Bloomberg Audio Studios, podcasts, radio news.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Let's get more on Starbucks here. Jody Louri is Bloomberg Intelligence credit analyst, and she joined us now on that. Hey, Jody, just talk us through your reaction to this.
I think as the credit analysts were always sort of hesitant when there's these full scale changes that happen overnight, and when you've had a CEO that's only been there since March of last year. So we have just only gotten comfortable with the concept. They're giving back twenty billion dollars and now you have two activists investors very heavily involved, one getting a board seat and pushing out the CEO with a new CEO. That could be a pot positive
for the company long term in terms of performance. But I do also think that shareholders might make it better than bondholders at this point.
Why do you say that you think they're just going to maybe start returning cash shareholders.
I think they'll get a little bit more aggressive with that, Paul, I mean, I think, you know, it could end up being the type of thing that they look at the company and that you sort of think about ways to sort of boost the value, whether it be spin off some entity or what have you. I'm not sure what entity they could spin off at a Starbucks because so much of the non core business has already been peeled away.
That said, I mean, I think that when when you're dealing with activists, you're always sort of hesitant because you say, Okay, how much are they going to risk the balance sheet? How much are they going to lever to get the company into a different spot. Now, that might be a short term pain for long term gain, but for bond holders, when you think about that short term pain, that's not always necessarily the best thing. You know, we have a long history of Yam for for example, you know, which
which the new CEO is part of. When they sp off their entity Young China, you know, they ended up giving back so much of their money to shareholders.
Which then to the point breaks a question like how is Starbucks actually doing from a bond holder perspective.
From a bond holder perspective, you know, over the past year, they've been a little bit more volatile. We were looking at some of the recent bonds, you know, the twenty twenty nine for example, which are five year bonds, have actually tightened modestly on the news.
But I think it's hard to tell.
I mean, I think it's more of a question of what this means longer term from a performance standpoint. It's going to take a little while for bondholders to sort of digest this news. You know, something that that's very clear that we've been tracking is the ALDI the Bloomberg Second Measure data.
Yeah, okay, so wait, first of all, what is this? Because I got to be honest, for I've never heard of this before, and you mentioned it and you were going to talk about it, and now I'm a little obsessed with it.
It is pretty amazing, Alex, particularly when it comes to Starbucks, because the R squared or the you know, the sort of predictive value of it is pretty great when it comes to Starbucks in particular.
So what it is.
It's credit card and deborcart swipes only in the United States, and Bloomberg aggregates the data. You can see it. You can see it both on a year over year basis. You can see it on an actual value basis if you look at the year over year where it's trending, it's actually very much down when it comes to sales and transactions, which is not surprising because they've had a couple of sort of disappointing points, one of them being geopolitics, so the astro turf effort related to the Middle East.
You know.
The other portion is obviously China and the fact that they really went all in on China and it's been a little bit of a disappointment. And then you've also just had consumers pulling back in terms of their spending on things like Starbucks, McDonald's, what have you, and so companies have been trying to just get people in the door. Now if you look at it for you know, transaction value, or if you look at you know, the PLACER data, which we also have embedded on the terminal, even the
PLACER data is down, so that's estimated visits. So people physically going into stores has been down recently. And so how does the new CEO get these people back? How does he get them comfortable with the Starbucks that we used to know and love I'm not sure.
So what has been talk to us about China, because I know you've flagged that before. It talks about China and what it means for Starbucks.
I think China means a lot of things for a lot of the companies in our space. I think it's been a very common word, more so than normal when it comes to across the consumer and leisure space. You know, So if you listen to earning calls this quarter, if anyone from Hilton to Hyatt to you know, even the cruise lines have been mentioning China either as an avenue for growth or as a disappointment for an avenue for growth.
I mean, we haven't seen the value of China. We've seen sort of the sluggish, slow growth of late and for someone like Starbucks that last year they mapped out their plan and they said, we're going to be building out more stores in China and that's our international growth plan, and that's how we're getting the company back on track. All of a sudden, you don't you don't necessarily have that, I mean, I mean that's kind of a big problem.
Yeah, And when they talk about like strategic options for that are partnerships, what does that wind up looking like they're not going to spin it off, right, So it's not gonna be a Yum and Young brand's China kind of situation. So how do you digest that?
I mean, it could be a Yum and China situation. Who knows what's on the table at this point. I mean, we we could, you know, we could fathom any sort of measures. I mean, most of Starbucks stores are owned, but then when it comes to international it's a little less so. And even places like you know, I mentioned the cruise lines. You know, we were on a Royal Caribbean ship a couple months ago and they had a light in our base.
It's like, remember that time I was on that cruise and it was really awesome. Sorry continue.
They did actually have a collector mug for kind of the Seas that I did buy, which was a Starbucks mug, but it was Starbucks with a bunch of icon of the Sea stuff. I had to get it.
I mean, it was two companies I cover.
I was like, I can't one shot.
Well on the flip side of this this transaction, Chipotle, what's the outlook there, what's the feeling there in the street.
So Chippote is an interesting one because they don't really have that much debt outstanding, so it's one that you know, Mike Hallen really deeply covers. We a little less, so we cover it from the standpoint that obviously it's a very important player in the space. It's that fast, casual we love talking about youm and obviously Chipotte sort of lines in perfectly with Yum, and it's sort of that intersection between Yum and Darden, which we like talking about.
And so I mean, I think, you know, Chippote obviously had a lot of negative headlines. We're talking five years ago, you know, in terms of safety for their food, which is obviously never, never a good thing. Since then, they've turned around the company quite substantially. Now, I don't know what this means when you have a Darling CEO jump ship and go to another company. I'm not quite sure
what we'd expect there as of now. From a bomb holder's perspective, we don't really care at the moment, but I do sort of wonder what shareholders are thinking right now.
All right, Very good.
Jody Lourie, Senior Credit a also Bloomberg Intelligence, join us from the Princeton office via zoom.
Here Chipotle for you.
No, no, no, really all right, but it's the same, like okay, no matter what you get, doesn't all taste the same. And isn't that weird?
No, and no, it's very good. John help me out here. You're Chipotle person? Uh yeah, I mean I like it.
I don't go there.
There's no one near me.
It's not even Lisa Mateo said she liked it, you know, she loved it.
Yeah, and that's hard because usually if you know, it's not like super granola healthy thing.
You know, I don't think I've literally had one in twelve years.
But my problem is.
There's just too many people involved in the front, too many people faced teenagers.
Wow, you know, loading up my because it's think that I make you look like a Come on now, I mean I do it myself. Oh what is your chipottle of choice?
Uh?
Two hard tacos, two hard tacos, chicken okay, yeah, peppers and onions, pinco degayo and some cheese and we're.
Good to go.
No guakalk, no guac, No okay, no chips.
No, I don't need chips.
Oh so you're just and you know what, now they feel them so full because the social media was saying how they were underfilling them. Now they feel them so full that I only get two tacos.
Versus three before, and you pay by the taco.
Paid by the taco. So I'm a huge winner here. Based upon the social media pressure, They've had a big move in the in the restaurant business. Oh yeah, business.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car.
Play and Android Auto with the Bloomberg Business app.
You can also listen live on Amazon Alexa from our flagship New York station Just say Alexa, playing Bloomberg eleven thirty.
This is Bloomberg Intelligence Radio. We're broadcasting to you live from Interactive Broker Studio right here in midtown Manhattan. Let's go back to some of the earnings here and go to Home Depot specifically, I'm taking a look at that stock. It is up by about three tenths of one percent. So they did cut their outlook saying that consume are in their quote deferral mindset. I mean to me, I begs the question, though, once things get better, don't you?
Is it just delayed purchasing or am I never going to redo my floor? I know, I agree. Okay, so let's get some more details here with Red Brown, Bloomberg News earnings reporter. He joins us on home depot. All right, Red, walk us through some of the numbers here.
Yeah, I mean, so I think overall, kind of the message that I'm sort of taking away from the results is this seems like they might have kind of found bottom.
If we look the last.
Six quarters, they've seen earnings top and bottom line shrinking and then for the first time in since twenty twenty three, Yeah, things are flattening out a little bit. So, yes, they caught the cut the top line outlook, maybe a bit of a reset there. But I think there's a lot to be optimistic about these results.
Well, I think I guess one of the questions that I had, just being a grizzled veteran having listened to a million conference calls, is you know, suggesting that maybe this is a little bit temporary, that maybe these are purchases that are being.
Deferred in anticipation of lower rates. How does that kind of stand with you?
I mean, I think it does. I think, I mean, I believe it a little bit more than that. It sounds like YouTube might just because the one thing that analysts are putting to a lot is contractors backlogs. So those are you know, contracted projects that they are expected to eventually fulfill. It's just a matter of when the customers are ready to actually you know, follow through with
that and say yep, let's do it. You know, those are long term projects to take several months, so it's not something that people are kind of likely to back out of their big something you probably need to get financing for as well. So it's it's you know, it's a significant commitment for the consumer. And yeah, I mean this deferral mindset I think is an interesting way to spin the situation for for Home Deeper right now.
Yeah, that's interesting. So you have contractor backlog because customers want to get their project in the queue, but they're not putting down the money for it yet. So it's always like, hmmmm, is that gonna wind If the economy really turns, what winds up happening? So I guess if we just say okay, we're at the trough, I wonder if we have any visible ability yet into what the recovery, then looks like for a home depot.
Yeah, so I think, you know, if we look into what they said the commentary around the guidance cut. So right now they said, if it's going to be the same store sales, the top end is down three percent this year. They're saying that that will happen if things stay stable from the first half of the year. And right now they say all signs point to consumer demand like staying at that same level, and they're not guiding
towards the bottom end of that range right now. So right now, that seems to be where the company is at, and I think we can see, you know, and the market seems to we kind of be digesting that with some positive.
Outlook here as well.
You know, I'm just looking at the chart here and just thinking back to the pandemic. That stock, you know, was up about one hundred and seventy percent from you know, the beginning of the pandemic through the end of twenty twenty one.
It's come off since then. So that was just such a moonshot for the company.
What does the company say about the consumer their business kind of now versus pre pandemic, they.
Ever put it in that kind of context.
Well, the reason for that ride up, if you remember, was because of so much DIY activity. Everyone was stuck home. I mean, I'm tired of looking at this shelf, Let me fix it, or I hate this paint color, whatever it was. Now there's a little bit less of that, just because we're spending less time at home. You know, we have less time on our hands and if we and Home Depot is kind of accepted that that they're
not going to see those levels as much anymore. And what they are focusing and similar thing happening at Low's as well, is focusing on that contractor business. It's a higher margin business. It's a little bit more consistent. And we saw what their their latest acquisition, eighteen billion dollar acquisition for SRS Distribution, And that is part of this pivot towards can we capture more of the market share for those contractors.
Oh yeah, love me some contractors working with some right now in the Berkshires. The allowance for my kitchen Island was huge.
Are there good contractors up like in that part of the world.
Yeah, yeah, really good. Yeah.
We went to one.
We didn't do like comparison shopping because this company had, like we done our roof had did our did our kitchens like we'd already worked with them for the last you know, ten fifteen years. Red when you take a look at earnings in general, so you're your earnings reporter, like this is this is your jam. What are some of the takeaways that we can learn from earnings in general? Right now?
I think with home Depot and we'll see with Walmart later this week. It's just a kind of repetition of this same pattern in retail, which is consumers are trading down. You know, last year there was so much where when is it happening? When is it happening? And it's kind of been slowly trickling in quarter over quarter more people are trading down. Or what that looks like on the ground is I'm delaying some of those bigger purchases, those
bigger high margin for the company's purchases. I'm focusing on what I need. And I think Walmart will be the kind of exemplar example of that of people. You know, I'm just looking at you know what I need. I need food, I need groceries, I need toiletries, things like that, and then maybe I'll delay until I get a little bit more clarity on when I'm going to buy that TV.
For a Home Depot.
I just think of walking into Home Depot and boyd, there's a lot of stuff. They're huge, huge stores and there's a lot of stuff there. Talk to us about inventory. Inventory management, I know for some of these big box retailers is huge.
What are they saying these days?
So one thing to look for the inventory is actually the transportation costs have been coming down, so I think the overall that just speaks to an easy supply chain for Home Depot, so they are able to manage a little bit better. In general, they're managing their costs quite well. That's part of the reason that they were able to
kind of flatten out the earnings trough there. And yeah, I think overall the inventory has been shifting well, and they are you know, they have so much stuff, they're able to manage it well and they're able to get the products that people want in the stores.
All right, Red, thanks a lot, super appreciate it. Red Brown, Bloomberg News Earnings reporter, joining us on Home Depot.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on affocarplaying En broud Otto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
This is Bloomberg Intelligence Radio and Alex Stee alongside Paul Sweeney. We cover everything that you need to know in business and finance and economics, and we do it through our lens of our Bloomberg Intelligence folks. They cover two thousand companies and one hundred and thirty industries all around the world. We also like to go outside Bloomberg Intelligence to get a broader take on what some money managers are doing in this market, and for that we go to Anna
Rathburn see io at Sibiz Investment Advisory Services. I'm looking at a market, Anna, that is definitely responding to this PPI data as in another green light for the Fed to cut in September. Is that how you're taking this?
Yeah, that's the initial reaction from the markets today.
I mean it is a prelude to tomorrow's CPI which is even more closely watched. But it was a really good prelude. We had services and that was really good news. Contribute to this disinflationary trend here and you know, the numbers were down even though we had a week er dollar really pulling up those trade prices. So in all, it was actually a really good good news, at least
in the first reaction for the markets. But honestly, I'm starting to wonder if we have to start worrying about this inflationary force is actually reflecting some of the other slowing economic trends that we've seen in the labor market and from the consumers, and frankly from home depot as well.
So what did you take from the home depot numbers? Here?
We'll get retail sales later this week, but boy, home depot's a pretty good barometer out there.
What did you take away from their earnings?
Yeah?
I mean, in some ways, we're not surprised, right because we've been talking about weak consumers actually for a really long time and some pressure on retailers for a long time, so it actually fits that struggling consumer theme. But I think there's a little bit more to this. It's the interest rate sensitivity, and it's tied to the housing market.
So you know, this whole PPI CPI, what will the Fed dude, this will actually have a lot more weight on details are like home depot that are very much tied to the housing market, because frankly, unless we see cuts going down to like two hundred or three hundred basis points, we're not going to see stabilization of the housing market. Effective mortgage rate is below four percent, so from a perspective of a lower guidance perfectly makes sense
to us. Higher interest rates being named as one of the culprits makes perfectly perfect sense to us.
And I also think there's sort of an upgrade fatigue.
Everybody upgraded everything during the pandemic and the ensuing years, and now like what else are you going to upgrade?
Right?
So that's actually a relatively I mean, that's a lot of cuts we have to get to get some juice going in the housing market. And you mentioned sort of the other slowing economic trends from consumers, and that sort of the disinflation was creating like a veil that we're not really seeing those slowing eco trends. What exactly are you referring to? And how worried are you?
So I'm not worried like sky is falling, right, I mean we're slow. We're watching everything very carefully. So labor market, we've been watching it for about a year, household survey versus establishment survey. I know this has been discussed in the public discourse for a while now, and we're watching it actually converge again.
They've been diverging for.
A while now they're starting to converge, and we're trying to see if there's a trend there. We're also seeing what people are calling that ca shaped economy, where the luxury goods market is doing really well because of wealthy Americans, but frankly, lower income Americans are really really struggling. And so these are the things that we're watching and frankly, how much does that creep up to the middle class, right, because at some point, when rates stay high, it's going
to eventually impact everybody at some point. And the question is can the FED cut fast enough. I'm not talking about fifty to seventy five basis points, but at a twenty five basis point.
Clip all the way down to where they want to be for the consumers to actually stabilized.
That's really what we're watching, and where we're worried is that we're not going to get those cuts all right.
If we don't get those cuts, kind of where do you see opportunities in the markets, either equities, fixed income.
What's kind of your go to trade these days?
Now, if we have a disinflationary, disinflationary situation, it's going to weigh on stocks, right, so small halves. I know we've seen a little bit of a bump up, we see a bump up today.
I think it's going to continue to be pressured.
Anything that is cyclical or anything that is very much interest rate dependent. I think we're going to see some pressure there. Stocks in general. I think this inflationary forces are not necessarily good. In the bonds, you know, the yields are still pretty attractive, So I think it's if you're clipping coupons, I think you can still be there. And if the Fed is cutting slowly, those coupons are still going to stay attractive. Because we're talking about.
Five point two five to five point five percent in.
Fed funds rate point, it'll become less attractive. But I think that the PPI number today suggests potential weakening. We're to also talking about margin pressure as well for companies and for the equity markets. I think there are a lot of headwinds here that we just have to be a little bit more careful about areas.
That are a little bit investors seem to be a little more risky.
Do you feel like earnings reflected that view yet?
No. So what's interesting is we've seen some broadening, right, So we've been talking about max seven earnings being the majority of earnings growth for the first two quarters of this year or first quarter of this year, and in the second quarter we're starting to see some broadening out. I think that is better management, frankly, and cost reduction. The question is isn't so much how is the earnings from the past quarter doing?
The question is can they sustain it?
Can this broadening of fundamentals actually be sustained in a high interest rate environment for the rest.
Of the year, And that is a big question mark over our heads.
So, you know, I mean the guidance, I mean, the earnings themselves this quarter were solid. I mean I think the SMP coming in around eleven percent growth. What was the guidance for you? How was a guidance enough for you to support this market? Or do you think there's risk there from an earning perspective?
I yeah, I think there's a bit of risk because the guidance, you know, This is an opinion, but it's a little optimistic, right, So I feel like everybody is pricing in a soft landing except for a few like Home Depot may not be.
So it doesn't really.
Give me a lot of confidence. And frankly, inflation falling is not great for margins. It takes away the pricing power from a lot of these companies. So I think there's a bit of optimism built into some of the guidance that may not be healthy for price action in the second half of the.
Year, right, particularly if top line sales don't grow. So if at least the margins compress sing, you need the top line sales to grow, And if you don't get that because the economy is slowing, then and you're really getting crunched in terms of technicality because you're talking all fundamentals. But what we saw over the last week in many
ways was technical and that we were over bought. There was the yen carry trade unwind as means looking at the dollar yen chart was truly unbelievable, Like, of course stuff happened. If you look at that declined down, is it over?
You know, I don't think it's over. I mean, in some ways.
It was the obvious trade because that discrepancy was so wide. But I think that there's still leverage in the system that hasn't been unwound. Now it think about it, if the FED starts to cut, that's another reason for that to be unwound, right, I mean, so the Bank of Japan is holding steady, okay, fine, but if the Feds start, if there's leverage in the system and the FED starts to cut, then they're more unwinding that is waiting to happen. I don't think it's necessarily over now. Will the market
participants be small harder about it this time? Probably you might not see as big of a reaction and they may not be caught by surprise. But as to the leverage in the system, I think we're still looking at potentially more pain.
All right, Anna, thank you so much. We appreciate that.
On a Rothbland, Chief investment Officer for Seabiz Investment Advisory Services.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar.
Play and Android Auto with the Bloomberg Business app.
You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
Come Alex, you alongside pauls we need. This is Bloomberg Intelligence Radio. We bring you all the top news in business and finance and economics. There are lens of our Bloomberg Intelligence folks. They cover two thousand companies and one hundred and thirty industries worldwide. We also love going to the c suite, take a look at different companies all across the world. And for that we go to Kathy Winter.
She's chief operating officer of May Mobility. It's a private company and she joins us now from ann Arbor, Michigan. So apparently May Mobility is the leader in the development and deployment of autonomous driving technology. I want to get more on this, Hey, Kathy, does that mean like a self driving car? Is that what we're talking about here?
Yeah, Hi, thanks for having me Exactly.
We are talking about self driving cars and the service that we actually go out and provide. So trying to solve like real world problems, augment existing transit systems and get these cars on the road so that more people can access them.
Who are the you are the customers, individuals are they cities and municipalities that deploy them, maybe like as a kind of a taxi fleet or something.
So think of this as what we do is a little bit different.
We are more in the b TOG space where we partner with local municipalities and governments to come in and cooperate and plan out a system that'll really work and solve problems.
A little bit different for sure.
Than a robotaxi environment where you're maybe dropping in a fleet of vehicles and customers are.
Calling them on their own right, So different segment in the market.
So tell me what kind of stuff you're working on right now. Then give us an example of how this would work and how those conversations go with the government.
Yeah, sure, So, Well, the biggest thing we're working on is really the technology itself. So we have a patented MPDM. It's multi policy decision making solution, and so what that really is about is how we use AI to continuously learn on the vehicle and quickly be able to scale to implement in a city.
So what are we doing. We've launched them.
We actually have multiple sites out there today. They're in operation and more slated both here and Japan.
For the second half of the year.
So an arm Or, Michigan, that's one of your deployment sites, explain to us kind of how that looks.
What does that the deployment look like in terms of maybe vehicles and things like that.
Ann ourbur Michigan is it's a really fun one to talk about because, of course, not just because this is our headquarters, but huge booming university town.
Students are coming back this week.
So in this case we've partnered with the university, the local government, and so what we provide is a service that if you think about students that don't have cars on campus, it's provided they.
Don't actually pay for it. It's free to them and they can ride.
For example, let me give me they might not live on campus, so they park for free off campus and then they can call. You know, there's any number of thirty stops across an arbor they can call and they can jump in the car and get onto campus and wherever they want to go.
It's open to more than just students.
But that's a good use case as opposed to Grand Rapids, Minnesota is a rural community with tons of snow you can imagine, and they don't actually really have much of a public transportation, so in that case, it's the rural population that doesn't have access. And maybe one other thing I'll mention is we are really proud of our wheelchair accessible.
Bands because you.
Know, that makes it just so much more accessible to people who didn't have that kind of on demand service that they could call up.
Yeah, especially because if you do have that on demand service that can be so expensive. You're also deployed in Miami, Florida. What does that look like.
Yeah, that's one of our newer ones, and we have two big routes down there, so I guess they forgot to mention we had four vehicles and like thirty different drop off areas in an arbor. Miami is one of our newest ten vehicles and two different sections, so we expect to continue expanding the square footage.
But same kind of thing.
But again, that's so much. You know, that's hot weather, steamy weather. So we really get between between our locations in Grand Rapids, Michigan, where we're Minnesota with snow and urburt here multi seasonal. You got Arlington, Texas, which is really smoking hot this time of year, and then you have Miami, right superhuman. So we feel like we get the real life commercial tests going in all these different locations.
So what are these municipalities looking for? What kind of problem are they trying to solve for?
Yeah, that's actually probably at the crux of what our mission is is to really work with these communities. It might be that, you know, there's not enough traffic to make the business case work for a ginormous bus to be driving around, so they're looking for something smaller. They have areas where they just don't have bus service today, but they want to make it accessible, some kind of public transportation, so we can kind of micro transit augment
what might be there. And then I will say a lot of it is around the accessibility for those with disabilities. So Detroit, for example, they just launched and they are very specifically focusing on senior citizens and folks who have accessibility issues, whether it's hearing impaired, impaired, or specifically the wheelchairs. Wheelchairs on demand is just not there anywhere that I know of. You have to pre register typically twenty four hours notice.
Could be very costly.
What are some of the community feedback, like the good stuff but also the stuff that you need to keep working on.
Yeah, that's a good question.
I would say we get we actually take a survey. Whenever anybody rides, they call it up on their app, or they can call a phone number to book if it's someone who's not you know, tech savvy with their phone, so two ways to book it. And then after every ride we ask them to rate the ride. And so this is something we also do with the communities is we look at their ridership, look at where they have hotspots that maybe need more vehicles, more capacity.
We look to see the quality of the rides.
We get extremely high ratings. It's usually hey, can we even expand the service areas? Right, So it's a partnership where we can really share that kind of data and both learn where to expand and where to bring the highest value to them.
What's a typical or what's a target kind of market to open up? What fits your criteria.
Well, one of the things we do, and I think this has been to the success of May being one of the few companies still standing out there and a profitable company from we have profitable sites operating today, is that we start very.
Very deliberately with a specific geographic area.
We'll work with the community as say where's your hotspots, where's your trouble. But we also will say, you know, let's stick to thirty thirty five forty miles an hour by the end of the year roads without saying we're going to hop on the freeways and try to map the entire city. So you know, it's a it's a more measured approach to say, hey, lower risk, let's start here and we'll continue to expand over time. So the criteria we really are operating in all different climates, that's
not really an issue. It's really more just which communities are ready to embrace. Another application would be an airport, for example, So there is some B to B as well. It's not just B to G, but you can think of airports obviously wanting to move people around without having to pay for joinoris again shuttle buses.
So interesting, really great stuff. Hey, Kathy, really appreciate it. Kathy Winters, the chief operating officer at my Mobility, We really appreciate all of that context just staying in cars for a sec. So apparently this according to Baron's Ford and A Texas Utility is making a plan to make
charging free for Texas University. Texas customers if EV owners charge during off peak times of day, So basically it's like, hey, get your EV because you know what, if you do it in this very strict parameter, you can charge up your.
Car for free.
Right So starting to get a little bit creative.
They're trying to stoke demand out there, because again that's probably one of the gating issues at least right now for the EV business.
And you can still charge it in, you know, at home during these times, it just got to pay for it. So that's a quite interesting little thing there. From Ford.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecard.
Play and Android Auto with the Bloomberg Business app.
You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Alex Steel, Paul Swine. You live here in our Bloomberg Interactive Brokers studio. We're streaming live on Youtubes. A hit over YouTube dot com search Bloomberg Podcast and that's where you will find us. I know set the mortgage back Mortgage Bankers Association thirty or fixed Mortgage is now six point five five percent, so coming down from the north
of seven. But a lot of folks in the real estate business it's got to come down even more to prompt some of these people to get out of their homes and maybe provides more liquidity to the used housing market.
Let's talk about the stock market here.
We get a nice run coming off of those that really disturbing Monday a week ago. We found market's kind of found some footing here, up about one percent at least.
Was just reporting on the SP five hundred. James. He does this investing thing for a living.
He's a chief investment officer at main Street Research. Joining us from New York via a zoom here, James, let's put into context here. We've got a little bit of a rearview mirror. Now we can think about a week ago, last Monday, the volatility the market experienced here and then seems to again found its footing since then, what happened?
Yeah, I Paul, thanks for having me in Hi Alex. That was panic button for sure last Monday, market down a thousand points, and I think that investors mistakenly looked at that as you know, blood on the streets or panic, when in fact, in our view. That was an invitation, one of only a few we've had this year where that momentum of upside in the market just sort of gave way to what I would call, you know, on
our team, a normal correction, but at high speed. Right, So, you know, these kind of eight to ten percent corrections usually take three four weeks and we're sort of lulled comfortably into the the lower market levels. We got all of it within ten days. Investors just really weren't ready for that. But relative to norms, that was a normal pullback, just that turbo speed. We don't think it in any way sort of stops or impedes this bull market, this new business cycle that we see.
Why are you so convinced that this was just a decline in a bull market versus something more serious longer term?
Yeah, Alex, and I think that's a really good question. Investors to try to get themselves away from being psychologically drawn into the drama of the decline, you know, focus on metrics to remind ourselves to keep an even keel psychologically. And when we do that, you know, one, you know what the ingredients of these new bull markets are valuation. You want to make sure stock our stocks reasonly priced? Is this the beginning of something worse? And valuation across
most stocks AI excluded is around sixteen times earnings. This is historically reasonable. Another thing you want to think about is economy growing. Yeah, we're growing it north of three percent, so the checks the box there that you know, recession is a long way from three percent growth. Corporate profits very important goes along with economic growth better than expected. You know, one thing I think that investors really should have thought maybe a little bit better about last week
was where is FED policy going? You know, FED policy is a really important ingredient to keep the bull market going. And we've gotten some data well today the PPI right, a little lower than expected, and even data past Friday when the market didn't like that data about employment. But what that data told us is the Fed is ready and willing to lower rates. Those little metrics I just
mentioned there is really the support that investors need to know. Hey, this market decline isn't panic, it's an invitation to the beginning of that next leg upward, which we think goes to six thousand by the end of the year on the SMA.
Wow, whoa, that's a nice round number. I like nice round numbers. What's going to get us there? James?
I mean, as long as I can been in this game, it's been technology kind of leading this market in and I guess, given the market cap has some of the big tech names, is tech going to lead us to that kind of level six thousand?
Yeah, the wild factor of six thousand stills exists, but it was a lot more fun to say it last Monday. But you know, we think what leads us there is, first of all, corporate profit growth. Right. We continue to see Ernie's coming way better than expectations, and we think the FED policy is really going to I don't think they're going fifty basis place. I think they're going to
tap the accelerator on rates go twenty five. That'll keep people comfortable, and that's going to be the big fuel what I call that booster for the next leg up. But you know, I think also valuations are cheaper now you've got six trillion dollars not in the market. That should be that money, called fomo fuel is probably going to come in once the FED goes and has a nice message about the economy. I think that money comes. I think it's a big rocket fuel to get to
six thousand by the end of the year. You know, we're also saying now one hundred thousand in the next six years, because we're in the early phase.
Of this point.
But that's that doesn't sound like that's a purely AI tech call at all. That sounds like that's a broadening rally. Gets us there.
Yeah, Alex, thank you. I do think that there's lots of momentum left in AI. The appetite for spending is still there as we go through the conference calls and earnings. But I do think also, and the team sort of supports us on this, that the Fed lowering rates is really going to be the real trigger for the market to broaden.
Right.
Lower rates you just mentioned mortgage rates. That's helpful there. The banks are going to benefit from real rates coming down, you know, as opposed to speculating that they will. So we think that the September cut is going to be the real fuel that wow a rally to the end of the year, probably led by tech that's where the market cap is. But I think here you're really going to see the small stocks, the financials, the industrials.
All be part of this.
This great invitation of this party that we're headed towards the end of the year.
Earnings cycle.
Here.
We're starting to get to the tail end of this earning cycle here, James, any takeaways for you this cycle?
You know, it's sort of the same story over and over the last few quarters where you've got the technology companies beating expectations. You know, those expectations have been risen, so you had a little murkiness there. I think that that's going to continue this earning season. You saw some really I saw some great numbers in the financials, particularly like the JP Morgans that didn't rely so much on interest expense. So I'd just say that, you know, again,
earnings were better than expected this last quarter. I think with FED policy, we're going to see continue to see the same thing in the in the fourth.
I know you're probably gonna hate this question. Where could you be wrong?
Like?
What are the cases where we don't get to six thousand? Is that a FED behind the curve? Is that an exogenous event? Is that AI hyperscaler is kind of pushing back? Where where do you game out your barricades?
Yeah, Alex, I spent half my life second guessing okay, good, and I think it's important for investors to use, you know, things like risk management tools stop losses to mitigate you know, risks that are there. And you know, I think the risks here are the FED either does nothing, so I FED policy is a big risk. If FED does nothing, I think that's going to be very bad for our whole view of six thousand. I also think that the FED going fifty basis points are something you know, too extreme.
That also is a risk.
We don't want to scare investors that thinking gosh, they're going fifty because the economy is two weak, because frankly it isn't. So I think, you know, we want to see the FED really specifically at policy. That is a risk. The geopolitical risk is clearly there, it's increasing. I think investors really want to be you know, monitor that, like our team does you know the thing with you know,
Israel and Iran and all around the world. We have all these risks the elections coming that's gonna make people generate though elections typically don't cause risks for index markets maybe some sectors, So we want to be careful of
watching all these things. And then there's always the stuff we don't know right, which is a risk, so again, use some risk management tools, but you know those are underpinnings we mentioned earlier, valuation, economic growth, earnings, cash levels, really high, FED policy coming in to accelerate the economy a little bit. I think that's going to get us.
There, all right, James, thanks so much for joining us. Really appreciate getting your thoughts. James Demmert. He's the chief investment officer at main Street Research. I appreciate getting a few minutes of his time.
This is the Bloomberg Intelligence podcast, available on apples, Spotify, and anywhere else you can get your podcasts. US in live each weekday ten am tonoon Eastern on Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.