Investing, Gaming, And Cybersecurity

Carolina Chapel Hill guy. But we we beat up on them last weekend in Chapel Hill, so I guess we can deal with it. Jake Brice and Managing Director Chief Economists at Wells Fargo. Don't put up with him, Jake. You know it's gonna be so sweet when we beat you guys in Carolin. All right, we'll see about that. That'll be fun, all right, Jay, Um, you know, we got a lot of inflation out there, whether you see it at the gas pump, you see it at the supermarket.

Is this something that could really be a problem for this economy? You know? So you know, I think inflation is going to be stickier than many people, I think appreciate uh, this year, you know, by the end So right now, if you look at the overall rate of CPI inflation, it's running about seven percent or so, we get a print tomorrow, we think by the end of the year it will still be running close before per cent or so. I mean, that's just that's a high

number for most people. So I don't think that this is we're on the cusp of the seventy seven in terms of you're looking at double digit growth rates and inflation. But I do believe it's going to be higher and that then the problem comes in is how does the Federal Reserve react to that? Right, if they really start to clamp down on the brakes, you potentially could have a big slowdown later this year going into next year. So how hard do you think they will step on

the brakes? Because this Fed seemed very dovish before UM J. Powell's reconfirmation a renomination, and all of a sudden, they seem pretty hawkish, even the doves, even the candidates that the left wanted to replace Powell, seem pretty hawk ish on this inflation. Now, that's that's right, They're all singing from the same hypno right now, although I would point out that the hawkish members in recent weeks have kind of,

you know, dialed it back a little bit. I mean, I think they're even recognizing that we don't need to really step on or want to step on the breaks here. That said, I mean, we're looking for the markets more or less priced for five rate hikes over the course of this year. We also think the FED will take steps to start to unwind its balance sheet probably in the middle of the year. That's a form of tightening as well. And so I mean there is you know,

there there's tightening coming up. That said, the underlying fundamentals of the economy, and you look at balance sheets of households, you look at balance sheets of individuals, uh or or businesses. They're all pretty solid right now. So the underlying fundamentals of the economy remade pretty good it should, you know, and pretty inducive to I'll call it solid growth this year, you know, nothing like we saw last year. But we also don't think we're looking at a you know, a

recession in the foreseeable future. By the way, ju Um, expect inflation to continue through not at seven percent levels you just said, but maybe four percent, that's still twice UM. The FED target black Rock a couple of days ago put out a research report saying the problem is that people are buying more stuff. I love dope stuff. My wife loves experiences and services. She would rather go on a trip and get a massage. I would rather buy

a motorcycle or a car. UM is the issue that more and more people, through the pandemic UH put away their UM services needs and replaced it with stuff. Yeah, so with you know, so what has been really strong has been good spending and so and look at the CPI again. It's euryear rate of seven percent right now. Roughly five percentage points of that seven is coming from good so two thirds is coming from goods. And we only spend a sermat of our money on goods, So

goods are punching well above their fighting way right now. Now. You know, there's also been a probably a fair amount of good spending that has been pulled forward, right I mean, you know, during the pandemic, everyone went out and they bought a trampoline or a basketball groups for the kids. We don't have to replace that every year. You know, the same thing for cars and things of that nature.

So as you go forward, which we're you know, what we expect to see and we're kind of actually seeing it is a pivot from good spending that should slow down. The supply chains will become unclogged, and so you know that the impulse to inflation coming from goods should start to cool off a little bit. But we still do have some pipeline inflationary pressures in terms of services coming through, and so that's one of the reasons why we think

inflation is going to remain elevated. You know, again, I don't think it's going to go up significantly from here. We're not. I don't think we're going from seven percent to ten percent. But you know, at the end of the year, if you're still running four percent, that's still kind of hot for many folks. Jay, what's the risk that our federal Reserve makes a mistake here and make it just goes too fast, too far, whether it's a fifty rate hike in March, or whether the the tightening

is more aggressive than the market thinks. It seems like they've been telegraphing things pretty well. But what's the chance of a mistake. You know, it's not insignificant. Um. You know the problem. The problem is when you start to move, and when the Fed moves. Historically, when it moves, it

continues to move in the same direction for a while. Okay, Um, you know, so we don't think we're going to see a fifty basis on rate hike in March, but we think we'll see twenty five in March, twenty five and twenty five in June, and then start to wind down the balance she July. You know. The issue is that it takes a while for that policy heightening to actually

start to show up in the economic data. And so whenever they start to move, you know, in a in a tightening sort of direction, there's always going to be the rest that they potentially could move um too fast now you know, you know, forceline, the market does tend to send signals, um. You know, if you know, if they do start to move a little too fast with

the stock market, probably is gonna wabble bond yields. Uh, you know, you could get a potentially inverted yield could in that And you know, so the Center Reserve does pay attention to the signals that the market is sending out and so all right, we'll keep it saying that, all right, Jay, thank you so much for joining us. Jay Bryson, Managing Director, Chief Economists for Wells Fargo, and Jay knows that I root for Duke and for whoever is playing Carolina, but he's been pretty well there for

Carolina and grad J Brison Walls Fargo. Let's continue our discussion and the gaming space, this time on the hardware side. We're joined by Andy Paul CEO and founder. Of course, They're Gaming That is a publicly treated company on nastack c R. S R is the ticker. It's about a two billion dollar market cap. Stock is pretty flat for the year, down about over the trailing twelve months. They reported some numbers last night, a little bit better and

expected on the EPs line. Let's get the latest. Andy, thanks so much for joining us here. What's the key takeaway from the quarter that you reported last night? Well, as you mentioned, uh, it was a great quarter. We're pretty happy with the results. And um, I think what everyone's starting to understand now is that because of the surgeon activity from gamers during the shelter at home period, But now we have to compare a post pandemic quarter

which was Q four it's just just finished. Compared that with Q four and that represented about fifty growth, So we're pretty pleased with that. Yeah, listen, I mean, you can't do anything about the fact that your business got

a huge boost during lockdown. We were just talking about other companies that in a way faced the same curse, because when that lockdown lifts, UM, you don't have the same kind of tailwind behind you that you that you all of a sudden did what what can you do or what did you do during that period that you

think is really important? Well, firstly, UM, let me just correct one thing, because the nice thing about people that buy UM gear for any kind of sport, including gaming, is as a pretty short refresh cycle, and so all the new gamers that started to buy a gear in the first one UM, you know, we'll look at about a two to four year refresh cycle. So we'll see a repeat of this in uh, you know late So

that's what we're pretty excited about. Now. What we did during that surge of activity was obviously scramble against massive supply chaining issues and so you know, most of the effort was around the operations of just getting stuff onto the water and into the country, as you know, massive increases in lead times of costs from containershipments from as

I want to get back to the supply chain. But with all due respect, I have to say, even as someone who spends thousands of dollars playing video games and waste countless hours, I don't understand how can you call it a sport. I mean I will sit there with the full bag of Doritos in a six pack playing Call of Duty and I don't feel like I worked out much. You know, well yeah, maybe maybe not in your in your physical body. But here's the interesting thing

that is making it more like sports. You know, everyone started to talk now about metaverse and what the options are, what the opportunities are in there. And what's clear to me is that most sports involve social interaction. So if you think about any sport you do, whether you get mountain biking or skiing with friends, there's a lot of social action, probably more time than they actually spent on the sport. And that's what we're starting to see gaming

turn into. And so you see these platforms like Roadblocks like Fortnite, what people are spending as much time socializing with each other as they are. You know, playing the playing the game. So I think that's what we've got to look forward to. So, you know, Mark Zuckerberg has really kind of raised the bar in terms of awareness on the metaverse, and I think I'm just starting to kind of come to grips of what that could be, what that could look like. Um, but but I do

get the gaming aspect. How do you guys think about the metaverse as a you know, a's a growth driver for just gaming in general. Yeah, so I think I think it's a trend that's already happening. I mean, I know Mark's coined the latest label, but but there's a growth trend that's been going on for a while. Um, and this was you know, now we've got the hindsight it should have been expected that, um, you know, people would want to spend a lot of time, you know,

with each other in a social environment. Now, the good thing for us is that any time spent in recorded the metaverse, this conversation, But anytime you spend interactive entertainment through the Internet, you need to buy gear to do that. So you need a platform, whether it's a constantal game PC, and you need keyboards, mice, headsets, controllers. Um, so it's more people spend more time, then we would expect to

continue to send more, sell more gear. Well, what's your expectation for how we uh live in the metaverse and in the future. I mean, typically people think UM VR headset and I just can't buy into that. I would much prefer to be in a room with you know, our all four walls or monitors or something different than a VR headset. But how does it look to you? Yeah,

well that's true. I can't imagine people are gonna spend a lot of time walking around with big, heavy goggles on them, So I think that that part of it, um, you know, in terms of the virtual UM aspect, I think he's more like everyone I know is talking about. They are augmented reality rather than virtual reality, which you

can do with just some some fairly lightweight glasses. But I think the important thing is not so much of that aspect, but the fact that, you know, people are gonna live spend a lot of time in a virtual world, and they're gonna want to have a digital personal, digital personality, but in many ways it's a little different from their physical personality. And that's why I think a lot of the opportunities are in terms of um, you know, how

people acquire those digital personalities. You should see my character and red dead redemption. I have no idea where he's awesome, he's better than me? Um, does you have a name? And Andy? Let's get back to the day to day boring business of UM running your company. Uh, not that it's boring, but you know, the supply chain issues have been probably frustrating, let's put it that way. Do you see them alleviating now? I mean, um in you know, post endemic cours their are you able to get your

hands on materials and chips faster better? Yeah? Yeah? So, UM, I think that there's the several parts of this right. One is the semiic nup to shortage, and that's certainly affected a lot of our higher end, more complex products that we've largely taken care of by just adjusting inventory. Um. And so that that you know, in finding alternate supplieres and massive thing UM. So that's not really an issue anymore.

The bigger issue is that container costs, which used to be sort of a few years ago three thousand dollars to bring a container from Astion to the US, is now two dollars, so when you've got some and quite honestly, there's no reason for that. Um. I mean I look at this and I think, okay, either those prices are going to go down or every private equery company is going to start investing in container companies. So we know that's going to normalize. We hope we're going to see

more of that this year. Uh, there's other issues that are related to not just cost, but you know, the COVID situation, especially recently with Omicron, has caused a massive shortage of labor, and so the big hold up now in terms of time, you know, it doesn't take any longer for ships to go across the ocean, but getting unloaded, getting onto trucks, getting them drivers to take them too, hubs and stores, that's the biggest issue we have at the moment. All right, Andy, thank you so much for

joining us. I really appreciate your time and you Paul CEO and founder. Of course they're gaming all right. You know, before we got the SMP up one point three, it looks like it's just another those buy on the dips. We had the SMP down around you know, and here we are making moves higher for you know the last several days. Let's bring in somebody who does this stuff for a living, Guy Davis, Managing director and portfolio manager for g c I Investors. Guy, you know, maybe maybe

I'm just getting lazy. I just buy the dips and I don't think much more than that. What are you seeing in these markets? I had been morning everyone, Thanks for having me. Um. Certainly, yeah, I would say we've been in a situation for quite some period of time where the buy the dip mantra continues to hold. I know there are some people saying that, you know, the FED puts about to disappear as interesting trade starts going up.

But honestly, I think, you know, we've seen such volatile markets just in the first few weeks at the beginning of two U One of the things I always think back to is that I think, basically there's not real anybody who really knows where where markets are going in the short time, and certainly our approach is always the peerage like this typically provide a huge amount of opportunity, and where you're con clined is some very attractive companies

get end up getting settled off quite aggressively, even even when they don't necessarily need to. And certainly as we go through this earning season, there's a couple of stocks that I'd love to pick out and talk about in a little more detail. But you're seeing very significant punishment of individual names on specific ending days if there's the slightest whiff of increased capex or lower guidance to the next couple of quarters. That's a real theme that we've

been seeing a certain season. Is Facebook one of those. I've just been looking at the DS page and notice the market cap is just six hundred billion dollars, which in the age of these mega caps feels minuscule, right, Yeah, Yeah, I mean Facebook has been a fascinating company over the last you know, I'd say ten years, but certainly in the last twelve eighteen months. I mean, do you think

fundamentally Facebook owns the largest and deepest network. They're trading it like three dollars per user exactly, and there is a Yeah, I think Facebook is a great example of you know, I mentioned the difference between kind of individual stock price moves and business value. To thirty billion was wiped off Facebook on earnings day recently. Now, in terms of kind of efficient market hypothesis, It's kind of hard to justify the fact that the value of Facebook as

an entity changed to in a single day. Now, realistically, what was happening in the earnings was, you know, there's a there was a It was to me it was a very kind of politically and regulatory for focused earling. This call you could hear from from Mark and from Cheryl. There was a real focus on, Hey, we're being being we're being beaten down here. TikTok's beating us in reels.

Apple and Google have colluded against us. When it comes to the iOS changes, we saw a big jump in kind of cap ex spending for the likes of Facebook from this having to spend a huge amount of money to try and replicate the same sort of analytics that they used to get from iOS and they now don't get anymore. That's a big costo them and it's going to roll through for the next few years. You're also

seeing a massive amount of capex going through from the metaverse. Honestly, I think Facebook as an entity, I think is arguably presenting fantastic value today in a sense that it's trading and are cheaper multiple than IBM. It's trading in one of the cheapest multiples we've seen for a considerable period of time, and it's still a company that's growing on plus a year, and it's still a company that's generating

plus incremental margins. The real question mark comes with all of this additional capect is going spend into the metaverse is a significant kind of question mark as to how easy is that going to monetize and how is that going to play out? That to me is the big risk factor. Even accounting for that, you've got core Facebook,

which to me is cheap as we stand today. Interesting. Yeah, interesting potential entry point for some folks that feel like maybe they missed as some of the upside for Facebook slash Metta Guy Davis, Managing director and portfolio manager for g c I Investors, giving us his thoughts on these markets, which we appreciate. All right, Let's talk cyberge security ransomwhere it is everywhere and it pops up everyone in a while with a high profile story, but we know it's

out there every single day. Christy Wyatt's CEO and president of Absolute Software that's a NASAC listed security stock a b s T is this ticker symbol um Christie, thanks so much, for joining us here. I'd love to just get a thirty thousand foot view of how you guys view cybersecurity, the size of it, the growth rate, what are some of the big issues that you guys are

looking at. Well, good morning, um, So, I think you've entered into a whole new era of cyber security, especially for enterprise rights as everybody's employees that are now working from home. It's it's had a rethink almost everything we knew about how to protect the employee, and that just makes employees incredibly vulnerable to things like ransomware. And that's why you're seeing this acceleration of attacks around these topics.

It's because these organizations are more vulnerable right now. Yeah, so, um, are we able to defend ourselves as well as our creating defenses UM that keep up with the attacks, or or are the criminals kind of um, you know, out maneuvering the the police in this. I think it's more of the shift, right, I think I think we definitely organizations are doing their very best to keep up and there's no lack of spending. We've seen the investment in

cybersecurity accelerate over a year. I think we we talked about a is the investment Christie, is the investment growth consistent with because it strikes me and this is your point, and I think it's a great one. We had everybody kind of moving out of the prison and into the wild. You know, everyone has taken her or his company laptop out of the out of the building and home, and now they're on their own WiFi networks which aren't protected.

And now they're you know, at Starbucks and you can look over their shoulder like every every security measure is gone all of a sudden. So yeah, and so and so a lot of the things that we used to rely on to protect users, like protecting the network. I know people use the castle and the moat analogy. When the previous regime, we all seem you were in the building and we could protect you by watching you, and

now you're at home. And so you hear people talk a lot about things like zero trust and moving a lot more of the intelligence out to the device so that your security is at home with you. And so I think this is a massive shift and it's driving

a tremendous amount of change and investment. I think across organizations that need to revamp their security strategy based on the risk profile changing and the landscape of what they need to protect is changed dramatically, and so there's a lot of you know, this is one of those pivotal moments in the cyber landscape where everybody's making this massive shift all at the same time. How can small uh and mid sized businesses afford to do this? I wonder.

I mean, I I can see a company like, you know, a Bloomberg going out and buying the best security, but I'm just not sure about somebody small the midsize. But it's a great point because the big, the big ransomware, the big cyber breaches you read about, You read about large security firms coming in and giving you know, sort of the details of how they are compromised, and the

attacks don't look incredibly different. It's just the stakes are higher, and so if you are a small business and or small enterprise, you don't have access to those same resources. The two most important things I think that folks need to be investing in. Number one. You know, we talk a lot about detection and prevention. There's a lot of tools available to help you try to screen for and identify bad things coming into your organization. And you can

you know, you can select one of those tools. I think the second piece and in my mind, you know almost the more critical pieces. You should assume that even if the largest organizations with all of their investment are getting compromised, you are ultimately going to be the recipient of a ransomware or some sort of cyber breach. It's going to happen. So you have to think about remediation. Like an example would be, you know, if you click on that email in your device phrases and asks you

to pay rants in order to get your data back. Well, when that system freezes, you know, whatever organization you're running, it can no longer connect to that device. And so what we do uniquely is we can maintain a connection to that device because we're embedded in the hardware. And so when you think about your investment, you have to think about both sides. How do I know something bad is going on? And when something bad is going on,

what am I going to do? How am I going to get my stuff back without get shutting my school down or my business down? And is this the I mean, I know nothing about I T but you have the first self healing zero trust platform can you explain that to us. Yeah, The unique thing about Absolute is that we're embedded in the hardware of almost every PC and laptop that's been manufactured for the last fifteen years. So over a half a billion devices have this capability in them.

It's just to the customer to to sort of turn it on by working with with Absolute. And so what that means is we can monitor the health of your security applications or of the things you care about, and if they become compromised, we can heal the By heal them, we mean we can fix them, repair them, reinstall them, so we can automate the recovery. And so if your employee is at home, I can't just tell you, know, I t to swing by your desktop and fix whatever

has happened on your system. I have to be able to do that remotely. And because we're in the hardware, we have the ability to do that even when your security applications, your operating system may be in a state where it's not communicating with you anymore. And so so this is a bit of that shift I'm talking about in in in sort of the approach, which is if you assume everybody's not in the office, and you assume bad things are going to happen. You have to assume

you have this lifeline. Um, Christie, I hope you get a different way of looking at it. I hope we get to get you back. Not enough time and fascinating stuff. Christy Wyatt is the CEO and president of Absolute Software. She also was named one of the top fifty women in Softwares of Service by The Software Report and uh CEO of the Year by The Globe and Mail. Thanks for listening to the Bloomberg Mark Kids podcasts. 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 fall Sweeney I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio.