Examining Labor, Retail, And Renewable Energy Markets

at Bloomberg dot com slash podcast. My question is where do we go with these markets in I'm gonna spend the next you know, some of the next few days of you know, getting some free time to maybe read some of those forecasts for an outlooks for Let's check in with a professional here, Marked Oubting, Chief Investment Officer, Blue Bay Asset Management. Mark, thanks so much for joining

us here. Heck of a one, we've still got another month or so ago, but just looking at the equity induicries for example, another just stellar year of performance from a risk asset perspective. How are you envisioning two at

this point? Yeah, so it's it's certainly been a strong use for risk assets in one, following on from a very good I guess the concern that I would have as we look forward into two is that one of the big factors that's been pushing markets up, of course, has been the liquidity coming from global central banks, and with policy now starting to turn, with the FED tapering, with the FED likely to to raise rates, we think

a couple of times in two. We do think it's going to be a much more challenging landscape next year. So in terms of beta returns, a much more subdue market we think in UM and potentially one which is going to be a bit more volatile as well as central banks step back, expect to see a bit more

volatility and markets. And you mentioned, of course that the risks here is that a lot of the valuations of liquidity driven and we have issues about margins and COVID perhaps, but maybe the bullish case, just to be devil's advocate, perhaps, is that saying that yeah, there might be peat growth, but that doesn't mean that it's doesn't mean low growth,

does it. They're not necessarily the same things, that's correct, And look, exty markets do love to climb a wall of worry, so um, I guess many people have tried to to write stocks off before uh and I do think we live in a financial sort of landscape where there is inflation in the presence of inflation, it's it's difficult to own cash, it's difficult to own a lot of sort of high quality fixed income. So as a

allocators haven't got too many places to go. And of course equities do have the protection of the fact that earnings will grow in line with prices, and so from that point of view, I still think we're looking at healthy earnings growth in a context of two. And from a growth standpoint, I think we can look forward to soon continued recovery of the global economy as we move away from the pandemic. All of these are obviously plus factors.

I guess the one thing that you would say is that the wind which has been blowing on your back in terms of given you a boost in terms of liquidity and policies or is now starting to turn, and that that children starting to blow into our faces as we moved into two and Mark, you mentioned earnings, and you know you've just come through a stellar third quarter earnings period, and you know, I guess the question is

was it enough? And are the profit outlooks enough to allay valuation concerns that I think a lot of investors do have. Yeah, well, it really was a very good scenes and and we we don't think we're done with good news in terms of earnings. I think the one thing that you would look at, maybe as an equity investor, is that you're you're looking at long dated bond fules

as effectively equities are long duration assets. You're you're discounting cash flows over many years, given the very elevated levels of PE. And in that context, if you do see a move up in long dated bond yelds, that could be the one thing which could strain those valuations to a greater extent. Perhaps could also pumpt a bit of

a rotation maybe away from growth towards value. Perhaps, So there may be some interesting thematics, but I do think that the equity markets will probably take quite a lot of their queue not just from what the FED is doing, but rather than what the long end of the bond market is doing. Yeah, and I think that's interesting because yeah, stocks are expensive when you look at them, perhaps on the PE ratios, but then when you compare them to bonds they look a little bit cheaper. So it is

a confusing time for asset allocators. And in this confusing time, how do you allocate Ino, Well, I think, per my my earlier comments, I'll tell you with a degree of caution, I think there has been a time where it wanted to be uh sort of position inquired a bullish fashion

over the course of the past eighteen months. I think it is a smart time now to take some risk off, to take able to to honker down a bit and actually be prepared to buy dips if you do see dips occur in the months ahead, if you buy the thesis that there's going to be volatility, I think maybe you're you're you're you're happy to try and sort of pick your moments to try and sort of add risk,

but otherwise act with a degree of caution. But I guess the one thing that you say about the high quality fixed income is that once upon a time we used to talk about the risk free asset. Well, that risk free asset now looks like more of a return free risk given that rates of a nothing and obviously yields are well below what we see on inflation. So in many respects, I think it's hard to be underweight

stocks and overweight fixed income. You probably want to remain overweight stocks, but I would perhaps be sort of rotating towards more cautious names, more defensives, more and more valuation players. For example, European banks I think are really cheap and could do pretty well in a rising rate environment. So there will be areas of the market that you say, yes, these are ones that we gotta like, but otherwise I think more of the cautious stance in twenty two. All right, Mark,

thanks so much for joining us. Really appreciate getting your thoughts, your perspective on these markets. Marked doubting, Chief investment officer for Blue Bay Asset Management, getting a little bit cautious but still constructive and overweight on equities. Okay, you. We had some retailers this morning, Gap and North from disappointing results. They called out supply chain issues and that kind of raises an issue for holiday spending going forward. If in fact I go to a mall, and that is a

huge if will there be stuff on the shelf. Let's check in with Elizabeth Ebert see I O advisory partner for CpG Retail and Logistics for Infosis Consulting Influsis is a huge company nine billion dollar market cap to stocks up year to date. So these folks kind of have their finger on the pulse here, Lizaba, thanks so much for joining us here talk to us about kind of white you're seeing from your retail clients as they try

to navigate this really unprecedented disruption in the global supply chain. Absolutely, and and thank you very much for that introduction. After last year, everyone was hoping that this year's Christmas season was going to be, UM, a lot more predictable, we are going to be past covid UH. There was going to be a lot more certainty and transparency into what the season was going to look like. And unfortunately, UM, it's absolutely not that. So there's been a convergence really

of of covid UH. You have to remember, and I think someone just said under the hood. Under the hood of what supply chain problems include are are very much the workforce issues, and supply chain does not have many opportunities for working from home, so those roles are being filled.

Even with this morning's great employment numbers, the supply chain roles are being filled very slowly, and that's very much affecting what we see with retail and retailers are having to pay more UM and the retail experience, what customers are going to see in the stores is going to

be a bit more fraught. There's going to be more challenges in and getting any associate help, There's going to be inventory gaps, so there's there's really more headaches than opposed to what we're hoping for at the end of last year. UM. The other thing I'd like to point out is that retailers stock and plan based on prior year's performance. So last year was an unusual year, and to plan over last year's performance and those trends and have this year be completely off the rails in terms

of expectations. Some of those demand forecasting models are simply broken again, and so there's just a huge amount of uncertainty and that's going to be reflected really in the customer experience through the holiday season. And of course it's Black Friday coming up and blee Back intelligence saying that are expecting robust holiday sales despite a lot of these supply chain issues that we have a lot of items are on the shelves if you go and see tailers

seemed to be prepared. But there are a few special discounts and office this year, uh, and those don't seem to be quite as eye catching. Is this all down to the supply chain? Absolutely? And I think what is the primary motivation with retailers and those promotions and um you may have noticed I certainly have in in my email is uh, Black Friday has seemed to be every Friday for the past couple of weeks. Cyber Monday just

seems to be Monday. Um. But my sense of it is is that retailers are simply trying to lock in the sales as quickly as possible because as you think about that supply chain with all of the different links, those links are going to go right out to FedEx and ups and those deliveries. Uh. Today there's announcements about shipping deadlines on December fifteenth for normal, non expedited shipments.

So I think the the strategic objective with the retailers is to move product as quickly as possible and then if things managed to work out, as we're starting to see some of the supply chain issues in the poor workout, that hopefully that help the enthusiastic US consumer just keeps on buying right through the holiday. Let's overall, what do you what are your clients telling you about what they expect here? For retail sales during this holiday period this year.

You know, they're they're feeling very positive and very robust. They recognize that there's going to be some complexities with the inventory management issues. Um what they've done is adapt by maintaining more inventory and their distribution centers versus pushing it out to stores, and that's going to push more e commerce volumes or as a customer is in the store than being to order from the store and ship from from a warehouse. Um. So they're they're expecting robust sales.

Certainly they're expecting, um uh, the the inflation numbers to to drive up the total sales numbers just simply because things are a bit more expensive. But they are feeling the ability to lighten up on the promotions and even raise prices and still capture those sales. Elizabeth, thank you so much for joining us. Really appreciate getting your broad perspective of retail sales as we head into this all important holiday shopping season. Elizabeth Ebert, c I, O advisory

partner for CpG Retail and Logistics at Infosis Consulting. This Elizabeth was mentioning her clients expecting very strong retail sales the challenges that we're seeing from the likes of the Gap and the Nordstrom is to actually have stuff on the shelf to meet that demand. President Biden this week tapped the US oil reserves to try to bring down

the cost of energy, particularly gas at the pump. What was interesting to a lot of people was, Hey, it doesn't happen very often, and b there was some coordination with some other countries out there suggesting that the this could have a little bit more bite. But it kind of goes to the whole issue of managing energy. Transitioning to renewable energy, how is that going to play out in a global economy. Let's check in with Nick blitters Wike,

chief executive officer and founder of UGE International. UG distributes renewables to address the world's energy and environmental challenges. Nick, thanks so much for joining us here. Where are we? I guess in this transition to renewables, it seems like we kind of had a little bit of a hiccup here because boy, we still need the fossil fuels houses playing out. Yeah, good morning. Um, Well, I think you know, globally, the US now is number two to China in terms

of solo that's being deployed. I think the stat a lot of people wouldn't fully appreciated that the last couple of years U asked about of all the energy being is told is solars. So solar is coming quick. Um, it's not gonna get pent right away, but um, but it definitely it's it's coming quick. Here. Um, we saw a COP twenty six that there's still big divisions between

countries in terms of meeting targets. Uh. For instance we saw with India and China, and also you know there was no agreement on cobb impermits and what more do you think needs to be done so that everybody is more aligned? Yeah, it's a good question. You know, it's funny you mentioned China and India, which are number one and number three in terms of amount of solar being

installed these days. So you know, I think, Um, politically, for whatever reason, the world's at a point where it's having a difficult time coming together on some of these

big picture of policies. But you know, I think on the ground, what we're seeing as solar, it's projected to be eight percent of all new energy by the end of this decade, and so I'm hopeful as people start to realize that this decade really does belong to renewable energy UM becoming the main source of energy, Hopefully people will start to realize that UM, it's it doesn't need to be as hard as some people maybe think, and hopefully we can get together and set those set those priorities.

Is the US the leader in transitioning to renewables or not? Or not? UM? Well, of course the US has always had a great technology advantage, in an entrepreneurship advantage, I would say, UM, and so on that basis, you do see a lot of innovation from American companies, UM. And I like to think of you g as as being right within that right UM. And so you know, US leads the world that I would say in a number

of aspects. Within solar UM. You know, I will say though that China's installing about three times as much solar as the US right now. So we do have a long way to go. And in that transition period that we're talking about towards renewable energies, there's also that question of affordability for the likes of solar, for the likes of wind, and how we get around that given those cost issues well, you say cost issues, I would I

would take offense to had to be honest. You know, at this point in time, solar has become the cheapest source of energy and more and more places. Um, you know, I think the use cases are are increasing quite quickly here. So um, you know, a number of years back now, residential solar became cost effective to a number of people,

but not everyone can install solar on their rooftop. UM and so where we come in as we developed community solar projects and in essence making it as easy for anyone to get solar energy, just just like signing up for Netflix and um. And so what we do is the installed projects and then distribute that energy to subscribers within a community, which typically tends to be utility zone. And and our model is has been for years providing cheaper energy to two people that we uh we sign

up Bloomberg. We actually have a partnership with Bloomberg. If we announced back in the summer, or Bloomberg employees can sign up and save ten percent on their energy bill as well. So you know, solar and of course we're we're focused and the cost here has come down so much over the last decade that it is cost effective for for many many people around the world. Now, Nick,

we've had a lot of UM fiscal stimulus. UM, We've got the Build Back Better UH legislation coming through Congress here give us a sense of kind of where the U. S. Government is in terms of supporting UH, this transition to renewable energy. Yeah, well, I would say that right now, the the benefits of the fine administration winning for our

sector are finally kind of coming to fruition here. So of course, we had the bipartisan Infrastructure Built signed into law last week that includes about seventy three billion for upgrades to the electric grid, which will have some knock on benefits to renewable energy. But the Build Back Betteract

really is what focuses on the movement towards renewable energy. So, you know, for solar, it provides a ten year extension of the investment tax credit, something that was initially put in place by by by President Bush Um but but it's something that would give us a long term certainty and there are some other benefits there as well. And I think we've also seen a nice switch in terms

of UM, the US government's approach to trade UM. You know, we've in the industry called it the solar coaster here for a number of years because it's been a bit of a target I think from different different governments in the US and elsewhere. But it is the last two weeks we've had three different trade uh things go through that have made it probably cheaper for US to import import solar panels um in the next in right year and years to come here as well. All right, Nick,

very exciting, very interesting. Nick Blitterswike, chief executive officer and founder of u g E International that is a publicly traded company. U g E is the symbol trades in Canada's got a market cap about sixty million dollars uh, So very interesting there as they manage and distribute renewable energy across the communities. And again it is a trend that the folks of Nick Blitzwike have believe will be a long term trend. This, folks, is the Conversation of

the morning. Mark Mahaney you know him as the senior managing director and head of Internet Research Forever Core I s I. I consider him to be one of the best most thoughtful analysts out there on Wall Street. Discover the Internet names for you know, twenty plus years since the beginning of this whole thing we call the Internet. He has also got a new book out entitled Nothing but Net ten Timeless stock picking Lessons from Front of Wall Street's top tech Analysts. Hey, Mark, thanks so much

for joining us. To really appreciate you taking the time. I'm really fascinated to read this book as I was an analyst for twenty years. I managed analysts for ten years, so I can't wait to get a look at this thing. What are some of the key lessons you learned in your career picking stocks? Okay, well, thanks for the setup, and I very much appreciate the opportunity to talk about it. It's a new book, but it's also my only book. Uh,

it's uh. It's kind of a culmination of twenty five years of looking at tech stocks, and one of the single simplest but most important lessons is that the fundamentals really do matter. I've seen cases where stocks and fundamentals to be divorced near term, you know, for a couple of months, but a long term there's no doubt in my mind that stocks follow fundamentals. So that's stronger the revenue growth, the larger the profit pools, the higher the

stock price. You find a company that can be materially bigger three years down the road, and almost always its stock price is going to be materially higher. So that's kind of this one most important takeaway. And then in terms of the the advice, and I try to really feel through the initially of the successes and the failures in in the Internet space, both my own stockpics. It's also just the doxyconominally well, the Amazons and the Netflix and the one that didn't eBay and Yahoo and uh

and grub Hub, names like that. UM. I tried to draw some lessons and at the end of it, I really had people try to focus on d h ds dislocated high quality companies. I tried to describe what high quality companies are and when to get them when they're dislocated. And that's the one thing to keep in mind from

the book. It's that hunt for d h ds, well Mark, if you look at valuations right now that they were sky high, so earnings this isn't really going to need to keep up, So how does that play into your outlook as well? Well? UM One of the lessons I also learned is that they have a title called evaluation

is in the eye of the tech stockholder. Valuation is, of course an important factor, but I think it actually should be one of the last factors you really want to focus on finding high quality companies WE really that really had platform potential, and then you know, when they show that they've got an excellent track record or product innovation,

that they face large slams total addressable markets. I don't want to say that valuation takes care of itself, but and oftentimes can companies that can really scale, that can maintain super premium growth called plus revenue growth for multiple years from a position of scale, I think the market

generally ends up undervaluing those names. I think for many years Netflix was undervalued, Amazon was undervalued because people weren't able to appreciate just how they're how large their market opportunities were, and how well they could execute against those and sustain that premium growth. So that valuation is important, but I don't think it should be the most important

factor when it comes to picking text stocks. Hey, Mark, talk to us about management, Like I always thought of my career that you know, management really does matter, or even if you've got a great technology. I really need to get in there and spend time with the management. How do you think about that as you kind of look at companies that you're going to cover. Yeah, if

you do, you you prefaced it perfectly. My factor is actually called management matters UM and uh so it's one of the most important criteriaon and determine what a high quality companies. I'm not sure you can get a high quality company that doesn't have an excellent management. So what are you looking for? You're looking for companies that are long term oriented management teams that are long term oriented.

I've always had a bias for founder led companies. I just think that they're able to make a decisive decisions in ways that professional managers just don't just don't have the ability, the gravitas in order to do that division. In order to do that, I love to see companies with great vision. I think about Read Hastings and Netflix, and I've always been struck by the fact that Read Hastings started Netflix, and and the name itself conjures up some sort of idea of Flix or movies film coming

over the internet. But it was a d D by mail business for the next ten years. But Read absolutely new retastings. Absolutely knew that the future was in streaming, that we just needed the infrastructure and home WiFi systems to be set up. But to have somebody who could look out, you know that we had that kind of basi in five or ten years and realize where home

entertainment was going. That was truly impressive. So you find people like that who can kind of call correctly industry pivots the new generation, the development of a new generation of industries. That's really impressive. It's extremely rare. But if you find those people, you want to stick with them. And Mark, speaking of pivots in the industry. In the future of tech, we've all been talking about meta metaverse seems to be all the rage, even though it is

potentially years away. Even semi stocks have been rallying on just the mention of this. Uh So, is that something you think investors want to be thinking about getting mettos into. I think so. I think it's going to be a Ritica. I think it's going to be more options value, you know, for theinic several years. Uh And you know, I think it's gonna we're gonna be We're gonna I think it's five to ten years before we really know what miniverse

is going to be. Like, I do think when you find these large tech platforms, you want them to have some sort of option value. You want them to have some sort of long term investment um priority. Whether it's alternaty and closing Google, whether it's robotics with them it is not, whether it's metaverse with with Facebook. I think

it just makes the underlying asset more valuable. I also think that in a way Facebook needs to invest in the metaverse um because if there's something, if there's something that's going to change our social networks and then they're going to become what's called verse sold in they are today, I mean, that could create systemic risk for Facebook. So I think it's mostly an offensive investment, but there's a

little bit of defensivelopment to uh to it. I think that given the amount of effort and energy and resources dollars that are going into the metaverse, I would probably I'm long the concept the winner is aren't going to be determined. Cur five to tend is I think Facebooks in a decent position, but that it's one to mark what's your best idea for I like these dislocated. Um uh, you know, high quality companies. And so there's three names

I think in megacap that are reasonably dislocated here. One is Uber, which I still still think it's a great recovery play. There's their racturing business is still below pre COVID level, So I think there's a lot of recovery juice in that stock. And I think it's a high quality asset. It's not Founder let go. That's the one negative. But but I think the rest of the huge end

markets really compelling value proposition. I still like Amazon and the Facebook, I think, and I look at Amazon and Facebook, both is reasonably dislocated stocks, high quality assets. When they get dislocated, you should be adding or binding those Mark, thanks so much for joining us today. I really appreciate you taking the time. Mark Mahaney, he's a senior managing director and head of Internet Research forever Core. I s I he's got a book out now, is a new book.

It is his first book. As Mark said, it is entitled nothing but net ten Timeless stock picking lessons from one of Wall Street's top tech animals. And again, as I can say, having been in this business for thirty years, Mark absolutely is one of the top annials out there, not just for tech but just in general. Very thoughtful in his analysis and his approach to looking at stocks and picking stocks. Thanks for listening to the Bloomberg Markets podcast.

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