Stocks, CVS, Tech Deals, and Cybersecurity (Podcast)

our studio today, met a Bloomberg alumn coming back. Kelly Cox joins this year US investment analysts at E Touro and a proud graduate of the University of North Carolina at Chapel Hill. That's okay, we'll allow her in the studio here. Callis have you back? Oh yeah, We're back and forth and all about it before. But it's so great to be here. And I'll put that aside with good stuff. I tell you, last year was so bad. Uh. And I know I follow you on Twitter closely. I

know you make all the historical analogies and analyzes. What are you kind of telling? What are you what are you telling your clients for about? Can we kind of regroup here? Well? Hopefully for our own c entity? Um? WELLO was painful. I mean no doubt about that anyway you slice it. We're still in a challenging environment. Rates are still high, quite high. The FED doesn't seem to be backing off too much, and chances are they won't back off unless we hit a recession, and obviously nobody

wants that. That's the worst case scenario. So we're hoping we can avoid a recession right now. So far, so good. But if we do avoid a recession, we're just cautioning people against the fact that we are in a high rate environment and that's still a challenging operating environment for companies. So I don't think we're there yet, but we're getting closer. So, I mean, it's a relatively high rate environment. But we've heard a couple of people say we're getting back to

basics in terms of investing UM. People like bonds again after the horrible year of UM. Jeremy Siegel thinks it's the decade for dividends, which is kind of cool. I mean, you're no longer going to get meme stocks, these crazy home runs, get rich off of nothing with your stimmies. But maybe you know, with dedicated a savings plan and investments, you can you know, grow UM your wealth with income and reinvestments. What do you think, Well, I think you're right, Matt.

I think investors have been forced to shift their mindsets towards what's working now and how they can make money now because yields are just so healthy and stocks and other risk assets just aren't working. And I think it's a healthy balance, right, Like you have to have a little bit of growth, a little bit of both, excuse me. But at the same time, you know, we kind of got too far on the growth side of the equation and we're coming back, you know. I think it's really important.

I mean, investors are learning a lot of lessons right now, but they're also being forced to pay attention to the financial strength of companies that they invest in, and companies that actually rise and fault with the economy. That some are even economically resistant, the more defensive stocks. So, you know, I think it's a good shift back, and I think it's going to teach, you know, retail investors in general a lot about how markets work. So what are some

of the sectors you like here? Um, I mean there's something to choose. Some are to belief from a evaluation perspective, um that we're beaten down where you kind of taught tongue your client to start doing some work. So I'm generally a cup have full person, I said a few minutes ago. It's a challenging environment, but I'm also looking to the fact that you know, we know a bowl

market is after this. We don't know how we get there, but we know that cycles exist in the stock market, and we will eventually get back into that bowl, even if it is painful from here until now. So we're hoping, you know, by one step or another, we get there soon. And our customers are longer term. Retail investors are longer term investors, so we're encouraging them to sew their seeds for the next bull market because eventually we see inflation slowing.

The Feed is committing to get committed to get rates down, so you know, we think it's time to prepare for that. Wait, why do you mean the FED is committed to get rates down? I mean inflation, Okay, But the thing is in the FED might not need to cut if we don't have a recession, if we get this soft landing that Over the past few days more people have been optimistic about um the FED could hold at five or five and a quarter depending on where they get right.

But we're in a restrictive environment right now. The FED has said that, so eventually they're hoping to get rates back down and get inflation back down. Their target is two percent so for inflation correct. So we're trying to get back to that low inflation environment, and we think that low rates would come after that. So if you're a long term investor, it's a great environment to prepare for what's coming next and maybe you know, load up on those cyclicals in the case that we don't hit

that recession. Of course, be guarded here, you know, look at a barbell, look at you know, possibly hedging your positions. But we're down about from the highs, and we're seeing a lot of value in the financials, the industrials, the more cyclical stocks, So you know, why not take a look the balanced portfolio that's sixty forty portfolio that a lot of folks grew up on that did not work last year with fixed income pretty much across the board down double digits. UM. I don't im an equity person.

When I see people tell me we have historic declines in fixed income in I'm just naturally calling up my advisors and let's just buy some bonds. What are you kind of thinking about the fixed income space this year? Well, Paul, that's smart. I think a lot of financial advisors are telling their clients to do that. Uh, yeah, you're right. We saw a pretty unprecedented year when it came to stock and bond of clients. And I think that's why

it was so painful, because it felt like nothing worked. Uh. You know, usually when stocks fall, bonds compensate for it, and that just didn't happen. Uh. And we think as we had into a recession obviously, or we don't know if a recession is coming. Excuse me, but you know, if we had into a recession, we could see people lean more on bonds for their safety. You know, we're already seeing that too with the tenure coming down from about four point five percent to three point five percent. So,

you know, never say never. We don't know what happens in the future. I don't have a crystal ball, but you'd think that there there would have to be some balance coming back out there. In terms of valuations. I mean, I look at this stock market and think we're still not looking at cheap stocks, right, Um, in terms of the broader market, we're still looking at seventeen times earnings, so or or eighteen times earnings. So where do you think we need to go before you start putting your

money to work in a in a hefty way. Well, if you think about it, seventeen or eighteen times earnings is about average for what we've seen over the past decade. And this past decade has not been average. I'll give you. I was going to say it's a zero inters rate decade, but yeah, correct, correct, Like there's context there. But I think it's also important to remember that there are there's a lot of dispersion insectors. UM tech does look expensive still,

um some cyclicals do look a little bit cheaper. I thought it was interesting, you know that the stocks that actually did really well last year, the industrials of the world, the materials of the world, are still attractively valued when you look at their price to free cash flow. So I think that there's still a little bit of you know,

rebalancing that needs to be done there. But you know, at the same time, I wouldn't be talked to see the market accept evaluation here except the current valuations here. If we don't fall into a recession. Yeah, that's one of the things we're speaking with Kylie Cox, us investment

analyst at tro the question about evaluation. You kind of have to talk about earnings as we get to kick off another earning season at the end of this week with some of the big banks UM people calling out earnings risk as a material risk to this market here that estimates have not come down enough. Um, how do

you think about that? So earnings for us are the determinant one of the things we're watching as we question if we're heading into a recession, because typically you see earnings fall about s ANDP earnings I'm talking fall about during recession. That's the average of all recessions we've seen since nineteen fifty. Right now, it looks like earnings could drop about you know, two to five in the fourth quarter, or you know, we're talking backwards, so they could have

dropped two to four percent in the fourth quarter. You know, that's nowhere nearer recession. That doesn't look like a bad hit to us yet. So we're watching earnings to judge the degree of this pullback, if you know, if it falls into recessionary territory and if it justifies stocks possibly finding the bottom again. Um, And we think earnings are

the thing to watch. Obviously the job market, I mean, the job market has the leading indicators that we're not seeing a ton of weakness and yet, but earnings will ultimately tell us I think where it settled out here, and right now, we think the market has priced in a slight earnings pullback and that's what we're seeing. That's that's the kind of argument to there's there's earnings risk out there. The kind of argument is that the markets

price that in already. Yeah, I just don't know. I have no idea, But I think once we get past this cycle, I'm like, all right, I'm done with the earnings risk story. But you mean once we get pastor well this this next quarter, oh, I see Q four. So once we get you know, basically Friday's big bank earnings. I mean, how much does that matter to you when when we when we see the numbers on Friday, how closely we need pay attention because they're like six or

seven big banks reporting on Friday. Well, big banks are the forefront of the economy. I think you need to pay attention to them. We've heard a lot of cautious rhetoric coming out of the banks, but overall their earnings

have been decent. They've been surprising to the upside. I was actually parsing through earnings data last night, and I thought it was interesting that a lot of services sectors are expected to see the bigger earnings hit in this quarter in subsequent quarters, which is interesting if you think about it, because the balance that we saw last year was a lot of services spending less good spending. So coming into this earning season, I'm going to be watching

the services sectors. You know, banks fall into that, Um, they're very consumer oriented. Um. You know, the more software companies fall into that because I just travel, for example, because I just don't think that there has been enough pessimism priced in there and the commentary is gonna matter. Yep,

Absolutely forward guidance, all that good stuff. Kelly Cox us investment analysts for Etorro, joining us live here in the Bloomberg Interactive Broker Studio, U n C grad former reporter at Bloomberg's Analysts at four or five shops, and now she's got her at E Touro based in Charlotte, North Carolina. Thanks so much for joining us in studio. So that's it for me, Met on the earning stress story. Once we get past the next three or four weeks, I

got all my guidance for three that's it. I mean, I think everybody's gonna give guidance that's gonna assume a modest kind of slowdown slash recession. And then, you know, I feel like we could get a kitchen sync quarter because because of because the recession was such a huge worry,

especially a couple of weeks ago. You know, people have gotten more optimistic recently, but the work has been done on the earnings reports, and I feel like a lot of CEOs will say I'm throwing everything at this quarter. We have a CEO in the studio with us. Wendy Thomas joins us. She runs Secure Works NASDAC ticker s c w X. They are security as a service company, right, Wendy tell us a brief history of Secure Works and

what you're doing. Sure, So, Securic has been through an important transformation to a security sas platform to really address the challenges we've seen in security over the last twenty plus years. So we were founded as a security services organization and then looking to address security challenges largely with

very expert security folks. But what we found is that that we needed a new technology, machine learning AI approach to solving securities challenges, and that's what we launched a few years ago, the TAGES platform, and so our business model has been in a pretty significant transition to addressing

security through that plant. So what do you expect in three As you know, Paul and I talked to so many people who say to us that cybersecurity is one of the number one issues, one of the number one threats facing companies, And of course we report on so many hacks and thefts and data leaks over the past, not just this year, but over the past five or six or seven years. UM, how does the growth look

to you from from this transition vantage point? Sure? I mean our growth has been outsized in comparison to the market in terms of our tageous XDR platform. What what I see more generally in the security space, Clearly there's a broader economic backdrop right now in terms of pressure, but security is simply something that companies cannot just dispense with.

What I see right now is that companies have an opportunity with with the type of technology that TAGES brings to actually reduce their total security spend, kind of like you didn't need a you'll need a separate camera from your phone or separate GPS device from your phone. You can consolidate your security spend into a platform approach to

save money and get a better security posture. Broadly, speaking with the clients, do you deal with Wendy, what percentage of their tech spend every every year is cybersecurity versus maybe just hardware upgrades of software upgrades. Yeah, it's a great question because rules of thumb are really important when you're trying to look at your spend, and there's a couple of I would look at depending on your industry, somewhere between four and as much as ten percent of

your total I T spend is generally on security. That's what that's what good looks like. If you want to translate that into employees on average, we see see organizations, not the largest organizations, but you know, your small medium businesses six hundred dollars per employee on average for a year, but can be as much as again depending on your business model and your I T estate. So um, we have heard kind of conflicting reports in terms of I T spending plans. For the most part, it seems that

people are gonna pull back on I T spending. But we were talking with Honora Rata Rata and man Deep Sing yesterday from Business Bloomberg Intelligence, and they were saying that in some places, for instance, in cloud, you're gonna see an increase in spending three. I feel like, if you're going to increase your cloud spend, you've got to be boosting your security spend as well. Is that wrong? No?

I think the mix of spend is absolutely shifting. So it may be that the total is under pressure, but the mix to get the yield in terms of automation for your business and flexibility UH is going to go up in areas like cloud and security. So we continue to see security spend um increasing year over year. I think the question is where's the opportunity to make a step function change in your security investments to again get your get your security posture much higher relative to the

breaches we continue to see in the marketplace. So for secure works, what's your typical customer and what's their typical need that you're trying to kind of meet for them? Sure that the typical customer needs UH simple security, and they don't want to have to bring a large security staff in house. They want to make sure that their business is up and running and that they don't have

damages from breaches, and that they can ensure themselves. From a cyber insurance perspective, we check all of those those boxes. They as cyber insurance. We do not sell cyber insurance, but by having a costure yes, absolutely late and in fact it's if you've if you've read the headlines. Because of all the breaches over the past few years, the cyber insurance market is really contracted in terms of much

more rigorous underwriting and rising rates. So the ability to demonstrate controls around the part of your business that generates your revenue or your cash flow is an important part to being able to cost effectively ensure your organization. I see. So, just like with car insurance, if I can demonstrate that I have a decent security system on my vehicle, I'll get a discount from my insure that ensure cyber insurance

is the same with businesses. They'll say, all right, if you have secure works, we'll give you a better rate. Show me that. And so we work with cyber insurers around incident response as well as putting the kinds of security controls in place that help those customers reduce that that rate. Where do you think your clients are just maybe companies in general are under investing today, and as it relates to their cybersecurity platform, they tend to undervest in two two areas. One, they try to go it

alone with people. That just doesn't make a lot of sense. You can actually get more for less spend by having an expert partner like secure works. So they try to do it in house. Okay, they do, and it had just given the diversity of skill sets required in security today because you let the technology do what it does in terms of the XDR platform, so the people who are then working on the things that the platform can't

solved need to be much more expert. And the second is it remains true that just the basics of security prevention can prevent the majority of security attacks. And so when we see the ability to have a second way to authenticate that it is you logging into the system, that goes a long way to preventing a large number

of the sort of commodity criminal cyber attacks. I look at your stock tickers, s C w X on the nasdack UM and I put it up against you know, the NASDAC or the Russell two thousand or the Technology index on the Russell, it looks like you've really outperformed in booms and underperformed in busts. Uh, why do you think that is? Why? Why are investors making more volatile, dramatic moves with your stocks? And they are. There's to

two elements to that. One is our business model has been in a transition from a services led organization to a technology lead approach to security, and in the midst of exiting some of those non strategic services, the total top line has been under pressure, which is why we talk about the TAGES platform and the air are associated with that growing eighty percent year over a year, you know,

two million lesson three years after launch. So it's it's a rapidly growing area of security and emerging market trend. So you do need investors to look underneath the covers to see the opportunity in the in the valuation and the business transition. We're gonna hit this at the end of this year. We've said we're gonna exit probably more than eight percent of the news on the new platform, so the end of that time is coming. Michael Dell is your largest shareholder, is your chairman of the board.

What's it like working from Michael Dell? He is an amazing entrepreneur. So this is an individual who understands how to grow businesses, is invigorated around going businesses and really going to speak to their their pain points. He is a big supporter of the the importance of merging security with the technology story for ce i os and not just s sos, and sees a lot of synergies in terms of those types of investments that must be fascinating

and and a little scary. I would think Wendy Thomas uh, CEO and president of Secure Works public trader company s cw X there in town speaking at the need Him conference, which is a great conference. A lot of really cool small mid cap tech media names are good. Friend Lauren Martin is a big, big part of that team there and need Him so good to see Secure Works out in front of clients. Good to see everybody out and about doing stuff. I want to get to the story here.

Microsoft gonna potentially invest ten billion dollars open ai and open ai, which would give it an Open AI evaluation about twenty nine billion dollars. So I'm going to start with the most basic with an a Rock Rana, he's our Bloomberg Intelligence. What is open AI? What for? For you know, I mean Mats a lot. You know, he's not as tex savvy as Iron, but so for mats sake and maybe for some of our listeners, what is

open AI? So you have a number of artificial intelligence companies that are basically building algorithms to make you know, some kind of function good. So they have a they have a product called chat GPT and it works like a search function. I mean, you go and type in and says, you know, how should I invest and will give you a very complicated answer or a very simple

answer to any of those things. So it is it is really products like that or anything that enhances the insights that anybody can can can get on the data. That's underline. So it it is a bit, it's it's it's not as complicated as it sounds. It's practically it's like a search box. Sounds like Watson again, but exactly, you are absolutely right. It is like Watson. But the results for chat GPT has been really good. And Microsoft

is already an investor. It's not as if it's not an investor right now, UM, but it's it seems that the company has a very high valuation and somebody might want to take it. So a I'd like to see chat gpt, then take on Watson on Jeopardy, Yes, and be jing and buh what do they call it? When it kind of like turns human? Is Is it possible that it's going to develop its own Was it? No? There was? There was? There was? Wasn't there a Google UM employee who was worried that the AI they were

developing had become sentient? Do you remember that? Yeah, there's a lot of that stories. But to remember it's not as if, you know, Microsoft is just going to use the chat GPT function. They're basically going to look at the algorithms and the way this is written and then and most likely again this is just my speculation, it's going to be UM enhance the productivity features of a lot of their suites that they have, you know, let's say office suite or LinkedIn or being for search. Think

about it this way. If you are a salesperson and you walk in every day and say, you know you are your best bet today is to go out and make a sales pitch to Paul because the likelihood of him closing a deal over the next few days is very high. And that really is what is going to drive a lot of the next generation insights for all

software packages. All right, So Microsoft, maybe ten billion dollars, that seems like if I'm thinking about this space, I kind of feel like it validates the space a little bit. Is certainly validates open AI. How do you think about it? No,

it's it is truly in that same case. And I can tell you, you know, just like an emerging technologies, there are probably hundreds and hundreds of new AI companies all over the world that are trying to figure the same thing out, you know, whether that's based on images so image recognition, speech recognition, vision, or for that matter, natural language processing. Almost every technology companies building some capabilities

within their product portfolio. So think of this from a Microsoft as more of an R and D going into you know, a new company where if they can you know, I'm assuming there is some commercial agreement here that they can use these products to to enhance the value of what they do. All right, That's uh an interesting story. I think we have a jumping off point from which Paul and I can dig down into a deep rabite GPT. We're gonna be I go, and we're gonna we're gonna

get into this. Okay. I want to quickly ask you about Apple on our because it seems like, um, some investors may have been taken by surprise or Broadcast may have been taken by surprise as Apple intends to develop its own products and no longer use those that it gets from others like broad Company. We've known this for a long time, right, Intel was cut out a while back, and Claw Calm has told investors like, yeah, this is what we get like ten billion revenue from them, but

that's gonna dwindle over time. For Broadcom, it seems like they were kind of counting on this future revenue streat. I think. I think from you know, I would say I don't want to comment on the guys who are losing in this case, only because you know, you would expect a company like Apple to make sure they have full control over the supply chain as well as the parts that come in, you know. But from my side, and this is far more than just cost control or

supply chain management. It is really about dictating what the next generation products are going to be, because frankly speaking, Apple is not going to tell them what they are working on for their next generation products in the case of chips for example, or processor for example. UM they got rid of Intel and they you know, they're developing their own processors and that really has helped them to see double digit growth rate in their higher end mac books.

UM and that is because the mptwo processor is is pretty amazing, or the mband processor before that, and that's far better than what Intel could do. So from my side, I think they're not just going to jump off call com because they're going to save some money unless they have a product that's better than that UM And I think that's that the reason for that is that's going to drive innovation from their side. So I mean, is this what's Apple gonna do? Are they gonna ensure this stuff?

I mean, that's kind of seems to be the thing now again again, it's going to you know, it's going to take some time for us to figure out. I think a lot of this would be they develop their own you know, design than they're going to do somebody like a t M c T S MC as Money said yesterday, to develop those particular chips and they're gonna

put it in their products. But one of the big things is going to be the product may have features that may be used in the next generation iPhones that you know, may or may not be on paper at this point, because they're looking out ahead years down the road of what some of these things can do that is not the current capabilities or may not be even part of the product designed for either Welcome or broadcom. Alright,

good stuff. Lots of movement there in the tech space, as always, Apple discussions, Microsoft, some of the big names doing big things as they always do. And so when we got that, we talked to on a rock run and we talked to Man Deep sing. Those are the tech anlems. We just type I go, we just type B I go. And just to remember, everybody, Bloomberg Intelligence

is the best research shop on Wall Street. We've got like four hundred analysts all around the world covering two thousand companies, a hundred twenty industries, equity, fixed income, commodities, you know, all that kind of stuff. Cars and I just saw Michael Dean walking around. I know, Chael Deane We've got Kevin Tynan. We got the best car analysts

in the world. Yeah. So if you have a Bloomberg terminal, beat I go and you can actually call up and talk to these analysts, just like in the old days. Let's stuck fixed income. Those are bonds, Matt, that's credit, that's that kind of stuff. I'm the stocks guy. I just my job is to tell a good story, you know, forecasting earning, Slap a multiple on it, and we're good to go. But fixing comes a whole different animal. That's why I bring in the smart people. George Bori, chief

investment strategist for Fixed. Them with fixing, come with all Spring Global Investments, Pride of Milwaukee. But you're based here in New York, right, I'm in New York. Okay, So I thought I thought you guys were all like in that mononymy Falls campus. Yeah, well not many of us. So you guys have an outpost here. We have an office here in York, which is what's great. It's uh, it's kind of a branch office, but but still a good hub for the team. Good stuff, George, you know

what I mean. Two, You know it as well as anybody. Brutal brutal year for fixed income. I'm wondering how you're you're thinking about going forward. Let's just forget about twenty two. And I'm sure you're gonna tell your boss during a review. Let's just forget about twenty two. It didn't happen. What are you focusing on in twenty three? Well, thanks for having me on the show. First off, it's always great to be back in studio. It's been a while, and

I love being on the radio segment. But you know, as as a fixed income investor, I think there's kind of one central message that we've been kind of working with. And you know, we've coming out of about ten to fifteen years of a lot of financial repression, and the whole notion of like there's no alternative, the whole Tina notion has changed, and our view is that there is an alternative. There is an alternative going forward, and the

alternative is fixed income. The Feds done a tremendous amount of work to get cash rates up to sort of a more typical or more normal rate. The macroeconomics around us are still calibrating. We expect inflation to ultimately come down over the course of this year, but it's gonna be kind of a choppy road. It's not it's not gonna be one way in directional. But when we look across fixed income, fixed income can do what it's supposed to do, and and that's really generated very consistent and

steady and predictable stream of income. It's not sexy, it's not wildly exciting, but it's pretty gratifying when it shows up when it's supposed to and there's some predict ability there for people to sort of build out their wealth and their portfolios and immunize their liability. And I think that's the point. I think it is pretty exciting UM

for students of the market. What we have seen over the last ten years was obviously crazy drama and you had you know, central banks performing financial repression, pushing everybody out the risk curve. You know, it's the kind of UM, it's the kind of uh uh artificial UM market atmosphere that nobody understands with UM with consequences that are unpredictable, and that's not great. Although some people may have made a lot of money, a lot of other people got crushed.

But you didn't get to put to use anything that you learned in school, anything that you read in books, right, And now we're getting back to an era where I think, um, you can actually take lessons that you that you've that you've built up over years and put them to work in the market in a conservative way. You can build a portfolio, save money, and and and and build and build income. And that's a good thing I think for

most investors. We we do as well. And and when we think about fixed income, like I said, it really does kind of does three things. Actually, one is income, and we know that, you know, sort of a fixed income portfolio's return is ultimately going to be that income. And so the recognition that I can get it today that there is an alternative to sort of capture that income, you know, is front and center. The second is just

being able to weather volatility. You think back where yields were a year or so ago, not a lot of cushion in that trade, and so when volve struck, you know, prices fell pretty quickly. Today we have a much greater cushion in the in the sort of the bond market world to allow us to deal with a lot more uncertainty. And then the last it's just diversification. As we all know, the sixty strategy didn't work out so well last year.

But with bond yields now sort of more consistent with a kind of what we'd call more typical economic backdrop, it least some cushion against inflation, a little bit of cushion against unexpected sort of shocks. That should allow fixed income to provide some diversification against other things. And so it's the income, it's the break even and and and um and volatility cushion and then the diversification. And that's

what's exciting about fixed it. How do we know when you know, what we've seen with this foreigner fitty basis points in the past twelve months, is the FED essentially forcing the market to reprice assets and and the whole process um and the intervention that we've seen over the past decade. That's kind of a sionara to that. How do we know when that process is over? Um, you know,

when we can start working from square one? Yeah, that's that's a great question, and that you know, we talked to clients about that, we talk amongst ourselves on the investment teams, and you know, it's it's hard to sort of narrow it down to one but but if we look back through the last sort of fifty sixty seventy years, FED cycles have all to really been determined, or at least the sort of the peak in that cycle has

typically aligned. When the Feds sort of base rate you can define it by FED funds or the three month T bill, whichever you prefer, is above kind of the spot level of inflation, well, then you can decidedly say the Fed is kind of ahead of the curve, and we know inflation, we're going to get data on Thursday, we'll get an updated number, but a kind of let's call it a six percent type of level on inflation right now, and the Feds still at four fifty, you

know they're they're they're not ahead of the curve. Now, the market is hoping, and so are we, that inflation is going to continue to trend lower, and at some point in the first half of this year, we think those sort of two lines will cross. Fed funds will ultimately be above where inflation sort of is at the time. We think that's gonna happen around five percent. And it's at that point that the Fed can become a lot more symmetric in their messaging. They don't have to be

so exclusively um hawkish. And then this sort of the expectation about where's the next move going to come where we're seeing some of that hopefulness get priced into the to the front end of the curve, specifically in FED funds. I think that's a little optimistic. We think that actual trade is probably more into next year rather than this year. But the symmetry or the distribution of that that next step that's gonna unfold over the course of the year.

But the thing we're looking for, or the point, the data point that we're looking for, is is once FED funds is sort of above that spot rate of inflation, then we can focus on other things other than just inflation. Until we get to that point, it's sort of all inflation all the time, all right, George. I mean, if I want to go out on the risk spectrum a little bit and play in the high yield space, is

that fulls? Is that a fulls Errand because everybody's telling me there's a recession next year, how do you think about high yield? I mean, typically, you know, the rule of thumb is, you know, avoid avoid high yield going into recession. As as you mentioned, you know, it's a sort of a low grade risk, a low grade play on kind of equity vall. You know, if we look at at high but but I think the dominant factor

in markets today is just simply yield. And so you know, as investors sort of recalibrate portfolios, there's a very strong technical to sort of capture that yield. And we look at a market like high yield. And when high yield typically is yielding between eight and ten percent, which is roughly where it is today, you know, high yield as an asset class tends to have very attractive future returns.

Going back to that break even and sort of volatility cushion, you can absorb a lot of sort of market volatility as well as kind of credit migration and ultimately default risk when your average yield is sort of eight to ten percent. So while we're cautious about the economic outlook and there's we need to do some work and make sure that we're picking the right credits, making sure that your pencil sharp and you're you're really attuned to the

right type of companies. The value is just simply the yield, and the yield is ultimately the cushion that's what I earn in in high yield and say, you know, eight to ten running yield says nothing about compression. A little bit of compression and you could see, you know, solid double digit returns in high yield this year, which is

exactly what we're expecting. That's what I'm talking about. Yeah, absolutely, I mean, and especially great if you don't have the kind of recession that we were worried about a couple of weeks ago. It seems like a lot of more commentators have gotten some optimism in the last few weeks that a soft landing is possible, that we're not going to see Matthew Mish said nine percent defaults possible um this year, but it's looking less likely, at least from

the people we've talked to over the past couple of weeks. Yeah. Well, I mean, we're cautious on the economic outlook. You know, we think things will soften up this year. There's a very healthy and robust debate going across our investment teams. Is that a hard landing? Is it a soft landing? My personal view, and I think the view of many of the folks on the team is that it's just

going to be a very sluggish and ungratifying year. From a pure growth perspective, it doesn't mean we careen into a recession, and rather than sort of expecting a really hard landing, we're going through a massive rotation. And when we talk about things like high yield, you know there's different ways to play it. If you don't want to play the duration component, you can still harbor yourself in the front end of the curve, capture two thirds three

quarters of that yield and take much less risk. And so to us fixed income, the beauty of it right now is that you can finesse your view and really pick the spots that are gonna work for you. If you want just pure your yielded income, things like short duration hiw yield or full full sector how yield can work. If you want longer duration, maybe you should think about municipal bonds. Municipals have been very well protected, uh they're performing very nicely and it's a good sort of duration

anchor in your portfolio. And if you just want the broad market, there's always kind of the straight up the middle core and core plus strategy. So there's a lot to chew on here with with some pretty and fairly predictable returns that we think will work well for folks in their portfolios. All right, good stuff, George Boy. George, thanks so much for joining us here. George Boy, chief investment strategist for fixed income at all Spring, a mobal

investments group. Well, a little healthcare M and A And as I've always said, in the next life, I'm want to come back as a healthcare m and a banker because those guys just get paid every year. There's always deals, And here's another one. CBS health Core is exploring an acquisition of oak Street Health, which one's primary care centers for Medicare recipients. That's according to people familiar with the matter. Uh, the deal could value oak Street at more than ten

billion dollars in full enterprise values. Let's break this deal down and we can do with Jonathan um Palmer. He is a senior equity research channels and team leader covering all healthcare for Bloomberg Intelligence. Jonathan, thanks so much for joining us here. Just give us the kind of the the key points here on what is another big deal in that healthcare space? Yeah, hide fall Matt, thanks for having me on. You know this week is the JP

Morgan Healthcare conference out in San Francisco. That's where I'm at right now, and it's really the seminal event in the healthcare investment landscape. And we see a lot of deal noise typically around this event, and this year is really no different. There's been a couple of small therapeutic

deals that have been announced. But you know, as you saw yesterday, there's a media speculation that CBS might acquire oak Street uh for ten billion dollars and and really this comes as not much of a surprise, to be honest with you. Um, CBS has talked about wanting to

acquire companies in the primary care space. That's what Oak Street does, and they've been rumored to be kicking the tires on you know, uh oak Street another company called Cano Health, and according to you know, our news reporters, they've lost out on Amazon's bid for for one Medical. So there's a lot going on in this space. Pharmacies don't really want to be in the pharmacy business anymore.

You know, you've seen Walgreens do a deal with Village m D. You saw right, Aid just cut their CEOs yesterday and replace her as they're not doing too well. So there's a lot going on, and there's a lot that's happening, you know where these companies want to become more healthcare service providers instead of just you know, a

retail pharmacy. At the end of the day, how how has healthcare M and A held up in a year looking back that was really not good for for deals in other industries, And I mean, what are we going to expect in three Yeah, it's a good question. I

think there's a couple of things at play here. You know, we had the pandemic, and depending on which subsector of healthcare the company companies were in, you know, it filled the coffers for some, you know, the visors, and Maderna Is obviously generated a lot of cash with their vaccine

revenues and put that money to work. We saw a lot of the diagnostic test makers, you know, take the COVID cash if they generated, and put it back in into the market via M and A. Last year was a touch slower relative to maybe two thousands twenty one, but you know, health care is a pretty profitable industry and returns on capital are good, so you know, I think we'll see more deals happened this year. I mean, as public markets have reset for a lot of subsectors.

You know, prices are down. Whether private valuations you know, follow us quickly, I think remains to be seen. But you know, there's there's definitely a tenor here at this conference that will see more deals. And you know, Matt, here's what's fascinating about the healthcare space and the JP Morgan conference. JP Morgan is hosting their annual conference where they big a bunch of healthcare companies together. It's in San Francisco every year. It's the biggest conference in the

industry by far. So who attends, well, everybody, global companies from around the world, global institutional investor clients at JP Morgan from around the world. And then guess what, everybody else comes to San Francisco who was interested in healthcare, like like Jonathan Palmer, and investors and bankers from other Wall Street firms because they know that everybody in the

healthcare space who means anything is in San Francis. I think I read that there are almost fifty thousand people in San Francisco for the conference and only eight thousand are getting in. So it's at least for people who are hanging around the bars and restaurants on the sidelines trying to get deals done right. So exactly, So, Jonathan, this is really amazing. I don't see it in too many other industries. But just give us a sense of the history of this JP Morgan conference and and kind

of what it means to the healthcare industry. Well, you guys have to nail on the head. I mean, it's it is the seminal event in the healthcare investment space. It's it's been going on for over thirty years. It actually used to be run by a bank called the Handbracking Quest. JP Morgan bought back in the day there, you know, when they were acquiring you know, everybody bought the four Horsemen, the four investment banks in San fran and and really the traditions kind of carried on since then.

I mean, you come to this meeting or there's this investment conference, and there's meetings happening everywhere on the street, corners, in coffee shops at Starbucks, and free hotel lobby seat has taken. I think half of my meetings are in

coffee shops and hotel lobbies while I'm here. It's really just outstanding, you know, the level of participation by the industry and after not being in person after two years, you know, there's there's probably a little bit of a drive here to get some stuff done that we're back in person and you know, can see people face to face across the table. So what is kind of the vibe there in San Francisco as it relates to health

care is there? Is it generally maybe are there any regulatory concerns that are out there or is it just full speed ahead here? Yeah? I think it depends a little bit on the subsector. You know, different there's different drivers, whether you're in therapeutics or health care services or medical products.

I mean at the stuff I I look at, you know, on the healthcare services side, which is what we're talking about with CVS and and Oak Street, there's definitely, you know, uh a theme here that you know, companies want to expand their umbrella, move into new markets or adjacent markets, and you know that's happening with Ernest. You know, we've seen a fair number of you know, good announcements for companies in kind of the product space, pre announcing strong revenues.

It seems like four Q is shaping up to be, you know, pretty much in line for most companies, and we're starting to see guidance on two thousand twenty three that looks generally in line with consensus. So the the underlying um you know, I think attitude here is is pretty positive, and you know, we're still kind of waiting to see how things shake out with we have a recession.

But you know, at the end of the day, people still get sick, you know, still need to take drugs, still need to go to the hospital and get procedures done. Healthcare is a really defensive space alright, So, um, what what should we expect in terms of the stocks this year? I mean M and A is one thing, stock performance is another, and everybody got wiped out last year? Um house healthcare going to do this year? Yeah? Again, I think it depends on the subsector. You know, I think

therapeutics had a rough year last year. We're starting to see some good data come across from a number of different companies. That's positive. You know, I think as M and A maybe picks up in that sector as well, that will support valuations. You know, some of the more defensive names in healthcare, like I cover the drug distributors. I mean they had banner years last year. You know, McKesson I think was up fifty plus percent. You know, I don't think they're likely to see another up fifty

percent year this year. But at the same time, the back drop is positive, and you know, there's still still things they can do to push revenue growth in EPs growth. So you know, overall, I'm pretty positive on the on the sector. You know, we had a tough year, like I said, in some of the subsectors in two thousand

twenty two. But you know, for the most part, you know, even if there's a recession, you know, the world economy as it as it relates to healthcare, carry on, all right, Johnathan, If you see any of those vaccine geniuses out there that did such a great job, by a beer, put it on my tab, okay, because they did a phenomenal job and kind of change the at least my view a little bit on some of the healthcare What bang them about the high drug costs, But man, and we

needed the vaccines. Did they come through and come through quickly? Uh So, pat on the back for a lot of those folks. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller, three pt on Fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio