Bloomberg IntelligenceWatch Alix and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Michael McKee, Bloomberg International Economics and Policy Correspondent, discusses U.S JOLTS data. Mandeep Singh, Bloomberg Intelligence Senior Tech Industry Analyst, and Justin Teresi, Bloomberg Intelligence Antitrust Litigation & Policy Analyst, discuss the latest Nvidia news. Paul Karger, Co-Founder and Managing Partner at TwinFocus, discusses his outlook for the markets. Mary Ross Gilbert, Bloomberg Intelligence, Senior Equity Analyst, Covering Retail, discusses the Nordstrom family looking to take their namesake department store chain private. Margie Patel, Senior Portfolio Manager, at Allspring Global Investments, discusses her outlook for the markets. Mackenzie Hawkins, Bloomberg News Technology Reporter, discusses Intel’s cash woes.
Hosts: Paul Sweeney and John Tucker
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Eco Go, folks. It's been busy here this morning. That gives you all the economic data that's released by the government. A lot of stuff here, jolts, factory orders, durable goods. I mean I heard about all this stuff in economics class. I didn't really know what it is, but I see the numbers here. Michael McKee, he knows what's going on. He does all the economic stuff for Bloomberg television, radio and everything else. Actually, Michael, of all the economic data here, what jumped out.
Of you today? What do you think the Fed is going to focus on?
Maybe today, well, if it's going to look at jolts, because it does show the labor market is in a looser state, where pretty much back to where we were pre pandemic in terms of the number of job openings. It was a drop, a bigger drop than expected from last month, but the prior month June was revised lower as well, and when you look at what we've seen in the time series, we've seen job openings in the seven million range for three of the last four months, so it's not a shock. It's not a major change in the overall outlook. These numbers are not necessarily super reliable. The quits rate, which people take as an evidence of how people feel about the labor market and whether they can continue to get jobs, still at two point one percent, where it's been for a long time, so it doesn't look like it's making major news today. Oddly enough, factory orders come in up five percent now, durable goods up as part of that, a revised nine point eight percent from nine point nine percent. We knew that, So what that's telling you with a five percent gain after a negative three point three percent the month before is non durable goods sales were pretty good, and that is good news for the idea that the Fed doesn't have to immediately cut rates or anything like that. Probably the most interesting number of the day, though, trade ballance. The trade balance at seventy eight point eight billion, widest the widest in two years, up from seventy three point zero and just a little bit lower than the forecast, but basically saying that we are importing a lot of stuff. Now, there could be two reasons for that. One, the economy is still in good shape and people want to buy. Or two, retailers are stocking up for the holiday season, which then becomes a question for your retail analysts of are they making a bad bet or not? Is the economy going to slower, Our consumer is going to stop spending, and we're going to be stuck with a.
Lot of inventory. All right, So that's why it's an interesting number. Put that in your hat, shake it up. What a we what's the trajectory for the US economy? Based on what you've seen so.
Far, it looks like the trajectory is pretty much the same as it was. That the economy has slowed, we're not seeing it fall off a cliff, and therefore the Fed is going to say we can cut rates, but we don't have to do an emergency great cut of fifty basis points or anything like that.
We can do twenty five all right.
Mike McKee, thank you so much for joining us.
We appreciate getting your expertise there on a bunch of economic data crossing the tape here this morning.
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Yesterday, Nvidia suffered a record two and seventy nine billion dollar route as AI worries sink stocks. They also got a DOJ anti trust probe, a lot of headwinds for that stock, a lot of issues for investors to figure out for in Vidia stock still up over one hundred percent year to date. Man Deep saying, he's the guy we talked about in video all the time. He's Bloomberg Intelligence, he's pretty smart. But the guy we really want to talk to you today is Justin Teresi, Anti Trust Litigation and Policy chanlest for Bloomberg Taligence. I've never met you before, Likewise, I did hire you, So I'm just going to go on Man Deep's recommendation. What's the DOJ saying here as it relates to Nvidia and how concerned should in Vidia and its shareholders be?
Yeah, so I think the real takeaway here. The most important thing to keep in mind is the timing that's associated with this. So news broke a couple of months ago that DJ was looking into Navidia here and what we think there are a couple issues they might be interested in. One, market consolidation, maybe in the video is growing a little bit faster than the authorities would like to see. The other issue they might be interested in is one related to how they're selling their products. Are they tying things into anti competitive manner? Are they bundling products in such a way that it's really impossible for other folks to compete. But really, this development yesterday in terms of the subpoena really is something we were expecting. And that's because what it lays a formality upon this investigation that wasn't there before. Previously it was informal questionnaire. Now NAVIDI is really going to have to certify that the information it's handing over to DOJ is what they're looking for and a true and accurate depiction of what they want to know about.
Is there a political element to this? I mean, everybody's got Nvidia in their four oh one K. Does the Harris campaign pick up the phone and say, couldn't you have waited till after November?
I think that might be the question of the day with relation to this. So look, if I'm na Vidia's attorneys right now, what I'm trying to do is to delay responding to this as much as I possibly can, right because there is that element of an election coming up in November. Here, what does a new administration do with the investigation itself? How hard do they go? Are they more open to a settlement than the current regime might be? So that's really the name the name of the game here. I think you're spot on there. That really the.
Teacher and the question for Vice President Harris for me is are you going to continue this aggressive anti trust behavior in a new administration? Potentially? Right? So, you know that becomes a real campaign issue, doesn't it.
It does, and I think it has, right. I think we've seen that already with a lot of rhetoric coming from both the Harris camp and you know Trump camp with Jada Vance on the issue too, right. So I think moving ahead, we think there could be some softening perhaps in some ways, or more measured or deliberate approach to things. If Harris were to win the White House. But what we see from the Trump camp is Jade Vance does have that rather strong anti big tech mentality when we ever we talk about anti trust with him as a candidate. So really we're not quite sure what to make of the situation there. But delay is the name of the game. If I'm the video right now.
When you talk to investors or we need to hear from the company, what do investors think about this risk? Is it just another big tech company facing some regulatory headwinds like we've seen for years.
Yeah, I think in Nvidia now is part of that club that Amazon, Google, and Meta which have faced regulatory scrutiny over the years. And look, in the case of Google, it was fairly obvious that regulators doubled down on their distribution agreements that they had with Apple and Samsung to be the default search. So in this case, it would be interesting to see DOJ's approach. What is it that they really want to focus on in terms of how in Nvidia is distributing their chips to the hyperscalers and their largest customers, Because clearly in Vidia has a lot of interest from all types of customers. The market is undersupplied, so do they have an algorithm to say, Okay, I'm gonna distribute X number of chips to customer A and Y to customer B. And look it comes down to in videos, how they have their relationship with their customers and they can distribute the chips.
Say why I know that's it seems like it's a market operating efficiently.
But what do I know?
But what I do know is the beauty of Bloomberg Intelligence as we bring together industry and company specific research analysis and Man Deep sing he's been doing it for years and Justin terrasa anti trust litigation policy analysts Bloomberg Intelligence, where you can bring these folks together, they can partner their research and to integrate their research and give you a really good view of what it means for some of these companies as they face some of this risk from the regulators. And again it's great to have that. It's part of Bloomberg Intelligence. B. I go on the terminal, Oh and guess.
What videos shares seem to have bottomed out today?
Exactly?
All right, Man Deep seeing senior tech analyst, Justin Tracy, anti trust analyst, Bloomberg Intelligence in our studio breaking it down for it in video.
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Let's got our next guest, Paul Carter.
He's co founder managing partner of twin Focus, joining us from Boston, Massachusetts via zoom. Paul, what are you telling your clients these days as to where the best opportunities are. We've got the S and P five hundred, you know, up eighteen percent. I mean that's pretty darn solid, but yet I can still get a decent yield and to your treasury at three point eight percent.
What are you telling your clients these days?
Paul, John, thanks for having me. You know here at twin Focus, we've we've largely been invested according to our policy benchmarks all year. You know, the expectation has really been for soft landing, reasonable growth, low inflation, lower rates. You know, before today, before the jolt's number that just came out, the Fed funds were pricing in one hundred percent probability of a twenty five basis point rate cut in September, November, and December. With this most recent number, you know, bigger miss than expected, and it seems to be signaling, you know, greater job availability out there and kind of weaker job market. You've seen that that FED funds market respond with, you know, perhaps a greater chance of perhaps fifty basis points cut at this next meeting. Given all of this, you know, as mentioned, we've been focused on remaining fully invested, and we have been able to take advantage of the run in risk assets. But we're looking to diversify our risk more broadly, and you know, away from this, you know, purely the AI trade, if you will.
All right, Paul and Paul, I think this is one of those moments where I'm supposed to throw confetti in the air. Sure the yield curve? Yes, this inverted? Oh wow, so two and ten's now well back, I spoke too soon, But anyway, do you attach? I mean, Paul, they used to tell me that inverted your curve preceeds recession. Well didn't happen? Do you put? What's your significance of this? Do you think you know? Attention to the old curve.
We absolutely are focused on the yield curve. You know, there's there's perhaps a number of reasons why we didn't see a recession, you know, in part being this whole AI trade. You know, the productivity that we've seen in the economy and the forecasted productivity that we will see from AI that combined with a lot of the stimulus that was still waning and in effect after COVID that said, you know, a recession I think, you know, at some point is not completely off the table. You know, hopefully we're able to escape with justice soft landing, but we're nineteen years, eighteen, nineteen years into the business cycle here, so it wouldn't be surprising to see something at some point. You know, there is this talk of rate cuts become obviously more prominent with some weakness and inflation, but I think that, you know, it usually takes some time to see those rate cuts impact the econom so we may not see that until Q one, Q two next year. Until then, you know, the market's going to try to decide on the overall direction, and I think we're just going to continue to see a lot of volatility between now and then.
Paul, in terms of maybe trying to temper some of that volatility, what do you guys, or how are you guys approaching the fixed income markets?
Are you?
You know, I'm content to sitting in a to your treasury three point eight percent, but some people might want to take some more credit risk.
How do you think about fixed income opportunities today?
Sure, so let's let's talk about credit and kind of safe treasury allocations. You know, we've largely been barbelled with perhaps a bit of an overweight towards the shorter end of the curve. So when rates were up fours and five, we were taking advantage of locking in some ten year money. Then you know, while it's compelling to sit in a three and a half or four percent short term treasury, you do have some reinvestment risk if you see, you know, rates come down. So we have been starting to nibble at some duration. On the credit side, you know, we've been less enamored with this whole private credit trade that everybody seems to have fallen in love with, and so we've been focused on really more idiosyncratic return streams or areas of the market that seem to be more capacity constrained. And they're harder to find today for sure, as there's a lot of money out there chasing, chasing various trades.
So you see us softening in private equity. I think in your investment Noe, you quote the great Proverto Durant.
No Moss, No Moss. Yeah, we've we've, like many institutional family office investors, over the past decade two decades, we've allocated significantly to private equity, which is which has served us fine. But we think going forward the market has completely changed and just there's just an enormous amount of market participants. Uh, there's just enormous amount of capital chasing, and we've found more compelling returns frankly in public markets, which you know, I would have never thought I'd say that five years ago. That's where we are today.
Hey, Paul, thanks so much for joining us. Really appreciate getting a few minutes of your time.
Paul Carter.
He's co founder and manager partner Twin Focus. Up there in Boston.
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Let's stick a look at Nordstrom.
The Nordstrom family bids to take the chain private for three point eight billion dollars. Stock pretty much unched on the day, so not a big deal here for most shareholder. SOCCA is up twenty three percent year to date. It's got a market cap about three point seven billion dollars. You throw in the net debt, it's a little over seven billion dollars total enterprise value. Let's check in with Mary Ross Gilbert. He's Bloomberg Intelligence senior Acadanalysts covering the retail space.
Mary Ross, thanks so much for joining. Make you sure what do you make of.
What the Nordstrom family members are suggesting here? I know this has been in the news for a while, but where do we go from here?
Yeah, so Nordstrom, the Nordstrom family has been wanting to take the company private for some time. Right, We've seen this iteration before, but this time partnering with the Mexican retailer El Puerto de Liverpool. They're they're in a good position in terms of coming up with the financing because they're going to pony up about one point two billion in cash in addition to rolling over, they're about ten percent steak in the stock. And of course the Nordstrom family combined they own about you know, a third of the shares, so you've got forty three percent wrapped up. They do need two thirds approvals. We just need to get another twenty three to twenty four percent on board. And you look at the price, there's really no premium here, and they're they're basically saying, well, if you look at the time that we proposed this transaction, which was back in March, the stock was trading much lower, somewhere around you know, seventeen, So this is really a premium to where the shares were then, and it's about a thirty five percent premium. But if you look at how the stock is traded over the last five years, it's pretty much close to the average price, and over the last ten years, it's at a steep discount, like forty one percent discount, you know, over the last ten years. So yeah, there's not a premium. Could another buyer step in here, it's possible, but trying to piece together a transaction could prove onerous and it's going to you know, involve debt, as we know. But not as much incremental debt. The company already has about two point six billion, so they'll probably have to bring on another one point eight billion UH to be able to complete this transaction, and of course the transaction is contingent upon that deal getting done. But with Shortstrom, what really stands out versus the other department stores. Of course, we know that the Macy's proposed buyout has con gone by the wayside at this point. With Nordstrom, you've got a fast growing off price segment and that's what's really exciting here. And their comp sales were up over four percent, their total growth was up nine percent in the second quarter. And if you look at their full line stores, this sort of traditional department store, they were up almost one percent on a comp basis, But if you look at their peers, they were all down anywhere from down three percent for Go Forward stores for Macy's to down five percent for Dillard's and Coals. So Nordstrom sure looks like they're in a better position. They're also much smaller, only ninety three stores versus you know, close to five hundred department stores over at Macy's, which of course that's why they're closing one fifty.
So when you're a company and you have problems and you into deal making to try and solve those problems, what does that say, it's got a bit of minute left.
Yeah, So in this case here, I think they they're employing a number of news strategies. Let's say with the full line store and with off price. I think they're off to a good track there and big expansion. You know, they're going to be opening like twenty two rack stores this year, and I think they're going to continue that pace going forward. So I think that the idea that they don't have to be under the quarterly lens of investors is probably a relief for them.
Right all right, Mary Ross, thanks so much for joining us. Mary Ross Gilbert senior Eckery analysts covering the retail space for Bloomberg Intelligence. She's based out there in Los Angeles and Norstrom some of the family members offering twenty three dollars per sharing cash to take the retailer private for three point eight billion dollars.
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We need some perspective on this markets after yesterday's sell off. I got a little bit of green on this screen here people trying to get a sense of how do you factor in what was a decent earnings cycle for most of the S and P five hundred plus what they feder reserve that is likely to.
Begin cutting rates.
How does that factor into the outlook here for risk assets? Margie Battel, she's got a lot of perspective, a lot of experience. She's a senior portfolio managed all Spring Global Investments. Joining us from Zoom on Zoom from Boston, and again, if you're in Boston.
Our new home is ninety two nine FM in Boston.
MARGI thanks so much for joining us here. How do you piece this all together?
Here?
We're pretty much through the earnings season and investor conferences are kicking in high gear here in September, September eighteenth, the FED is going to meet and presumably start lowering rid.
So how do you put all that together and what comes out for you?
Well?
I think right now we're in a period of cross currents because the overall urns reports for the quarter were once again pretty good. However, we did have some slight weakness from expectations for some of the large tech companies in contrast to the previous quarters where they surprised on the upside. And since this group was so heavily over owned, frankly, it was really due for correction. And we've seen that over the last really since the end of July into yesterday, where you just had this cascade of all the texts going down and other economically sensitive sectors that have done really well. So I think it's just really adjusting, waffling around, waiting for the FED to once again come in and be on the lakeside, frankly, and I think now we have a news gap, So this is a seasonal slope period of the year, and I think that by the end of the year we should have a strong December, a strong rebound after the election really no matter who wins, because that's just really what happens in election years. So a little more waffling around, and then I think in maybe the stembers that you won't see the market moved up.
I got to get this one. By the way, put your bond pat on for a second. Did you throw confetti in the air when the curve disinverted between twos and tens this morning?
Well?
Yes, it's really amazing how the curve has come down and we're just about flat now, which I think is a step and really to me. It says the market is making the adjustment to interest rates that the fedruar I should be doing, in other words, pushing down short rates short rates compared to long rates. So to see the two year come down so much over the course of this year compared to the ten year and have both of them really well under three eighty is pretty encouraging. It says that we are in the middle of a period of very very tight money. At all we need is the Fed to come in and provide some stabuilt. I think the Fed is really the one who's beyond the curve. The market's really doing what the Fed should be doing by bringing rates down and making putting a little bit of a floor under how big of a correction we'll have.
So, Margie, are you a proponent of kind of moving away or de emphasizing or diversifying away from some of the big techniques into this diversification trade, if you will, the rotation into maybe some smaller caps, maybe some lower valued sectors. Is that something that interests you.
I'm a little luke more about that, because you did have some of those sectors, like small caps, have a big jump up in price just because they had really gotten so out of whack compared to the rest of the market. But if you think we're in a period over the rest of the year of frankly slow economic growth, maybe a GDP of one percent, one and a half something like that, it's really hard to see how some of those more value the companies that have slow growth markets are really going to continue to shine. So I think you really have to get through this volatility period and then look for a companies that should have higher than average growth, higher than a GDP backdrop we say only one one and a half percent, So I think it's a short term move. The long term I still think will be with the larger companies that have a sustained growth path for cyclical growth.
In video one on Waight forty ish, is that an entry port a point for investors? Your thoughts just on the tech space specific.
To in vidia, Well, certainly you've had a huge correction there, and if you thought it was rather highly priced at one forty very high pe, certainly with a about a thirty percent or more adjustment and price, it looks much more fairly priced compared to its growth. So I would say that it's certainly better buy here than to sell at these levels.
Fixed income, I see the best performance is in high yield. Is that something of interest you or is it spreads too tight?
Well, spreads are tight. Double bees are a little over two basis points more than treasuries. Single bees maybe a little over three percentage points, which is narrow historically. However, defaults are very low. Defaults are on a hunder four percent, and if you look where we are in the credit cycle, the FED is now hopefully one of these days going to be on an easing cycle where short rates come down. So that says to me, that's a pretty good backdrop for high yield. The big negatives, of course, the yields aren't very high. You're looking at say six to seven and a half percent for most issues. But really, if you think the economy is going to be growing very slowly, which I do, one and a half percentage. Say, then that implies that the growth in the equity market over the balance of the year may well be load of in single digital return from here, which would really be about comparable with what you get from high old bonds. So we may actually have high old bonds running no I connect with equities over the next few months. So I think they're pretty good, especially if you are more looking for income. Rayland capital appreciation.
All right, MARGI, thank you so much for joining us. Always appreciate getting your thoughts and perspective. Market Betel, Senior portfolio manager, all Spring Global Investments. Joining us from Boston on zoom.
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Interesting story across the Bloomberg terminal here at John Tucker. The Biden Harris Administration's big bet on Intel Corp. To lead a US chip making renaissance is in grave trouble as a result of the company's mounting financial struggles. Creating a potentially damaging setback for the country's most ambitious industrial policy in decades. I kind of forgot that. Five months ago President Biden traveled to Arizona to unfail a pit that.
Was a big deal, a news conference, second standing there with mister Gilsinger.
Yeah, twenty billion, and that is now in jeopardy. Perhaps, Mackenzie Hawkins joins this Bloomberg News technology reporter.
She joins us. Mackenzie, you reported on this story.
Here, give us the latest year on Intel and the ability of it to kind of fulfill its end of the agreement with.
The US government.
So thirty thousand foot perspective here. The US government has this thirty nine billion dollar program to issue grants to chip companies and convince them to do manufacturing on American soil, and Intel is supposed to be the biggest winner from that effort. The package that you referenced that Biden went to Arizona to announce was eight and a half billion dollars in grants and eleven billion dollars in loans. Putting aside the twenty five percent tax credits that Intel could maybe get on what could be one hundred billion dollars in US investments. So we're talking about massive, massive sums of money here, but all of those are preliminary, and right now the company is undergoing due diligence and hashing out the finer details of its accord with the Biden administration. That happens to be going on at the same time as Intel is in dire financial straits. The company had a pretty disastrous earnings report last month, sentence shares tanking the worst route that it's seen in decades, and now there are a lot of questions looming about whether Intel can actually pull off this big US manufacturing expansion, and given it centrality to what's called the Chips Act overall, whether the Biden administration will still be able to achieve its policy goals.
Now I'm no politician, but if I'm going to head out to Arizona have a news conference as President of the United States, I would think that somebody on my staff has actually done the due diligence to make sure that Intel, who I'm having a news conference with, is actually going to be able to meet those milestones. Am I too cynical?
Well?
The Commerce Department, which is running the Chips Act, has actually set up this pretty intentional process from the outset telling companies, you apply for this money, we reach a preliminary memorandum of terms. That's what was announced for Intel and all of the companies that are part of the program, which includes some of the world's leading chip makers, Taiwan's TSMC and South Korea Samsung, And basically the government is agreeing to underwrite this program, but companies have to go through due diligence and a sort of private equity type model. After reaching that preliminary agreement, then they sign a final term sheet, and then they have to actually hit the milestones on their projects before they receive any money, and the government has the ability to claw back money if they hand it out. But the projects are never fully completed, so there are a lot of guardrails built in place to prevent the Biden administration or the next administration from actually handing out money to a company that may not be able to pull things off. If that ends up being the case with Intel.
Intel's not even sharing all the information, is it.
Well, they're going through a pretty contentious due diligence process right now. You know, the company and the Biden administrations say that they're working hard to reach a final agreement, but there are certain requests that government officials have made of Intel that the chip maker doesn't want to deliver on. I think the challenge for the administration is such a big part of vetting a project's commercial viability is knowing that they have customers that there will actually be demand for the chips that they intend to manufacture, and in Intel's case, the picture is a little bit bleak. The company has secured some potential commitments from firms including Broadcom, Media Tech, and Microsoft, but none of those have chosen to go to full production with Intel's facilities yet. Commerce Secretary Gina Raimongo encouraged leading AI chip makers in Nvidia and AMD to consider manufacturing at Intel's Ohio facility, which Pat Golsinger said could be the world's largest chip making factory if it's fully built out, and neither of them plans to do so. So this is putting the Biden administration in a bit of a difficult spot, and despite the fact that they haven't actually released any money yet, it could become potentially a huge political liability.
What is the administration saying in terms of any backup plan?
So we have to keep in mind that Intel is just one company that is supposed to benefit from the Chips Act. There were hundreds of companies that expressed interest in this money, and the Biden administration has announced investments in the preliminary agreement form of north of thirty billion dollars to around sixteen or seventeen firms in total, and that includes commitments from all of the world's top ship makers. Intel is one of them, but as I mentioned before, TSMC and Samsung are also planning on producing leading edge logic ships in the United States. Micron, one of the world's top memory chip makers, is building factories in Idaho and New York. So there are lots of companies that are part of this program. At the same time, Intel is uniquely important. The US wants to reach fifth or twenty five sorry, the US wants to reach twenty percent market share a fifth of the world's most advanced life chips by the end of the decade. Intel's factories are a crucial part of that effort, and the company is also supposed to be the sole intended beneficiary of this three and a half billion dollar program to make secure semiconductors for the Pentagon, So there is a backup plan, and so are there are other companies involved, but Intel matters.
A lot, and presumably this is to create jobs, and it comes at a time when Intel's cutting around fifteen thousand jobs. Exactly right.
I go, McKenzie, great reporting. Thank you so much for joining us. Mackenzie Hawkins, technology reporter for Bloomberg News, joining us from Washington, d C.
Appreciate that.
So Intel again, another day, another piece of bad news here.
And it just seems like and.
Again I don't follow the chip business day to day, but it just seems like the technology to some degree has passed by Intel and they missed kind of the AI wave or evolution, whereas Nvidia boit right right.
Which in Vidia doesn't make chips, they just.
Designed them exactly right and exactly my understanding.
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