Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. All right, let's check in with Gena Martin Adams because we just got through and we're getting through a week of a big, big time earnings here. Gina Martin Adams joins as she's the chief US chief strategist for calling all the markets equity markets for Bloomberg Intelligence. Gina again, another, a great first half of the year, a good July
here for these markets. We're getting into earnings. As you step back a little bit, how do you think about these markets here?
Yeah, I think the markets have largely followed along with earnings trends, believe it or not. Because when you exclude the energy sector from the S and P five hundred, it's important to keep in mind that energy is is an input cost for most of the rest of the sector. So we want to exclude the energy sector and what we find is earnings trends are actually improving pretty materially for the rest of the groups and the index, at least relative to where they were last year, and that
improvement has been pretty continuous throughout twenty twenty three. At the very least, earnings are much less bad than anyone has anticipated for the groups that are outside of energy, and that seems to be powering a pretty significant market advance.
And is that why to your point, powering this advance that we've seen, we're investors already looking ahead and seeing that improvement, especially when you were talking about Energy masking those improvements. I know that when you're looking at the
earnings revision momentum data on your team. Michael Casper was talking to me about how, particularly when you're looking at discretionary in industrials, those were the two key groups that were leading those growth downturns at the beginning of last year. But now those are starting to be marked up highers, so more of those cyclically oriented corners of the market. Did investors already foresee that? And that's why we in part saw that big rebound at the beginning of this year.
Yeah, I think what happened was by the end of last year, investors were largely pricing a pretty significant recession in earnings to continue throughout twenty twenty three. So remember X Energy, we did see earnings start to crash really throughout twenty twenty two. By the end of last year, really all hope for any kind of rebound was gone and investors were only anticipating that earnings would get worse.
But what we've seen so far this year is the turn in inflation has been very, very consequential for turning around the sentiment towards select industries and most of the X energy industries in the S and S and P five hundred. Last year, remember when inflation was accelerating very rapidly, and producer prices in particular were accelerating extremely quickly relative to consumer prices. Most US companies were experiencing some degree
of inflation distress. At the same time, it was very clear that tech and tech like industries were over hired, had too many employees relative to the haste of sales growth that they were experiencing, and needed to write size the ships. So we saw that occurred late last year. Early this year we started to see inflation pressures ease and the combination of those two things has resulted in
much better performance across the space. Some of the segments that, as as you point out, are very sensitive to inflation, like some of the consumer discretionary's, consumer staples, industrials, communications, even healthcare companies, have experienced a great degree of inflation reprieve. The result of that is likely to show up in better earnings growth into later this year and into twenty twenty four, and I think that is starting to get embedded in prices. I would not say that this has
been anticipated. I think that most investors are still quite skeptical with respect to the macro outlook. Most investors are looking at top line growth and very concerned about where the economy is headed. But what's happening beneath the top line is very very important and consequential their earnings trends. And I think that's been the lesson of twenty twenty three.
Hey, Gina, I'm just looking at the SP five hundred and off of the October low. We're up almost twenty eight percent. Yeah, is that a bull market that I just haven't been talking about.
Yeah, it's a great point. We actually did some work on this this week. That gain from the October low to date retraces seventy six more than seventy six percent
of the peak to trap decline. When we look back in history and we look at all bear markets, that is, all times the S and P five hundred has dropped at least twenty percent, we look at those points in time in which the SMP started to recover, and a seventy six percent retracement of the peak to trough decline after every single bear market since history, in US history since nineteen twenty nine, suggests that that critical level never gets broken again.
Right.
What we actually find is over the next year, a role market continues. It is a critical marker for a continuation of the bull market. You just don't see a seventy six percent retracement and then a retest of new lows or retest of those foam or former lows within the next year. So, you know, our work would suggest very consistently the degree to which we've rebounded is a very bullish marker, at least historically. Now, you know, every
time there's a chance that this time is different. The one thing that is different this time is the lack of recovery in small caps the other thing we've never seen in US history is small caps recover so little of their peak to trough decline while large caps are recovering so much. So we want to watch small caps really carefully because I do think that that is an
area of risk in the market. If we can't get some participation from small caps, we can't get that positive signal out of small caps continuing to turn a bit higher, we could be in for a rocky road ahead.
And Gina, you've written about recently about how this sort of gloom coming into this year about the economy is really a distraction when you're thinking about from the point of view from an equity perspective, in what it means when you're looking more towards what corporate America is signaling
on the profit outlook. Why do you think this typically continues to happen when you look back at history and potentially even just be a losing strategy for investors if they're obsessing over what the timing could be on a recession when all of a sudden, especially like you were talking about energy excluded from s and P five hundred outlook really improving moving forward.
Yeah, And this is I think is so key for investors to really understand, and we were reminded of this all year this year. The economy and the earning stream are not the same thing, and stocks trade on earnings and the outlook for earnings. Very clearly, we've seen earnings growth come in much better than anticipated, like I said, less bad than anticipated, but frankly, earnings have improved considerably relative to what was priced in the equity market late
last year. And that is really important because the economists are still thinking, well, we are going to we may scaze by without falling into recession, but there's still a lot of chatter about the macro outlook. Many people are still really wringing their hands over what's going to happened in the economy, and that really kind of misses the point, because there just is there are commonalities, certainly, and if the economy does fall into recession, there will be pain
points in the earning stream that emerge. But for now, what is important is that margins appear to have formed a bottom. They're starting to improve a little bit here. We seem to be stable enough in the economy to create some stability in the top line revenue for the index. We're always on guard for something to change. But those earnings are what really drives stock prices, and I think
this is so important. You know, the even the percentage share of industries impact on the equity market is so very different than the percentage share of those industries' impact on the economy at large that trying to use the economy as a forecasting tool for the market proves to be a really dicey business.
All right, Gina, it looks like we're back in the business focusing on earnings, maybe a little bit less so on the FED. And that's a good thing because maybe we get some earnings momentum here, Gina. Martin Adams, chief equity strategist for Bloomberg Intelligence, joining us, giving us a great overview of the market as we kind of pour through these earnings, you know, really kicking in this week in size, including today and then well through the next couple of weeks.
So maybe a.
Little bit better than expected outlook on earnings, just what to see how comes in?
And you brought up the Dow Jones industrial average actually heading in today. It had been up for eight consecutive sessions. It was as long as winning streak in about four years, and so heading for potentially a ninth consecutive session for also looking at more of those sickle co oriented and pores in the market.
Yeah, I'd like to see that, And Gina suggested that's a good thing to see a little bit of a broadening out from the tech.
So that's good. You're listening to the team. Ken's a live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Let's talk about earnings here, and let's talk about healthcare earnings. We can do that with Ann Hines. She's from a Zoo America's she's a managing director and senior healthcare services equity analysts there. And thanks so much for joining us via the phone here healthcare services, give us a sense of about how this group has traded over the last couple of years. Just give us a sense how investors and how you position the healthcare services providers out there to investors.
Sure, I would say this group has traded.
It's a tale of two groups mainly managed here in hospitals, and it's really based on utilization remember during COVID baseline utilization that's what everyone refers to. Healthcare utilization before COVID was really below pre pandemic levels. And if you even go even further, if you do it by payer mix, whether it's commercial, whether it's Medicare advantage, whether it's Medicaid. Definitely Medicare advantage, and Medicaid beneficiaries were not seeking care, they didn't want to.
Go to the hospital.
Now we get to twenty twenty three and it's probably the first year since the pandemic that trends and normal people are going back to get to the doctors.
They're going back.
To get elective procedures, hip proscedures, things that they really postponed during the pandemic. That's really good for any provider, so HGA, big hospital companies, Tenant, Universal Surgery Partners. You know, I don't came a medtech but meta companies, any company
that provides healthcare. It's been a little bit more difficult for managed care companies this earning season, especially managed care companies that have exposure to Medicare because it's the Medicare beneficiaries, they tend to use the system more and they were the ones that really didn't want to go into the system during the pandemic, So we're seeing increased utilization which is really heard in the stocks here to date, whereas you have the hospital providers that are really outperforming.
And to your point, I mean looking at stocks like Humanity ticker symbol HUM that's down about thirteen percent year to date. Also looking over at what's happening with un AH, also down about five percent, but the other side of that HCA Healthcare that's up about twenty percent, and then Tenant Healthcare looking at that ticker symbol THC up almost
sixty percent. How much longer do you think when we're looking at those types of stocks like Tenant and then also when it comes to HCA, how long and how much more room it could have for those stocks to keep moving higher.
I would argue there is room to move higher for two reasons. One earnings, and I like to prefer the baseline earnings pre pandemic ex COVID. They are still hampered because of labor costs. So to put it in perspective, before the pandemic, HDA has been about nine hundred and ninety million on temporary labor and at the height of the pandemic, the company has been two point five billion.
That's a twelve percent EBITA headwind, a headwind to EBITA, and if you annualize the last quarter, it's still a two billion, so it's very elevated.
So there's there's a lot of drivers for upside.
For a company like HGA and Tenant because temporary labor is coming down slowly, but it's coming down. And then you also have this pent up demand utilization that's coming back to the system. And if you look at Medicare, they were I would say you have probably a two year window of people catching up with procedures that they didn't do during the pandemic.
So as you talk to your institution, investor, clients, and what are the topics that come up the most, what do you find yourself explaining or you know, kind of discussing with your clients.
I'm utilization.
So it's all about healthcare utilization, but also pricing what managed care companies price into their bids for twenty twenty four and did capture this utilization. I think all the companies expected utilization.
To come back.
I think they probably expected it to come back more over twenty twenty three twenty twenty four in twenty twenty five, and a reason for that is nursing is an issue.
A lot of nurses left the field.
It caused capacity constraints, and I think what we're seeing in twenty twenty three is more capacity opening that people probably expected. So I would think that's the main thing. And to your question, how long can the hospitals run? And I would argue companies that have earning upside, they usually go up and not down.
So just so on the on the labor front, I mean at granted, I mean you just think back to the pandemic and the conditions under which all the healthcare providers had to operate. I mean they're just you know, saints, every one of them. But as you mentioned, a high toll on turnover in that space. So is this an industry that just chronically is short on nurses and maybe to lesser extent, doctors. Is that something that's kind of a chronic issue for the industry to a.
Agree, But what happened during the pandemic is that you have what we have a permanent nurse, a permanent nurse that obvious works full time, and then you have nurse who like to travel they get paid a little bit a little bit more on an hour, but they tend to travel. And what happened during the pandemic there was such a high demand, you had this phenomena that permanent
nurses went temporary to get the higher hourly rage. Like to primitent perspective, a nurse might make fifty dollars an hour, but at the height pandemic, they were making.
Two hundred and fifty dollars an hour.
I think what we're seeing is that some of these nurses that left their permanent position, they're coming back to full time positions in the workforce. But there's also a part that the average age of the nurses about fifty. Maybe that nurse is working less hours, less shifts.
So it's a combination of both.
And to Ball's point, because he was asking about some of the top questions you're getting, what about the top concerns among some of your clients as far as what this could mean as far as the outlook moving forward.
I would say the top concerns, like get is on the managed care sector because they have a few headwinds coming up. There's some changes to Medicare reimbursement that would impact Medicare advantage plans, and the big thing is all also Medicaid we determinations because I'm sure you know the
Medicaid rolls to well during the pandemic. Because of the public health emergency, states would not allow to redetermine anyone on Medicaid and that ended in April, and over the next twelve to fourteen months, states will be rolling.
Beneficiary is off. And that just causes a.
Lot of uncertainty with numbers because a lot of these companies didn't benefit benefit from the public health emergency.
All right, and top picks, what are you talking to your clients about? What do you like right here going forward?
So I would say a top pick on the managed care side are Signa and Elevance and singing that for two reasons. One, they don't have a lot of Medicare advantage exposure, so a lot of the changes to reimbursement's not going to impact them. And they also don't have a lot of Medicaid determined exposure. So the two biggest worries in the managecure sector they don't.
Have a lot of exposure to.
There is some risk with PBM legislation, but I would argue that's already based in valuation at about ten times twenty twenty four earnings.
I also like.
I still like HGA, just because despite the run, there is a lot of upside to earnings in my opinion for twenty twenty three and twenty twenty four.
And when you're talking about legislation, are there anything in particular coming up on Capitol Hill that you think infesstors should keep their eyes on when it comes to potential maybe regulations that could affect some of these companies.
Yes, so Congress wants to pass PPM legislation that has that will result in increased regulatory scrutiny on the PBM. So companies with the biggest exposure would be United Healthcare CBS and Signa that's pretty well known. But the question is that if there's going to be a legislative vehicle. I believe there will be a legislator vehicle in December.
And I'm also a believer that this has been a headline of us for a long time, and I think any type of legislation that passes will have not going to walk to twenty twenty six, which will allow these PBMs to change language and their contracts. So when all of a sudden done. I actually don't think it will have a meaningful impact on EPs, and it should remove a headline risk and we should get more details on that,
but not until December. But that's the major thing because typically in healthcare, when there's a balance of power in Washington, not a lot of healthcare legislation is passed.
And just about thirty seconds here, drug distributors, you're neutral on that group? Why really?
Valuation?
They've had a great run for a long time and they're reaching their ten year highs. Earnings visibility is very good. But I do think it's a crowded sector. It's a sector that a lot of journalists went in over the past couple of years when there was a lot of uncertainty in the market. But they are great companies and it's more valuation anything.
All right, And thanks so much for giving us some of your time. An Heinz's senior healthcare Services Equity. An she's a managinging director over at Mizuho.
You're listening to the tape. Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg Dot com and 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.
We want to switch things up for our next segment and do an energy outlook. And I'm excited because we do have in studio here Jonathan Maxwell, who's CEO at Sustainable Development Capital, who's joining us to discuss the outlook on oil and the renewable energy markets, particularly with the growth of tessel this year in the emergence of v evs. But before I actually get into that, I have to ask you about Ukraine. And we're seeing wheat prices soaring today.
It's actually their three day gain is more than ten per after the US did warn that Russia has laid mines at Ukrainian grain ports. Now you've written a book recently tied to Ukraine. What's your take on this and how does this mean in what does it mean for the energy and commodity space.
I think it has a huge story around resources and conflict over resources. Ukraine was really the conduit prior to the Russia Ukraine crisis for Russia's exports of oil and sorry of gas. Into Europe its pipe. It was piped through Ukraine. Europe needed to get forty percent of its gas from Russia. That's over. We saw energy prices skyrocket last year. We saw energy in Europe. We saw energy security become front page news in a way that it never had before. So the link between Ukraine and resources
was the big headline last year was energy. Now, there was a deal struck which kept grain exports and other really critical resource exports going out of Ukraine. But Ukraine is one of the most important resource stories in the world. After America became energy independent in twenty nineteen, really this
resource arena has shifted now into eastern Europe. You know, Russia and Ukraine are really the nexus for the balancing demand around or supply and demand around oil and gas on the one hand, another resources like grain on the other. So what we're seeing is a conflict which is partly driven by conflict over resources, but also it's having a dramatic impact on pricing.
All right, So, as sustainable development capital, you guys look at kind of I guess this challenge about being sustainable, being eco friendly a little bit differently. Talk to us about the types of investments you make there. What do you like to what do you think you can add value?
Right?
Well, you know, one of the major responses that came up telling it back to Russia Ukraine. One of the major responses happened last year is given the fact that energy was being constrained in Europe, what should we do about it?
So what?
So there was a huge response build more energy, add more into the system, mostly renewable energy, until until it became clear how long that would take and how much money that would take, and the fact that that wasn't going to address energy security in the short term. In fact, there was an echo of the European Commissioner for Energy's response from the twenty fourteen invasion, which was really important
in Europe last year. They said, for every every unit of gas that we don't use, is two point six units of gas we don't need to buy from Russia. So the implication was, actually, we're wasting so much energy, and about seventy percent of energy gets lost somewhere between getting extracted and used. But if you can stop, that's the number.
I like.
That's because I remember that from last time.
One more time slowly for the Yeah.
So in the United States, the Lawrence Livermore National Laboratory has charts each year produced everything year that show how much energy gets lost from the point of extraction to end use. About ten percent gets lost extracting and converting it. About fifty percent gets lost in heat because energy is generated typically in one place and used in a very different place, and you can't do anything with the heat. And then another ten percent gets lost in transmission and distribution.
This is the basic fact of the way that we've done energies centralized energy systems, not just in the US, but in the UK, Europe, everywhere, and that is the part of the problem that needs to be solved.
Here.
We are trying to add more energy into the system, but the system's broken. It's unbelievably inefficient. And if we can generate energy close to or at the point that's needed and stop wasting so much at the point of use, ten twenty percent plus is typically wasted at the point of use, that's one of the most important largest sources of productivity economic gain, let alone carbon emission reductions available and worth.
So then what is the key to reducing energy ways to meet climate goals?
Ultimately?
So I think the first point is generate energy were it close to or at the point of view. So let's look at the big problems.
Right.
Electricity is being greened, which is great, but it gets used mostly a residential context. If you look at industry, eighty five percent of industry is driven by fossil fuels, ninety eight percent of transports. So what can you do about that? You can generate the energy close to the point of use. So if you even if you're using natural gas, capture the heat and use it for heat processing an industry. If you can do that by recycling
waste gases. On one of our funds, we earn a huge recycling project up in Indiana, Gary, Indiana where we recycle flue gases and use that to power the steel mills. So these sorts of a solar on site, solar on site storage, it's a massive part of the solution. The second part is actually just stopping wasting so much inside of buildings, motors, controls, lighting. You know, these are heating, ventilation, air conditioning, cool as the warm weather heats up the world.
So these are the things that are going to make a tremendous difference and can be done quickly. It takes years to build a new renewable power system. We need to do as much of that as possible, but it takes months, maybe a couple of years to do any of the things that I'm discussing in terms of generating energy on site or indeed reducing demand.
For So, what's a recent investment that your funds have made that you're very excited about.
So I was in Upstate New York yesterday. We've owned one of the largest district energy systems in the United States, and that provides energy on site to one hundred and twenty customers in Rochester Business Park. We own an investment in a company here in Manhattan which is called Onyx Renewables, which does solar and storage nationwide, and that produces on site generation on people's rooftops, car ports, or in the ground, but were connected directly to buildings producing low carbon, low
cost energy solutions. On the electric vehicle side, this is a huge opportunity electric vehicles around eighty percent efficient versus about thirty percent efficient.
Efficient versus thirty percent efficient for internal combustion. Yeah, so do you how do you define that? Like, what's what's efficient?
Right?
So, if you track the energy, the primary energy coming out of a well what they call well to wheel, and you sort of you track the journey of the molecule to exactly what survives through the engine get lost through the generation, transmission, et cetera. It's roughly thirty percent.
And an internal combustion engine what they call wind to wheel, that is taking the electricity out of a renewable power plant and the electricity broadly survives to get into the car and then that is then converted into power that actually goes along and moves this vehicle along. So it's it's very efficient. It's also frankly, yes, it will help reduce demand hopefully and displace fossil fuel use, but it
also cuts pollution in town. So even even if you're not into the climate and you're ailing too and you don't like greenwashing or green hushing, then surely you don't want your kids to grow up in cities there were three or four times the level considered safe by the World Health Organization, like my hometown of London because of the cars to Texas and buses. So it's those sorts of things where you've got efficiency combined with better outcomes for people.
We're having you back the next time you're in New York. I know you said you're back here a lot and back in New Orkrin get continue this conversation. Jonathan Maxwell's CEO, co founder Sustainable Development Capital.
I like the Capital book out in the US and December.
You're listening to the Team Can't Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
So let's head down to Washington, DC. Joe Matthew, radio and TV host Bloomberg's sound on in Bloomberg's Balance of Power joins us. Joe, You and Anne Marie Hordern interviewed Chris Christie on Bounce of Power last night. Here's a clip of your discussion.
At our nation's secrets hanging out at Marvaco and at his Bedminster golf club. Think about the risk that that puts our men and women in uniform and our intelligence officers ad.
That was a new Former New Jersey Governor Chris Christie's also at presidential hopeful for twenty four. Joe talked to us about kind of some of the highlights from your discussion with mister Christy.
Well, we tried to take a different approach, as you might have noticed, because every time I see Chris Christy or hear Chris Christy in an interview, the entire thing is about Donald Trump, and of course you have to ask him about the front runner. But we tried to be a little bit different here for our audience on Luberg and actually talk about a couple of issues. I've never heard him be asked about the economy, about inflation, his thoughts on J. Powell, his thoughts on geopolitics, how
he would handle China, his thoughts on Taiwan. A lot of things that we frankly learned for the first time in that conversation last evening, and we you've got to take a pretty deep dive with him on a number of issues here. So yeah, when it comes to Donald Trump, look, he's a former prosecutor and his view is that we have already seen what could be the most damaging case
against him. That cut that you just played, he's talking about the classified documents case, and he sees that as the most damning legal action that the president former president is facing right now, even as we wait for yet another indictment likely to drop according to Donald Trump in the next few days.
How do you think this shapes up for the race for the election, especially when you're looking at this latest poll from Warders where it has Trump up about forty seven percent of support him on Republicans, and then you look at Desanta's at abound nineteen percent, and kind of what you think this could mean as far as from a sentiment perspective.
Well, you know, first of all, I would just caution everybody to throw a little bit of salt at you know, more than one grain at any national poll right now, because you know, if I bring you back to where we were in the race in twenty sixteen, right now, you'd be asking me when Jeb Bush was going to move into the White House. You'd be asking me when Scott Walker might be doing the same thing. Donald Trump,
I believe was around four percent at that point. Now we cannot argue with this remarkable lead, this powerful lead that Donald Trump has at the moment. You're asking the right question about number two though, and we're watching Ron DeSantis attempt to relaunch reset his campaign. He actually laid off some workers, found himself spending too much money and hard to rationalize a polling data set that's been dropping essentially since he announced officially that he was coming into
the campaign. So Ron DeSantis is dealing with an identity issue right now. He's trying to go out there and do more mainstream media talk to people other than those who agree with him, and it's really, frankly unclear. He's got a massive apparatus in a lot of money, but it's unclear that he can catch up to Donald Trump at this stage of the race. It's going to require an event, and I'll remind everybody's a big one next month, and that's the debate, the first Republican debate that'll be
in Milwaukee that the RNC is running. And by the way, the aforementioned Chris Christy is among candidates who made the cut to go on that stage, but so far has not taken the pledge as the RNC is asking everyone to support the eventual nominee, because if you're Chris Christy, you can't say you're going to vote for Donald Trump if he does this again.
Right?
Interesting, All right, So, Joe, based upon your discussions with Amory and the governor last night, what do you think Governor Christy views as maybe his strategy going into the selection. A lot of folks are just suggesting he's nothing more than someone to just beat up on Donald Trump. But what did you live last night?
I'm glad you asked that. It's the first question that I asked him. You know, everyone knows that you're here to be that you're the guy who's here to punch Donald Trump in the nose rhetorically, that's your brand. And many would argue, by the way, there would never have been at Donald Trump without Chris Christie. You remember he was to tell it like it is candy. Now he's facing somebody who actually became president on that idea. But
there needs to be more than that. And when I asked him about what is it that you know beyond anti Trump? What is your brand? He said one word truth. I'm the only guy up there who will tell you the truth. Now, when you put that against some of the policy positions that we discussed, you might actually have a package there that a voter could consider. But when you're looking at him, between six and eight percent of the polls right now, he has yet to connect the dots with voters in that way.
Have we heard from the Biden administration about Trump's legal woes right now.
They're really careful to not talk about it. They don't want anyone to think that there's any contact between the President and Merrick Garland at the DOJ, never mind the Special Council. These degrees of separation are really important to the White House here because they're being accused of weaponizing
the Department of Justice. Even the Speaker of the House said that the only reason it happened, he said, is because Donald Trump's poll numbers are higher, which is a little bit ridiculous because this investigation has been going on for a lot longer than Donald Trump had this lead in the polls. So for the White House, you know what, they treat it just like they do the FED. They differ.
Joe, you're in Washington, DC, you're based in DC. You talk to everybody here. What is your sense at this early stage and what the Republican Party would like to see, How would they like to see things develop, Who would they like their nominee to be?
Do you think.
Impossible to answer because it's such a splintered party right now, and that's really a challenge. If you're running the RNC, you're trying to figure this out exactly, because thirty percent are just hard locked behind Donald Trump. Even if he does shoot somebody on Fifth Avenue, as he says, we're starting to believe him there that they will not budge. So now you're dealing with roughly seventy percent of the electorate, and the more candidates jump in this thing, they're splintering
it along the way. I'm not sure anyone is resonating other than Donald Trump in a significant way that you could see them actually becoming the nominee. Yet, we have to get some debates under our belt. We need something to happen here. And I would also challenge the conventional wisdom on the idea of another indictment for Donald Trump.
Well that may help him in the near term raise money and lift his polls, we could be looking at a very different dynamic with him walking into a re election cycle if we call it that for him, as a former president carrying four or five indictments, it would be historic and there's no historical measure to how that might impact the electorate.
And just from the same question from the Democratic side, is a Democratic Party united behind President Biden making another run here?
You know, as much as it's going to be, there's no clear alternative. And while some have asked, if you know, the president should drop out here and bring in a younger Democrat, no one exactly is raising their hands for that right now. So I think as long as he
wants to do this, it's probably his. But if you look at the poll yesterday from Quinnipiac University, it found that nearly half I believe it was forty seven percent of voters from both parties would like to see somebody other than not only the names we're talking about, Paul, but they want to see a third party candidate, and that brings us to this whole idea of the No
Labels Party. They held a big event in New Hampshire this week with Joe Manchin, and that's the one thing that upsets Democrats when you ask them about a third party, they say that is the most surefireway to reelect Donald Trump. That is what would keep Joe Biden out of the White House.
All right, Joe, great, great analysis as always Joe Matthew. He is host of Bloomberg Sound On and Bloomberg's Balance of Power, Bounce of Power on Television, Sound On on Radio. So Joe Matthew is our multimedia Washington, DC source, and he and Annry Hordern last evening spoke with the presidential candidate, Chris Christi, former governor of my home state New Jersey. So lots to talk about there. It's going to be a fascinating run into the twenty twenty four election.
It definitely is.
And then him calling out how those classified documents case is the worst of the Trump charges at this point.
Yeah, that's me to going to see how that plays. I will have obviously full coverage going forward.
You're listening to the tape. Can's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and 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.
Jess meant Paul Sweeney here in the Bloomberg Interactive Brokers studio. We are streaming on YouTube. You can just go over to YouTube and just search Bloomberg Global News and that I'll bring you right to the feed. In this hour, we are joined in studio with Barry Riodholts. He's a host of Masters in Business, little podcast he does with the good folks at Bloomberg. Has also got a day job with Ridholt's wealth management. Barry, thanks so much for joining us here.
My pleasure. Always a blast to be here.
All right, let's kick it off real quick here because one of the names that Charlie was just mentioning, and that thing was Netflix. After the closed last night reported some numbers stock us off nine percent. The revenue guidance missed here, So that's kind of the big issue, and it just kind of calls into question the whole profitability of the streaming business. And we want to bring in somebody who really knows this business well, Mark Douglass. He's
a president and CEO of Mountain. He joins us via zoom here. So, Mark, what did you take away from what we heard from the company last night and what we saw on their results.
Migration of building mode in terms of password sharing. The way I think of the password sharing, it's like a revenue backlock for Netflix that they can tap into. I don't think they're likely pushing one hundred percent on ending password sharing. They have an incentive to do it slowly
and then have like essentially it's backlock. The app business still has some effort to ramp up, but I think the fact that they missed revenue hit earnings is an indication that you're going to see increased earnings at Netflix because the new consume, the new consumers have paying that they're coming off the password sharing, They have no increased costs, they have very little increased costs with the app business, that all of that revenue is going to go straight to the bottom line.
So let's put some flesh on the bones. What are Netflix estimates of how many households are sharing passwords and how many potential new subscribers does this layout What sort of revenue bump could we say?
I don't offhand know the exact numbers. I know it's a very significant portion of the users that use Netflix, you know or doing password sharing. I remember a few years ago there was a meme when one of their shows went viral right before Christmas, and it was like, how did fifty million people watch that movie with only
ten you know, Netflix passwords? So I think, you know, everyone is sharing and Netflix is going to essentially do a migration over time from password sharing to fully paid subscriptions and do it now with that supported likely being right in the mix, which generates even more revenue for them and thus more profit.
I honest understand, I'm watching Drive to Survive in the den. My wife puts something on in the bedroom and I get kicked out on Netflix. Yet everybody else seems to be seems to be sharing this. So how long do you think it'll take for them to migrate a substantial number of these people onto the platform as paying customers.
I think they could do it in three months, but I think if I were them, I'd take three years and just always have this additional revenue stream. It sounds like your household has been identified as one with no password sharing a lot top.
Of the list.
I would have made it exactly.
If you look at this stock Tickerson Ball nf Lex, it's been up more than one hundred percent of the past twelve months. If to Paul's point, you look at it today down nine percent, this would be its worst percentage decline of this year, and the worse since April of twenty twenty two. How much of this is also it's had such a huge run, would you expect it to see it pull back like this on a day like today after it got it turned its results.
Yeah, I mean absolutely, And I think last year was an overreaction and that you know, the part of the reason they had such a big run up is because they fell off. The stock fell off at clift nine percent is not falling off a clift. It's a decline. And I honestly, I think you're going to see people buying into the stock. I personally am going to buy
into the stock. I think it's I just expect this to start a new era of increased earnings and Netflix because of the profitability of the password sharing subscribers and the advertise and the advertising business.
So I think you're going.
To see, you know, this be a temporary blip and then they start to you see the stock price start to increase.
What about other streaming platforms and those types of stocks. We're not gonna have Disney's earnings results until August ninth, but obviously when you're thinking about some of its rivals, maybe Roku, what about those particular types of stocks and are those potentially ones that you're buying or maybe selling.
I think Netflix is kind of kind of uniquely positioned. I think there's opportunity obviously at Disney Plus, but then you're also buying in the Disney parks and all these Disney films, and there's a lot of complexity and a lot of issues there. Netflix is best when they operate like a tech company and not a Hollywood studio. And so the password sharing, the advertise, these are things that they are really led out of Mountain View, you know,
in the tech side of Netflix. And whenever they do that, they lead the industry and innovation and then start to lead the industry in terms of growth. And that's happening now and that's I think that one statement is what I think makes Netflix, you know, like above their peers. So they say, and why I like the company.
Hey, Mark, you're one of the really thought leaders in the digital advertising space. Give us a sense of just how you think this streaming advertising business is going to play out.
Yeah, I think it's been very challenging. There's lots of demand to advertise on Netflix, but they have to navigate do they have rights on all the shows? And then there are a lot of big agencies involved, the big holding companies like WPP and Nomniicom, and so you know, they're they're underway. The content is very attractive the consumers that you know, the ads almost become like a new show because you're still not used to sing an ad
on Netflix. So I think it's going to take roughly eighteen months from when they started let in Q four to like really truly ramp that up as they navigate kind of those relationships. But they're off to a good starter, and I think they have a lot of headroom that actually creates headwinds for everyone else. If Netflix gains share
and advertising, another network is going to lose share. The overall brand advertising industry is actually not growing, and so they're gonna not The industry as a whole is going to have to find new customers in order to make up for increased competition.
All right, Mark, great some of your time. Really appreciate getting your perspective, your analysis. Mark Douglas, he's a president and CEO of Mountain. He joined us via Zoom. Always appreciate getting his thoughts.
You're listening to the tape. Catch a live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the Tune It Up, Bloomberg dot Com, and the Bloomberg You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Let's switch gears to the other big earning story of the day. Tesla stocks off six point six percent, a little bit of some margin challenges there for Elon Musk. Let's put it in perspective here, folks. The stock is up one hundred and twenty percent year to date, so giving back six percent is nothing. Let's bring in Kevin Tynan. He covers all the auto industry for Bloomberg Intelligence, joining us via Zoom from the Princeton HQ for Bloomberg Intelligence. Kevin,
what was your takeaway here? I mean price wars they have repercussions, don't they?
Sure?
Yeah, And I think, look, that's been the deal in the auto industry for a century plus. And I think the problem with Tesla is that this makes them look like an automaker, which is probably their biggest fear. So I think what you're going to start to hear now is all this talk of AI and full self driving and autonomous being you know, the path in the future, because when you look at the results and the margins specifically, you know eighteen percent at the gross line, ten percent
at the operating line. It's those are automaker margins.
And something I was curious about too, is when you're looking at Tesla's deliveries earlier this month, they did hit a record number after obviously those price cuts in the stock continue to go on a tear after it rose well above those February highs last month, and the next
resistance level isn't until right over three hundred dollars. So does this make sense when you already saw a big run like that, especially after the deliveries and numbers came in better than expected, that you'd see another pullback like this in the stock. Yeah.
Well, see what happens is he Elon Musk talks about sacrificing profitability for that volume growth. Obviously you see that coming right, This is for all automakers in the space now are going to be dealing with the same exact thing. So he sort of telegraphed the idea that they're doing this on purpose, right, we just want to maintain that fifty percent growth rate, which they probably won't hit, you know, so, so it's almost forgiven and telegraphed to the to the
point of yeah, don't worry about margins. You know, we're going to direct your eye to this volume growth and look, record deliveries.
For the quarter.
But again, you know, all that does is make you an automaker that has no price power by giving up margin and puts you in the pack with pedestrian margins like everybody else. So I even I thought like, even if this quarter were worse in terms of margin and profitability, it would still be okay in the eyes of the market because he told you he was going to do that right, not that he had control of it, but he but he telegraphed it. He told you he was going to do it, and it and it's what happened,
record deliveries in the quarter. And it's like, oh, look, executing right according to the plan. But it's really an issue now where now your margins are like everybody else, is where do you go from here? Do you keep cutting or do you stand on price and take the volume hit.
Kevin Barry rittolts here. I was intrigued a couple of days ago, or maybe it's already a week or two ago, when Tesla announced they were opening up their network of superchargers to forward and gm evs. How big a deal is that and is that a potential revenue stream for Tesla in the future.
Yeah, look, there's there's tax credits to Tesla for opening that up. Give that gives them some favorable treatment within Inflation Reduction Act to be able to do that. All the other automakers didn't have to invest in that technology. I'm just not sure how much profitability there is going forward in charging. And maybe it's not an Apple stapp comparison,
but you know, we've heard it before. Nobody owns gasoline stations and there's actually no money in the pumping of the gas right and back in the day, those were the service bays that were connected to the gas station. Now it's the convenience store that sells Lotto tickets connected to the gasoline station. So you know, if there were to be this explosion in demand, I'm not sure how great a margin you would be getting at the actual pump.
I think the value there is that you're going to have a captive audience for however much time forty five minutes to hours, and it may be the licensing of the retail space around the charge points that actually makes the money.
I want to get your thoughts to switch things up a little bit. But also on Carvon, I'm looking at that ticker symbol CVNA. It was up more than about forty percent yesterday on that news that it will restruct your debt and sell stock in this comeback bit. It's one of those sort of pandemic type of really volatile stocks that we've seen. What's your outlook here when you're looking from an earnings perspective on a stock like A.
Yeah, see, that's one that you know that business to me is just very focused. It's online only and it's pre owned only. So when you compare Carbon to the other full line dealerships, you know in Automation or Penske Auto Group or Group one or Lithia, you know, there's places that they can go when they use market is bad or when the new market is bad. You know, there's parts and service, there's finance and insurance. So there's a lot of revenue diversity for those companies that Carvana
doesn't have. And this run up in the past couple of days. Ideally, I'm struggling to find the structural difference in the company today versus before this announcement, and I'm
not sure it's there. And when you look at their you know, retail run rate unit sales, you know it's a it's about a three hundred thousand, a little bit more than three hundred thousand units, And they've talked about getting to two million and scaling, and that doesn't look like it's going to And that's in the ballpark of what CarMax does used only and it doesn't look like
they're going to there anytime soon. So all these online used only vehicle retailers have really backed off the scale and growth for growth sake, to say, we need to focus a little bit on margin and profitability in the interim.
So when we see the slew of new competitors, whether it's Mercedes or Hyundai or even some of the big Chinese manufacturers, is it unrealistic for anyone who's running a first mover EV company to expect to maintain just what's been a dominant market share. Isn't it inevitable that they have to become a smaller player tesla versus the rest of the world.
Yeah, Look, I think that the issue is is that if there were profitability there, you know, like you said, the Mercedes, the Volkswagens, the Toyotas of the world would be there. The issue is that the mixshift that we've had, especially in the US the ten years, has been two truck from car, and that was profitable on the first day. Now automakers do need to figure out how to sell the same vehicles at higher prices because a lot of that mixshift truck from car is wrung out and it
comes from technology, whether it's autonomous or electric. The problem is it's higher transaction prices, but the margins aren't as good or don't exist at all yet, So it's a very messy transition. At this point, everybody's being forced to go EV, but it doesn't carry the profitability that your existing legacy technology does, and that's why we're slow in this country.
All right, Kevin, thanks so much. As always, we loved talking to Kevin Tyny getting the latest on the autobiz, including our good friends at Tessa. Kevin Tyny, senior automotive analysts for Bloomberg Intelligence, joining us from Princeton, New Jersey.
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I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm Faul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio