luxury spence. And we think also, I think defense is going to continue to be a good segment. I don't I don't see the war in the Ukraine uh ending.

I think there's gonna be changes. But even if it does, even if it ended tomorrow, you have a tremendous amount of money that's got to go into defense. Because the NATO countries have learned their lesson and they're all committing to this two percent. Um you're gonna have nineteen countries instead of nine, and so they've got to replantis arsenals. So we think defense is a good play. Uh for a couple of years, solid earnings. Geo politics at all

a worry. I mean especially with um, you know Chinese relations U S. China relations m getting more and more sour every day. Yeah, it creates moments of volatility. Um. But you know, a bad thing hurts China more than it hurts anything else anybody else. They they need a strong economy to keep their people uh in place. Uh. And so I think there's there's risks that people aren't

fully appreciating on the China thing. But the geop political situation, I think the whole world's watching Russia uh, and they're gonna watch what happens over the next several weeks if Russia tries to have a offensive uh to break out of their defensive perimeter. But you know when I think of what the world is learning is that uh, you know uh Ukrainian you know this old cost you know you I gotta thank for a hundred and seventy three

point two to build it? All right, Frank, stuff all right, right? And try to pen CEO of Pence Capital Management Riding is a army veterans, So we thank him for his service. Just getting some thoughts on these markets. We're gonna have more coming up this this bloomberg. I want to move to another sector that I really love, UM because I like to eat out, and that's restaurants. And you want to talk restaurants and all that kind of stuff. Um,

like Cracker Bowl is one of my faves. And and I don't know if you're you should say that publicly. I love crackerbout the country get canceled, I could get cancel I love it. Mike Haylen, he does this stuff for a living. He's a senior restaurant's analyst with Bloomberg Intelligence. So my gradiet to the broader call on restaurants coming up. But first I want to start off with Subway. I always thought this was public, but it's a private company and it's rumored that it might be sold. Here talk

to us about what's going on with Subway. What do you know? Yeah, Unfortunately, like you said, uh, it's private. So uh you know, I've been digging for information the last couple of days and some of the some of the data points like same starce sales and it's hard hard to find any bad ones, right, and so only they only report the good ones. Um. But yeah, from what I understand, Um, you know they're looking to sell. I don't know if the timing is so great with

with the rising interest rates over the last year. Um, but you know from what we're here and they're looking to sell and they think they can get about ten billion for it, So who picks them up? I think it's gotta be p I think it's got to be private equity. So UM, there's two big multi unit operators in our space, UM, you know, UM Restaurant Brands and YUM. I don't see either one of those making a play

for it. UM Restaurant Brands. UH is really focused on UM turning around Tim Horton's UH in Canada, which which they've made some progress there, and also Burger King in the United States, which is gonna be a pretty heavy lift. They're investing for million over the next two years in there alongside their franchisees to help boost results there. Uh. So I think they have their hands full. Young Brands.

The other one, UM uh you know Young Brands right now is doing really well right UM, and so that's the name that comes up. But they're they're trading at five times leverage, that's the long term target, you know. Tacking on ten billions to that bound she is is going to shoot their their leverage ratio up pretty significantly. Uh. I don't know if I think it's just kind of a too big of a pill to swallow for them, right, Um, so PE takes it up, and then, by the way,

it's not as interesting to us anymore. Right, what if PE takes it, I'd like to see what they pay for it. Evaluation. That kind of stuff isn't actual. You want to see kind of valuation. That's a good point. But mar but Mike, what are the publicly traded UH companies that you like? Paul and I went to Chipotle the other day and the line was, I think it may have gone out the door at one point when we were in there. Um, and it's a long store, so a lot of they just don't have enough employees. Yeah,

they're still they're still cranking. Um, yeah, they're still cranking. And you know it's a market by market thing. You know, they reported earnings recently and I think their stores or so are are are fully staffed. So so it kind of depends on the market. Um, it just goes up into the right. I mean, it's pretty impressive. Yeah, it's

been a good run. Fourth quarter though, was you know, we saw some chinks in the armor, right, Um, you know they're they're garlic garlic Guahios steak limited time offer did not do as well as Brisket the year prior, traffic dropped about four percent year over year. Uh. You know,

Same Star sales came in lighter than expected. So you know, we're not really you know, the jury is not out yet, but there could be some minor pushback here with some of the low and middle income consumers over there with the with the aggressive price increases we've seen there. So they increased prices probably more than any of the other chains that we covered over the last two years. Um, you know, and their three years sames ourselves. Even though

the trend accelerated by five fifty basis points in the quarter. Uh, it's still one of the strongest performers post pandemic um in our coverage universe, if not the the strongest. Will see how the rest of earnings pans out. So listen, there's a lot of really good things going on over there. But you know, we're really curious as opposed to the cracker barrel Old Country, that stock chart is a disaster. As much as Paul loves the Country Boy Breakfast, Um,

you're not making any money on this one. Well, so, so it's been tough. Um. You know, they have a high percentage of of older customers right, people that are repired and they're pulling back on their spending. People that might be a little more afraid of COVID over the last couple of years, so less likely to go into the restaurant family. Dining in general has been pressured more than pretty much any of of the you know, subcategories in the restaurant industry. So yeah, it's been that's been

a particularly difficult place to play, for sure. Most of their customers aren't taking the PJ from a rubit of Veil. Probably not so anyway, But Mike, I was out of Veil last week and a lot of the restaurants they were only seating maybe two thirds or three quarters at the table because they still don't have staff. So that still seems to be an issue. But I'd love to get your call here. What are you telling clients about

the restaurants space here? How do we play it? Sure? So, uh well, it looks like, you know, Veil needs an influx of ski bums. Yes, it sounds like to me maybe maybe the lift ticket has just gotten Yeah it's a lot of money. I just bought one for Park City. Uh yeah, it's definitely not cheap. Um So yeah, you know, January December was pretty bad, which they're surprising. December sales were bad, which is a surprising because we were laughing some O Macron impact and they've had a nice rebound

here in January. But we think it's gonna be short lived, right because we're laughed in that O Macron outbreak last year, and so in mid February or so well that that tail winds gonna start to go away, you know. And we just think that all of the aggressive um price increases right to combat inflation and all the other inflationary aspects um that that are hurting consumer wallets, we think it's eventually going to take their toll in the restaurant space,

so um. You know, we think quick service franchise, heavily franchise chains changed with scale, so think you know McDonald's, think of Dominoes. We think those chains will will outperform uh this year. And it's the casual dining chains that own a lot of the restaurants have a lot of operating leverage in their model. You know, if they see some pressure on the sales line, it's gonna, all right,

continue to squeeze their margins. All right, My great stuff as always my Kevin, senior restaurant analysts for Bloomberg Intelligence. This is Bloomberg lots of earnings data, after lots of ECO data out there, CPI yesterday, retail sales jobs. I need a professional to give me some perspective here, and that's what we call on Gina Martin Adams. She's the chief equity strategist for Bloomberg Intelligence. So, Gina, you do this for a living, You've been doing it for decades.

How do you put it all together and make a coherent call for Yeah, I think that's a great question, because we are in very unique times, you know. I think we first need to acknowledge the fact that even though people such as myself and and you guys there have been in this market for decades, we've been in the market in the decades of experience of decelerating CPI, we've never experienced inflation to the green we experienced inflation in two and that inflation spike has serious consequences for

investment strategies going forward. I do think it's really important, most important, though, to keep your eye on the earning stream and what's happening in earnings and the expectations for earnings over the course of this year will most likely drive stock prices. It's no coincidence that stock prices struggled

last year as earnings came off of their peak. We've now discovered, you know, over the course of the last several months, that earnings didn't the peak at the end of one which does help explain the market's weakness throughout, even though the economy appears to be rather stable. Inflation is the biggest reason for that earnings peak. We saw inflation pike last year. It created a crunch in margins. The inflation deceleration absolutely essential in in order to create

a margin bottom. So what do you expect in terms of SMP earnings this year, Gina? We had Robert teter On from Silver Crest Asset Management who said he thinks earnings are going to be flat. Yeah. The first question I have to ask back is which version of earnings? Because I think this is incredibly important right now and

it's really missing from the discussion. Operating earnings or sort of adjusted consensus comparable earnings are what most strategists and most analysts forecast, and on a on an adjusted basis, we too expect a very modest decline, we expect something close to two to five percent ultimately um A lot of thats so on how much energy drops. If you look at adjusted EPs, adjusted EPs is already down seven from its peak and likely falls another closer to seven percent.

So which EPs is also very important because when you're only looking at consensus comparable EPs numbers over the last year, you would have thought earnings were still rising. Well, what do I have on E A. Wh When I pull up E A and I look at sales growth at five point three percent, earnings growth negative two point four percent, what are we looking at just as numbers now an

adjusted number. So what we're doing, and I think this is really important, is you've you've got to keep track of which version of earnings you're looking at, because if you're looking at adjusted versus unadjusted earnings, you also get a very different perspective on where valuations are. And I think this is the struggle right now is and it is always the struggle. At major cyclical turning points in the market, companies do have major write off Let's think

about just one example, Ribbyan and Amazon. You get a completely different perspective of Amazon's earnings when you think about the Ribban write offs. Then when you look at a consensus comparable operating learnings number for Amazon, the result is really incredible distortions and valuations as well, which makes this point in the in the market cycle really difficult for investors. Really adds as the complexity. So where do we go here, Gina?

I mean, how should I think about these markets? I got the markets are still done double digits from the high, but boy, they're up off the lows at October low. I don't know where to go here? What do you tell an investors? Yeah, and our view was at the October low, we had priced a pretty significant earning surcession. We've done in our fair value models at that point in time, we wrote that the market was already anticipating somewhere between a five and fifteen percent contraction and earnings

depending upon where you're boging for fet funds. Right is, so we had already gone through a process of pricing a fairly significant downdraft coming. We're now experiencing that downdraft in the earning stream on an adjusted basis um, and we'll continue to experience that in the early part of that said, the rally that we've we've had in the market since the October lows does look to be a bit overdone in our view. In particular, the leadership and

the rally is very suspicious. If we're moving into a climate where economic growth is somewhat stable, inflation is decelerating but nonetheless a little too sticky, and the Fed has to keep policy rates higher. Leadership in large cap growth is very suspicious and subject to correction. So I think you've got a lot of potential movement beneath that top line. As the market looks a little bit overbought in the short run, some of the excess inflation of the October

to January period probably needs to blow off. So we look at UH the SMP broken down into eleven industry groups here to day, the leaders, to your point, Gina, are consumer discretionary stocks and then I t so tech stocks. Does that mean to you that, um, you know, investors are just so thrilled that two is over and they're just buying the worst performers of this year. Or are they did they do tax loss harvesting at the end of last year, Now they're getting back into those since

they got the right off. Are they were they shorting these stocks, and this is now a short covering rally. Yeah, I think it's a combination of all three of those. Those are all excellent points and certainly all part of the explanation for why stocks of rallies since October, but not all of it, right, I mean, some of the rallies since October is probably going to continue to stick because consumer discretionary, as an example, not all of consumer

discretionaries large cap growth. Sure, you've got the Amazon and Testless of the world, but then on the other end of the spectrum, you've got some pretty tremendous value opportunities that emerged in consumer discretionary and some hyper cyclical industries that tend to perform very well in an environment where the economy is moving into recovery from recession. So I

think there's some opportunities there. Very similarly, with tech, you've got a combination of big cap, defensive growth and value segments like the semiconductor space, where you know, I expectations were completely obliterated and are now starting to recover a

little bit in intercipation of a cycle emerging. So you know, I think you've really even got to go beneath the sector level, right down to the industry level and even the stock level at this point in the cycle, to look for where you see those deeper values, where you see sort of less exposure to interest rate risk going forward, where recession in the earning stream has largely been priced.

I mean, those are the opportunities that we're looking for to um emerge as winners over the course of Gina. Not that you don't have enough on your play right now, but I'm going to ask you to help us book our show over the next couple of days. Should we book a small cap portfolio manager? Small caps something to take a look at? Yeah, I we absolutely think small

caps are something to take a look at. You know, the small cap bear market is much longer in duration than the large cap bear market, so deep value has emerged in the small cap space. You're looking at a group that's trades roughly one and a half nearly two standard deviation below large caps valuation multiples and has been in a bear market since March of small caps also

have been in a bottoming process for longer. Remember the October lower lows in the SMP five hundred were not confirmed by small caps, which made their lowest low in June UM and have been sort of waffling around and trying to get a little bit of a lift, but not a tremendous amount of love, and underloved spaces are always the spaces where we want to dig for for

some diamonds UM in the rough. I think that small caps do present a really strong opportunity provided we all we have indeed price that recession and we're moving into some form of recovery here in the short term. It's so confusing to me UM, probably because we don't focus on it as much. But you've also got choices to make in small caps. Do you go with the Russell two thousand, do you go with the SMP six hundred.

There's Jeff Menton has a story on all these crazy technical indicators like the momentum indicate you're moving average convergent divergence, which sounds like it's just made up UM, and I just don't know UM where to go when I look at small caps. Yeah, I think that's a good point. But even the small cap benchmark manager really looks at only the top segment of small cap, the small cap Russell two thousand index, So for the most part, you're looking at the S and P six hundred as your

most investable opportunities within small caps. Maybe you extend that to uh, you know, the top the thousands of fifteen hundred of the Russell two thousand. There are some signals in the small cap index, you know, just works closely with our small cap strategist, might Casper to derive those comments to drive that commentary on the MACDI and the mac D has given us a signal that small caps maybe running out of steam with a negative crossover in

positive territory. That's a lot of gobbledegod, but it basically means is we probably have all right, reach some sort of short term top and small cast. That doesn't mean that opportunities are still there. Paul the stuff, Paul the moving average, convergence, divergence. So's a negative aspect and positive territory for sure. Cross am I'm buying that or my selling it? Gina Martin Adams. She covers all things on the strategy side for Bloomberg Intelligence. Thanks for listening to

the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three put on false Sweeney. I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio