Markets, The Fed, And Satellites

Federal Reserve Bank of Dallas. So, Danielle, thanks so much for taking the time. I guess where I want to start with is you know, during the press conference from FED Chairman Pal there's obviously questions about potentially a recession slowing growth, and he took a pretty aggressive tact and pushing back on that narrative. What's your take? What do

you think he's trying to do well. I think he's trying to do his job, which is to use FED speak to its fullest and to induce confidence in the markets and induced confidence among those who are listening to him, to say we've got this under control. We're going to be able to to navigate a soft landing. And of course today we've heard that from from Governor Waller. We've heard the month July in terms of when they're looking at starting that balance sheet runoff. That would explain why

they used the phrase coming months. So clearly they think that this spate of inflation that's induced by Russia invading Ukraine is going to be short lived and possibly be coming off the time we get towards the end of summer. Was he doing his job last year, Danielle, Oh gosh, no, heavens, no, no, no, no, no. You just saw first time homebuyers decreased. The National Association of Realtors at Laurence June said that that a payment in February was higher than it was a year earlier.

At a minimum, you could say, you know what, we'll hold off on treasury run off, but we'll go ahead and be responsible to homebuyers who cannot buy homes because they're too expensive. Will be respond will and let those mortgage backs start to run off by themselves before treasuries. So, Daniel, what do you take of this new wrinkle. I guess it's just from an economic perspective into the equation, which

is a hot shooting war in Eastern Europe. If I'm the Federal Reserve, I've got inflation, I've got slowing growth. Now I've got this geopolitical risk at how do you think that factors into the Fed's calculus. Well, it should obviously be a factor, right, This is a this is a new idiosyncrasy that's going to affect confidence. Bank of America has a their own proprietary confidence gauge. It fell to the lowest in history in the week through March thirteenth.

So there's clearly a dent being made. And people are watching the headlines and they're disturbing. I get that. But the primary source of economic new news out of this situation is that it's pushing inflation higher. And I think that that's a greater offset and that they should look at it through that lens. Because of the high starting point of gasoline prices rising year over year in Intebrary CPI yeah, if it's just filled up on the way to work today for well over five dollars a gallon,

which I guess I should consider myself lucky. Because the Germans are hoping for legislation that lowers their gas bills to eight dollars a gallon. They feel like that should Well, I get concerned when we start throwing around price fixing because central bankers all talk to each other, So I don't don't want anybody getting any ideas here in the United States about price fixing. You can look back and google Nixon and price fixing and see how that ended. No,

agree one percent. The thing is the price is already fixed in Germany because like cent of what you pay at the pump is taxes, you know, so all they need to do is reduce some of that burden. And I'm sure we have a similar, uh not nearly as bad, but um similar tax burden here. What I was going to ask about is um the growth, the slowing growth?

I guess is it the bigger concern. And it looks like when you have a Moody shock, which we have had, or when you have the fed um starting to raise rates, which we have, or when you have yield curves invert, which we saw yesterday. Um, these things all tend to lead to recessions. Not necessarily you're gonna have a recession after that, but you know, all three of them at once. Do we have a recession next year. I'm not so sure.

My good friend Peter Jucchini said this morning that his base cases is a recession in two based purely on what he seen in the rapidity of the cycle compression. We we got accustomed to ten years of expansion, and now we're talking about things happening inside of a two to three year vacuum. So there's no reason to go by the old playbook that suggests that once we see yield curves flirting with inversion, that it shouldn't be a faster runway between that moment and when we go into

an actual contraction. And again, this is a byproduct of the Fed waiting too long last year to take the opportunity of beginning to normalize. Then were you surprised at all, at Danielle, that they did not raised by fifty basis points this week. I was not surprised at all that that did not surprise me in the least. I was shocked that they said in coming months about the balance sheet.

And I'm even more shocked because now that we have Waller out on the wires, you know what was what's being contemplated among those on the Federal Open Market Committee and that right now appears to be July. So I was expecting there to there to be an indication that the balance sheet run up would start in May. And even is it going to be eighty billion dollars a

month or a hundred billion dollars a month. Lorie Logan of the New York Fed Markets Desk and John Williams, the President of the New York Fits, they've been fairly explicit in terms of where they saw that balance sheet run up beginning, at what levels, and how aggressively they would they would have it run, which would be more aggressively than the last time they attempted this. And yet they appeared to be extremely hesitant on this tack. And

that was what surprised me the most. Okay, Daniel D. Martino Booth, we knew we'd get the clean skinny on what's going on with our federal reserve. Daniel D. Martino Booth, CEO and chief strategist A Quill Intelligence still concerned that

the photo Reserve is behind the curve here. Yeah, and and the risk is that they get a little too aggressive to try and catch up, and and that's what could push you into It's unlikely they'll do that with the balance sheet, right, I mean, remember when they wanted to reduce the four trillion dollar balance sheet, which was already i poppingly large. Um, just a couple of years later, we're looking at nine trillions son nine times nine times for those that get the reference. We've got some ECO

data out. Got the Leading Economic Indicator came out today pretty decent. I'm gonna say I'm not you know, I think our economy hanging in there, but let's get the details. Automan Azoldrum, Senior director of Economic Research at the conference Board. Ottoman talked to us about the Leading Economic Indicator data that just came out this morning. Yeah, good morning to be here. So, yes, the Leading Economic Index came out this morning. It increased about zero point three percent in February.

That's reversing the revised decline from January, and overall, the Leading Economic Index remains on a moderately rising trajectory, pointing to continuing expansion for the US economy. So, after after weathering the omicrond wave in the beginning of the year, the US economy UM is in fairly good shape in the first quarter. But what can you see about UM? What's to come? Right? So there are some clouds in

the horizon UM. And we've been uh, you know, looking at what inflation means for household budgets, UH, consumer spending. We look at the volatility in stock prices UM and one of the negative contributors this month was a building permit spell and the housing construction sector is likely to be negatively affected, you know, as the Fed continues to raise rates for the rest of the year. So you know, there are some clouds that will slow growth UM. And we've seen that in you know, some of the UH

growth numbers getting revised for two UM. And unfortunately, on top of that, we have the Russian invasion of Ukraine that is creating made a major shock for the global economy. UH. So it's it could also lower the trajectory and lower growth rates further for two It's kind of where I wanted to go Outoman. I think some folks are saying, hey, when you put these rapid and significant rate increases along with a shooting war in Europe, that might be enough

to push you know, some economies into a recession. Is the R word in your vocabulary for the next year or two? Uh not yet. So you know, the leading economic indey is a gauge of recessions. It's used for predicting recessions, and so far it hasn't been signaling anything like that. And looking ahead, we have to watch that very carefully. But the you know, underlying trend trajectory for the US economy has been fairly healthy. UM and um.

You know, even though revising growth rates down to around three percent for UM, we we are still looking at pretty robust above average growth rates in terms of what the Fed does here. Um. Do you get the idea that this is hurting the leading indicators? Uh, it does create a potential downward risk for many leading indicators as well as for the economy. Of course, that's what we're

trying to measure here. UM. So as those rates start to go up to find inflation, we're going to begin to see the impact starting out, you know, spilling over into mortgage rates and credit card rates, and those are the channels or mechanisms that work to slow the economy and attempt to control inflation. So, UM, we will begin to see some of that. But compared to the negative effect of uncontrolled inflation on consumers purchasing power, it's uh,

it's not de preferable. All right, olduman, thank you so much for joining us and breaking down some of this leading economic indicator data. Otoman also Drum, Senior director of Economic Research at the Conference Board. All Right, Matt, here you go. You go get your bachelor's of Science and mechanical engineering from Berkeley, and then you cross the metaphorical street and get your pH d in material science and engineering from Stanford. Then what do you do? You go

to Wall Street. That's what our next guested Interesting Play Anchor Crawford, Executive vice president portfolio manager, Fred Alger Asset Management Anchored. Thanks so much for joining us. You appreciate you taking the time. All right, you've got all these engineering degrees. How do you apply that stuff to the markets? Actually, I don't. Parents are saying, Oh my goodness, I know that is actually what they said. But um, you know, I think with engineering, all it is is pattern recognition.

At the end of the day, what we look for, even as investors, is different patterns in the market, different patterns and companies and stocks in the numbers. And so you really take that learning as an engineer and I'm able to apply it to the markets. What are you seeing in those markets? Right now. What are the patterns you're seeing, because boy, you've got a lot of cross currents on there that you have a lot of bricks in that wall of worry. Now you get to add

geopolitical risks. How are you viewing the market right now? You know it is the market is actually quite fascinating right now in um. You know, we the end of COVID and the return of normalism and a return to normalization of COVID, at least in the US. We have this geopolitical risk that we haven't experienced in three generations. UM. We have reverberations of all of these effects on the supply chains causing inflation readings that we haven't seen in

four decades. UM. So there's a lot of different cross currents, as you mentioned, in the market right now. However, what we're focused on is really understanding what's getting baked in and so we are very deep in the numbers for each of the businesses that we own, and we we probability weight the the effect of our recession for example, and UM, well sorry, what was that? What what what's

your probability of recession? Oh, we don't, we don't. We just probability weighted, so we say, if there's a five percent probability of a recession, this is where we think the bare case will be, or the numbers should go to if there's um probability of a recession, and the numbers will toggle down right, So we basically can tuggle the probability of recession up and down in the numbers.

And what we found is that really there's some of these businesses that we're looking at, especially in the growth sector, that have gotten completely sold off over the last three months, are trading at free cash flow yields even in a more recessionary case, that are quite compelling, especially relative to the cash flow yield of the S and P. So it is interesting because the market is has very quickly baked in a much higher probability of a recessionary case

scenario because of all these cross currents that we had talked about. So, which companies do you think anchor do well and even in a recession case, not saying that we're having a recession, but if we do, where do you want to be? So look, I think I think the recession is going to at least in the US if if we do have a recession, which I am. I am very much on a fense about if we

see a recession in the US. In part, they because the consumer is so incredibly resilient, they have two point five trillion dollars of express savings that can be used to thwart off the effects of a recession. UM they have under leveraged balance sheets still that they can the

consumer can still lever up. However, if UM, you know, there are several very interesting themes in the market right now that have duration and have growth aspects that that are almost uh not related to the economy and so in in big tech, if you look at a company like Microsoft, UM you know of that business is they have visibility over the next year into the into the revenues, and so you know, even in a recessionary case scenario, the number is on the on the top and the

bottom line. I am not going to flex up and down all that much, in part because they're really the hub of this digital transformation and industrial revolution that we

are experiencing right now. UM. On the other hand, if you look at consumer, we believe that the higher end consumer will be also quite resilient and they have a great wealth effect that they've experienced from both the market, home prices both going up over the last few years, and their businesses like Veil Mountain resorts that are trading at five and six percent free cash full yields as you look out a couple of years, and we think that they will be relatively resilient through through UM a

slowdown in the economy. Anchor energy has had a nice run here got oil north of a hundred dollars a barrel w T I has that trade played out? Has which trade played out? Kind of the energy trade just kind of being long energy? You know what? I think? I think we're not going back to energy and stock prices where they were at thirty dollars of barrel um in part because of like people are realizing that the there's this very strategic aspect to oil and UM. But

has it played out? I think I think it has and in part the global economies will start to slow UM and demand for for oil will will decline and so UM. You know, I do I do think that it has mostly played out. That said, I do think that oil stays higher for longer UM and maybe not at one forty where it got to at its peak, but could it could it stay at eighty bucks for a long time it could. All right, uncle, thank you so much for joining us. Really appreciate you taking the time.

And Court Crawford, e v P and portfolio manager for Fred Alger Management. Let's talk space. Let's talk satellites. I mean you can see basically what the satellites we have in the air these days. You can see just about anything. You can get a picture of just about anything. Peter Platts, or CEO of Spire, joins us. Spire is a publicly traded company went public via a spack it looks like back in UM. Yeah, they offered twenty three million is at ten dollars via my good friends of credits. Sweet.

All right, Peter, talk to us about Spire. Give us the thirty second elevator pitch. What inspire? What are you guys up to these days? Absolutely appitude. We are a data and analytics company and we're leveraging space to solve business and e s G challenges for companies, countries and communities all across the world. We are We designed and launched and owned and operate the world's largest radio frequency

based UM satellite constellation to observe the Earth. You know, we track some seventeen trillion dollars of global trade, the two trillion dollar aviation industry, and the weather all across the globe, which you also predict up to ten days out. Um. And as you as well know that whether it is impacting you know, at least twenty five trillion of global GDP in with climate change that is just getting more extreme, you know, almost every single week. I want to say, um,

we serve do you watch this war? Yes, we do, UM. And you know it is with data and insights from space that the truth and transparency can be shed on on such a global conflict. And I think we have been witnessing this really firsthand um as it relates to the situation in the Ukraine right now, UM, with with commercial companies like a spire really bringing that data and

transparency to the world. UM. You know, our data has been used by humanitarian efforts, you know, by the media to bring that that knowledge and transparency as well as some other areas as I'm sure you can you can probably imagine and really being able to participate, um, helping people and humanity in you know, this particular situation as a European is uh, like I'm I'm from Austria is something that is very very meaningful to me personally, so Peter.

The supply chain, global supply chains, but a big, big issue for the world's economies. It's a global story. People are always trying to figure out where are the ships, where the trucks, where the trains? Um, how have you kind of taken a look at that side of the business. So supply chain is a is a very very nice

industry for us UM from a customer perspective. UM we track all of the world ships, where they are, where they're going, what they're doing, how fast they are, where they will arrive, why they will arrive, as well as

the planes. And then as you imagine, once you are on land and transportation happens in trucks, then whether it has a massive impact on on potential disruptions there and so everything from uh you know, the blocking of the Suez Canal and the and the ripple effects all across the world on the ports um to you know, just today we put out a little story about the shutting

down of of Shenzen. You know, we have been able to to monitor those activities and then help our customers, uh preempt them and know what to do based on what is happening and how they can get a bit of a leg up in their own supply chain management, and then their understanding of what is happening to their own supply chain based on the data and analytics that we can provide them. In terms of UM, your company, your stock has come down pretty substantially over the last

I guess six months. What's going on there? You know, honestly, if if if I could predict the understand the market with great certainty, I'll probably spent more time in Vegas and rather than helping our customers. But I think I think there's there's probably a number of elements. You know. One of them is certainly that we are in a in a very very risk off environment. I spent I spent ten years and LASS so there's a quantitative investment

manager UMH in longer term trading. And certainly when you have situations like uh a geopolitical crisis in Europe, when you have a situation like a pandemic UM but then at risk of indust rates rising, UM, you know, you have a you have a very risk off environment that has been you know, very negative for high growth companies UM. I think additionally you know, the the products that we have serve industries that are vast and large, but they're

not you know, top of mind for people. I mean you started off by talking about the pictures that you can get from satellites, but the data that we do that cover, for example, you know, four hundred billion dollar fishing industry, that's just not as much top of mind, and I think I need to do a better job in bringing that to life with people. Well, and what's the growth outlook, I mean, what kind of revenues are you expecting, say this year, and and what the margins

look like. Yes, so we you know, we had a very very strong finish to the year. We exceeded guidance both on the UH hop line and bottom line elements a region, the very top of it UM fourth quote of revenue was fifteen million, up a hundred and six percent year of a year UM. We reached seventy one million almost of annually recurring revenue, which was in ninety

six percent year of a year increase. UM guidance for this year on the revenue side is eighty five to ninety million of revenue, which is a year of a year growth rate of over a hundred percent at the midpoint, so growth is really really phenomenal. Um, we see the demand in every single one off our segments. We see it in the h the maritime, the aviation, the weather, as well as the space services segment, and we continue to drive, you know, very very aggressively to profitability despite

that high growth rate. He Peter, thanks so much for joining us. Really interesting company. Peter Platts or CEO of Spire again that trades on the New York Sock Exchange sp i R. Thanks for listening to the bloom 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 and on Fall Sweeney I'm

on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio.