Jennison Bets On 'Booming' Digital Payments Sector

to see each other at the end of June. He's also saying that he is happy to talk to player's chief executive officer on China trade policy. UH. He made some comments about a potential US defaults as well, saying that that could happen in late summer if there is no debt ceiling rays. He is testifying UH in front of Congress today and is going to be a commenty

will bring you headlines as they appear. Meanwhile, the concept of the ongoing trade skirmish between the U S and China certainly has impacted UH text shares, which have taken a beating and been more volatile. Our next guest still likes a bunch of those text socks and perhaps is

going to go shopping market Baraboo. He is head of Global Equity at Jennison Jennison Associates, the fundamental equity and fixed income business of p JIM overseeing about a hundred and sixty billion dollars from Boston, Mark, thank you so much for being here. So at this point, given how much we're seeing tech shares lag behind in light of some of the trade tensions, are you seeing opportunities? Yeah,

we definitely see opportunities. Um. You know, our focus, of course is on really strong secular growth stories in the market and in technology. There are many uh oftentimes they're not in in the crosshairs of the trade war, so that you know, it's not in semi conductors, it's not in devices, the areas we really like our cloud based architectures, software as a service companies, UH. Digital payments globally everywhere in the world, including in China. It's booming as everybody

moves to more cashless systems. So there's lots of opportunities out there, but you really want to stick with the the secular growers, not not try to outsmart the markets on this trade war. In the cyclical part of the market. So Mark, you mentioned kind of secular growth stories. One of the you know, really interesting secular growth stories that

has been developing within the tech space. It's just kind of the Chinese technology companies that have American investors have been able to invest in recently, Ali Baba, tense Cent Bai Do. What is your sense of those names given what appears to be rising trade tensions. Yeah, with well, let's look at Ali Baba as an example, uh, because it's pretty clean, uh in terms of the trade impact, because it doesn't really have any direct trade war impact.

It's really just a domestically focused company solving for convenience for Chinese consumers, uh and feeding that sort of emerging middle class boom that you're seeing in China. So you know, for example, in the first quarter they just boarded revenue growth, so no problems there, but there are multiples come down

now because of these trade tensions. So you could say that's could be a really good opportunity because it's very inexpensive relative to its growth rate uh, and of course a very very profitable company because of their business models. So that would be a good one to focus on going forward. Um. The only direct impact they would have is more indirect than that would be. A macroeconomic slowdown

in China obviously makes that more challenging for everybody. Uh. And I think that's what the markets pricing in, but it may be too pessimistic. When we think about tech shares, we often think about the Fangs, and that's really sort of been the dominant player uh in this space. What about them? I mean, are you right now interested in Apple? Are you interested in Facebook? Are you interested in some

of the big winners over the past a couple of months. Well, I think, you know, looking at Fang and brought more broadly to find it, you know, the market is charing for some of those companies. So the smartphone market is matured globally. Um Uh. Search market is still growing nicely, but it's it's obviously slowing down on a structural basis,

just because it's so big. Um And so when you look at Fang today, I mean, the two that are we're most excited about would be like a Netflix or Amazon, where the growth rates are still quite healthy and there's a lot of market penetration left for both companies, so their addressable market keeps expanding. UM. And that's what you'd want to look for. So I think even within FANG

the list gets narrower. So, Mark, we would be remissed today if we didn't ask you your thoughts on Qualcom big news this morning with the UH their regulatory issue stock down. Give us your sense of Qualcom. Yeah, I think the I think the market obviously thinks that recent deals that Qualcom is negotiated with Apple and Samsung, for example,

can somehow be broken UM. And you know we're we're not legal experts, and we don't know all the details of their agreements, UM, but it's our understanding that that's highly unlikely. And if that's the case, then qualcoms being oversold on this FTC decision because they've already privately negotiated agreements with their big customers, or most of them. So I'm just wondering what your highest conviction bet is right

now going forward over the next six or twelve months. Well, we think it's in the area of digital payments because

all over the world UM and developed markets. Of course, we have good financial infrastructure, but we're still seeing consumers move and move away from cash UM, which is still amazingly a large percentage of transactions even here and in emerging markets, they're actually leap frogging to internet based technologies that enable payments to occur very quickly, with less fraud and very cheaply, and providing financial services to underbanked populations.

So that's an area we think is just looks terrific. And are you talking specifically about Pal about Square? I mean, are those the names you're talking Yes, there's a whole list. In the US, it would be of course, a company like MasterCard, which is benefiting from from that digital trans transition. It would be PayPal, digital wallet, it would be Square

with serving small businesses. But then when you move outside the United States, it's interesting companies like Mercato Libra in Latin America, which has a good chance of becoming a dominant digital payments provider in that region. It's already an e commerce winner there. Um and and in and of course other companies that are just targeting payments like Audience and the Netherlands who have a blue chip customer list including Netflix, Uber, Airbnb, UM. So it's very good. It's

like it sounds like a hot sector. Mark Barrebo, head of Global Equity for Jennison associates, the fundamental equity and fixed income business of p G. I am. Let's talk housing, because there have been signs that the slowing housing market is starting to turn around, at least in certain parts. The big question, though, is, especially here now that we've had the tax season, are we still seeing persistent weakness in some of the high tax states, particularly in the

coastal areas. It's one area I'd like to focus on with Best Friedman, chief executive officer of Brown Harris Stevens, who joins us here in our Bloomberg Interactive Broker Studios. Bess, thank you so much for being here. So we look at the New York City market, or the San Francisco market, or some of these high end coastal high tax areas. Are we seeing a substantial hit at an ongoing level from the removal of salt deductions or have capping them anyway?

You know, it's I don't know. It's hard to say yet, I don't. We were just talking earlier about, you know, the new mansion tax which bent has been enacted, and I think that uh, come July that goes into effect and we won't know what the effect of that is going to be until we see the transactions for from a year from now, So it's hard to say at this point. But so I guess what I'm hearing in the New York market is that the higher end is weaker than say the mid end of the market. Is

that true and kind of what's driving that? If you think, I think the high end market has slowed down a bit, Definitely the co op market. I mean that used to be booming and we've definitely seen a slowdown. I think the prices were so uber high, you know, and you hear all these like big deals that got done and those days are kind of they've they've slowed down incredibly.

So now people the two bedroom, the three bedroom market, that market is very fluid, but the super high end market co op market has slowed down because people are looking for values and condominiums. They want to move downtown. Um, you're seeing a shift where people want to live with their kids. Now not everybody wants to be on the Upper east Side. They want to go downtown. And now

Hudson Yards, which is very new, super exciting. Um. Somebody referred to it as Dubai on the Hudson because it looks similar or to some of the stores and some of the shopping centers in Dubai, right. I mean, it's exciting, and we won't know what's going to happen with the condos there for a while. It's gonna take some time. One big question I have, and we just keep talking at nauseum about the trade tensions in the ongoing skirmish between US and China and elsewhere, and I wonder about

foreign investments. Are you still seeing that Chinese buyer, that European buyer to come to the US. That that buyer is gone. We haven't seen that buyer in a long time. How long um? I would say it's been three plus years since we've seen that buyer. I mean typically in New York City, it's you know, it's New Yorkers. It's very domestic. It's very light on you know, international people

coming to buy. It say it's probably people think there's so many people that come here to buy, but really it's a lot of New Yorkers and a lot of domestic you know, Texas, all over California. People buy here from within the United States. So that internationally, yeah, and no longer Chinese buyers are gone because you see some of these crazy ta easy buildings here in Midtown just right by our office here on fifty seven Street, and then on the west, the western side. It's really interesting.

I'm wondering. You say there has been a softening, uh in particularly in New York City, and I'm wondering how big has the softening been and how big could it be? You know, it's hard to say. I mean, we've seen probably a bit. It's probably down about ten percent if I had to estimate, And I don't know. It's you know, uncertainty is not good. All the stuff that's going on, like the trade wars, that kind of stuff is not good. Um. It creates sort of instability in the market. But you know,

I'm pretty optimistic about it. I see, you know, rates are good. Um, people are still buying, so I think that, Um, you know, the market is going to be steady. It has been steady, and I think it will continue to be so. So best your CEO of Brown Hire, stevens Um, what is your strategic focus for your firm this year? Giving given what you're telling us about the real estate market and some of the key markets like the Hampton's in New York. Well, we have kind of been focusing

on hiring the right people. We just hired a new chief marketing officer, so we're really focusing on UM, tightening up our markets and getting more strategic UM. We're focusing heavily on social media. That's obviously, as everybody knows, is like a new channel on the television. Everybody is on Instagram or LinkedIn or Facebook, and so we're spending a lot of time on digital. I think today print is kind of old school and people are not looking at

it as much. In real estate used always be like the glossy magazine and all the properties, but you get so many more readers or interests with content and social and digital. So we're focusing heavily on that. And Brown Hair Stevens, being a legacy firm, has typically been in print and so now we're trying to flip it a

little bit and do more digital. I wonder if there are other benefits to from going digital where you can actually measure who's viewing what and then use that to be able to better market and understand what people are looking for. You hit the nail right on the head. I mean with print, you put stuff out there, nobody knows if anybod even looks at it, orf it goes in the garbage. But we can totally measure what people are opening up and then we can get a little

bit more info on that. So what are you learning? We're learning like what what type of a person will like our information? What who's interested in? What where do they live, what's their background? All that stuff is helpful to us so we can cater to our audience. UM. So we're getting laser focused on digital. That's really important for us, and it seems important given that the millennials are coming into their real estate buying part of their lives.

What are you sensing any trends here, like in the New York Hampton's Florida market about millennials and their purchasing intent. You know, we see a lot of millennials purchasing in Brooklyn. I mean that's very popular, you know, in downtown and typically areas um that are not popular yet. You know, they want to be in places where people are not there yet, so they want to be or that's where they can afford places. That's I think you said it

a little bit better. I'm not I'm being very diplomatic, well said, but yes, I think that's a big part of it. So interesting. Best ream and thank you so much for joining us. Best As the CEO Brown Howard Stevens talking to us about the real estate market in New York, paul I felt a certain magic as our next guest walked into our Bloomberg Interactive Broker's studios. He is the longest serving malt master in the Scotch whiskey industry.

He is David Stewart of the Balveny. He is based normally in Scotland the Boviny excuse me, uh, He's normally based in Scotland, but he joins U here in New York. David, let's just talk about what it means to be a malt master. Yeah, it is a very unique job in the Scotch whisk industry, the scott swisk and it's employs thousands of people and and really there's probably only fifteen of us doing this same jobs out the whole industry.

So we are actually involved in the quality of the whiskey that's actually in the bottle, selecting the cast that will create any one of a different expressions, making sure if we taste consistently and the quality is correct, and also innovating as well looking forward of what we're going to release in a few years time. So we're always innovating and experimenting in our warehouses and putting a whisky into different cast types and maybe changing the distillation process

slightly to maybe give us something in the future. So it's a very proud to have worked in the Scotch whiskey and just for so long and and with this great family company. So talk to us about the Scotch whiskey business. Is it is it growing? Where is it growing? Where people drinking more and less? It is growing at the moment, and it has been for the last time or fifteen years. A number of the distilleries are actually

increasing production. We need to we need to look so far out to mean, our youngest whiskey is twelve years. We've got to forecast what we're going to sell in twelve years time. So we've got to increase production at our distillery now. So we're pretty quisky into casks that will age on for the next twelve years. So we're increasing production or distilleries and that's happening throughout the industry.

There's a lot of small craft the stiller is being opened up in Scotland, probably another ten or fifteen that will be opened up in the next five or ten years. So and Asia probably is is a big growing emerging market for the Scottish whisky industry. You were talking about how long you've been doing this. You started in nineteen sixty two at the age of seventeen. You've been doing this a long time. What's been the biggest change in the industry. Yeah, Well, when I started was all but

blended whiskey. We single malts weren't around at that time. But our company, the family company of William Grant Lawrence glen Fidder back in nineteen sixty three, just a year after I started, were and we probably had about ten years really without any competition. And then the rest of the industry soh A, well Glen Fidder was doing as a single malt how profitable single maults can be. And then and then the rest of the industry came into

two join us and launch their single malts. So I say, blender whiskey is Blender whiskey is still the biggest category if as sales are concerned, But single malts I've got such a variety, as I've mentioned as a hundred and twenty distilleris in Scotland, all producing these different styles of whiskey, different flavors. So and it's yeah, it's growing to be fair the last ten twenty years, it's as boom time for the Scotch whisky industry and long may that continue.

The company you're launching, I guess a new product, three bottle set of whiskeys. Tell us about that. Yeah, well this is the above any stories, which is all about the how we created the whiskey were calling stories, because a lot of stories to tell about how the whiskies were created and the people behind the behind the creation of these whiskey. So that the first one is a twelve year old whiskey which is they called the sweet

Taste of American Oak. And this is as we normally we're used the American child bottles after bourbon, but in this sensance we've actually used virgin oak instead of chatting they we've only toasted them at a Cooper's into Kentucky and we've got these bottles sent over to Scotland. We gave them another toasting in Scotland and then we put our twelve year old Blevinian into these casts for a short finishing period, so it sided more okayness and honey

and citrus and vanilla notes to the whiskey. Okay, So I should ask you about the increase in people investing in in scotch and sort of high end bottles and all of that. But I want to know more logistics about your tasting of this. Do you spit out the scotch when you taste it, when you swish it around in your mouth, or do you drink it? Or like the wine industry, we were trained nose us, so I'm

nosing Christy all the time. We've got tulip shaped nose and glasses that got a small opening at the top that we stick our nose into and so I actually taste it. We don't taste that very rarely do we taste that. We may need to do with twenty or thirty samples in a day from all different sides of the process, and you split it. Aging whiskey finishes single battles, but no, when noising the whiskey, that's what that's what

takes a long training period. David Stewart, thank you so much for being with a Smaalt Master of the Balvany from Scotland. Here we're we are looking at Boeing shares down more than one percent, but some people are expecting that they are getting ready to unroll the newest seven thirty seven, getting it back into service seven threies seven MAX. This of course was the one that came under a lot of scrutiny after being involved in two different crashes.

Joining us to give us a sense of what the latest here is is George Ferguson, Senior Aerospace, Defense and Airlines analyst for Bloomberg Intelligence. So, first of all, why is it important for Boeing to put Max back in service? Well, I mean, I think simply because there's they have no other product to offer to airlines and the narrow body airplane is is the most prevalently flown airplane around the world.

That's the biggest people mover. It's not to say that the seven thirty seven has has problems and it shouldn't be offered. I think the airplane is fine, um, but you couldn't go to another You couldn't decide we're going to redesign the seven thirty seven now because of these recent problems and and have a product to offer people. You know, for another five years. So, George, I know next month is the Paris Air Show and among all the champagne and rose that I'm sure you'll be drinking.

What is can Boeing actually sell airplanes? Can they sell seven thirty seven max Is next month in Paris? The funny thing is we've seen them actually sell a couple uh in the last and last few months, even while the airplane has been grounded. So can they sell them? Yeah? Bits and pieces, But there won't be any significant sales without getting this airplane back in the air and in

revenue flight. So it does look like they are going to get it back in air, but it's gonna look a little different, right, Yes, I mean we'll have some modifications to it, uh for sure. And I think that's you know, that's what's what's gonna get hammered out here. What we have a global regulators meeting coming tomorrow where the f A is inviting into bunch of regulators around the world, and and my senses the f A is going to show them what they think the right fixes.

And it seems to seems to us at the fixes that the semcast system that pushes the nose over in the event of the airplanes at risk of stalling. Um that this system will be less aggressive, because it really the MCAST system in both crosses really aggressively pushed the airplane's nose down because it was getting erroneous sensor input, but the pilots couldn't counteract it purely by pulling back on the on the yoke of the airplane, of the

control wheel the airplane. And it seems to me that sort of the fix will be not to let MCAST get that aggressive so the poots can can counteract it. There are other procedures for the pilots to to fix what they call runaway stabilizer problem, but I think that will be that will be core of the fix. I think the other challenge Boeing has here is they want the MAX to look like and and and take the same training as the seven thirty seven n G it's predecessor.

They sold it to airlines with the view that there wouldn't be much training required to transition from the old seven seven to the new MAX. And so I think what we'll watch very closely as we go into this regulator negotiations, will regulators want more training, especially if they want simulator training or actual flight chaining. I don't think flight training is on the table, but you never know.

Um that cost airlines money and they won't like that if they need that kind of training to transition pilots. Low cost airlines hate hate additional costs, and so that will be the key to watch as we get into this regulator round. So, George, I know we're we're still kind of in the midst of this, or Boeing still in the midst of this. Is there a sense of what the total cost or liability to Boeing will be here? Yees?

So we uh, we've been plugging some numbers together over the last couple of days, and you know, our view is that at the by the end of three Q the airplane we're back in the air um and we think that by the end of if they get into the air by the end of September, we think there's one point four one point five billion dollars worth of what lost profit to the airlines that had deliveries before it was grounded or would have gotten deliveries over the

last number of months. That number wouldn't sort of stop increasing because airlines would have until they got the deliveries they were expecting UH to continue to claim losses. We based that on Southwest, which is a very profitable airline, so we're trying to be a little bit high with that number. But we kind of see one point four one point five billions through the end of September, and we see about a billion dollar cost of both both of the crashes got a very good at one point

four billion dollars. George Ferguson, senior aerospace analysts for Bloomberg Intelligence, joining us on the phone from Princeton, New Jersey. George, thanks so much for your comments on Boeing. It seems like to the extent that Boeing maybe past the worst of this, and as George suggested, if they can get the plane back in the air UH in the third quarter, they can put some kind of cap on the liability and and move forward. Thanks for listening to the Bloomberg

P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa abram Woyit's I'm on Twitter at Lisa Bramwoits one before the podcast. You can always catch us worldwide on Bloomberg Radio.