Inflation, Consumer Sentiment, And Labor

I'm looking at a market the SMP. Let's call it a correction off at or about ten percent, yet nastack off at or about If I'm gonna buy the dipper? Is this my time to buy? Good morning, guys, Thanks for having me. Um, that's always the trillion dollar question, and the answer is you just never know where the bottom is. Um, there's the pendulum is certainly swung wearing choppy waters right now. There's there's a lot of issues here.

Every other guest talks about it. In the long term, I think this is an incredible opportunity to be buying great companies that are off significantly. But you know, when we were went from a correction of a bear market in the Nasdack. If you look back to November where November twenty two, the market fell three from the highest the lows that day, and that's why really sort of

started this downwards. So now we're almost on the nastac We don't know where the low can be, but if you look out over time, we think this is a great opportunity. So UM a great opportunity though for for what is the question? How do you screen for the companies that you want to buy? How do you make those decisions? Absolutely, fundamentals matter significantly, especially in when you're

in sort of down markets, and balance sheets get looked at. UM. One of my old bosses said in bullmarkets, it's all about the income statement revenue, right, you've the sales multiples, et cetera. And profits are insignificant when you come on the way down. Of course, balance sheets matter, cash positions, real profits, and we've seen that. So we think what we've done for clients the last few months has moved out of which has been very helpful, moving out of

unprofitable companies. UH. And that's you've seen a lot of other guests talk about the Cathy Wood type names, the ARC universe, selling profitable positions, the companies like apples the world, the mega cap texts that are profitable that can buy back stock to buy unprofitable companies, and that's been a very bad uh direction the last few months. So we think we've we've screened out a lot of those companies.

We don't know where the lows. Maybe we say that again near term where we think long term as a secular investor, what are the big trends that are going to happen over the next five or ten years. I think that the markets gives us our our job is that markets are very sort of near term, almost cyclical obsessed, and we think that's the real opportunity here. So um, we think there's incredible companies and technology. That's the sector we've focused on for our entire career twenty plus years.

It's proven to be a great place to be. We think that will be a better place to be in the next twenty years than than it is today. There's just periods here where certain sectors fall out of favor. So on the tech side, you know, when you've got a name like Facebook, which has been such a strong performer for so many investors, but it's down year to date, off about over the trailing twelve months. So when you look at a name like that, what do you what

do you think? Yeah, there's a couple of big issues there. Um, we we've been a long term shareholder since the I p O. We'll never forget the day that the I p O shares locked up UM at the six month mark. Peter Deal famously sold every single share. He had about a billion dollars worth around eighteen so he caused himself ten billion dollars by being somewhat shortsighted there, and he's actually just left the board. But um, you know, over time,

they've done an incredible job growing their business. They're very profitable, but they're making a major pivot, and that pivot is a couple of areas. One is they're investing UM into new products which don't have as much AD units behind them, which is something like a TikTok type reels product. So they're having a change. They're sort of sort of trying to change the engine midflight here, which is always very challenging.

They're trying to change their AD products on their core business, which faces some competition from other apps and time spent, and then they're actually literally changed the name of their company to focus on the future hardware business, which is where they want to go from two D screens to three D screens. And they spend ten billion dollars and lost a lot of money there, and they finally split out that segment, which is their their hardware AI initiatives as well as um Oculus, v R, A R and

And that's a long time away. So you've got a really tough combination of slowing growth and rising expenses, and that's why you know, the stock has fallen so significantly because that's a bad combination for investors. Don't they also, I mean, at least in the metaverse, aren't they going to have significant competition from companies that haven't happened to change their names to meta platforms? Sure well, we we will.

We own the Video, we own Microsoft, We own a lot of the companies that we think are going to benefit from a move away from screens. And Apple as well. I mean, they're the biggest um They're they're the unknown at the moment, but they have the largest one of you know, the best, Google, the largest user based and mobile devices apples second. But in terms of higher value

customers and profits, Apples the clear leader. Those two companies will make um, you know, potentially incredible moves there and given their size and scales, so yes, it's an absolutely uh you know, competitive landscape, but an omniverse. So the meta versus a concept is a connection of you know, a lot of different worlds together um, where people are gonna spend more time you know, beyond their screens potentially, so and we think there's room for all of them

to intermix um. But yes, it's definitely they have no you know, Zuckerberg has done incredible job growing against with you know, without having control of his platforms. And he tried to launch a phone a few years ago, did not work. Basis did as well, also failed. But he wants to control his hardware and his software. That's something that Apple has famously done with the software, hardware and services connection. Uh, And so he's trying to do that.

He's making big bowld bets and so he really wanted to let us employees know this is the way we're going to be moving. So we think over the next you know, several years, as more of these products come out, we'll get his better sense of what, um, what they're doing. They're actually having an ai UH demo day today, so we'll see what we'll watch that after this. All right, Adam, thanks so much for taking the time out and chatting with us. Adam Gold, founder and chief investment officer for

Catam LLC talking to us about these markets. Still likes the text story um as opposed to some of the cyclical names, the energies, the banks that have performed well on a reopening type of trade. He's sticking with technology at that firm. Let's continue that discussion on retail with Mary Sure, senior Equity Annals at Columbia Thread Needle. Maury, we've come through with most of the earnings here, a

lot of the earnings. How is the consumer faring? I think overall the consumer is is faring much better than expected. We d We did see in the retail sales numbers and here from the companies. At the very end of the holiday was a little bit weaker, but that was attributed to oh Macron related traffic pressure. And since the middle of January we have seen traffic and sales improve, which I think is very encouraging, especially given the very

tough compares that so many company are up against. I think another really big takeaway is given the strong underlying health of the consumer, the companies are very confident in their ability to continue to take price despite the fact that inflation continues to build. Yeah, I was going to ask about what, if what effects has that had Mari um.

The inflation numbers are eye popping. I don't know what, um what Paul paid for his Elton John tickets last night, but I'm gonna guess it was a lot more than he would have paid a couple of years ago. And the and the steak before keens at stake as well. Yeah, food inflation um as well as uh, you know, experiences and stuff. It just costs a lot more. How how

are consumers dealing with that? Surprisingly well. Speaking to the companies, and these are companies with exposure to all different categories, everything from food to handbags, the companies are not seeing any real pushback to or pricing efforts, or any real evidence of trade down. But they are all saying that if this level inflation continues, then they would expect to see trade down and greater focus of spending on needs over wats, But right now we are not seeing that

in the current sales trends. Mario What are the retailers saying about the supply chain? Are they able to get stuff on the shelves, do they expect it to get better or worse, or what are they saying. I think that oh, Macron delayed the normalization of the supply chain a little bit um but and and most of the companies I think are taking a more conservative view in expecting the freight cost pressure to continue through the full year.

But that really reflects the fact that demand is so strong and they are having to um to chase sales and that is coming at a greater cost. But as it relates to inventory, day have all taken action to pull forward inventory receipts and so when it when it comes to the inventory that you might see on the shelves of the stores, you should see that in a very good condition. And I think it could even continue

to improve further as we moved through the year. All right, Mary, thank you so much for joining us getting us an update here on all things retail and on the consumer. And as Marie was saying, consumer continues to be strong in this economy. Mary Shore, senior equity analyst at Columbia thread Needle Investments, giving us the latest tier Steve Kane, co ce io and general's portfolio manager at TCW Investment Management.

He went to the University of Chicago, got his NBA there, Matt, which means he understands the booth duration, the booth school vexity. I'm an equity guy, Steve, so I don'tally don't. I didn't pay too much attention to that business school. But you're fixed income portfolio manager. What do you do here in a rising interest rate environment? Steve? Well, hopefully, uh you had your duration short going back a year or so,

which we were fortunate to do. But I would say that, um, you know, things are getting a little bit more interesting in the fixed income world from a value perspective, and I think where we you know, along the rate environment, we uh, we think the front end of the curve is starting to look interesting. A one sixty two year that discounts eight fed tightenings over the next you know, fifteen months or so, it looks reasonable. Now when you

look out the curve, we're not as excited. You know, a sub ten year and uh thirty year just beyond your you're just not getting much term premium or really getting paid for your risk out the curve. So in general, what we tell investors is keep your duration shut, keep keep your focus on the on the front end of the curve. So, um, if we get eight rate hikes or more, would that surprise you then? No, not at all.

I mean the d is I mean, of course, it depends on what happens with inflation and with the economy and all that. But you know, our view is inflation is going to run hot, certainly for the balance of this year and maybe well into next year, given what we're seeing in the labor market and with wages. Uh, certainly energy prices feeding into that as well. Um. Yeah, No, the FED is uh, you know, almost regardless of what happens with the you know, Russian Ukraine or even the

stock market, the fence locked into a tightening path here. Um, given the high level of inflation and the fact that they really need to begin to get to work to address that, Steve, what does history have to tell us about the ability of the FED to fight inflation? I kind of feel like inflation is just because there's a bunch of ships off the port of Long Beach and the portrait clogged, and there's nobody to move this stuff, and there's no truckers, and what can the FED really

do there? The FED can do nothing, I think lined up, lined up outside of ports, there's there's absolutely nothing they can do that The FED can really just through monetary policy affect financial conditions and the demand side of the economy through through interest rate sensitive sectors of the economy, which means there they have a very bluntant instrument. UM as we all know in terms of dealing with inflation,

and inflation works with the lag. So the sort of unfortunate thing from an inflation forecasting standpoint is, even though they are going to be hiking, the impact of those hikes, UM is going to affect the economy with a lag and then inflation with even a further lag. So UH, it's it's not gonna really have an immediate effect on on the supply side of the economy at all. How important is it to get the rest of UM the f O M c UH confirmed UM, I don't think

it really matters all that much. I mean that you have your big three in place, Paul Brainerd and Williams, the UH president of the New York FT, and UH, I don't think they need a full slate of Fed governors and presidents don't necessarily make decisions, so I think, you know, yes, it would be nice, but I don't think it's gonna affect in any way there their policy

making decisions. Steve, you know when the FED made this pivot to a more hawkers stance and were I think the market was talking about three rate increases now potentially as many as seven. How do you feel about that discussion point of is the Fed behind the market? Are they trying to play catch up? How do you think

about that? Yeah? I think they are. And I think what happened is, you know, they they went with the transitory supply bottleneck view for a while, and I think what changed as they began to see tightness in the labor market and um, you know, unemployment at four percent and wages rising very quickly and sort of forward looking indicators like the quits rate at historical highs, people leaving their job voluntarily, all suggests that this is more than

a temporary phenomenon, that it's you know, it's affected the labor market. And I think the Fed, you is behind the curve in fact, and because you know, wages uh in the employment market do not react quickly to change it an interest rates. So again, it's going to be some period of time and some amount of that tightening and slowing in the economy before you see an impact on the labor market. All right, Steve, thanks so much

for joining us. To really appreciate it. I always love talking to the folks at t c W. Get this two billion dollars in fixed income assets. I mean, that is a meeting. When you go to l A to see clients, you gotta lockdown that tc W meeting first and foremost, I want to talk about the workplace here. We've we've talked a lot about the great resignation, four to five million folks leaving in the workforce. That's got to handle on what it means for women. Are they

a part of that? Are are they representative of part of that great resignation? And will they come back to the workforce. Tara J. Frank, President and CEO of t f J Career Modeling Jo and just Tara, thanks so much for joining us talk to us about women in the labor force as we enter into year three this pandemic. Hi there, thanks for having me. First of all, Um, Yeah, very good question. When you ask about whether women are

engaged in the Great resignation. They're actually leading the Great resignation. And to put a finer point on it, women of color are actually leading the Great resignation. And there are

a lot of reasons for that. Um. I think one, when we think about the pandemic and the pressure that has put on so many people, it also kind of enabled especially women of color, to have virtual faith spaces right where they weren't necessarily having to deal with some of the things microaggressions, etcetera that they may have been

dealing with in the workplace. Clearly, the last couple of years have given people a little bit more flexibility and the opportunity to combine work in life in ways that gave them a sense of harmony. So yeah, most definitely that would explain for sure how it's easier for women of color to work from home, um or how it's um you know, not as difficult when it comes to the kind of racism or sexism that they may face in the work place. But I wonder about those who

have left the workforce. Have they left because you know, out of choice, because they wanted to because now you know, I don't know, retirement funds One up with the stock market, or they found a way to make it work on um less pay, or have they left because they had to Those who have left, have they left because they

needed to take care of children, take care of their elders, etcetera. Well, some are leaving the workforce as we define it traditionally, but they're not necessarily leaving work, right, So I think we have a couple of different facets of this. Yes, some are leaving the workforce because they're having to manage so many more factors um, But others are leaving companies

not necessarily the workforce or working in general. Right, they're creating new avenues of income in partnership with other people with their own kind of creativity and ideas. But yeah, they're leaving the traditional workforce as we know it um

and and really just trying to manage life. So what are we seeing in kind of the leadership positions terror Because I mean, I think whether it's gender diversity or other diverse other types of diversity, it really I kind of feel like at the lower levels there's pretty decent representation, but it is the higher you go, the more difficult it becomes. Again, real diversification, is there some solutions that the pay gap. If you if it's like for like you know, job for job, maybe that pay gap is

shrinking a little bit. But I think Terra, your your point is that if you look at the unadjusted pay gap, it's still large because you don't see UM women, you don't see people of color in enough, in high enough numbers moving into the leadership higher positions. Yes, that is absolutely right. So what we're what we have here is

essentially occupational segregation. Right, You have women in lower paying jobs, and you know, to your question about what can we do in in order to change that, I think one of the things we really need to do that leaders and companies need to do UM is certainly start capturing UH data at deeper levels UM, but also interspectional data, so not just data about women representation, but really looking

kind of all across all those dimensions of difference. They also need to get a much better sense of what's happening inside their cultures experientially, because a lot of this bias that is keeping women from being able to move higher into those higher contributing positions were not necessarily conscious of. They have to do with things like women may not always get the same kind of coaching. Women may not

always have the same degree of visibility. Women and especially women of color, may not be being sponsored at the same rate, and a lot of this is connected to affinity, bias, right proximity. When we have power, which is mostly white men in these organizations, everything that comes with the power flows to the people who are most like us, and women are not benefiting from that. Tara, thank you so much for joining us. Really fascinating discussion. Tara J. Frank,

President and CEO of t f J Career Modeling. 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. P on false Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.