Microsoft Is One of Best Tech Turnarounds In Last 20 Years

of the big names that reported earnings last night. Lisa was Facebook coming in with some numbers that came in a little bit below expectations, particularly as it relates to the top line revenue growth and maybe a little bit higher expenses. So that stock is off about six point four percent today and the otherwise, you know, pretty strong earnings tape for big tech. Let's be real clear. Facebook did not have bad earnings. They just didn't have amazing earnings.

They beat estimates uh by less than one percent, which was a problem for them. And this sort of highlights this key driver of big tech, which is the expectation

that this incredible exponential growth will continue. They're being penalized for not having that necessarily, and still there are things like Instagram and the fact that you could potentially check out, as Barriott Hols was talking about, they could potentially drive growth, And we were talking with David Garrity about how the campaign spending that will inevitably be ramping up heading into

the elections will actually help fuel Facebook. So amid all of that, it still wasn't enough to get anything more than what you know, we saw the expenses had expenses up thirty percent, a little bit more than expected. So the company is investing in the company. A lot of it is for it's an anticipation of the election. They've

been ramping up. They're spending on trying to make sure they have the right content, uh, that the content is appropriate content that the you know, as we come up to the election, that they don't have those same issues with election manipulation that we had in the last election. So they're spending a lot of money there that's ramping up the expenses just at a time when the revenue growth here in this quarter was the slowest they've reported

as a public company. But I think most investors feel like, uh, the long term secular trends of digital advertise sing really support the likes of not only Facebook, but Google and the others that rely upon digital advertising. So longer term, you still have Instagram, you still a messenger, maybe WhatsApp to some degree, lots of revenue levers that this company can can pull. Yeah, And to be clear, Facebook shares a year to date or at one point seven percent,

even with today's eight percent plunge. Given the fact that the shares have just been on a tear, let's get Dan eves opinion on both Facebook and also what to look ahead with Amazon, and then this this company called Tesla that seems to be absolutely on an absolute tear. Danives is the equit analystic web Bush Security is the biggest bull in Tesla and the biggest bull I should say, excuse me on Apple, and you've been right on that.

Also seeing positive signs in Tesla. What are you looking at in Facebook is the main reason for today's tumble. I think I think the stock just got over at skis coming into the quarter. I view it is just a speed bump. I mean this is a stock of my opinion continues to go higher two and fifty in terms of our target it and I view it is

one where anytime these fang names get hit. In our opinion, there's a buying opportunities because we believe ultimately thirty percent higher you know, for large cap tech the rest of the year. So let's switch gears to Tesla. The stock is just extrading up eleven point five today, all time high up. It's more than doubled over the last year. Dan, I guess you know, this has always been a fight between the bulls and the bears on this name, but it looks like the bulls are are winning this fight

right now. Yeah, and I view it as a game changer quarter in terms of inflection around demand, especially going to thousand and twenty in China, and also profitability because right now it's gonna be a self funding model going forward, could be twin hours earnings power in three years. So I do view this is just a massive inflection point. That's from a stock perspective in terms of where it's

your trade. That's going to continue to be a debate, but we believe right now the China of thesis both cases work three a share, which is how we get to a thousand dollars in terms of bookcase toy at hours and earning his power. How is it that Tesla is the second most valuable auto manufactory manufacturer in the world, considering that it's footprint is vastly smaller of the general

motors and Fords of the world. Sure and next, and I hear that every day, I mean for for years right from investors is in an automotive company or technology company. And that's why, first of all, I'll viewed as a disruptive technology coming in terms of a multiple in terms of what it deserves, but in terms of the footprint relative to others. It comes down to e V demand two and a half percent global, We've we've gone eight percent in the next four years. You start to put

that through. That's why right now, in terms of looking out how to continues to be the court ev play and penetration rates are so low. I look at a decade, I think one of every ten cars is going to be easy. And I think that's why right now you're seeing it reflecting the stock as this becomes really a parabolic and flashing point to some extent similar to what you know. I think we start even with the iPhone in two thousand and seven and the smartphone industry in

terms of what's happening evy. So Dan, let's say the market for electro vehicles does develop, you know, very quickly, can they even make the cars to satisfy that demand or won't a General Motives or a Toyota or one of the people that already have big factories set up fill that demand. Yeah, and that's really been the shadow that that was going to happen thus far. If you look at it, they've not just had to moot in terms of tests, so they've continued to expand production Shanghai

that you have. But when Bruin coming up this year and production you there'll be a million cars per year. If you look at traditional auto manufacturers both in the US and even internationally, been slow, slow to the gate in terms of production, in terms of releasing cars as well as one that could com with Tusla just from an e V perspective in terms of mileage and battery relations. So I think that's why right now it continues to be test Tesla and must swirld and everyone else is

paying rent. In terms of the EV market, of course, there is this question about profitability per unit, and that's

been coming down dramatically. It remains to be seen how profitable Elon Musk can be as he tries to dominate the electric vehicle market, especially because it really hasn't been taking off as much as people had expected globally when it comes to consumers preference, I'm wondering, does that concern you the profitability aspect of this, Yeah, and that I mean you obviously it's a great point because if you go back to three quarters ago, let's go, when the

stocks to to fifty, the big issues are going to need to raise capital. They're not profitable, so they do raise capital in terms of the convert and then profitability starts in terms of the cuts and they're able to get the volume and show the profit. So that's why right now that's going to continue to be you know, a big question mark. But if you look at what they're approving now, you could get to twenty hours or

earnings power two years earlier than expected. And that's a self funding model takes the capital raise off the table. And I think that's really what you're seeing reflecting the stock right now, is that there could be speed bumps along the way, but as of right right now, it looks like you know, may homes like performance. Hey, Dan, let's talk about another tech company that's hitting all time high today. Microsoft course, Uh, Mike, Microsoft had good numbers

last night. What were your key takeaways there, because I'm hearing some really good things about the cloud business. Yeah, I mean, I think this is one I wouldn't quote under the radar, but if you look what the Dell has done Microsoft Golden Touch in terms of the cloud transformation, as your growth beet by a thousand BIPs, and I think what you're starting to see now is share shift from Amazon a w asked to Microsoft in terms of the next phase of cloud. Seven hundred billion that we've

is going to be spent. I think Microsoft is going to be the winner. You saw that numbers, you start reflecting gotten it's a rereading in terms of what's happened the stock and really a metamorphosis and probably one of the best tech turnaround, if not the best, in the last twenty years. How does that factor into what we're gonna see today potentially out of Amazon with AWS. Yeah, I mean, right now, it's gonna be a comparison because if you look at Amazon, even though growth rates are

swelling and it's it's not necessary apples to apples. If there's any sort of ding on a w S. It just further solidifies the thesis that Microsoft's gaining versus Bezos and Amazon. And it all comes down even though there's a lot of noise. Jedi biggest cloud deal ever, Pentagon, who wanted Microsoft that trophy sitting in Redmond. It's been a major black guy from Bezos and a w S.

That's right tonight. Need to prove to the street that they're not losing share versus Microsoft, because all the other indications are if you look at numbers and everything, all the work we do, they are so down. That's kind of where I wanted to go. How do you differentiate a lay person like myself between Azure, which is owned by Microsoft, and AWS, which is owned by Amazon. Aren't they just like servers somewhere out in the desert or something? Yeah?

And what And I think at the first phase of cloud, that's what That's what it was. It was Amazon just parabolic expansion on cloud. They owned it. In terms of a WS has been a big key part of the valuation of Amazon. But now it's happening is enterprise Microsoft's backyard. Those companies are moving the cloud only of workloads during the cloud today going to next three years. Microsoft right

now they're turf Is, they moved to Azure. They are extremely well positioned and better position to Windows Enterprise Deals Verse WS and then miles behind his Google trailing in third place with g g P. I'm just wondering, if you take a holistic look at what we've seen so far at a big tech in the earnings for fourth quarter, are we seeing enough to justify the rally that we saw last year. I just sort of propel it forward to be the leading category yet again in the SMP

and the NASTAC this year. Yeah. I think if you when you strip away all the noise and forget just the headlines in terms of near term coronavirus and everything else, you look at earnings earnings Untech I viewed as major fuel on the engine because you look at where there's parabox spending going on software in the cloud, look at the five G supercycle thesis with Apple, and then I think you have strong numbers out of Amazon tonight. Now there could be little things here with You saw it

in Netflix, you saw it with Facebook. I've viewed as a short term issues and I continue to view it as tax is going to continue to lead the charge, which is why we continue to be overweight and think we still have eighteen months left a lease in this both thesis for attack. Hey, Dan, thanks so much for being with us. We love having you on Talking Tech. You've been very consistent with that Bowl call, particularly with

the Apple Yeah, absolutely right, Dan. I'ves managing director Equity Research for what Bush Securities, joining us on the phone from New York City. The great migration to e t S has been treated off and in tandem with the shift towards index funding, index funds and just generally trying to avoid active management. But is that really the path forward for the E t F industry? Joining us now, Ryan Sullivan, Senior vice president of Global e t F

S at Brown Brothers Harriman, based in Boston. Ryan, thank you so much for being with us. I want to start with this idea of the migration of assets to e t F s. How much is this just a general push towards indexing and how much is this something specific with e t F rapper Paul Lisa. Hey, great to be here. Thanks for the time. You know, I think what we're seeing here this this great migration that you talked about We've been seeing this really take shape

over the last few years. Uh, you're you're spot on. I think historically E t F are really seen as just a delivery mechanism for for passive investment strategies and indexing. But over the last five, six, seven years, we've seen this influx of you know, traditional active managers across the globe really adopt the E t F rapper and seek to drive uh, you know, more specialized, more actively managed strategies, and that's taken shape in both the domestic and international

equity strategies, fixed income UH. And now this year in our seventh annual et F investor survey, we're seeing a lot more demand for active e t F. So the share in particular, UH six of US investors said they wanted to increase their allocations in to actively managed strategies in the E t F rapper. So we think this is really just the beginning of this tilt where et F are seeing as a viable rapper for a number

of different types of investment strategies. I'm glad you mentioned acted e t F because to me, that's an oxymoron. What is an active et F? I thought an E T F by definition, is it's passive. Well, yeah, it's Historically again, they had always the strategies within the rapper had really sought to track a benchmark, to track an index. Uh. Here, what we're seeing is that active strategies work just fine

in this particular rapper. Uh. Traditionally, and for all the e t fs that exist today, whether they're active or passive, they do need to disclose their holdings on a daily basis. That does make the E t F rapper a little bit unique and one of the ways that differs some other investment products that usually disclose the portfolio on a lag Uh So, right now, active ets do need to disclose that portfolio. Obviously, some asset managers are okay with that.

On fixed income in particular, works very well on that rapper. However, you know, over the years, a lot of equity managers were concerned about that opening them up for front running in their portfolio if they were disclosing their trades each day. This year, just before the holidays, we saw some approvals from the SEC here in the States to approve new

types of active E t F structures. Uh. So, you've got managers like Fidelity, Presidian T Row Price, Blue Tractor, and the New York Stock Exchange all offering a new structure that would seek to kind of mirror the disclosure policies of a traditional mutual fund, uh so delaying the release in the publication of the fund's portfolio, but still putting that in the e t F rapper. So again, it's going to the this notion that e t S the evolution of this market is now really enveloping all

different types of investment strategies. So what's the point of going to an e t F and a mutual fund. Well, there's a few structural benefits that the e t F can offer when compared to some other other investment products. So one and I think this is typically well understood for for folks kind of looking at the e d F market. There's been a lot of mentions and media headlines around the so called fee wars going on in

the e t F space. So certainly on one end of the spectrum, you've got very inexpensive, very cheap beta solutions from some of the biggest managers in the planet. But that low cost is driven by some structural elements within the e t F rapper. There's elements like the cost of the transfer agent. This is near and dear to our heart at Brown Brothers, where we really support the plumbing behind these funds. So the role of the

transfer agent is a bit less onerous, uh. Within E t F and the mutual funds, that can present some cost savings and one of the ways that they help keep the expense for ratio of the fund lower than other investment products. And I would say the other biggest benefit in the US is the tax efficiency that e t s really drive, uh, the the use of in kind trading between the e t F and the funds authorized participants, where the portfolio and the e t F

shares are exchanged in kind. That's a tax exempt transaction here in the States, and that really drives a lot of tax efficiency in terms of reducing capital gains to E t S investors. So, Ryan, one of the things that we hear more and more about in terms of investment strategies is focusing on E s G, Environmental, social, and governance. Are we seeing Are you seeing flows into E s G E t F s. We're starting to

see them. Yes, this is something we've been tracking year on year and our survey in terms of the demand for E s G products. I think you've got two things kind of coming uh and slowly emerging and taking shape here in the States. We we've definitely seen stated demand for these products. Uh. You know, it's it's it's something that investors over the years have all said that

they plan to increase their allocations. And we finally got upwards of about six of US investors planning to increase E s G allocations across the board, so somewhat product agnostic, but about six saying they planned to increase those allocations over the next five years. I think a couple of things are at play here behind that one. Increasingly, we're seeing public pensions, UH, insurance companies, larger institutional asset managers really setting floors for minimum allocations to E s G

oriented investment strategies. And we think that's a trend that will likely continue in those floors, those uh, those those minimum allocations will only come up in that institutional community. And I think on the other hand, on the retail side, you've got this large demographic shift that is just beginning to kind of take shape with the wealth transfer to the millennial generation. And as this audience continues to attract

assets as they build capital. That will take time to be clear, but they have such stated preference of you know, investing according to their values that we think that will be another driver for s G T. S. Hey, Ryan, thanks so much for joining us. We really appreciate your thoughts there, Ryan Sullivan, Senior Vice President of Global Exchange Traded Fund Services, A Brown Brothers Harriman based in Boston,

joining us on the phone. But we are joined by our own oracle here, Barry rid Holts, who we can just say go and he'll go. Barry rid Holts, Bloomber opinion columnists and host of Masters and Business on Bloomberg Radio. Also of course, the founder, chairman and chief investment officer of rid Holts Wealth Management, joining us here in Interactive Broker Studios. I want to really focus in on the consumer that has been the main driver of the U S economy. A big question has been how much longer

can that continue? And what is the potential ramification of the strong consumer on the entire retail sector. I want to start with the data we guy out this morning. Consumer spending decelerated to a one point eight percent pace. This is below projections and the weakest since the first quarter. Do you view this as a potentially concerning sign of a weakening consumer. You know, you can't just take one

monthly report and extrapolated too much of a conclusion. Remember this year, the holiday season was very strong, up four point one percent year of a year. That's very powerful set of numbers. Just keep in mind that versen were easy comparables. Remember Q we had a lot of recession fears. The market had sold off about so maybe people throttled back a little bit last year and this past Christmas they made up for a little bit. So when you look at the broader picture, uh, you know, still growing,

but a little softer than expected. That's mostly noise. It's too difficult to say, oh, we're one instead of to two it's over because look, the landscape is littered with the bodies of economists predicting the demise of the U S. Consumer. It so far, it just hasn't happened. The consumer has been driving this economy. Do you feel like that can continue? Because we're still seeing weakness and manufacturing barrier. Business investment is not great. It's really been hanging on the consumer.

So the fascinating thing about retail and consumer is there's so many cross currents happening at once. It's such a noisy environment. It's really difficult to draw and paint broad conclusions. So we know we've been going through a retail apocalypse for a decade. The United States wildly um over retailed compared to other countries like the UK or France or Japan. We just have seven square feet per person versus five

and three and two elsewhere. So we're gonna con tinue to see retail stores closed, and we continue to see nine year of your growth nineteen point eight year your growth in online retail stores. Not only is that a big number, it's accelerating versus previous years. So I think this internet thingy is gonna be big one day, and it's going to continue to grow at just an astonishing pace. Online retail is now about fifteen percent of retail, up from about a third of that a decade and change ago.

We will eventually start the plateau, but there are no signs that's coming anytime soon. So in all these crazy crosscurrents, looking at one month of retail sales and saying, oh, that's it for the consumer really difficult. So let's talk about the Internet thingy and talk about what a strong consumer means for this thingy that seems to be taking over it. It's technical terms. By the way, I wish that we had a camera showing all of the hand motions, the idea that you know that he says, you know,

painted broadbrush. He's he's literally painting that broad brush acrosta across. If only there was a camera, right, we just haven't turned it on. Okay, So what are you looking at in terms of the disruption in so so the first generation of disruptors, the Amazons of the world, the Ebays, They've become very comfortable and I would never call Amazon complacent. They seem to be very savvy. Um, Jeff Bezos wants

to run the world. So you know, I use Amazon Subscribe and Save and Amazon Prime, and I used to go to Target once a month, and now if I go twice a year. It's a lot because every month, automatically the dog food, the paper, towels, the toilet pay, all the stuff that would kill my Sunday morning, it just shows up like magic. It's fantastic. But I'm a

different generation. And if you're under thirty, your mobile first, you are very excited about all of the Facebook properties like Instagram, and Instagram is rapidly becoming not just an influencer like it was a few years ago, but Instagram checkout is becoming this way that you see a pair of sneakers on Instagram that you like and you click on it, and Instagram facilitates that transaction. It's become too

easy to make purchases. Keep in mind, this is the fastest growing part of Facebook, and the old joke about Facebook as well, it's become where my mom and grandma are. Instagram is where the youth are, and that arguably is the future. So that's something that I'm paying close attention to. The Graham or I g as a kid. That's called alright,

instant stock. Actually, you know, Facebook down about seven percent today on some of those disappointing numbers from last night, but the company did call out that Instagram check out as a growth driver. So one of the things when we talk about retail, and we talked to retail analysts, they say that, you know, the US is still overstored and we still got to close that a bunch more stores. Is that kind of you believe? I believe that we're

still over even with all the closure. Absolutely, so when you gotta you gotta be a little more um thoughtful about looking at the stores that are either like Sears and Kmart, are the walking dead. Nobody's told them they're dead.

Someone will eventually tap them on the shoulders. Um Cole's J. C. Penny go down that whole list of sort of older style department stores, especially in light of not just the general psychological understanding that people derive more satisfaction and happiness out of experiences than consumer purchases, but that's the philosophy that really have seemed to be embraced by the millennial generation. And so the struggle that we've seen a lot of retail is how do we make experience part of our

sales process? And some really successful retailers have come up with ways to do that same with the direct consumer sales. When when we look at things like albert sneakers or go down the list of the new niche products that are all being sold direct consumer instead of needing a big retail department store to sell it. Uh, that's a

substantial challenge to the Macy's of the world. Well, if you are a millennial or someone who's under thirty and you feel like you've been pigeonholed by Barry rid Holts with vast generalizations. Please do right to him p R I T H O L t Z three at Bloomberg dot net. Uh. He's wonderful. He will continue to talk with you and tell you why you should be all about the Graham or perhaps more about experiences than Thanks.

Barrit Hols, Bloomberg opinion columnist and host of Masters in Business on Bloomberg Radio, Founder, chairman, chief investment officer of rid Holts Wealth Management, and oracle of Bloomberg Markets a M. Thank you so much for being with us. Well, the spread of the coronavirus is impacting financial markets far and wide, and that includes the commodities markets as well, including the medals. To get a sense of what's going on there. We welcome Will Rynd, founder and see you have Granite shares

joining us here in our Bloomberg Interactive Brooker Studio. Well, thanks so much for joining us. Let's start with gold gold up again today. I'm looking at the chart. It's a good chart. If you're long gold, gives your sense of how gold has been trading as it relates to kind of things going on in the marketplace, including the coronavirus. Well, thanks, Paul um as you already know. I mean, this year

has been a good environment for golds. If it wasn't already a good time for people to buy gold, I think that this whole situation with the coronavirus has just made it even more acute for investors looking for some kind of hedge or some kind of response to the confusion. Now, all right, hold on a second, full disclosure. You happen to run a gold fund, right, Okay, alright, let's be

real honest. Okay, So you know, this sort of comes to a question to know how you invest in gold, because you can have a position of whether gold is going to go up from here, and a lot of people do have that. So yes, you're probably talking your book, but also there are a lot of people who actually back that given where we are in the economic cycle and given some of the macroeconomic concerns. But going forward,

is there a difference in how people access this market? Yeah, so I think, like I said, before this coronavirus thing happened, you know, you've got central banks increasing their balance sheet, interest rates coming down, so that was already the environment that you know, a lot of people needed to feel more confident about buying gold, and in some respects there was a little bit analogous to when gold made in

all time high. You're you know, quantizative easing happening, UM dollar going down, UM interest rates obviously coming down at the real interest rates going negative. So a lot of those components are alive and well today. I think the other part of it, which you know, is probably dissipated a little bit, at least until um the last week or so has been fears of some kind of correction

in the market. I think there was a kind gone away a little bit um and people have focused more on just expanding the balance sheet and looking for for some kind of hedge to that. How about some of the other precious metals, Have we seen a similar move that we've seen in gold in others we have in many ways we've seen some pretty outsized moves and some of the other metals. So as some of some of the listeners might know, palladium has been a really kind

of incredible story. UM that went from a metal which was really kind of unloved over the last few years to a pretty severe supply shortage in the market, which is propelled those prices up to two thousand, two hundred dollars nownce. So most people we were shocked when the price of palladium went past gold, but then it's now

accelerated to more than two thousand dollars announced um. Similarly, the price of silver has gone up as well um And I think the one that everyone's watching at the moment is platinum, because the price of platinum has started to move, but that's been kind of the laggered in the precious metal space, but trading it over a thousand dollars announced less than palladium, and both of those metals, by the way, the key demand source and catalytic converters

for cars, so cleaning the emissions of cars, and there's a substitute herbal effect, So for all those automakers that use palladium as the primary metal for the catalyst, you can substitute that with platinum. And so people are looking at that. How much a driver of the price of gold has sexual bank buying pin um. It's certainly been important, but it's been pretty consistent for a long time now in the market, so I don't want to discount it

in any way, But it's been kind of consistent. Technological buying has been pretty steady, about ten percent of demand paranum. Jewelry also has been pretty steady, And if anything, jewelry has increased because it's linked to GDP, So when people feel wealthier around the world, they tend to use some of that money in gold. Jewelry wise trades almost like a luxury good. The marginal investor. That that's the most important thing in my mind for the price of gold.

So when you get the investors coming in, that's the sort of the swing, the swing in the demand curve. And so when you start to see investors coming in and buying or gold, I think that's the thing that's the most meaningful in terms of the price. So gold and some of the other precious metals trading well. Uh Copper, on the other hand, twelve days in a row, I think trading down. If I remember UH lowers since seen

what's the story behind copper? Yeah, horrendous story. If if the precious metals are the kind of the darling of the commodity space, then the ugly sister has got to be copper, and certainly any kind of major commodities linked primarily to China, so very simply that the copper stories intrinsically linked to China because China is the biggest buyer of copper, and so that story is very much linked. So the bad news and the Chinese economy means, all

things being equal, less demand for copper. So it's it's not had a good good running. So as we watch battles sell off. More broadly, I mean the London medal exchange is actually poised for its worst monthly decline since two thousand and fifteen, a lot of people are ratcheting back inflation expectations, and once upon a time gold was

a hedge against inflation. How does that factor into the picture now if we don't get inflation and if ultimately you get interest rates going even lower, yeah, I think probably the lesson over the last decade is, you know, certainly when gold price is made in all time high, you know, back in two thousand and eleven, I think a lot of people felt like all the quantitative easing that was being put into the market, the interest rate reductions that we saw from central banks all around the world,

would result and runaway inflation, and that was one good reason to own gold. Obviously that didn't happen, and the price of gold accelerated for for other reasons, which is primarily fear over some kind of inflation re expectation, but more often the opportunity cost of gold. The interest rates came down significantly, So I think, you know, inflation is certainly on some people's mind right now, but it's not the main reason I think that people are buying gold.

I think that people were trying to position themselves more defensively for a correction in the market. Well, Ryan, thank you so much for being with us. Thank you well. Ryan is founder and chief executive officer of Credit Shares based in New York, the Granite Shares Gold Trust I'm looking at right now at million dollars of assets. Center Management has returned more than nine percent nearly in the past twelve months, and it's up about four percent so

far year to date. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyd's I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio