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Tesla, the stock is down six percent here today. They missed pretty significantly on their deliverables for the first quarter. Again, stockdown six percent today, off thirty three about thirty four percent year to date, So definitely a challenging time for the folks at Tesla. Steve Manjoins is Global Autos and Industrials analyst for Bloomberg Intelligence. Steve put into context this miss year. How big of a miss was it and what does it mean going forward? Do you think for Tesla?
Oh, it's definitely a bad day for Tesla, as you can see the stock. Look they're I mean, it's a time you know, they just actually raise prices on their cars, puts in the question about that strategy. You know, their inventory jumped by forty forty six thousand units. It's at the all time high at the moment, so there's a lot of questions out there. You know, with you know, the end market, the consumer hesitating a bit on buying evs.
So what's going to be for Tesla going forward? Definitely their one point million target sales target for the year is definitely at risk.
Do we know why? Like, what's the why behind it? They're going to talk about production misses in terms of supply chain issues, et cetera. But then Ruvian kind of crushed it, So so what's the real reason here?
Yeah, they actually, you know, Tesla attributed to the RESC hostilities and you know that's that's partly right because a lot of their Model three and Model why they're most the best selling vehicles actually come from China, and you know, you know, you would assume a lot of these vehicles shipped through the Pacific Ocean avoiding the Red Sea. But you know, let's you know, we'll give them benefit of
doubt that it had some impact. Maybe it's not necessarily the shipment of vehicles, maybe the shipment of parts right through the Red Sea that's impacted the production uh in in China. And remember they actually cut some of the some production in China recently as well, so you know that could be the reason. But like you said, Rivian sales have gone up. You know, is there anything specific to to Tesla.
I don't.
I don't really think so. One you know, one quarter is not gonna tell us the trend for the long term. I think Tesla vehicles are still you know, liked by a lot of consumer. We just did a survey, actually recently, a buying intention survey. You know, Tesla has the greatest UH brand loyalty still amongst all brands in the in the auto industry.
Yes, so, Steve, I guess obviously the big question on investors' minds is what is the real demand for EV's in general and Tesla in particular, look in it, I guess the near and intermediate term. Do you have a view on that?
Yeah, I mean I've always thought that not only Tesla, but the entire EV market is going through a rough patch this year and likely into the next year. You know, my long term view is still optimistic about EV's. I think there's enough policies out there to push you know, greener vehicles, more greener vehicles on the road. I think the issue today is about affordability. There's actually not enough affordable EV's out there for the masses currently a lot
of vehicles are expensive. They're over fifty thousand dollars and not a lot of people can buy them, especially during high interest rate environments.
So that has been the rhetoric really for a bit, and Elon Mus seems to say, Okay, we're going to do the lower cost, but give us a second. Right, we had this wave of Model Y all three, et cetera, and now we're going to have another wave of more affordable EV's.
How when does that wave happen?
A lot of it actually comes online at the end of twenty twenty five. Starts coming online at the end of twenty twenty five. That's when you have a Model two. GM is also relaunching the more affordable Bolt all of them are, you know, thirty thousand or less. And then you have you know, GM will continue to roll out cheaper vehicles, and you have Rivian also launching the R two and R three, you know, in twenty twenty six and twenty twenty seven.
So it doesn't want a carnam Bar two by the way, total side, no, I mean everyone, but go ahead.
Yeah, but you know, a lot a lot of the more affordable EV's coming in, and the hope is that, you know, the the addressable market for the EV, market for the EV industry expands as more more cars, cheaper cars come on the road and are available to consumers.
But if I if I were an investor in this company, I'd be saying, Okay, you need to bring in a cheaper priced car for the mass market, but I'm not sure you can convince me that you can do it at a profit. What's the expectation of their ability to turn out lower price models on a per unit profitable basis.
That that's a very good question. I think scale is the most important thing. I mean, this is a scale volume game and the auto industry has been like that for one hundred years. So you know, the question is, you know, are the cheaper vehicles going to resonate as you push more production through an assembly plant. In the auto industry, the unit cost does fall significantly in you know, in a logarithmic kind of trend. So we're hoping that
it will cut. But specifically to Tesla, I want to also mention that they've done a really good job in vertically in grading their processes throughout the whole value chain, right, and that actually does cut costs, especially in you know, newer tech like this. You know, if I look at over one hundred years ago, Henry Ford basically did the
same thing. You know, switching everybody from horse carriages to automobiles actually required vertical required Ford to be to vertically integrate and able to manage costs and manage design and be nimble and flexible to react to consumer.
Tastes in the meantime before we let you go, just that stock has been so painful, Like one sixty twenty nine is sort of the low that we saw back in April, and then after that you got to go all the way back to nearly one hundred bucks.
Do we get there? What do you think?
I mean, you know, I don't think you'll get there. I think there's still a lot of value in the company. You know, they've you know, they've based thickly you know, change paradigm, shifted the whole entire autence industry in terms of vehicle design, in terms of manufacturing. But don't forget right, they also is doing a lot around full self driving autonomous vehicles. They have a supercomputer that's actually doing that for them. So there's there's still a lot of hope.
I think if you look at if you talk to the bulls in the street, there's still a lot of hope in them rolling out the FSD the full self driving full to everybody on a road and get to level four and five automless driving.
All right, Steve, thanks so much for joining us as Steve Man Global Autos and Industrials research channels. Bloomberg Intelligence coming to us from Princeton, New Jersey via that Skype thing. Again, Tesla down, you know, on down six percent today on that pretty big actually most of the analyst as saying, extraordinarily big miss. They're really surprised to the marketplace stock down six percent today, thirty four percent year to date.
And again, as you mentioned, Alex, the company into press release calling a lot of supply issues as reasons for the miss, not calling out a demand issue. But of course that's what a lot of folks are concerned about if they think about not just Tesla, but just kind of the evy market in generals are trying to think about the ultimate demand for electric vehicles in this market.
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Let's add one more name to the downside here. It's Apple down six tens of one percent. Although it could be worse, like it could be Tesla, and so there is that. But I take a look at this chart, Paul.
It is ugly.
We surpassed the low that we saw earlier in the year, in early March. I should say, the next level if I just look at it looks to be what we saw at the low back in October of one seventy. I mean, it just it looks really really ugly, and you have to wonder where we go from here.
Yeah.
Jess Metten, our good friend from Bloomberg News, covers the stock market. She's got a great story out today, and just putting into context, the first quarter the stock was off twelve percent. That's the worst performance relative to the in p five hundred and over a decade.
Just to put it in perspective.
I mean, usually if you see that kind of down draft and Apple, you're like, oh, forget it. Now's like one hundred and dolling over where everything's going to be terrible, and that hasn't been the case. Anaur Agrana joined this a Bloomberg Intelligence technology analysts standing by. So do we breach the one sixty five low that we saw back in October of twenty twenty three? Do we have to go back to earlier next year? Like where's the bottom on a rog?
Yeah, it's very tough to say.
The only reason is because when you look at Apple, the fundamentals are.
Not good right now because of a lot.
Of pressure in China, and we see no hope at this point that's going to change in the upcoming earning season. I think the only silver lining for Apple could be if during the June By Developer conference they are able to announce any big you know, AI push into the phones. I mean, that's the only thing that can perhaps you know, go out and give you a new refresh cycle by the end of the year. But other than that, it looks like a pretty bleak year for them on a fundamental basis.
How About from a technical basis, I would think that these guys are buying back stock aggressively. They can be even be more aggressive if they wanted to does that put it kind of a floor for the stock somewhere in or around here, do you think?
Yeah, I'm actually I've been surprised that they have not been more aggressive in buying back shares over the last few years, because they do have the capacity to do it. You know, they spent somewhere around ninety two hundred billion dollars almost their entire fee cast flow, buying back shares. But they've talked about being a little more aggressive in principle, but in practice, I've not seen that.
And you know, perhaps.
Maybe this year could be a change while they go out and do some some more, but I haven't seen that yet.
So what do they do?
I mean, if that's the case, yeah, no, that's it.
What do you see?
So one of the things you don't say is by the fourth quarter of this year or by December, you will see easier comparisons in China. So that could be you know one one hope.
Second thing is we are seeing a big push.
From Wawei right now because of the brand new phone that they launched last year. That's really driving a lot of the sales, and that's going to go out in an ever three ye year from now, So you know, you will see you could say, a lower benchmark or a lower you know, water line for them to cross
for next year. And with some Genii features coming in this year, you know, one could expect that maybe next year we could see that, you know, instead of the zero to you know, five percent growth, maybe we can see five to ten percent growth on the top line. And I think that can change things around for Apple.
So is there a bare case that China doesn't turn around? China is no longer a growth market for Apple? Be it competitive issues, be it change in investor sentiment towards Western companies and Western technology, be it the economy. They could be in for a Japan like period of malaise. I mean, you could really paint a reasonable scenario where China's not a growth market for them.
Ever.
Yeah, and then they have to sit down and look at their strategy and say, do we really go down the chain of you know, cutting down pricing. They have never done that. They've always believed in margins. But if they were to you know, push a lower priced phone, let's say in the emerging market, whether that's in India, Indonesia, Brazil, I mean, that can really help out and take care of some of that opset in China, but we haven't seen that. I mean, if Apple doesn't play that game,
it doesn't you know, we go down that market. But they can actually do that if need be, in order to gain market share, but we haven't seen that yet.
So you have CCTV over in China reporting that President g and President Biden talked last night discussing China US ties, et cetera. Do you feel like Tim Cook is like calling government officials, mean, like, you guys got to help me out here.
Yeah, I see.
If you see, in the last one month, he went to China and he basically promised them that he's going to do more investments in the area. And that is on the back of a lot of discussion about supply chain diversification away from China. So he's made a couple of trips in the last one year, you know, basically saying that listen, we're here for the long run. Please help us out and you know, maybe maybe maybe we need two or three or more of these phone calls, and you know, China is going to be.
Back up for them.
If I were buying Apple Computer today, I would have one catalyst, and that would be AI that it's something there's no AI in the Apple story and on mining stock today because I think Cooper Tino will figure out a way to get AI into the narrative. Would that be a decent call there.
Oh, that would be a very decent call. In fact, the news released by Mark Ellman that they're you know, talking to Google about their Google's large language model. I think that's going to really help them if they go out and you know, make that partnership because you know, Google is uh, you know, the search engine you know came at this point and they are the default engine for Apple products. They have an old relationship. Google pays a lot of money for that search right on the
Apple ecosystem. If Apple's able to go out and showcase that you need to upgrade the phones because you need a better memory and you need more processing power, that is the case for people to go out and you know people with older phones of iPhone eleven twelve, there are a lot of phones out there that are really old at.
This point, and you know which you need.
That processing power. You know, you may lead into a refresh cycle out there.
An RAG.
What do you feel like at some point though, does Apple need to do their own AI strategy, like they don't tend to do that partnership stuff. Right, They kind of cleaned a lot of their ranks with the AI car, with the AI car, with the car self driving car, petting that aside. They were supposed to repurpose those people in the.
AI and then that didn't happen.
I mean, at what point does that become an actual good catalyst for the stock.
So they are pushing a lot of money into that area. But remember Google's been doing it longer than them, and they are trying to figure out some of their applications on you know, similar to chat GPT. Now I think, you know, you just can't expect them to you know, they just shut the card division down a couple of months ago, and you know, they just moved the engineers. You can't expect them to come out with a product in the next three to six months. It's going to
take some time. Meanwhile, there is nothing wrong in licensing technology from Google. Remember Apples not in the search business. They license that technology from somebody. It's possible for the short term they will license that technology and after that, you know, once they figure out that things can work on their ecosystem a little bit better as part of their operating system. They don't need that partnership, but you know,
I think in the near term they do. They do need to you know, partner with somebody, either it's Google or open Ai.
So for this developer conference in June, how big is that going to be for the company and for the stock?
Yeah, I think it is probably the biggest you know moment for them for the last couple of years, as we have seen a reduction or a decline in the growth rate of their products business, which is predominantly you know,
iPhone and all the others. I think this is going to be the biggest cat list everybody is watching for and see what can they showcase if they are able to convince the street that this is going to lead to the next you know, big push in people going up and not just you know products, It's going to help out services also. It's going to make some of
those products a little more stickier. People you know, make fun of CD for example right now, if it's powered by Google, if it has a lot more you know, firepower to do a lot of operations, maybe I'm not going to open the third party app that's on my phone to go out and search for things that I'm doing right now. Maybe I'll just be by default using it. I say this a lot. I mean Google and you know Apple for that matter, control the distribution of the
operating system through the mobile apps. That's a very powerful ecosystem. I'll, i'll you know, of course, you guys to look at what was Strip Advisor a few years ago, or what was you know, even Yelp.
I mean, those.
Market caps have really gone down because people go to Google directly and search for those things rather than going to the application. So I think if Apple's able to play this thing out properly, their distribution system is strong enough to you know, really monetize on that.
It's true, I don't like trust Yelp anymore. I don't know what that's about.
But then but then the flip side, then you have all the regulators right from the EU and the US finds they want to rethink how they're doing things, how they wind up up. So there's also that hidden risk up there on or I'm going to let you go, but great stuff.
Super appreciate it.
And I'm a'm gonna joining us from Bloomberg Intelligence like they're clearly coming after their ecosystem and by day I mean European regulators and US regulators, So like, how do you get ahead of that? How do you manage it when like that's your going to be your lifeblo at the end of the day, when you run out of cool products.
Right, and that's going to be something that's one of the many challenges, many headwinds that you know a lot of folks when you look at Apple, they say, this is something that the stock has to deal with. It's a headwind just like it was from Microsoft the eighties and nineties until they were able to put that behind them write a few big checks along the way.
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The SMP draw down so far this year has only been barely two percent, So do we get there? Let's ask Shelby mcfatten, investment analyst over at Motley Fool Asset Management. She joined US now in the Bloomberg Interactive at brokers at Studio Shelby, this is is this the selloff we've all been waiting for?
Is it a buy the dip kind of thing? What do you think?
You know?
Unfortunately, I'm going to air towards no. And I'm really heavy on that unfortunately, right because we know these valuations have just been so rich, and when you're looking at the long term for your investment strategy, you know it's easier to say, Okay, we'll just sort of hold out. It's all right. But we do get really excited about some of those buying opportunities, either to add to current
positions or to be able to enter new ones. So I think when we look at what might cause a dip, we don't yet have those factors being quite as strong. I think we might need a couple more quarters to see at least what might happen with interest rates being a sort of force to push the market down a bit more so do so?
Do you need to see higher rates? You need to see weaker earnings? What do you think is what do you think we'll push this market down? When and if we do get that correction?
You know, I think it could be a combination of both, and it really in some ways depends on the sectors, right, So when we think about tech, we do know that those being you know, higher duration, very sensitive, that interest rates are going to most likely affect the tech sector quite a bit. And then on the other end of
that small caps as well. We've seen the sort of damage that can be done to valuations to both of those groups, So that's one sort of focus, and then outside of that, we do again need to see the change in those fundamentals. So in some of the companies, we're seeing that the valuations are just stretched for optimism for wanting to hold on.
At the same time, though, if interest rates are going up, and I say interest rates like the ten years going up because the economy just firing on all cylinders, does that change the reaction function to say small caps or big tech.
In some ways yes and no. So if the economy keeps firing, we might sort of have a situation where trading sort of shakes out those who are not interested in holding out and seeing whether there is more or less volatility than they've expected. When it comes to things like small caps especially do that thinner trading volume. But when it comes to the larger caps, there's a chance that we kind of just settle out at a higher
clip that we end up with. What is the fed'sphear is that we just step up in inflation and invaluation basis. So it's one of those things where, unfortunately it's a little bit of a seesaw we all have to sort of waiver to shake out.
One of the names on your list is see our h. It's a Irish company, which is why I'm interested in it, building products company. Is this an infrastructure act kind of play for you guys, CRH, Yes, so ticker.
When we entered the position, that was one of the reasons that we had piqued some interest, and other was that they were going to be moving their listing from LSE to the New York Stock Exchange and going ahead and starting to do their gap reporting, so realizing getting a little bit more bang for their buck, starting to get that multiple that they were looking for, and of course the fact that the IIJA was going to bring forward some.
Of that cash flow for them.
On top of that, before the infrastructure build, they were already the number one provider in North America for asphalt ready mixed concrete cement, So they were sort of this sleeper agent in all of the repair and just keeping up with the roads and things like that, apart from any new build. So it's a company that is not thought of a lot, but they're really king in what they do.
How is the booking for that all working? Because I've been struck, what'd say, the infrastructure build for example, like we all were expecting like a huge wave of money and orders, and like the orders are there, but like it's not coming the way we were all expecting. In the middle of a structural shift, the industry is still cyclical.
And you're absolutely right. And what we've seen and what management has mentioned is that they're getting stretched out a bit. So the contract money is coming through, but it's not coming through, you know, twenty four to twenty five. It's twenty four, six, twenty seven, and they're not necessarily being canceled, but they're being taken in slimmer chunks and they have
to get finished. But at the end of the day, rates are still high, and so construction can still be a bit more expensive, especially when you're talking about new as opposed to repair and remodel. So yeah, that contract stretching is absolutely a real phenomenon there.
So you've got a real estate company on your list of stocks, you guys are looking at it, and that's got to be a dicey place to be. Alexander Research real Estate Are is the ticker symbol. Talk to us about that company, because I'm nervous about anything that's got real estate in its.
Name, and I think that's completely fair, and I think that a lot of folks would think that on first hearing as well. What we're really interested in with Alexandria real Estate is one the valuation they've gotten crushed because why real estate. But what sets them apart is not only they're really deep bench on management that we like, they've got an outstanding return for investors when it comes to cash delivered back they really just pump out cash
as a red there. And also their focus on healthcare and life sciences. That's really what we're hinging on when it comes to our thesis for Alexandria real Estate. And because of that, they're also just less exposed to that office that is really crushing a lot of the reads right now because they're not having to deal with that pendulum swing of over development of offices, making them that sort of second home for employees and then employees sort of saying I'd like to never come back, thank you
very much. So when we have these new advances in sciences, they need more buildings, and that's sort of that's really the crux of the thesis for Alexandria real estate there. So if they can keep delivering on cash and keep on that train, it's a great investment.
So you guys obviously have done the work on the real estate space. You're Motley, you're based done in the DC area, right, Yes, our federal employees are they back to work five days a week, four days a week, three.
Days a week.
You you're in exist hundred percent?
What is that?
It seems to be a bit agency by agency at this point from my understanding, friends of mine that I know are more about three days. When you're looking at the contractors, many of them are fully remote now, So it kind of depends. If you work for a three letter you're probably in four or five days a week. If you work for a different agency you might be more flexible.
I do know.
It's the difference though, Like not being in the office, you do you one hundred percent miss out on those like random conversations that all of a sudden like mean something in a few years or in though I think you're right, I just don't know like what the career path.
But if I were investing in real estate, that would be my base case. Like, yeah, occupancies, whatever they are today, that's what I'm going to model out. You're not going to get any better. I don't think you're get any worse. That's what I would model.
And the same idea at Bloomberg is like, you have a desk, right, but if you could also go to any desk, would the same experience like that kind of idea versus sort of here's an office.
Kind of thing.
You also like meta that's not goes up a whopping one hundred and thirty percent in the last year, you still like it at these levels to buy.
Yeah, so at this point it is a little bit rich in the valuation. So we do watch out for any sort of opportunities. And the thing about these textocs is that because they can be a little bit viatle, you just watch every day and sometimes you do get one. But what we like about it is that their say do ratio as we call it on our team, as they do yes, the say do ratio, So they say they're going to moderate costs. They say they're going to go ahead and sort of leave behind any investments or
capital allocation that's not paying off for them. And over the last eighteen months or so they've done it. We've seen that improvement in their margin. We've seen it starting to come through on cash flow. We see that management's getting more serious about tangible ways to handle AI. And also when we look a little bit forward, we compare them to another advertising competitor. Meta's got more retail media exposure, which in these times, you know, consumers turning a little
bit more to goods as opposed to services. So when we look at the advertising market in search, for example, that's going to lean a little bit towards services as goods are coming down more, retail media has an opportunity to stand out. So Meta is definitely a little bit more poised in that regard.
Yeah, they I mean that went from being since its inception, a top line revenue growth story to really order pass two years to being a cost cutting story. Yes, and that's what that's what worked. I mean I didn't see that coming, but they actually did. They did it what they said.
They do, they do I learned something that's so cool. What other company has a good say do? Who else has got a good say do? That's a great question, it was a bad one.
Well I don't know if legal wants me to do that, but fair enough, but you know, I would say we could probably throw Apple out there for having a decent say do. And in some situations, I think what ends up happening is their valuation gets sort of bounced around like a hacky sack because they say that they're going to do very reasonable things, and sometimes that's not enough for the market.
Right.
Mature companies tend to say that, and when you want that intense growth and they say, well, we're actually not there. We're kind of giving cash back and we're doing responsible allocation. They're saying it and they're doing it, but it may not be what the market wants to hear.
Yeah, the market wants to hear. Don't worry about China. Yeah, China's fine, don't yes, exactly, there's lots of stuff there and don't worry about it.
Great stuff, You're awesome, you come back all the time. Shelby McFadden, investment analysts at Motley Full Asset Management.
I think we should do sadu ratios like.
All the time. Like Tucker is right well in the say ratio, I.
Think he totally does, like he delivers, like what you see is what you get.
You know, it's true. I don't know what is what you get, So.
I don't know. That sometimes sounded like an insult, but it didn't.
It didn't mean to be.
I'm gonna I'm gonna take this and run with it for a very long time. Okay, Shelby, thanks a lot, really appreciate it. I loved having you join us. There.
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All right, let's get to the bond market here, because you're looking at back in yields continuing to rise. It's after a pretty solid sell off yesterday as well. The tenure yield up about seven or eight basis points. We're looking at the thirty, the ten they're all at the
highest level now that we've seen so far. This year as stocks wind up dropping, Ira Jersey, Bloomberg Intelligence Chief US interest rate strategist joins us Now, Ira, how do you square the data that we continue to see ism manufacturing, the jolts numbers, even factory orders, Like, how much higher can we go and yield before things start to hurt?
Yeah, well, obviously they're going to start to hurt risk assets, probably sooner rather than later, just because the expectation has been that the Fed was going to cut interest rates, and as we keep on getting these better and better numbers, we're just.
Going to either do one of two things.
Either we're going to price out ray cuts altogether, or as you've seen recently, is we're just going to push out when those cuts are going to start because the economy is just not slowing. So the higher yields that you're seeing, I think in the back end of the curve is just a reflection of the idea that if the Fed does ultimately cut, it might not cut that much number one, and number two, that the cuts are
going to continue to be priced out. What's surprising me about this move is that a lot of it's coming in the back end of the curve. So, like you mentioned ten year yields, thirty year yields, two year yields have gone up, and at around four point seven percent, they're still pricing more or less for three interest rate
cuts this year. I think that that's probably the next nut to crack, where you really need those two year yields to go up toward toward five percent in order to get ten year yields above four and a half.
For sure.
Is there a scenario, ira in any of your crazy models that you and your team have their DNA Prinson that says no rate cuts in twenty twenty four, good one.
Yeah, so there actually is.
And I think that that's a case that you can't completely dismiss, especially when you see the strength and the data as powerful as it has been recently. So unless you wind up getting a more significant slowdown and inflation amid this very strong growth, which seems, you know, less and less likely as time goes on, then the possibility that the Fed doesn't cut interest rates at all this year and maybe into next year has to be on
your radar. And I think and one of the things that you've seen in the rates market, so you know, libor is no more so now we use something called SOFUR.
The secure over night Financing rate.
Well, so most short term interest rate bets are put on in SOFUR futures right now, and if you look at the options on those futures, you know there's now about a twenty percent chance being priced that the Fed does nothing or even maybe hikes interest.
Rates before the end of the year.
And I think that that and that's a significant shift from where we were in mid February, when you know, we were pricing only for cuts.
It was a matter of how many.
That's interesting.
So does the fact that we're seeing more move in the back end versus the long sorry, yeah, the back end versus the front end. What does that tell you about the potential hike or no cut scenario.
Well, I think a big part of it is people were I think edging long. So you know a lot of people, you know, including in our own Bloomberg Economics team, thought that we were going to start to see a significance slowing in the economy now. So they had gotten long interest rates, had gotten long treasuries, and we're ready.
For a rally.
So I think one of the reasons you're seeing the back end under formed a little bit is just people.
Getting out of that risk.
Once that those positions are cleaner, then you wind up with a scenario where people look at the fundamentals and say, okay, what's the actual fair value for ten.
Year yield and two year yield?
Right now, everyone's kind of in risk management mode saying, okay, we're too long risk given the economic environment. Let's right size our risk and then we'll determine whether or not there's some value here, value or not value there. So I think that's the mode that we're in right now. Plus, remember we're early in the core or you know, I think some of the positioning last week had to do with month and rebalancing before people put out their quarterly
or semi annual fund reports and the like. So some of this maybe is that people wanted to be long going into quarter end and now they don't see a big reason to be long at the moment. So that's one reason why people are getting out of risk. And it's easy to do when you see, you know, decent data like we've had the last two days.
So the ten year I ref got it at four spot three eight. Here is there a technical kind of level that I need to be watching for like if it breaks above four fifty, then it can go significanly higher than that. Is there any technicals here that you're paying attention to.
Yes, and we just broke a very important one actually, So four point three to five percent was the level that we were watching the last two months. Now that we're above that, we'll be targeting four point five one percent, call it four and a half percent from round numbers, and then above that is four point seven percent, So we really have a little bit of a gap here another ten or twelve basis points. You know, interestingly, when
you look at some of the momentum oscillators. I was just looking at this with Chris Caine, one of my other Bloomberg Intelligence colleagues, who's a chartered market technician, so he's one of those people with a three letter acronym after his name and looks at charts all the time. So he and I were actually just talking about this and the relative strength and index, and some momentum oscillators aren't yet at extreme levels to think that.
The selloff is over near term.
Now you get another day like we have today, then momentum, probably those momentum indicators will be in extreme levels.
And you can maybe think of a little bit.
Of a pause in the selloff for a little while. But we're not there quite yet, so we could see more volatility. You know, when we have some FED speakers at twelve today, if they sound a little bit more hawkish then Jay Powell was last week, then certainly you can wind up probably adding on to some of the market angst right now.
Some feels like an understatement. We got Bowman speaking in ten ten, you got Williams speaking at twelve, Mess's speaking at twelve ot five and Daily speaking at one three.
Why did they do that? Did they get paid to speak?
It's a question.
Yeah, Well, so what's going to learn from like a million different FED officials at the same time.
Well so a lot of the FED speakers, you know, these these lunches and these different activities that that that the FED presidents, the regional FED presidents or FED governors do. A lot of them are scheduled months and months in advance. You know, they're part of their job is to be out in the community, listen to people, let the public know what they're thinking, is how they how they think the economy is going to be, what monetary policy is going to be.
It's part of their job, you know. It's it's funny.
People always ask me, why do these people go out there all the time and make all these comments. They've actually always made these comments that just when Alan Greenspan was the chair, we didn't pay attention to anyone except Alan Greenspan, And more recently things have been more democratized within the Federal Reserve. So therefore all of these FED speakers get more attention, you know, maybe than they deserve.
But but it is helpful in the fact that now we know what the district of the Federal Reserve looks like in terms of you know, who who thinks that interest rates should be raised, who thinks that they shouldn't be raised, who thinks they should be cut right, So there's a variety of views and having those views, I think does muddy.
The waters a little bit.
But an aggregate though, uh, these discussions have always happened.
Just it was, you know, we just didn't pay attention.
And now now that we do, we wind up having more headlines and maybe generates more volatility the FED Maybe could could you know, pull pull that in a little bit and basically say, hey, don't make a lot of monetary policy comments. But I think the cats out of the bag now, and you know we're just going to have have continued FED speak that's going to be very important to markets on a minute umnit basis.
All right, I'm all in on the men's and women's Final four, so I'm not really paying attention to soccer. But if there's one match I need to follow in your world of soccer, what would it be?
Oh? I think Aston Villa of course.
My my villains have had a big win over the weekend, a t nil two nail victory, so we're moving up the table.
Yeah, I'm going to watch the Villa match this weekend for sure.
All Right, Irid Jersey, good stuff. We appreciate it as always. Ira Jersey, chief US Interest rate strategist, chief soccer strategists for Bloomberg Intelligence, bringing it to us from Princeton, New Jersey. Uh so, I don't. I'm all in on the final four. The women's had great games for sports, dude, what are you doing women's sports? I'm just saying I'm all in And this is the first year I've really been like
paying this level of attention. I mean, Michael Bard, the Business of Sports he's always.
In on it.
But that's you know, I'm kind of paying attention to it. So Final four, ya, yay?
There better than an NBA game, I would say.
Last night, Yeah it was. I mean it's just super competitive, super competitive, and that's all you went. And they got a great Final four Yukons South Carolina.
Patal Now male and female athletes.
Non comparence is not it's not even there.
Do you think we change the changes now?
After no? No, no, But it gets better. I mean the women are getting more and more and more, but it's but so are the men and so it's just getting kind of crazy out there.
So we'll see it.
But anyway, we got the Final four to look forward to this weekend. That's coming up.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
How about this for an investment strategy, maintain very low exposure to overall stock markets by being long selected high quality companies and short market index that's what our next guest is up to, Lucas to Mickey joints us here, founder and managing partner of LRT Capital Management, joining us from Austin, Texas. It's got to be overcrowded by now Austin Texas. Everybody I knowing to Austin, Texas. Great, So anyway, he's down there, Lucas, thanks so much for joining us here.
Talk to us about your investment strategy. Did I characterize that right? And how has it performed for you?
You know, it's it's something exactly right what you said. We don't predict where the market is going to do in the short term because I don't think that's something we have any expertise in doing, and frankly we don't think others can do that. But our strategies have to put it, politely, crush the market with very low volatility in very low market exposure. So it's worked out fairly well.
What do you do when you wind up seeing though, like record after record for the overall SMP. I mean, I appreciate today it's a little different because we're actually down one percent, So how do you kind of fight against that?
Yeah, so you know, our strategy because we're effectively buying quality companies and then we're shorting indexes, which, in a simplistic way, the index is quality plus junk. Junk typically outperforms in a type of fomal market that I think we've had over the last three four months. So it is a little frustrating on a day to day basis because you can see, you know, why am I doing all this work when I could just buy Social and
make all the money or super microcomputer. But I think over longer term, you know, when you have a downturn and they do happen corrections as we call them, you know, you do see the value of being disciplined and having an actual strategy.
So how do you define high quality companies in the alongside of your portfolio? Sure, so for us.
When we're talking about quality, it's really down to a combination of qualitative and quantitative metrics. So we're looking for number one companies that have some kind of mote, meaning some kind of ability to earn high rates of return on invested capital and more importantly, sustain those returns over long periods of time. And here these are simple things that Buffett has talked about for fifty years. May it be network effects, scale economies in tangible assets, brands, pathents, licenses,
government approvals. And then that's number one, we're looking for something that can earn a good greater return. But number two, it has to be able to actually reinvest within that competitive mode, because if you're just generating cash, generating returns, but you can't reinvest, you're just returning that to shareholders. The mode is kind of in the president in the past,
but not necessarily in the future. And number three, we're looking for management teams that do a reasonably good job of capital allocation, because ultimately, capital allocation is the link between shareholder value and business value. And so if you have a bad management that allocates capital poorly, then you may have a good business, but you may actually never see the benefit as a shareholder come through. And so
every business is different. No business is an A plus and all those three dimensions you know, and it so it depends on the business which one you weigh more. If you think about a visa, I have an incredible mode. You have a business that grows generally faster than GDP every year and the management doesn't matter that much. I mean, as long as they're not actively setting in the company
on fire. You know, I'm sorry, but I could become CEO of Visa tomorrow and I would kick my legs up and probably do nothing for the next five years, and very little would change in the trajectory of Visa the business right. And then you have other companies like a Danaher or a trans Time which are growing through acquisition, so their management, acquisition and capital location strategies matter tremendously.
To that point, then are there sectors that could sort of fit the bill or is that too hard to dissect because it's truly on like a company by company and management basis, So you know there there is.
There are some sectors where you find companies with more modes than others. So technology business services tend to lend themselves to high switching costs, intellectual property, network effects, et cetera. On the flip side, we're not very interested in commoditized businesses, so we're not you're not going to find a lot of mining in our portfolio. You're not going to find, you know, a lot of shipping names, commoditized airlines.
Those sort of things.
We do look for things that have commodity, like exposures where we think there actually is a mote but the company may trade in a way with a commoditized sector. And because that's very important for a diversification purpose for the portfolio loocause.
How many names do you typically have in the longside of your portfolio?
So as of today, we have ninety four positions and we typically are around eighty two one hundred, but the top twenty names are about forty five percent of our long exposure, so that should give you a sense of how that balances out. And typically the larger exposures in our portfolio are the lower volatility names, and so the names like a trade desk for example, which we own, which is a business that we admire, we think has
a durable competitive advantage, but can be very volatile. It's not uncommon to see trade desk up or down ten or twenty percent. That's a sub one percent position for us, whereas something like a chem d which is a very stable, very kind of boring business, that's around a three percent position. So we size really based on the volatility contribution of the different pieces in the portfolio.
Before I let you go, do you have AI plays?
We own TSMC and we think that's probably the best pixel shovels name that we can come up with. There's plenty of AI names and semiconductor companies that are within our portfolio or that are within our call it investable universe, but we don't have the hottest ones that everyone has beat Nvidia on others. So TSMC is really the largest direct exposure for us in that space.
And on the short side, you just short SPX or how do you play the short side.
So we're shorting mid and small cap indexes and that's to just match the basis risk of the longside. So typically most of our companies, you know, we do have things across the market cap spectrum. TSMC is obviously a giant company. We own North from Grammen as well, but actually most of our names are mid caps. So as a result, we're primarily short mid and then some small cap indexes, and we're short five particular indexes. Nothing too fancy, you know, things that you would know right all.
Right, lookus fascinating strategy put up some good numbers, so good for you, guys. Lucas to Mickey joins Is here. He's a founder and managing partner l RT Capital Management, joining us from Austin, Texas.
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