Jobs, Markets, And A Look At Tesla

be concerned about? Is this something the FED really needs to be concerned about as they think about the beginning tapering perhaps next month. Let's check in with Lindsay Pegs as she's at chief econrass for Stifle Financial, joining us on the phone from Minneapolis. H Lindsay, thanks so much for joining us here again, another big miss here, second straight month. Here. Do we have a theme here? Do

we have something to worry about? Well, we do know that the data and the labor market has been increasingly volatile, and it's not to say that this wasn't expected in the aftermath of a crisis. It will take time for balance to be restored to the marketplace. Obviously, this morning's number very disappointing. On the heels of last numbers last month there to the last month's number coming in under expectations. But remember this follows the July number, which was well

over a million, surging past expectations. So when we smoothed this out, we're still talking about adding about half a million jobs each month, and we have been since March. So there's still is a very clear underlying positive trends in hiring, but there's now more volatility month to month. Yeah. Well, lindsay, we knew this recovery was going to happen in fits and starts, right, but September wasn't theory supposed to be a start month because kids were back at school, those

extra unemployment benefits rolled off. If that didn't happen in September, how can we have any confidence that that effect is indeed going to happen. Well, there are a number of variables that should have helped pull workers into the labor market. As you mentioned, kids are going back to school, the unemployment benefits ended September six. We also have growing confidence in the vaccine initiative, which is well underway, but there's

still variables pushing in the opposite direction. We still see working families struggling with daycare or elder care issues. We still see millions of Americans reporting that they're concerned about the virus spreading or contracting the virus. So it's not a flip to switch scenario. This will take time even in the case of benefits. Benefits this time around were arguably so overly generous, plus the moratorium on rents or evictions,

plus the additional checks landing in people's mailboxes. So for many Americans, they've actually been able to accumulate a sizable amount of wealth which won't carry them indefinitely, but it could carry them for several months even now after the expiration of those enhanced unemployment benefits. So it's more likely that we see a slow trickle into the labor market as opposed to and open the floodgates and everyone jumps

back in. So one of the things that jumped out of me is this the as we looked at the participation rate was um, women women leaving the job market. Um, how concerning is that to you? And is it is it primarily a function of we're in that kind of that weird period. Kids going back to school, but maybe they're not going back to school and that kind of thing. Now, this is a very big concern. We have seen women under an extreme amount of pressure from an employment standpoint.

One in four women reporting that they've either have been forced to downshift their career or leave the labor force entirely as a result of the virus and the associated policies. So this essentially translates into millions of women leaving the labor force undoing years, if not decades in terms of enticing women and developing women in the labor market. So, if we're not able to re establish a trend of pulling workers, and in particular women, female workers back into

the labor market, this has significant long run implications. Yeah. Well, and it's not just women leaving the labor force as well. We talk a lot about how the pandemic accelerated, you know, early retirement, and a lot of those people of a certain age may not be returning ever to the labor force. They may have just called it quits right then and there. So when you think about some of those dynamics, does the FED need to redefine what maximum employment is when

it's thinking about achieving its dual mandate. It's a good question and It's something that the FED certainly has been considering when they talk about the dynamic metrics of the labor market, not only adjusting the threshold, but also looking at the different cohorts of the labor market that may have been disproportionately impacted, making sure that most groups or or the majority of groups have been including in the recovery, and if not, the FED has said that they're willing

to err on the side of caution. Now that being said, we have been a dramatic improvement in the unemployment rate across the board, and this does seem to be enough for the FED to move forward at least with the first step of removing accommodative policy. So at least from the chairman's perspective, as he told us that the latest effle MC meeting that box in terms of inflation and the labor market, both of those have been checked. All Right, let's switch a litle it off the labor front and

just take a look at supply chain issues. I'm wondering, you know, we're hearing from more and more companies and what that supply chain is an ongoing and significant issue on their operations. Is it enough to materially impact, say your GDP forecast for the remainder of this year, maybe going into next year. How are you trying to capture um that issue? Well, producers at this point are still putting forth a very great effort to try to ramp up output to meet a still heightened level of demand

in the marketplace. But even if they are able to find workers, which as we just talked about, is still a big challenge with a sizeable labor supply gap, bottlenecks, disruptions in the international supply chain are continuing to restrict that flow of goods out to the marketplace. And I do think it's important to remember that we're very much

a global, globally integrated production line. If we're a US producer trying to make goods for our domestic base, well, if there's a particular component or part that comes from Sri Lanka or Vietnam, but with much of the developing world one, two or three steps behind us in terms of controlling the virus and re establishing normalcy, this is

going to have significant negative implications for US producers. And as a result, absolutely we have to look at the supply constraints and the capacity restraints when we're talking about our overall great forecast between that and still a very tepid labor market, are very moderate labor market. I do think growth is going to remain positive, but slow to a three to four percent range in the back half

of the year. Well, let's talk about the consumer's role within that growth, because the Americans consumer is what powers this economy. And as we talk about these supply chain issues resulting in higher input costs for companies, companies by and large have been able to pass those on through just higher prices for their customers. With the kind of wage growth we are seeing exing out inflation, how long are consumers going to be able to be tolerant of

those price increases. It's a good question, and I would imagine that we have at least enough cushion for the next several months, again against the backdrop of not only rising wages, additional bonuses, incentive packages that has been offered by employers, but also the one point seven trillion and accumulated wealth that consumers have as a backstop to these rising prices. But it's certainly not an indefinite fix, and if in fact, transitory price pressures do prove to be

longer lasting. As we look out to the end of the year and into two, at some point consumers are going to be priced out of the market and they're going to have to pull back on demand for both goods and services. Lindsay. One of the issues right now as we think about how the you know, the business or economic response to this pandemic is one of the decisions for companies and for employee employees is do I come back to work? And how many days do I

come back to work? Because the argument can certainly made that the US economy was pretty darn efficient and productive during the lockdown and during these past eighteen months. As an economist looking at the macro picture, do you have an opinion about what's best for the U s economy or what could contribute the most to the US economy kind of a hybrid model, back to work model like the old days, or or just strictly working from home. Well,

I think all of the above. I don't think there's a one size fits all answer for individuals or sectors of the economy. For some sectors that it simply does not make sense for workers to be at home. They can't efficiently do their job, and so when the economy eventually returns to normalcy, we would expect those sectors to welcome back those employees full time. But for some it does make sense to have the flexibility of a hybrid model.

Perhaps they're losing production or productivity time in commute times. Many individuals drive forty five minutes or an hour to the office at that valuable time that they could have otherwise been using to execute activities at their full time position. So it's really going to depend on the individual. It's going to depend on the business and what fits one

business may not be best for the next. Lindsay, just quickly after this kind of disappointing headline number, at least on the payrolls report, you've seen some lawmakers, including Nancy Pelosi, putting out statements saying this just underscores the need for further fiscal stimulus and investment in the longer term in the economy here in the United States. How are you thinking about the fiscal equation and the ultimate size of

those packages out in the in the works on Capitol Hill. Well, I think anytime there's on evenness in the data or uncertainty in the outlook, officials in Washington will use that as an opportunity to push fiscal and initiatives in the name of economic growth and job creation. But we do have to be careful as we're talking about further stimulus

dollars being spent. Looking in hindsight at the Enhanced Unemployment Benefits program, we do know that in some cases this actually created an incentive for workers to remain outside of the labor market by essentially compensating them equal to or even above what they would otherwise earn in the private sector. So we do have to reach that delicate balance providing a safety net but certainly not encouraging individuals to remain outside of the productive capacity position. Lindsay, thank you so

much for joining us. Yet again, we always appreciate getting your thoughts and insight. Lindsay PEGSA, chief economists for Stiple Financial. This is Bloomberg. All right, Let's talk with a big Penn State alum. Dan Ives is the Penn State nitt Allan's head to Iowa to play number three Iowa this weekend. Dan, thanks so much for joining us here. Dan ives as a managing director equity research for web Bush. Dan. Let's

talk test of here, Ellen moving. I guess the headquarters to Austin, Texas, joining a long list of companies moving to Texas and Florida and thin things like that. Should I care about that or should I just focus on when that plant in Austin is gonna be built, When the plant in Berlin is gonna be ready to go to crank out some more cars. What's important thing here? Yeah, it's a great question. I think right now it's about capacity build out for Wind is going to be keen Europe.

Austin is going to be the hub and part of why they're moving the headquarters there. It's important because this is going to give them about it anywhere from five seven improvements potentially just from a margin perspective, given the robotic nature and how scalable Austin is going to be. The headquarter move obviously passes as well just lower costs of living. This is a no brainer strategic move from

Musk and PASSA right move at the right time. Well, it's great to have in theory the production capacity down. But also yesterday Elon Musk was talking about some of the supply side challenges Tesla is facing. It's not just even the chip shortage, but ships, you know, all the ips. How much downside risk is there on the production side

due to some of those supply chain challenges. Yeah, that's a near term headwind, of course, Tessa and and the rest of the automotive and tech supply chains you know, with but they've been able to navigate it a lot better than other automakers. I think you saw that with the three Q numbers. It's still about a forty tho unit headwind. But as began to twenty two, which starts to moderate and this green tidal wave starts to take cold, I believe Passa, you know, lead this charge here, but

you're gonna see GM four another's benefit. But no doubt so why chain a near term hit? But you look through that and I think capacity we're starting to see right lights as we go in two thousand and twenty two. So as this business continues to evolved in it and we get some of the major automakers on a global scale committing obviously significant resources to this, how do you think Tesla will position itself? Is it trying to be hey, we're the best, were the first, were the best, were

the most unique? Or are they gonna say we're gonna be the biggest? How do you think they're gonna position themselves. Yeah, well I have it's brand. It's a unique brand they feel globally and that's part of the cashe that Tessa was built. But ultimately come down to battery technology and the innovation coming out of Tessa. We think battery technology costs could be reduced by fifty of next two to

three years. That's enable him to go after the Matches forty fifty cars and that's really where you start to keep demand significantly ramp. And that's how Tess to go to nine hundred thousand units potentially this year to what I've used two million units when we look out the next two years. Wow. Okay, So how is Tesla gonna be able to withstand competition from the likes of GM and others who are legacy automakers who have had you know,

much greater scale who are getting into the e V space. Yeah, and we don't be this is a zero or some game. I think GM. There's a massive renaissance of growth happened Detroy, which just came back from the analyst day, and that's the rerating stock is they benefit and go after this

green tide away. But today it's two percent of autos or evs in the US weren't good about two thou me massive beneficiary GM for Tessa and others as part of this, you know, moved to evs, which we view is the biggest transformation to the auto industreets in nineteen fifties. So I continue to view it as it's not just Tessa, but Tessa is going to be a disproportionate beneficiary, I think even as we're seeing this quarter. So, Dan, I did see your Bloomberg television uh hit from I guess

yesterday or something. It looks like you're broadcasting from the back of a car story there. Yeah, that was from the GM analyst day, you know. And and specifically you know that they released some of these Hummers E d s and super cruise technology, which you know, Paul, I mean, it's really what they're coming out with is something that's special. And I think we're gonna look back and look at

this is really a pivotal turnaround for GM. We have an eighty five dollar stock price, so I think this could be one that moves a lot higher from here. All right, talk to us a little bit more. Let's just broaden it out a little bit, uh Dan, Just in terms of tech here, you know, I think we've seen rotations in and out of tech, in and out of cyclicals. Um, how do you think about your space? I mean you follow the tech space across the board.

What's your call here? As you talk to maybe some of your clients and you're saying, you know, in a rising interest rate environment, I might not want to be as overweight technical about go buy some more energy your banks. How do you kind of respond to that? Yeah? I mean, look, a lot of handholding the last few weeks, but ultimately a ten twenty bit move in the tenure doesn't change our decades long pool thesis in tech, which we expected

own well in two thousand twenty two. It's it's a basically fourth in Dushia revolution playing out in terms of the digital transformation to trillion of spending. We want to continue to play names like Apple on five G, Microsoft, Uncloud, cyber security, which we kind of view as a golden age, names like cyber r G, Scour and others. So to us, it's a green light to own tech despite some of

the white knuckles. We have a sixteen thousand target for Nadzach year end and I think this is one week to a timber send move into year end, especially on three to earnings that we expect to be Well, let's talk about those earnings stand because it seems every single quarter when we come in, expectations are impossibly high for some of these big tech names, and often they are actually able to exceed them, but you don't necessarily see the share reward because valuations are so rich are already

so why would earnings be a catalyst this time around? Yeah, it's a great point. I think ultimately the street has

has sold really closed earnings. I think this is gonna be a little different because as we go not just some three que but into qute four and the streets massively underestimating the growth stories that we're seeing across pack and as much as we could talk about ratings potentially being compressed because of what's happened the tenure, I think streets underestimating growth across tax by anywhere from ten over

the next year. And that's why I view this as a seminal earning season to really you know, turn the tide there from a sentiment perspective, can they do that? I mean, you know, in terms of we were just talking a little bit earlier, Kayley asked about that supply chain. I'm I'm just an observer who thinks that that's gonna be a bigger issue this earning season than I think. Maybe the market's discounting. In one of the areas where

it may be more pronounced, is technology. Do you think the streets taking in for your tech names, you know, kind of what we're seeing across the bord in terms of supply chain issues. Yeah, I think the street as to something say, it's almost overly discounted for the supply chain. I mean, we're starting to see throughout our Asia check that's actually moderating going into early next year. So we're

going to continue out of that head wind. This quarter, streets took and past that, and that's the important thing. You'll have those headwinds, but as you look into two thousand twenty two, it starts to moderate and it's gonna be a massive lift in terms of seeing in terms of overall growth for tech. That's why I view this is not time to throw in the white towel, but actually double down. Chech so Dan to these supply chain issues.

I had a little bit of an episode about a month and a half ago, I was on the TV set and I was trying to put my Apple Watch back on, and I dropped it on its face and it just totally shattered to the point where you could see the chips inside. And everybody said, wait, wait, wait for the new one to come out if you're going to buy a new one, But I had no faith I would get one on my wrist in the near terment.

I'm glad I just bought a replacement that day because Apple, you know, those watches, even though the event was last month, aren't coming out until a week from now. As Apple moves forward, how do they need to diversify their supply chain so they don't risk those kind of delays again? Yeah, I mean they're really married to the as of supply chain and that's not really going to change. To some extent. They'll diverse ty a bit in terms of more factories.

But but right now, Apples handled the supply chain and a lot better than anyone that had anticipated. And you'll continue to have some delays in some products. When we look at this as on third team and what we're seeing, I mean, this continues to really be smoothed, you know,

smooth sound. You have some shortages into year end and especially on Apple Watch and some other areas like Mac, but overallpartsmen a lot worse than the bite because Cook and Cupertino continue to to navigate this and almost have pap On like ability, unlike litther competitors. Dan Less question here on Apple um services, is that still a good growth driver for this name? Oh? I think it's massive, I mean services A big part of the reading that

we've seen. If I go back, I mean to in the street was assigning today it's we think it's worth one point five trillions, and despite epic and some of the regulatory worries, I think that's something that continues to be mid teen growth. I think that's another upside supplies this quarter. It's a big part of the reading in the stock and how we get to a three trillion dollar valuation going into two thousand twenty two. Hey, Dan, thanks so much for joining us. We always love chatting

with you because we can go many different directions. Lots of great names you cover, The stories are working, certainly, we always appreciate getting your perspective. Dan Ives, Managing Director Equity Research for web Bush Securities, work Bill SMEE, Chief Investment Officer, smeet to Capital Management, Phil, thanks so much for joining us here again. We got a jobs number

today disappointing. Um, yet we still have and combined with that as a lot of inflation out there that some folks are concerned that it may not be the transitory type. And one of the areas is right out there and energy. So Bill gives the thoughts on the energy space. Where are you guys there where do you think they're opportunities or has it already been priced in? Well, thanks for having us, and it is not even vaguely close to

being priced in. Uh, you've got uh teacup of market capitalization in the energy sector and oil specifically oil and gas. Uh three of the S and P. So you're gonna have a three percent position in the SMP be far and away the best performing sector. Because energy is just as important as it was five years ago and ten years ago. And like Warren Buffett likes to say, the people that think that will make a fast transition away from carbon fuels and the people that think will never

transition are both crazy. So so the thing to understand is whether it's making a electricity out of natural gas and and combustion or whether it's moving cars around. You just have way more demand coming from a huge pop positive demographic population shift, right, all of a sudden, ninety million millennials want to own a home. They're buying in the suburbs, both have to have a car, you know. Just a whole bunch of things are going on at

the same time. And and and the Arab Spring torpedoed oil and gas production in the United States of America, and the body politic is trying to shame the industry into avoid drilling and expanding that supply. Hence, Yeah, so, Bill, given all of those kind of idiosyncratic to energy kind of factors, do you have to treat energy differently than you would treat the basket of value, cyclical, reflationary stocks, whatever you want to call them. Well, yeah, they're they're

kind of in their own world now. Because we'll just give you one example. Our largest position is Continental Resources. Continental Resources in two thousand and eighteen, when oil was seventy dollars a better peeked out at a price of sixty eight dollars a year. Price oil is eight right now, and we don't even know where it's going to go

and the stocks trading at fifty two. So we believe that that spread or our margin of safety is the fact that so many people have flooded out of any participation in oil and gas, for example, on an E S G basis, that that there is a margin of safety there, that that it's the kind of thing that Peter Lynch loved. He liked to own a stock that went way up and nobody loved it after it went

way up. Bill just probably speaking here, you know, starting you know, more than a year ago, we had this nice rotation into the cyclical names of this market, including energy, including banks, um and and that's worked so well for so long, and there's been fits and starts, and that is you know, um, there's been bouts of rotating back into growth. But in a rising interest rate environment, how

do you feel about that trade? Well? It I always remind people that after a terrible bear market, and there was a terrible bear market in value investing for about seven years, when a when a a deep bear market ends, the first year, you get an explosion, you know. So the bottom of the stock market eighty two, the first year was a huge move up the bottom of the stock market No. Nine was a huge move up the first year, and then you settle into a light correction

and bull moves for another seven or eight years. So so again we're in the very early stages of stop

and think about there. There's so many investors out there that are momentum investors, and the place to find momentum at the moment is a place that it's almost impossible for them to get into because it's not that big, right, it's three per cent of the S and P and what they do own the big tech stuff, the things and all that is like all added together is like the S and P. So you could you could see a fire hose trying to put water in a teacup for a while. I want to ask you about the

home builders as well. You were talking about all the millennials going out there looking to get some more space, moving out to the suburbs, buying a house, something I am unfortunately not in a position to do at the moment. But how do you play that from an equity perspective? Boy, they have discounted those stocks as if they're the same cyclical companies that got caught in the oh five oh six stupidity. They used to be land developers that put houses on the land to get them sold, right, that

used to be their business. And secondly, it used to be a fragmented industry where where, for example, the largest home builder d R Hurt and they built one percent of the homes in the United States and this year they'll build nine and that's just one of the top ten public traded home builders. So it used to be fragmented. And what you're going to see happen here, we're talking about stocks trading at seven times earnings that have a

ten to fifteen ten year growth possibility. That's pretty easy to do in that there's ninety million millennials and there was only sixty five million Gen xers. So they satisfy an economic need, which is one of our eight criteria. They will build the single family residences that are needed to meet what the population wants. And then, of course, my age group, the baby boomers, the older boomers are staying in their house and are going to stay in

their house way longer than prior generations. A because they're healthier other than COVID than prior generations, and b because obviously it's not quite as exciting to move into a communal set up in a post COVID world. All right, Bill, thanks so much for joining us. We always love getting your perspective, the perspective of a veteran value investor, certainly having some good opportunities right here and good performance. More to the point of value folk are Bill Smeed, chief

investment officer. Smeed a Capital Management. He's been a value investor for decades, calling out now some of the energy stocks as well as the bank stocks that are working for him. We'll have more coming up. This is Bloomberg, Good morning. I want to bring in Omar Aglar. He is the chief investment officer and head of investments for Charles Schwab Asset Management. They've got a new study as fascinating.

They look at how UH you know, kind of behavioral science and how that views or how that skews or impacts UH investing. So let's bring in Omar. Interesting study here. Omar talk to us about your Bee Fi barometer. What is that survey and what are you looking for? What

are you asking? Yes, thank you on good morning, um I we have this is the third year we conduct these UH research and he has been incredibly helpful for us in serving our clients as we partner with the wi ands as really to get this survey out to advisors to understand, you know, what are the behavioral tendencies that they see on their clients as they see information.

And what's interesting obviously about this year is that now we have data of the pre pandemic behavioral biases that client observed during the pandemic of last year, and now in this process of obviously trying to get out of the pandemic um, the research shows that, you know, there are two areas where advisors and clients continue to observe natural behavioral biases, which is, you know, one is called recency bias, which is the tendency of people to just

look at the most recent information for making decisions. And the other one is confirmation bias and confirmation biases that where you try to find information that confirms your own views.

And that is obviously very typical, especially because the news flows continues to be incredibly fluid and it's and it's changing, it changed into what the information that the investors and clients wanted to see in and even you know, with today's you know, labor market report, you know, people are just trying to see how they can process that information. So these study is very helpful, you know, understanding how clients make decisions, and we clearly, um, you know, have

you know, learn a lot from it. Yeah, you know, Paul I had the pleasure of speaking with Omar at the Bloomberg invest Global Conference earlier this week, and we focused a lot on the retail traders. So Omar, I'm wondering, you know, you and I had a conversation about retail traders. How the meme stock mania seems to be over, but it was still a thing where people were getting their investment ideas from breddit, in from social media. How are do those kind of fads and kind of that fomo

aspect play in here? What do you see in the survey? It's uh, it is an interesting uh, you know results. We we for the first time this year, we added a few questions related to precisely social media and the impact of social media and investment decision process. And what

we what we observe is you know, two things. One is you're You're totally right, as we discuss Kelly, there is a lot of new investors coming into the markets as a result of these you know, fomo setting and these you know, fear of missing out the access and the ability to get into the different programs and different providers. It is now easier than it was you know, even a couple of years ago. So that process, you know, it is actually helpful. Is we do welcome you know,

more participants in the market. That's very good. And what the study of these B five parameters show does is that advisors are doing a great job in working with their clients to understand whether those um investments are actually good for them. Whether it's a meme stocks, whether it's it's back, whether it's an n f T, even digital currencies. You know, advisors are working with their clients to understand

whether that's a suitable component. And getting that level of education and advice is probably what we learned the most about these B five barometer you know, it's it's good for people to be invested in the market. We continue to see interest in this and I don't think, Kyley, this is gonna you know disappear. You know, there will be you know, always, you know, another story that people

will get interested in. So more, is there a general consensus from your data about how maybe you know, investor behavior has changed and pre impost pandemic. Not that we're necessary fully out of this pandemic, but we can see certainly let it in the tunnel. But in terms of risk taking, our people more or less risk tolerant, well, it's it has changed, you know, quite significantly, and it's it's almost like, you know, perfect textbook example of how

this works. Because in the world of behavioral finance, you know, biases get divided into what it's called emotional reaction and what it's called cognitive. You know, biases cognitive being a little more rational when you're trying to convince yourself about the decisions you're about to make. An emotional would tends to be more you know, when you overreact or react

without necessarily given it to two more thoughts. It's interesting to see because you know, during as you might expect, the majority of the biases ended up being you know, heavily emotional, with with loss of version being you know, one of the main drivers for a lot of decisions that we saw and again combined with recency biases and said because people use information on the most recent data to try to make decisions, but it was clearly dominated

by by the loss of version and protection and uncertainty. As we became you know, we got the vaccines out, we started the rotation in the market. We started to just see this big economic recovery. Then the cognitive biases and started to turn on, and those were tend to

be more of overconfidence. They tend to be more about trying to understand, you know, how can they get their understanding that the fedue will be there, the central banks will be there, the stimulus will be there, so they those we became more prevalent overall, and now we're in this you know, world of warrior as we say, where you know, we're starting to see these balance our early fascinating discussion there Omar Agular, chief investment Officer, head of

investments for Charles swab Asset Management. Looking at the you sees um that investors have um you know, across the board and you know, folks presumably were impacted clearly by the pandemic. And we had a lot of those retail investors as you were mentioning, Kaylee came into the market. We saw that early on in the pandemic, people were looking for something to do, uh, and they were trading memestocks and we saw some crazy trading patterns. There's just phenomenal.

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