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Nancy Curtin joins us.
She is a partner Global CEO and Head of Investment Advisory at Alti Global, based in London, but joining us live here in our Bloomberg Interactive Broker studio. Nancy, thanks so much for joining us here. I'm just gonna put I'm gonna ask you guys for your big picture perspective, because twenty twenty two you couldn't hide anywhere. Equities got crushed, bonds you got crushed This year better, particularly if you're
in some big cap tech names. How are you, guys at ALTI Global looking at the market right now?
Okay, Well, first of all, thank you very much for having me. Delighted to be here. First of all, we entered twenty twenty three thinking it would be a better year for risk assets. You know, back to back declines in stocks and bonds quite unusual. It's only happened about two percent of the dime in one hundred years. And also sentiment was incredibly verish. But where are we now, because now the market has risen, we've remain invested throughout
the year. Actually we've increased risk exposure slightly. So where do we go from here? Look, trees don't grow into the skies, So the first comment is, you know, don't expect markets to be in a linear trend upward from here. And we've seen some wobbles already this morning. That is healthy a consolidation for markets. But what do we think we think, Look, the Fed will be successful in bringing
inflation down. We already see some encouraging signs. Headline inflation three percent remembers nine percent a year ago, so that's encouraging.
There's some sticky bits.
In core inflation, but we do think the Fed will be successful in bringing inflation down. And looking to twenty twenty four, which is what we'll start to do a couple of weeks away September, we start to look forward to next year. We think the outlook for a FED pause, if not pivot, is encouraging for risk assets.
But because of a recession, right, I mean, the FED can't raise rates five hundred and fifty bases points without pushing us into a recession.
You know, let's talk about the reality of the data coming in has.
Been incredibly encouraging.
I can't say that there may not be a mild recession, but I'll tell you the soft landing narrative is getting some increased credibility from the economic data. Let's just take a first look at the consumption numbers. Pretty strong. Have you traveled lately? I mean it's boomy, Okay, so you know the consumer still has pent up savings from the pandemic. They are using this to travel and experience obviously goods
less so. But actually, we think the interesting thing this year is the US economy has been much less interest rates since.
What do I mean by that?
Seventy five percent of mortgages over thirty years are below four percent. In other words, they locked in lower rates a couple of years ago, companies the same things locked in lower interest rates, net interest cost us a percentage of profitability has been declining, not rising, declining. Then we have some fiscal spending one and a half trillion. These
are multi year programs, but that's additive. And finally, one of our long term themes is we think that companies will be investing, capex is likely to increase, and that will be a support for economic growth looking forward. So yet we could have a mild recession. But I have to say the soft landing is getting a lot of validation from the economic numbers.
I have to push back on that. Paul Go, you don't want to though, right because you're hoping for a soft landing.
I'm all in.
I just feel like, you know, the curve, the three month ten year inversion is typically not this wrong. We've got M two money supply contraction and Gary shillings that we got the I just so I was hanging out with Gary Shilling on Sunday. But the thing is, I think, you know, the wealthy people might still have savings, but I feel like the bottom eighty percent maybe don't have any left, and we could be getting to the edge of a cliff.
Here for them.
Well, let's go into the capex spend because we haven't had capital expenditures in over a decade. Like companies, why you know, why do you need to invest when labor costs are like really low and money's free and commodity prices are a week But we think the companies will be investing. This is one of the surprises we think for economic growth ahead.
Already.
Capex in the second quarter GDP number was up ten percent. In the recent second quarter earnings, companies in the S and P reported a fifteen percent increasing capex. Why do I go on about capex because it expands the productive potential of the economy to surprise on the upside. And by the way, did you see the labor productivity numbers three point seven percent? Let me see three point seven percent. That's up from one point two in the first quarter.
And remember labor productivity is a subtraction from inflation to get your unit labor costs. Okay, so let's go back to your inverted deal curve and decline and money supply. Sure, these are normally harbingers of recessionary activity, but I would also point to the fact that eal curves have begun to steepen in the last week or so. We think this will be a trend that will continue to see. And as I said, we think there are some solid things that will support economic growth that.
Weren't there in the past.
Keep a close eye on capex, on shoine of manufacturing activity, spending on jen Ai, spending on energy efficiency, and taking advantage of the fiscal stimulus.
All right, so I've been overweight all the Miracle seven stocks, so I've just been killing it. Can I, now, you know, change the asset out and maybe go smaller, MidCap, try to take advantage of increased capital spending, increased economic growth. Can I take my profits in those big names.
Well, I wouldn't take your profits, right because we really you know, the infrastructure layer of Jenai is in the early innings here. I would try to look more broadly beyond the Magnificent seven, those other companies that will contribute to development of the infrastructure layer. We can't have Jenai and large language models without an infrastructure layer. So we do need a lot of building there. But you're right,
you know they're expensive. They've discounted a lot of good news, and so what we've done is we've leaned into the underperformers, particularly MidCap, less small cap, MidCap, more quality oriented, less leverage, more exposed to what I call this onshine of manufacturing theme cap x expend et cetera. So we've leaned into value and MidCap because they're forty percent cheaper than you are, Magnificent seven, and they trade at multi decade discounts versus
history and large caps as well. So that's one of the things that we've done more recently.
Maybe just buy the equal weight to S and P five hundred.
That's so fun.
I mean, if you think the rest, if you think the rest of the stocks are going to catch up to your mech spw ring, Yeah, equal weighted.
Okay, all right, So what are some you know, we had the news today Moody's kind of dumping on the banks again.
It seems like kind of old news.
How concerned are you at all with the US banking system or maybe the global banking I'm sorry, where.
Was Moody's back in March? I'm sorry?
I mean, like months later we wake up and say, the small and regional banks have a bit of a well, there's you know, they're funding costs of risen and they've got exposure to commercial real estate a trillion and a half of that.
That remains a risk, right, but.
We've known that risk since March. That hasn't prevented markets from moving higher. We think this is a multi year development. In other words, we're we're not going to crash overnight from commercial real estate. But I do wonder where these rating agencies were back in March while we're doing the downgrades now.
All right, So that's a way of saying that you're not overly concerned about the US banking system or the regional bank It is.
It is.
Look, you know, banking is hugely important to economic growth, and so you know regional banks are you know where you go small and medium sized businesses. And we do think lending will be more constrained. We've seen that in the SLEWS number seen your Loan Officer survey have come down a bit. But we don't think it's enough to slow the economy certainly into a deep recession, right, you know, mild recession, slow down, soft landing. It's all a bit nuanced.
But don't forget cap expending, which we think will.
Be sad is a takeaway from today, No question about it. You're based in London. How are things in London? Because I'm not going because it's too crowded.
Okay, tourism is on fire. You go down Region Street, you can't even move. But look London, as I call a special child category. It's got lots of issues from Brexit to higher level of inflation, to slower growth to have you seen interest rates? Ah, God, don't get me started. It also has you know, a stock market that's very commodity and oil sensitive and bank sensitive.
So it's a bit of a special child.
Now.
In terms of international exposure, we like Europe much more. We're getting exposure to industrial shares, cappac spend, luxury still continues to be quite strong. Our positive vertings growth in Europe despite the fact that economic growth has been pretty muted.
So that's been where we've had exposure.
All right, Nancy, thanks so much for coming in.
Really appreciate you coming in live into our Bloomorg Interactive Broker studio.
What's our takeaway today?
We have to get Nancy back, is my takeaway. My takeaways We have to get her back. But Capex it's on that keepech for sure.
Nancy's a Partner Global CIO head of Investment Advisor read Alte Global based in London, but again joining us.
Here in our Bloomberg studios and Eyork. We appreciate that.
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Matt Miller, Paul Sweeney here in the Bloomberg Interactor Broker Studio. Yes, we are streaming live on YouTube and go over and check it out. Just search Bloomberg Global News. Let's talk transportationation, Let's talk trucks, all that fun stuff. Lee Claskow joins us. He sector head Senior annalys Freight, Transportation and Logistics. That's a big title. It's a lot bigger than when I
knew him. But he's a Bloomberg intelligence. He does it all, from the ships to the trucks, to the to the railroads and all that stuff in between.
Ups Lee.
United Parcel Service Big Brown had some disappointing numbers. My question is are there disappointing numbers and their guidance Is it a result of their new Teamsters contract or is it reflecting economy slowing down? Maybe people aren't getting as many boxes as they used to. What's driving it?
Right?
Well, first off, if you can call me can whenever you want.
But you know, they had actually.
A barn of fire, Lee Clasgow barn of fire.
They had actually a pretty decent print on the second quarter, but they did guide down and you know, we expect the increase in costs from that new labor agreement is going to be maybe a dollar in EPs headwind. That's kind of really how we're thinking about it. Obviously, that's assuming they're not going to be able to mitigate that through productivity gains pricing, and that is what they're going to do. You know, management said that probably in the spring they're gonna they're gonna.
Probably lay out how they're going to get back.
To twelve percent margins on their domestic business. And that's something that you know, we're relatively bullish about because UPS has shown their ability to really embrace not only technology, but also to go into verticals or businesses that are a lot more profitable, like healthcare or the small to mid sized shipper.
You know, I heard you on surveillance this morning talking about this ups story as well as the Yellow Yellow story. And I not note that they got emergency hunting last night. Did that's seventeen percent to nice?
Is that not usury? Is that not a usury level?
Yeah?
I mean what I know, I don't cover Yellow, but what I know about the deal is that it's just it's debt, so just to finance them while they're trying to sell everything. The government is supposed to be made whole before they're able to get paid on that seventeen percent.
So I mean, what do they have refinance?
Just just selling their trucks and warehouses, right because they're not any customer that was going to use Yellow. As soon as they heard there was going to be a strike, was like, let's find another trucker right now.
So yeah, this is not a restructuring. This is liquidation.
And their trucks are old, their trailers are old. If you see them on the road relative to its peers, you'd be like, that's not a great looking truck. They're very old. They've had issues with that for.
A long time.
They don't own a lot of the facilities that they operated, and they lease a lot of them, but there are going to be some facilities that they could they could sell and to raise that money to pay back and only the government, but also that new round of financing.
All right, So we'll wrap that up and put it to the side. In terms of ups, Can they not raise prices significantly.
Well, they can.
Well, let's take a step back. They can raise prices which will mitigate the inflationary pressures that they're facing. The first year of the new labor contract, there's a big step up in costs for them, so it kind of barbells in the first year. In the five year in terms of the step up, it's around a three point three k gar in terms of inflationary pressure, and that includes not only the wages that they're getting paid, but also the benefits. So if you look at it through
the whole five years, it's really not that bad. But the first step up is going to be a big headwind. So you know, we think that they can go back to earnings growth in twenty twenty four.
Matt's wondering what Caker is, but we'll get back to that later.
I mean, I mean, this is just one of those phrases that you throw around and I think it's another thing that I always forget, But I'll.
Let compound an annual growth rate.
Okay, bo, there you go. You to bring it back up in this next question. I think a lot of listeners are like, hey, thanks Matt, Thanks Matt.
I didn't know what.
Kegar was either, exactly Matt's favorite.
One of Matt's favorite functions on the Bloomberg Kriminal is comp get comparative returns.
So I put that up.
For UPS and FedEx. UPS over the last five years is compounding and annual growth in the stock price eleven point seventy five percent, a little bit better than they s and p FedEx only three point four percent. Why has UPS been rewarded more in the stock market versus FedEx?
Is it a different model?
Yeah, it really depends on the timeframe you're looking at, Like this year, FedEx has been on fire relative to UPS.
But I like the comp function because it just defaults to five years, and I think that's a great time period to look at.
And over that five year period, you know, UPS started right sizing their network, selling businesses that maybe didn't make a lot of money, like they're less than truckload business. The same business that Yellow was in LTL LTL less than truckload and they were a unionized carrier, and they were they were getting on a good year one hundreds to two hundred basis points in margins. It was just not a great business. So they sold that. They're investing
heavenly in technology. They are automating their facilities, you know, they're they're reducing the numbers of o's or mistakes like if the wrong shipment goes on the wrong.
Truck by half. They're just they're.
Doing really just a great job in their investment cycle. And not only that, like I said earlier, they're focusing on more profitable businesses. They're focusing on the healthcare businesses and the small to mid sized businesses.
They had a.
Somewhat of an outsider. She was a board member, Carol Toomey. She came into CEO a couple of years ago. I think it's like two years nep by now, and she's really done an excellent job. People were very you know, kind of not sure if she was the right person, but she's proved all of her critics wrong and UPS has really been operating on all cylinders.
But now if their costs are going to go up and they have to raise prices. Does this give FedEx a chance to take a way more share and do better well?
UPS on their call this morning they called out that about one point two million packages per day were diverted because of the potential for the strike, and they said about a third of that went to FedEx, about a third of that went to the US Postal Service, and another third once is regional carriers that you and I probably don't know the names of smaller players, and you know they will probably win back some of that freight FedEx.
Some of it might be.
Sticky, but at the end of the day, you know, a shipper will use a particular FedEx or UPS not just on price, but a lot of it has to do its service. And if they were with UPS before because of service, are probably going to go back to UPS real quick.
Were we in a supply chain? Are we kind of fixed? Do you think just a global supply chain?
Right?
What are something?
Is always it fixed?
Yeah?
No, because every week it's something new, right, Okay, Like it's whether the Canadian West Coast ports just got you know, that just ended, So there's always something different, you know, the Panama Canal, there's not enough water for.
Ships, Is that right?
Uh?
Yeah, they have They have to operate with less freight on them, and it makes it a lot more expensive than to send the freight through the Panama Canal.
There's a great book I read about the building of the Panama can I forget who wrote it, but it is an awesome book.
It's a great story. Makes me I want to go to the Panama.
Can app When did you read that? I'm going to guess you read that twenty years ago.
No, couple three years ago, maybe before you.
There's a drought there the lake that fills it up. Is that's the problem? All right?
Ten seconds, Leek clasical transportation analyst Bloomberg Intelligence joins us.
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All right, what kind of the news today?
One of the news drivers this morning has been Moodies downgrading the credit ratings of a bunch of the regional super regional banks. It seems like where were you when we needed your butt? Here we are Chris Whalen joins us, Chairman of Whale and Global Advisors. We always look to talk to Chris, particularly about the banks. I mean, Chris, help us out. You're an expert in this rating stuff in the banks. Chris, what do you think about Moodies and their call here?
The Moody's action today was very specific. They were looking at certain banks and they took the decision to downgrade them. What I think, and that's going to come more. We're going to see a lot more of this because they're adjusting their entire ratings complex for banks to the changes we see in the market and to the higher interest rates. So the basil obviously is going to reduce profitability. So
there's a lot of negatives that they're adjusting to. But the thing we have to be aware of is that when you see a sovereign downgrade for the United States, and we can no longer ignore a S and P as we have for the past decade. Right, we have two of them now, so everybody's going to have to use double level plus instead of triple A. And what that means is that the big banks, the ones that get uplift because there's an assumption of sovereign support, are
going to go down a notch. And and I think you can assume all the agencies will have to adjust. In Japan they give you two notches for the big banks. In Europe they give you two notches because there's an assumption that they're going to bail them out. In the US not so much. You know, if any man for why.
Not after what we just saw, you know, we got we got dec.
You know, we're tempting fate. When we have politicians who think they can borrow money forever and who go around worried about global warming and ESG instead of doing their jobs, then this is what happens. People in the Buiden administration were terribly surprised. And it just shows you how how there's a lack of seriousness in Washington on fiscal issues. It's stunning on both sides. By the way, By the.
Way, Chris I was, I sat down with Gary Shielding to talk about a lot of this stuff on Sunday afternoon, right, And the one the one question or the one problem that we don't really see clearly is the possibility of a debt bomb. You know, if we're continually running trillion dollar deficits, yeah, zero percent or at two or three percent, it's no big deal. But once you climb to five and a half to six, it starts to get worrisome.
So what point is it too difficult for the United States to service it's growing debt.
Well, it's not just the United States. There's a whole raft of sovereign issuers underneath the US, including all the agencies you have, all the states and the cities which ultimately depend on support from the federal government implicitly. Right,
So there's a lot going on. And if we do a funding, say at the beginning of next year, where we're also doing an emergency bailout for a couple of cities that have been downgraded and can't issue bonds anymore at the old spreads, right, So the pricing is going to continue to change. Obviously throughout the whole complex. Pricing is going up credit and then some of them are going to be downgraded. I think New York City is
going to be downgraded. So we'll be back in the seventies, you know, and I don't think the US is ready for that because we have so much debt at the federal level.
But it makes sense, you know what I thought. I saw Amanda Gordon, who.
Covers like Hoidy Toydy parties, right, big charity events out at the Hamptons and stuff. She had a piece out covering John Paulson who talked about the rising crime that he's witnessing here in New York and talking about how all his friends are moving down to Florida. Then I saw another piece that New York is going to open a migrant relief center on Randall's Island for another I think two thousand immigrants, but we're already supporting fifty seven
two hundred. If you have the big tax payers moving to West Palm Beach and we're bringing in, you know, tens of thousands of immigrants, is it going to be a problem for our tax base and for rising cost.
Well, obviously, you know New York is predicated on having a very strong commercial foundation. They're the ones who pay for everything, all the infrastructure you see in New York City, the metro everything. You can't do it as a residential community, man, You just can't. There's not enough revenue. And if you were to tax the owners of apartments or you could call them tenants, really they are in the same boat. You can't possibly tax them enough to pay for everything.
So I think you'll see reduction in services. The progressive mandate that says everybody is owed housing and support as soon as they show up, and you know a smile, right, is going to change because I think all of these legacy cities in the northern tier are going to have to downsize rather dramatically. It's going to look like Detroit because remember, you know these cities were here for industrial
purposes two centuries ago. Why are they here today? What's their economic Aggressionale right, Texas knows why it's here today. They're here to make money. But I'm not sure you want to live down there. You know what's so funny is a lot of my business friends have moved south to Florida and Texas, but they don't spend the summer there.
No, all my friends who moved to Florida keep track of the days that they're here in New York, like I can't stay for another three days or else I'm going to get text.
But listen, there are literally hundreds of thousands, if not millions of people who work in mortgage finance and real estate and everything else who have moved out of California New York and have gone to Texas and Florida because of cost. They literally cannot have a person servicing and performing loan in California today. Too expensive. You might be able to do distress assets, but you certainly can't do bread and butter, you know, servicing, because it's just so
expensive to create that seat for that employee. Can't do it. All right, Well, these states have to come up with a reason to exist. I don't care whether it's California, New York, Illinois. They all have to go back to the drawing board, say why are we here? How do we make money? You know? And that's gonna be a tough conversation in New York. I think it's.
Probably gotta start in Washington, many would say. Chris Whalen.
Chris Whalen is a chairman Whale and Global Advisors. Give us us some color here on kind of what we heard from Moody chair at the bank downgrade and Chris suggesting that it's not just the US government, but it will trickle down to you know, everything underneath the US government, including states and cities, and that's where we might you know, really see something.
You're listening to the team can's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
Nancy Tangler, c IO at Laffer Tangler Investments, joins us. Nancy, thanks much for joining us. Tg l R is a new ETF. Tell us about it.
Oh gosh, thanks so much. Pre advertising, Yeah, we much TTLR today. It's an actively managed dividend growth strategy. So we focus and always have by the way, since nineteen eighty four when I got into the business. We focus on relative yield because management at large cap companies set the dividend policy based on what they think long term sustainable earnings powers is. So it's a great shortcut. We don't have to worry as much about earning estimates as
we do. Are they able to pay the dividend? Are they able to grow the dividend? And then being an industry leader, which are the names that we own with great management teams that rounds out the portfolio, so it acts differently than maybe a more traditional equity income strategy. We don't have utilities in this portfolio. We have one rate because we're looking for growth at the end of the day, just like every other investor.
So Nancy Matt Miller here, Hi, thanks for joining us. I'm mat What what holdings do you have in the ETF. What are the biggest stocks that you're allocating.
Well, So one of our largest holdings is d which you know we bought at because of a great capital allocation plan they reached at one point they were returning almost one hundred percent of free cash flow to investors. But in addition, as time has passed, we're going to get VMware in this transaction as well that should be closing soon. And the AI bump, which has really driven the stock this year, but dividend growth has been five year annualized about twenty four percent. So that's that's one
of our largest holdings. We are overweight tech in this portfolio, which you maybe wouldn't normally think about in a dividend growth strategy, but there actually are a lot of great companies. Oracle would be another one that pay the dividend, you know, have a yield about in line with the market a little bit above, and they're growing in about twelve percent a year. And oh, by the way, they're probably the
cheapest AI generative AI cloud computing platform. So that's kind of given the stock a new burst.
So we AI antie.
A lot of people have been saying AI bubble to me over the past couple of days. Analysts on the street are using that term.
Do you think this is an AI bubble?
I don't. I think a couple of things. First of all, we know we have a very tight labor force. You're not dragging the baby boomers back in with the networth of about seventy five trillion collectively, so we're going to be living with this, with this tight labor market for some time. And if you go back and look historically in other periods of tight labor markets, what you'll see is that tech spending as a percent of GDP goes
up pretty dramatically one to two percent. And then in addition to that, you get the earnings flowing through to the company. So technology stocks have always outperformed in period previous periods of labor shortage. This one is predicted by the government to go from twenty fifteen where they think it began all the way through twenty forty seven. So I would use weakness in these stocks to add I mean,
the question is can they monetize. Microsoft has shown us that they intend to monetize a generative AI with their co pilot offering.
So for this TF, what's a I guess, what's a model name to put in there? In terms of dividend yield and dividend growth? What do you guys look for in order to put that into this portfolio.
So we start with the valuation, which is relative yield, and what we're looking for is our companies who have a dividend paying culture, so they are committed to the dividend. They sometimes state, as McDonald's does, that it's a portion of what they think long term sustainable earnings power is, but most of these companies it's implied. So we own some of the usual suspects that you would expect to see in an equity income strategy. So home Depot would be an example. We also own we just have been
adding to our positions in Starbucks, we own Walmart. But then we also have this exposure overweight a pretty big overweight to industrials and then a modest overweight to technology. So these companies have long histories of paying the dividend and it gives us information as well as it contributes pretty materially the total turn, especially the dividend growth part.
Did you do you know channel checks? Looking at the appetite for new ETFs. Obviously last year was a banner year for ETF launches. We've seen them slow down a little bit this year. Still strong growth though. What's your view on the ETF nancy as an investment vehicle?
So I just just finished the second edition of my book, The Women's Guide to Successful Investing, and has a whole chapter on ETFs. I think they play a very important role in investors' portfolios. This particular strategy would serve as a core that you would sort of decorate around with more aggressive, higher risk ETFs. We launched it because our minimums are pretty high and we were turning away a lot of people that were interested in working with us.
So this is one way we can, you know, make our strategy accessible to them, and it's been it's been an interesting experience and the launch went off pretty well today. So we're pretty happy about that.
The expense ratio is a little bit steep, ninety five basis points. Does that stay there or do you bring it down once you get more flows.
I think we bring it down. I mean I also wrote a whole chapter on how fees are the biggest erodor of total return and so you need to pay attention to that. So we're very committed in our in our wealth practice, and then with this fund to be a reasonable access point for individuals and to add value above and beyond the benchmark, which we've been able to do historically in our separately managed accounts.
I thought, Paul, we could ask Nancy about Apple, you know, because it's been it's a bug in your bonnet.
It is to be in your bonnet exactly. So Nancy, you look at you mentioning your overweight tech. How frustrating is it to see a company as great as Apple with a cash flow it has to pay a dividend less than one percent.
I know when we got into that stock, this is the crazy thing. I don't think anyone remembers. This was at three percent and twenty thirteen. It was above the tenure at that time, and they were growing the dividend, So we actually began accumulating our positions that at that point added to it over the years. Have basically sold
the majority of our holdings. But this particular ETF does have a small allocation, about two and a half percent to that particular stock, and I think it is important that management continues to grow the dividend, but they could continue to grow it in a lot more aggressive fashion. So I am a little bit frustrated by that and some of the other great you know technology companies, cloud
computing like Google and even Amazon. The only way you can generate income off of those is to sell covered calls, So but we're not doing that in this Do buybacks?
Do cash buybacks make you feel any better?
I mean yes, but I mean it's more sentiment in my view, just like splitting a stock. But yeah, like Service Now just announced they are engaging in their first share by back. You know that's going to put a floor under the stock at some point. But so we look at that. It's important to us, but it's not our overriding concern. And when we're when we're looking for new names.
Yeah, looking at Apple, the indicated yield zero point five percent, that's the bad news. I guess the good news is they've five year net growth seven point two six percent, so they are growing it. But again a lot of folks like myself think we could see we should see you, you know, to two and a half three percent divid in yield on that name, but that's not how they view their use of cash. Nancy Tangler, thanks so much
for joining us. Nancy is the CIO of Laffertangler Investments and their new ETF out today looking at dividends and dividend growth. Tg l R is the ticker you're listening.
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We are streaming on.
YouTube, so just head over to YouTube and search Bloomberg Global News and that'll bring you to the video feed. I want to get right to our next guest, Margie Petel senior portfolio manager a all Spring Global Investments, joins us, marg I want to get the benefit here of your experience. Here we're pretty much through earnings for this cycle. What are your takeaways?
Well, once again, the second quarter surprised on the upside like the first quarter did. Shows that companies are in good shape. Revenues are okay, profit margins are following up, which is very important, and really there is no saw in the companies are seeing any kind of a broad brush decline and economic activities. So the outwork for third quarterbooks at least reasonable, so maybe better than people have
been thinking. And the whole thought or recession once again seems to be be pushed out a little bit over the horizon.
So Margo, when are you When is your expectation or a recession? Because all the signs are there, and I realized that the current and backward looking data still aren't as bad. On the other hand, the Fed raised interest rates five hundred and fifty basis points in like a year and a half, so it's coming right.
Well, it's coming that we may have to wait longer than people think. I think two several reasons. One, corporations has spent the last decade of near zero rates, restructuring the balance sheets, so they really aren't a sensitive to higher short term rates as they have been in previous cycles. Same thing with consumers who are having a little bit of a slow down in housing, but many homeowners are able again to refinance, locking long term low rates on
the houses, so they're not actually heard. And in fact, i'd say the margins consumers are probably benefiting from getting higher rates on their savings. With unemployment at three point six percent, it's very, very hard to say that we're on the Brinker recession, and especially when there's no sector of the economy you can point to that's about ready to tumble distress to feed over into some kind of a general recession. So I just don't see a recession any time in your time.
Well, margre given that background, is it reasonable for some people, like in the fixed income space, maybe take on some incremental risk in terms of maybe moving out in duration, maybe even moving to high yield.
How do you think about that?
Well, high yield has not been very risky last year or this year. It's actually still the best performing part in the fixed income market when you look at maturity adjusted and I think it will still be probably above average compared to treasuries. The way I look at treasuries, we have such an enormous amount of supply that has to come, that has to be absorbed. That says to be that we may have a relative scarcity of corporate
credits that people would like to buy versus treasuries. So we might actually see old spreads, the amount of extrebo to get in corporates over treasuries shrink from these levels. And remember defaults throwing a little over three percent, So even in the high old market, you're not seeing much distress.
So all right, if no real recession this year, I mean, how should we think about this equity market, which has really been driven this year by those magnificent seven stocks. Do we start to try to rotate maybe out of them, or maybe try to diversify way out of them into some mid cap stocks, maybe some cyclical names.
Well, I still think the better trade is with larger cap stocks because we don't really know what's going to happen. Secondly, it looks as if growth in the second half of the year will continue to be I think very very modest, so high growing companies will be hard to find so I think that some of the very large cap stocks have been favorites so far this year may well continue
to perform because they still have the guaranteed growth. So we're looking more for large cap companies where they have either an industry that's on the secular up swing or looks as if they can continue to have above their maturities.
That's pretty amazing because it seems like Margie the biggest companies.
On the S and P five hundred.
Then you know Apple, Microsoft, Amazon, and Nvidia, Alphabet Meta, maybe Tesla. These companies you're looking at as growth companies but also in a sense safe havens.
Well that's right, and ever since the first quarter when they all produce pretty good earnings, they have act to a safe haven. Certainly they have enormously liquid balance sheets that they are safe haven. And I think from here on the market's going to look at these stocks more individually.
For example, we saw Apple really come down a bit since they've reported rather disappointing results, and the other some of the other fag names of Microsoft, Meta have produced very good results, and so those have continued to tuggle on in advance. So we think it's really going to be determined by results. Are these high growing stocks still high growing or any of them running into roadblocks that may take them down, So we think it'll be more individual.
We still think in general the larger companies will tend to do well because they have all the strengths to operate in a low growth market.
Margy.
Earlier today, Matt and I were talking with a guest who's firm launched an ETF today that focuses on dividends, dividend growth, and dividend yield.
How do you think about dividends?
Well, I think dividends are nice, and in a slow growth market, which I think will now be in, probably dividends will be a bigger component of total return for stocks than we've seen over the last say five years or so. However, I still think it comes down to individual stocks, not so much a dividend rate, because often stock set up high dividend yields are likely to be equity under performers. Stocks of low dividends are likely to
raise their dividends over time. So rather than ETF one size fits all, we'd rather just look at companies that have we think the ability to raise their dividends or reasonable dividends for the growth rate or likelihood to raise their dividends.
Are those companies going to be some of the same that are the Magnificent seven? I mean, are they going to be growth companies, safe havens and able to raise dividends.
Well, I think companies are pretty cautious about raising their dividends, more so than buying back stock. So we still think that the technology sector will have companies that raise their dividends. We think the industrial sector has turned the corner and we think they're likely to have higher cash flow and raiser dividends. And even in some of the healthcare names healthcare books as if it's under a cloud hangover from
COVID and different things. But we think even there we should see some modest increases in dividends over the next.
Year or two.
How about energy, Margie, We're looking at wtach crude oil just under eighty two dollars a barrel, up from about sixty seven to sixty eight just about five weeks ago. So how do you guys think about the energy space.
We have a very modest exposure and energy because we really aren't interested in making a plate on the price of oil. We think there's a lot of roadblocks politically for some companies really expanding their earnings where they might like to. So we're kind of form on the sector.
All right, Margie, We really appreciate getting a few minutes of your time. Margie Ptel, Senior portfolio manager at all Spring Global Investment. Still keeping a relatively optimistic outlook on the risk assets even in a slower growth environment.
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Matt Miller, Paul Sweeney here in a Bloomberg Interactive at Brokers Studio, or streaming live on YouTube, which is Head over to that intraweb thing and search Bloomberg Global News and don't take You'll find our video feed there. Eli Lilly, Novo, Nordisk, two big farmer companies all time highs today. Look at those charts, they're just absolutely monster charts, particularly in the last twenty years.
So We're going to figure out what's going on there.
Something about an obesity drug here and reducing heart attacks. All good news, all big news, But we need to get talked to somebody who's actually an expert in this stuff. Michael Shaw, Senior industry analyst at Bloomberg Intelligence. He's based in London. Mikey, thanks so.
Much for joining us here.
Could you tell us what is going on with the Novo Nordisk by and also by extension, Eli Lilly, what's going on today?
Yeah, So, Novo basically had a landmark trial readout, so I looked at WIGOVI and cardiovascular outcomes. Now, the base case for this was a seventeen percent risk reduction on CARDIOVASCAR outcomes, and really with a result we sawt of like a home run result. So it actually reported a twenty percent benefit. And what's more is that all drivers of the compet at endpoint, so heart failure and KINDIVASCAR death, they all drove that benefit.
So really a home run result for Novo.
That, Mikey.
The the main question people ask me, and that I also want to know the answer to about these drugs is what could the long term effects be? You know, if you're shooting yourself in the leg with these every week for the next you know, ten years.
What happens to your body?
Well, I think it's clear that we've seen, you know, we've seen substantial weight loss associated with these products. So Novo's Wigovi's got about well, showed up to eighteen percent, to Zeppetite showed more than twenty percent.
In terms of the.
Side effects, well, I mean initially, you know, the glping one class in general is associated with GI side effects, so gashri intestinal side effects, things like nausea, vomiting, et cetera. You know, this is a class of drug that's that's been used for years in diabetes, and you know, there have have been kind of anecdotal reports of things like suicidal ideation that we've seen in the in the news recently.
Hang on out, so what say, what is it suicide?
Suicidal ideation?
Yes, but you got to also remember, you know, you know, these these patients you know OBC, and they could be actually other other things contributing to that. So nothing's been seen in you know, nothing was seen in the clinical trials and the large clinical trials, So you know, I think.
The safety of these drugs is kind of well.
Documented and and you know, there's been a lot of experience already with with diabetes.
All right, So just to sort out what's on the market here and who owns it the.
One Mic and his team did a big report on just this whole places obesity stuff.
I mean, I'm I think this could be a game changer for the Western world. Uh, you know, obviously if there are no long term side effects, I don't want to be giving birth to a three eyed fish later. But uh so Novo nor Disc does we gov and ozempic right, those are both from Novo nor Disc And then Lily has tears zeppatide as well as re retattrue tide.
Is that right, Yeah, that's correct.
Yeah, So.
Basically we gave you in a zempiic are both the same molecules, just we gave you the higher days that's marketed or approved in obesity. Zempick is approved in diabetes. Tozeptide is marketed under the brand name Munjari for diabetes, and it should get approved in you know, towards the end of the year for obesity. And then rettrue Tide is a compound that they've got in there in their in their pipeline which has yeah, which is you know,
shown potentially better data than totide on weight loss. So that's something coming through the pipeline, all right.
But the anytime I talk to you, Mikey or Sam, it always comes down Sam Faz, your partner in crime. It always comes down to who pays for this stuff? So who pays for this stuff in the big markets around the country.
I saw I saw by the way that the University of Texas has taken these drugs off of its insured coverage coverage list because the University of Texas system was paying five million dollars a month for its employees to get hold of these things.
So yeah, So I mean that's a key question at the moment given the size of the well, the potential size of this indication. You know, historically, what we've seen with these drugs is b see. You know, it's been kind of more of a lifestyle choice. It's been an out of pocket market. But we haven't seen the weight loss data that that's you know, associated with these drugs historically.
So now with this outcomes data in hand, that's really going to drive broad reinbursement, and I think it's going to be tough for pairs to kind of not cover these drugs. Is that, you know, if we're GOV showing a twenty percent reduction and kind of carti of out of their risk and cool that heart failure is kind of one of the leading causes of death in the US. And also it has you know, cost associated with it, which are kind of a significant burden on the healthcare system.
So you know, the long long term savings you know that these drugs could potentially offer, you know, are going to be huge.
It's kind of of.
Course, you could achieve the same savings or certainly similar savings that people would just eat less ice cream and go to the gym more often. Right, So that's the that's the problem, true too, that the insurance that the companies paying for the insurance probably have, like my employees either make horrible choices and take this drug and then I pay five million dollars a month, or my employees make good choices and I don't pay anything and no one needs to take drugs.
Yeah, that's true. True, that's true too.
All right, Mikey, All right, that's your BC side. I got my plays there and I know how to do that. Another big area that we'd love to see some breakthroughs and maybe your companies will do it. It's just kind of dementia broadly defined. As the world population ages, it becomes a bigger and bigger problem for a lot more people. What's what's your industry, what's the farmer? What's a BioPharm market in industry? What are they doing there?
I mean we've seen I mean it's not my area of area of focus, but we've we've obviously seen the kembe from Bigen and Essie come through, and then we've got Lily with d nanamap, so you know, these are
treatments for Alzheimer's. Limbeck as well has got has shown kind of positive data for Alzheimer's agitation, so that's like a supplemental indication for one of their drugs for results resultsy So you know these are you know, this is an area where you know the success rate has has not always been high, and you know drugs associated with being developed in these eras are kind of highly risk adjusted. So yeah, I guess it remains to be seen. It's
not an area that I focus on a particular. So my colleague, you know, Sam Fazzelli, to look at that please, But there's certainly kind of developments in the in the pipeline, all.
Right, So what's next for you know, the Eli Liliza of the world, the the Novo's, I mean, these sacks all time highs.
What do you think they do?
Are they continue to go out and and buy what they can't develop? It seems like every Monday we come in and there's a big farm at m and a t.
Rate and does anybody else make one of these appetites of pressant shots?
Yes, I mean we've seen kind of a Rally and Amjin, We've seen a rally and Viking, both of them have JLP one drugs in their pipeline. Other companies include Zealand, Alti Mune and Fizes also got like an oral JLP one as well, So several companies developing these jlping one drugs for obesity. In terms of what's next in the space, so I think we're going to constantly see this back and forth between Lily and Novo on the on the innovation front, So we've uh Lily, Nova's got goo v
Lily is going to bring into zeppatide. Nova's then got Cagari Semma, which is a combination product and then we've also recently seen, you know, really strong data for retis true Tide, which is a triple agonist, unlike to Ze Petite, which is a dual agonist, so it's targeting three three things instead of two.
All right, So, Mikey, it's really important for you and for healthcare investors to follow where different drugs are in the regulatory pipeline. You guys actually have a model of that, don't you.
Yeah, we have a track. We have a model on the syste Yeah, we have a track on the system.
And it's the best as best on Wall Street by far. Who's the person that manages that again, who's the person?
Oh yeah, so Sam and I look at it.
Yeah, all right, it's the best on the street. They track every single get to it. We'll find it. I'll get it for you in a second. But it's it's just the best. If you're a healthcare geek, you have to have this same because you have to know where drugs are, when the tests are coming, all that kind of stuff.
And the Bloomberg Intelligence guys do that.
Mike you Shaw, Senior industry antals Bloomberg Intelligence. I appreciate getting some time there. Eli Lilly Novo both all time highs.
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Ryan Lockwood joins it sees the CFO of Carparts dot Com trades on the Nasdaq. PRTs is a symbol company went public back in two thousand and seven. They did a secondary offering very adroitly in twenty twenty when they stuck got a nice pop from the pandemic.
Ryan, thanks so much for joining us here. Again.
I'm looking at your long term chart and just looks like a lot of other pandemic charts where you have this surge in twenty twenty as people behaviors chain during the pandemic, and then it's been kind of a slow bleed off after we get post pandemic. Here, talk to us how your business kind of changed during that you know, twenty twenty period, pre that period during the pandemic and kind of where we are now.
Yeah, so our business thanks for having me. Our business did change a little bit, but actually a lot of the change came from a new management team that came in twenty nineteen. So part of what we did was revitalize the business and focus it more on the customer.
You know, we.
Obviously benefited from some of the stimulus and some of the online shopping that came from e commerce, but combined with that, we changed to a more stockship model that it provides more value to the customer. We improve the website. So there's a lot of things going on as part of the story.
What are the drivers of your business? Like when I look at your financial model, what are the key drivers that I need to get right?
I think the key drivers for our business what you're going to see over the next three to five years is a combination of reasonable revenue growth with with combined with operating leverage. So there's a lot of things we can do to improve marketing, expense, fulfillment expense, fixed operating leverage. And we've done a lot of improvements over time. They've all been relatively sticky, and we continue to drive improvements over the next you know, three to five years all.
Right, so what give me a sense of kind of who your customer is and kind of how do they really interact with Carparks dot Com.
Yeah, so our customer is going to be generally a value oriented, do it yourselfer who is relatively sophisticated or looking to do some easy jobs and save some money. Compared to brick and mortar stores, we're fifty to sixty percent cheaper. So if someone's willing to wait one or two days to get their part online, they can have significant value. And that's especially useful at a time like this.
All right, so how do I you know in your business, how do you drive top line demands? Is just having more stuff, more skews that they may need or is it marketing promotion?
How do you try it drive your top line?
You know, for us driving top line, you know, there's a lot of value that we provide high quality parts, but what we're really looking to do is take the stress out of car repair. If you have a car that's out of warranty, that check engine that comes on, there's not really a great resource for people. And that's what we try to do is provide information, high quality parts, great value pricing and if you can't put it on yourself,
we'll even connect you to a local mechanic. So we're really trying to provide a one stop shop for customers that takes the stress out.
Of car repair.
So help.
You know, it seems like what we understand here in the post pandemic world that Detroit says it's going to build fewer cars, So the days of seventeen and a half million SAR might be over. Maybe it's fifteen fifteen and a half million cars. That means cars got to I guess, lasts longer, use cars, all that kind of stuff.
Is that good for your business? Definitely?
I think that's that's right when you look at SAR. You know, we had obviously a very lower SAR, you know, kind of coming into this year and part of last year due to interest rates. SAR might come down, but cars definitely have been lasted longer. They're going to commute last longer, and I think consumers are going to try to drive value by repairing their car having it lasts longer, and I think we're a great resource for them.
Talk to us about I'm not sure if this is part of your business model, but we've seen in another retail spaces by now Pay Later. Is that something you guys offer? Is that a driver?
How do you think about that? Yeah, that is a driver.
So over the last couple of years, we've seen buy Now, Pay Later actually triple. It was running pretty steady around two and a half percent of revenue for e commerce, and recently it popped up. At the end of Q two it was running seven point nine percent, So we have seen a large uptake in that. I think it's a way that consumers are trying to balance the needs, their everyday needs with their car repair needs.
You know, it's funny you go to the Consumer Electronics show and it's really an auto show, you know, with a little bit of technology around it. I mean, I think the auto industry, you know, controls way more than half the space they're out there in Vegas. How has like the computerization, the increase in technology and automobiles, How has that impacted your business?
There?
Actually hasn't been that much as an impact. You know. What we sell is a lot of the normal everyday items you need to repair your car. So even with a highly electric cut fied vehicle or even an EEV like a Tesla, they still have headlights, tail lights, door handles, ac compressors, radiators, all the normal nuts and bolts you might call it that go into a car. Even the most modern of all cars still has those basics.
Okay, So you're not getting into the electronics and that type of stuff. That's something that you know, an onneer would have to go to the dealer or something like that.
That's correct, Yeah, and I think those are usually very durable. So the ecu as you might call it, inside of a car that manages the brains of everything is very robust. The things that go out for people are the everyday items like the AC compressor, the window regulator that makes the window.
Go up down.
So is your competition kind of just my local car dealer in town.
Our local competition is going to be really the brick and mortar, the big brick and mortars you might think about, or maybe a dealership where I think people that don't know about us might just walk in and pay three hundred dollars for a headlight without realizing that they could come to our website wait one or two days. You know, we cover ninety eight percent of the country and two day shipping, they could buy that same part for one hundred and thirty five dollars.
So it's interesting.
I'm just kind of wondering again kind of the growth of the business. It seems like, can you acquire customers? Can you market and say hey, you can do this, Like I'm not a handy person. I'm not a but if you say, hey, you can install this headlight.
That's exactly right. So we recently just launched a line of YouTube instructional videos starting with a four to foot and fifty. It's the nation's most popular car, showing you how to replace a lot of parts on that. We're going to the Dodge Ram And we also recently launched a Spanish language version of this channel to kind of hit more audiences and make people feel comfortable that they can do these repairs themselves.
That makes sense, all right, Ran, Thanks for taking the time. Appreciate learning a little bit about your company and kind of its expectations and kind of how the what are the drivers of this company? Ryan Lockwood, He's a CFO carparks dot com. You can check out the stock it is trades on the Nastaq p r TS.
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