Outlook For Semiconductors, Domestic Chip Production

over to Hans Albrished. He is a portfolio manager and option strategist at Horizons E t F Management and UM, a great day to have you on, Hans, because we've had some really kind of weird news in the E t F space. I'm thinking of the short arc E t F, which Matt Levine was writing about yesterday. I mean, if you don't like Cathy Woods strategy, you could just

find out what she's going along and short at yourself. Um, or you could just short the arc E t F. Why would someone feel compelled to build a short arc et F. Well, I think, uh, you know, I think it's a bit like shorting bitcoin. You know, there's a we have a product actually that allows you to take

part in a short bitcoin effectively. Uh, and I think that becomes a bit of a trading vehicle for people, because you know, the stocks that Kathy tends to invest in, or these exponential, these emerging technologies that often get uh, you know, stretched and overextended, and and I think this sort of gives people away to kind of play both sides of the equation um because you know, some of these companies are smaller, and uh, we know that Cathy's uh,

you know, can have large a large percentage of the holdings of some of these companies, and some people think that that's sort of something that can reverse over time, So a bit of a mean reversion play from that perspective, I think. But I say that's more of a trader's trader's vehicle than something you want to hold for a long time, because of course I'm I'm a true believer in these technologies over time, so Hans. Other news we got today came from BMW kind of learning about the

impact of the chip shortage on its business. So maybe that's not a reason to want to be invested in an automaker like that, but maybe it's a good investment idea to invest in the company that makes the products that are seeing shortage. The chipmakers and you obviously at Horizon ETFs launched uh C HPS, the first Canadian semiconductor e t F. What kind of interest are you seeing in that product. We're seeing some good interest. It's the

first one that really takes a very global perspective. So a lot of the products you see out there, the socks and things like that, have very much a US focus. And what we'd like to talk about is that, you know, this is really a global movement, this exponential and emerging movement where semiconductors are the new oil. Right we hear about data being the new oil. Semis are really the new oil. The oil. They make up the foundation for almost everything in our new world, and and that goes

for everywhere in the world. And so you've got some areas of the world. Asia is the biggest cloud growth area in the world. You've got robotics and automation being very, very big in that part of the world. So it's better to have exposure to companies that are some of the very big and influential companies that exist outside of outside of the US. Is there gonna be a time in you know, the near to medium term future when we ramp up chip production by so much and demand

falls off that we have a glut. Well, it could be you know, we oftentimes we kind of uh, we overextend one way or another. I think it's going to be difficult in the in the chip space because it is very very capex um extend, very capex intensive um

and so it's not that easy to adjust. And we saw that in the during the pandemic where some some areas like automakers sort of it was very much uh, an example of expectation versus an actual reality Jewels, where everybody sort of took their pedal, took their foot off the pedal, and then suddenly auto demand you know, went through the roof because everybody started doing the good old American day trip, uh, the good old American road trip. Um. And so when when things get out of balance in

that to that perspective, you can have some problems. Some of that capacity went to other areas of chip demand, and then when the automakers needed that demand again, it wasn't there. And it's very difficult to kind of move to shift that capacity around. Uh. And it's going to take a little while for for us to solve this problem because it isn't as easy as flicking a switch. I'm a road trip fanatic, and when I go on a road trip at all, I like to bring my iPhone,

my Apple Watch, my iPad. I need as many chips as I basically can in the car to feel like I'm safe. Hans, thanks so much for joining us, Hans alversh there is a VP and portfolio manager at Horizons et F Management. Gotta get you back on and talk more about chips in the future. Let's bring in Kara Murphy. She is cheap in vestment officer at Kestra Holdings. They have a hundred twenty three billion dollars of assets under management. And Carrey, you are optimistic, right, I mean, at least

in terms of the economy. You think we see uh some good signs with foot traffic, air traffic, consumer spending, et cetera. How much longer does that continue or have we maybe peaked? So I am optimistic, and I think part of it is because we still have a tremendous amount of momentum in the system, both from fiscal and monetary stimulus that started last year. But you know, we've been looking very closely as COVID case counts go up,

like how is the consumer actually reacting. So, while certainly a health concern, on a continuing basis, what we're seeing is that people aren't really changing their behavior very much. Um. We're continuing to see foot traffic even in COVID hotspots, in places like restaurants, hotels, gems. Air traffic is holding study at pre COVID levels. Consumer spending is now above pre COVID levels. So what we're seeing is that the

economic impact of the increased case counts are pretty minimal. Okay, So does that mean you want to keep going towards the value, the cyclical, the reopening kind of place. Yeah, well, I think we are starting to see a rotation towards a little bit more quality UM in the market. But I do think there's a nice consumer theme out there

as well. So areas like home builders, discount retailers, those are areas that will continue to benefit from both the consumer kind of coming out of their pandemic shell low interest rates being willing to actually walk stores again. Um. And so I think there's some interesting opportunities there. What about the growth stocks, what about those mega texts that have powered this market higher? Are you done with those? Yeah?

It's very hard to bet against those stocks, right, I mean, like tremendous top line growth, free cash flow generation um at a norm arisen out of momentum. So so I wouldn't want to bet against them, but I think their attractiveness compared to let's say a year ago, is lower. Let's talk about E s G. But we actually have a great live law going on on the terminal right now.

You can type T live T L I V go into your terminal and it's with Steve Liberatory over at nu Vene talking about E s G and the risk of green washing. How do you get around that green washing risk when trying to make E s G oriented investments? So I think first of all, it's important to understand that that there is a growing demand for the ability

to express your values in a portfolio. And so we certainly see this um with our clients who are asking to be able to have some consistency between what's important to them and the holdings that they have. So I think that's one very important trend to keep in mind. Another is that like the data that we have in E s G is so much better, the analytical capability is so much better than what we had like ten

years ago. So you know, I think this concern about greenwashing is the idea that you know, suddenly everybody has got an E. S. D. BEN and everybody's you know, using these other factors to sort of determine investment. Um. And that is a risk. But we're in so much better place today than we were ten years ago. UM. So I think that's all a very good thing. Yeah. And also, I mean, what are you gonna gonna do.

You're gonna drive up the cost of capital of bad businesses or do you invest in good businesses hoping that sometime regulation gets past. Um. It seems like an interesting conundrum to me. I want to get to home builders because, um, you have written about the pullback that we've seen. Um, but there's still so much demand, as Kaylee and I can attest to m for homes and so little inventory. What happens here? Well, and I think you can guess right,

tremendous demand, limited supply. You know, I think that's really going to continue to buoy prices, particularly at homes. And you know, the home builders have been very deliberate and sort of holding back some of their inventory. UM. So we'll start to see that come online in the second half of this year and then even into next year. And then the meantime, we've seen a lot of input costs really received. I mean, lumber has gotten a lot of attention and that's come back tremendously at the same

time that home builders shares have been receiving. So and then even when we look at valuations, while they're you know, towards the high end of their typical valuation range, as earnings continue to increase, um, as these homes come back online, as prices hold firm, um, I think you'll continue to see these stocks do well. Maybe good news for the home builders stocks, less so for Matt Miller who's trying to buy a house in Westchester potentially, I don't know

how much luck that's going to have. I've had some listeners right in with some tips, so if anybody knows a place in Bronxville, Yeah, Matt is using his platform to get tips. And we only have about thirty seconds left, but of course, earning seasons winding down, we still do. We'll hear from the retailers later on this month. How strong a position are they in. I think the retailers are in a great position, so you know, We're particularly focus on the discount ones who didn't benefit as much

from the rush to online last year. But like I said, starting to see more foot traffic. We're also seeing um wage increases, particularly in low wage earners, which again should really help those discount retailers. Kara, thanks so much for joining us today. Kara Murphy, their chief investment officer over at Castro Holdings that said they had a hundred twenty three billion dollars in assets under management, So um, some real firepower there and some great insight on what to

do in this market you're not looking for. I thought you were looking for a house too. I would in theory that would be great map, But after looking at what prices has done over the last couple of months, I think I'm just gonna have to wait it out. See when it cools down, maybe I'll find my entry point. Yeah, I mean I may try and wait it out as well. Hopefully it'll cool down by like January or February. UM. But it's an amazing market right now. If you're a seller.

I know a guy who sold a house. He put his house on the market Friday and it was done cash, no contingencies within like five minutes. Uh yeah, very very hot marketly alright, Our big take today is on Gary Gensler, the head of the SEC, readying more crypto oversight. His intention is to protect investors and he's made that pretty clear.

But the thing is he's also um, I guess he's said at least open or neutral on the technology, the blockchain technology, and he even taught a class at m I T about it, so a lot of people have speculated he might be a friend to the crypto world. Robert Schmidt joins us who wrote the big take story today with Benjamin Bain and Robert. I guess you know. The issue is a lot of crypto investors, a lot of crypto believers are also very libertarian, and a lot

of people take that to mean also anti regulation. Hey Matt, Yeah, thanks for having me. And it is true. I mean this is a you know, a system that has developed kind of outside of the government, So there's kind of a real hesitancy on some of the people who are real enthusiasts here, uh to have the government wagh in uh and said rules for this market. Um. But as you saw with our Ginseler piece, Ginseler is um saying you know what the government has to have a role here.

This is a one point six trillion dollar market and growing, and so from an investor standpoint, he doesn't think that there's a lot of protections. Talk a little bit about his his background and how exactly that informs his opinion

in his policy approach when it comes to crypto. Yeah, it is fascinating because the government, as you guys might imagine, is not full of crypto experts, replaced crypto with anything well true, and especially you know talking to people say on Capitol Hill, right, nobody knows exactly what any of this stuff is and it is confusing. Um. So Ginsler has really put himself in an interesting place because he's, uh, he's one of the few people who really understands this stuff.

And he developed a very popular course at m I T on blockchain and money. Um. He's long been interested in kind of these intersection of finance and technology. Uh, and he studied it for three years before he was appointed SEC chairman. So he says, well, look, this is serendipity, but I'm glad I'm here and I'm glad I understand this stuff well. And there are a lot of people, Um,

there are people in the crypto space. I shouldn't say a lot, because I don't know how many, but I we talked to on a regular basis people who work with crypto in the investment world, and UM, people who are pro regulation of in some form or another, who say that we need to have some clear cut rules in order to get this really widely adopted and going. Um,

maybe Gainsler is their friend. Yeah, he is. I think although you know, it all comes down to um as everything does in Washington, and the details of this stuff and what kind of regulation and oversight you want. But um, that's true. Ginsler talked to us about, you know, the early days of the auto industry, and he said, well,

you know, people were driving around. There were barely roads, there were no traffic lights, there were no speed limits, people were getting killed, you know, and once the government stepped in and said, hey, we've got to have some some kind of rules here. Uh, the industry took off. And he sees, you know, UM, crypto as as similar, that it really does need some guardrails there before it's

widely adopted. I should point out that I normally live in Berlin, and living in Germany, probably the number one best thing about living in Germany actually by far in a way, is the fact that there's no speedle in it on the auto bun. I can't believe no other developed Western countries have that, because it's such a great

part of life there. But to the story, back to Gary Gainsler, Robert, I guess once he forms an opinion about this and kind of decides what direction he wants to go with this regulation, what kind of speed and or lack thereof are we talking about? Was how some of these things could actually come to fruition. Yeah, well,

you know that the government is never fast about anything. Um. And Ginsler also has a lot on his plate, a lot of stuff that we've talked about over the over the months, you know about the game stop trading and Arcagos family office blow up. He's got a lot of things that he needs to deal with, uh, stuff that's complex, high profile. UM And he's just added this to his list. So we're not totally sure, but it will be a while.

And you know he is, as we point out in our article, he ran the Commodities Futures Trading Commission during the Obama administration and put in a whole new set of rules for swaps, which you know, many people think was a big cause of the financial crisis, and he did it fast and he muscled it through, so people are not discounting his ability to do this. You know, he's he's he's I guess he's kind of heroic almost in in that he came to the rescue there, and I think a lot of people on both sides of

the aisle have a lot of respect for him. You quote Hester Pierce, Republican commissioner on the sec UM who is also more of a libertarian. She says, I come from a perspective that people should have the maximum freedom to engage in transactions they want to engage in voluntarily. Sounds almost American of her um, but she is supportive too of some regulations. She says society needs to have

that discussion about what the right regulatory framework is. Yeah, she thinks that like, hey, we need to set rules, and maybe what she sees as regulations might be different than what Ginceler j'ss regulation. But she kind of agrees that in order for this all to take off and be beneficial to society and um, you know, maybe help our economy grow, that you really do need to kind of tell everybody what the what the rules are, so

you know, they don't disagree on that. They probably do disagree on on you know, what the actual policy might be. But that's what these commissions do. They have five members, they get together, they talk about it, and they try to hash something out. And just to be clear, you know, one of the big problems that we have in crypto. Anybody who reads Matt Levin's columns UM gets a lot of info about the defive space and the fact that there are these Ponzi schemish rug poll um scams that

continue to get investors over and over again. Not that the investors don't expect it to happen. I think a lot of people going into this no that they're gonna get ripped off half the time. But this is what they one of the main things they want to put a stop to, right, Yeah, they sure do. And the SEC kind of since, uh you since crypto exploded, has been kind of pursuing an aggressive enforcement approach on this and and Gaincler definitely says that, you know, the fraud

has got to stop. We've got to figure out how to do this, uh, and he said he was going to continue um the investigations into all of this stuff. Can you talk about the influence gainst their wheels outside of just the sec you you talk about in the article how he also sits on the Financial Stability Oversight Council. Yeah, there's two kind of panels that that are important in

this area. One is the Financial Stability Oversight Council that's kind of an uber group of regulators that looks at, um, you know, practices that are potentially dangerous to the financial system. And then the President's Working Group on Financial Markets, which is a smaller group that advises the President on some of these same you know, market impacts of things. And uh, he's really, um, the main person on both those panels

that is, uh, you know, most experienced in crypto. So people who've worked with him on this stuff say that his his views are taken pretty seriously. Robert. He didn't give you any clue as to whether or not we're going to get a bitcoin ETF allowed in the U S anytime soon. Yeah, unfortunately not. Um, but he is giving a speech today at the Aspen Security Forum which may touch on some of that, and UM he said that,

you know, he's continuing to think about it. And he understands that a lot of people are very interested in this. I feel like if he was going to tell Aspen, he probably would have told you, Benjamin, I have a feeling we're gonna be as well. Yeah, exactly. I think it's still going to be a little while, but for now, I think there's some Canadian ETFs that do pretty much the same thing. Great Big Take story, Robert, thanks so

much for joining us. Really appreciate your insight. Robert Schmidt writing with Benjamin Bain about Gary Gensler getting ready for more crypto over society wants to make rules, which makes sense considering the fact that that's his job. He's a rulemaker UM in the Securities and Exchange Commission, and he's going to be dealing with something that he knows fortunately a lot about, So maybe people will be less angry

about the rules that he makes. I think there are a lot of people that just don't understand what goes on in this space to begin with. But if you want to get a look at the story, decide n

I big take go. This is Bloomberg. Let's get away from politics and get back over to the markets, because we're seeing a lot of action in the markets, say, not a lot of direction in terms of equity indexes, but um, we still see yields and incredible lows one sixteen fifty six on the tenure right now, and we see, uh, the the real yields right now dropping and they and they have been down for a while, but right now

down at negative one hundred and eighteen basis points. So it's a pretty incredible Uh, it's a pretty incredible environment to working in. Dan Genter joins us. He is the chief executive officer of r NC Genter Capital Management. They've got five billion dollars of assets under management, and Dan, I wonder what you make of this. It must be one of the most asked questions. Why are rates so

low if we're looking at economic growth that's so strong. Well, I think the only thing you can really look at, Matt, is that just a fairly typical flight to quality and the and the real concern here is what's happening with

the delta variant of COVID nineteen. I mean, you we've had a number of false starts with regards to you know, people trying to come come out of the closet and get back and reintegrate into society and and now I think when companies literally were setting guidelines and dates for people to return to the office and setting in those parameters, you know, now they don't know what to do again.

So I think that you're you're in a situation where you're combining two factors, which is the market has just had a tremendous run of what we've seen so far this year, both on the back of earnings and some multiple expansion. You know, it's it's trying to take a deep breath anyway, and now when you put the new COVID fears on top up of it, you're just again you're seeing some concern, You're seeing some flight to quality.

You're seeing or you're going to be able to continue to push these earnings forward at this pace, which is what we really need to support the market. Are you one of those people fleeing to quality, Dan, or where are you positioning now? We were really in a situation where right now we're we're just looking for values. So I guess too some degree you could say that we're going to quality, but but for us, it's belling more with that we've been really focusing on since the fourth

quarter of last year. I mean, we we feel that the overall market itself is it's look, it's earnings are really the game right now. We think the concerns about inflation are really have kind of faded into the background at least for the time being, and earnings is really what is going to drive this market. The ability to expand multiples beyond here we think is very very limited.

So being focused on earnings and then in line with that, being focused on valuations to us we think is key, you know, and that we feel will continue with a resurgence of some rotation back to value that we saw in the first half. It's great to have somebody on the program UM who actually in a sense puts his money where his mouth is with stock picks. And you've got a couple that I think are pretty popular. UM, b m Y and CVX are are a couple that we've had UM guys and and and gals on in

the past. Who are really behind these these stocks? Why? Well, I think again it's value. I mean, when you look at what you're getting for Bristol Myers. The biggest issue with Bristol Myers is that people are very concerned about the back end of the pipeline. As certain drugs are coming off a pattern, we don't have as much concern and we think the current flows are very strong. I mean, they're going to continue to be a leader in oncology and cardio vasco disease. I mean they have some of

the biggest drugs that are in that area. You look at where their cash flow is right now, they have eight percent free cash flow as you have a company that's trading at at a you know, an eight point three pe right now based upon our estimates. So I think that the real issue is is that we like

the healthcare space. We think this is really undervalued and the and the big thing becomes, as I mentioned, is the back end, because we feel that when you look at the new drugs that are coming online, I mean, these have revenue capability that's twenty billion, and the street very cautiously is putting roughly a ten billion dollar number on that. So so we see that potential being significantly higher.

And then when you look at the current valuation at roughly eight times and you get a two point eight percent yield while you wait, you know, we find that very attractive. And when you look at cv X, it's It's a similar thing in the oil space. Uh. And if you want to make a pure play on the commodity price, this is one of the best places to do it. And we think at roughly seventy dollars a barrel now we think will continue to creep up near

closer to eighty. Uh. You're in a situation where you look at forward you know, earnings of what we think is quite reasonable here. You know, you're trading about fourteen times and a big kicker is you're getting five and a quarter percent while you wait in dividend yield and they only need fifty dollars a barrow to cover it. So it's to us once again, very strong value. Dan just quickly, we only have about thirty seconds left. But what would you be staying far away from here? What

kind of sector? Well, I don't want to paint it with a total brush, but I think would be taking some money off the table and some of the technologies. I mean, you're you know, once again, we think they've had a good run again. They've come back, you know, after a value took over in the fourth quarter, in the first half of the year, and so you know, looking at that to maybe lighten up a little bit and get back into some of the cyclicals. Dan, thanks

very much for your time. Really appreciate getting your insight today. Dan Genter is the chief executive officer at r n C Genter Capital Management, and as I said, he's got five billion dollars in assets under management and talk talks to us about stocks that he likes, about actual picks, which is great to have. You like Lincoln National, he likes b m, Y, like CVX, and he likes Altrea. This is Bloomberg. Thanks for listening to the Bloomberg Markets podcast.

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