Bloomberg Markets Full Show (06/06/2022)

Bloomberg Markets Full Show (06/06/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It is 30 minutes into the US trading day. Monday June 6. Here the top market stories that we're following for you at this hour. Musk's Twitter turmoil in Moscow threatens yet again to cancel his deal to buy Twitter if the company doesn't give him information about fake accounts. Twitter plunges. And the next step for tech Nasdaq 100 rally is at the 10 year yield still closes in on 3 percent. Is this a relief rally or is tech finally found its footing. And one scandal too many. U.K. Prime Minister Boris Johnson facing a leadership vote. Bo Joe vows to fight his premiership

unravels from New York. I'm Alix Steel of my post in London. Guy Johnson. Welcome to Bloomberg Markets a guy. It feels like the broader question is can we really get a soft landing here in the US and if we can. Do you want to be buying tech and taking on more risk. I think that's gonna be the question is we kind of got through the jobs number and then we look forward to that CPI. So yeah I think the both those numbers are actually critical in trying to answer this question. Clearly as you say with the US 10 year re approaching the 3 percent mark Tech is going to be paying attention to that level. Earnings I think is the other factor. I think we need to fold into this equation. Alex we're starting to see a lot of concern around the

fact that large tech is starting to downgrade its earnings expectations going forward from here. Microsoft which is the more stable and the more profitable end of the big tech spectrum starting herself maybe down that road. And if earnings come down for big tech maybe maybe there is still another shoe to drop in terms of what we've seen for tech thus far. But it's certainly

been hit and hit hard. Let's bring in our panelists try and answer this question. We bring in of course pretty good. So she's in New York. Gina Martin Adams joining us as well chief equity strategist for Bloomberg Intelligence. Gina which is the biggest focus going forward for tech right now. Is it going to be the earnings story. Is it going to be that right story. Yeah it's a tough tough choice there guy. I think we started off this year with it being the right story. We're moving into an

environment where the earnings story is becoming a profound driver of valuation compression for the space. But I do think it's a combination of both because as rates rise it does deplete the relative value of this the tech space. It's the longest duration space in the S&P 500 that by default means that as rates rise it will see valuation compression relative to the rest of the sectors. But earnings are a big part of the story too and our work would suggest that you're still paying a tremendous premium for tech stocks relative to the rest the index. In an environment where earnings revisions are negative and has been negative for the past eight weeks or so we'll likely continue to be negative. That's a tough argument to make for tech. Yes exactly. Mike

Wilson over Morgan Stanley talking just about this. He wrote in his weekly No Kristie that tech revisions broadly across these tech hardware and software. He's only been looking at the really big guys look uninspiring. We think we should see relative weakness in revisions for cyclical tech subgroups over the coming months as forward EPS expectations get reset. I wonder

Kristie when you're talking to traders how much of this is priced in yet. Well a good chunk of it is going to be because valuations was a key part of the story. Now you're looking at valuation that go back to pre pandemic levels. But here's the problem. Pre pandemic January 2020. Look the last quarter of 2019 the same narrative here was that tech is overpriced. You have this extreme liquidity environment that this doesn't actually make sense. What levels tech is trading at flip you go back to those levels taking and discounting some of the growth that you've seen in some of these tech names. The same problem is still there. But I think what Gina said about the rates picture is crucial here because if you talk about why rates are

such a major part for the tech trade and for traders as well it's all about liquidity in a month time a market liquidity time on how much cash is on the balance sheet. This was their major kind of bonus that a lot of these tech companies had. It's what made them their haven that in an environment where you could be looking at a recession where you could be looking at a global economy shutting down these tech companies can still weather the storm even if their sales do decline because they have these massive balance sheets and lots of cash on them. That being said I think the bigger threat for tech right now isn't going to be necessarily the global supply chains or the inflation story. It's going to be whether or not they can actually deploy that cash. How do they deploy that cash. It's done through money. It's done through acquisitions. And right now that seems to be from a political perspective.

One of the big issues that big tech is confronting pretty small tech. Let's just talk about that for a moment. We're not seeing the IPO that we once did. This is a market that it feels like it's adjusting to a new level of valuations in the tech space bay be it profitable tech or non profitable tech. Is it possible that we just basically bounce along the bottom here. And I'm assuming that it is the bottom but we basically just bounce along as the market gets comfortable with the rerating we've seen thus far. And if we do that how long could that phase last for. Is this a permanent kind of draw down in terms of in terms of prices. And we just go a long sideways for a long time or we just get. Come down and get a V shaped

recovery back. Yeah I think it's a fair question. It's also an extremely nuanced question because when we're talking about tacking you mentioned small tech. But I also think when we're talking about tech we have to divide it. We think of tech as Apple Microsoft Tesla. Those are the immediate names that come to mind at least for myself. But also look at when you do see a defensive bid in the market what are the names that are actually rallying. It's Oracle it's HP. It's a lot of the tech that you're actually seeing perhaps lagging in during this big pandemic boom low tech that isn't actually innovative as much as it is perhaps a kind of part of the old guard and baked into the system. You were talking about what happens to non profitable

tech. That's a question of innovation. That's actually part of the market a part of the tech universe that is far more susceptible to the economic downturns. If you look at biotech for example far more susceptible to the economic downturns because they don't have that already spend that perhaps an Oracle or HP would have for. But you know I wonder how much of it does though have to do with liquidity in the market in general the teen etc. I keep reading about that right. There is

no alternative by big growth tech versus TAA which is there are reasonable alternatives. Yeah yeah. I think that's a very good point. And frankly the reasonable alternatives are winning in the earnings revision game right now. If you look at just growth versus value as sort of broad swaths of sector sort of conglomerates in the S&P 500 growth estimates have haft for the rest of the quarters of this year. Meanwhile value yes growth forecasts are doubling. So there are obvious divergences that have emerged in the S&P 500 dis favoring most of growth definitely favoring most of value. That also confirms the valuation story. Growth stock valuations are still trading at enormous multiples relative to the S&P 500

almost as though we priced in the pandemic into perpetuity which definitely favored growth stocks. Definitely favorite sort of the stay at home lifestyle resulting in valuations across the tech space that are still well above their pre pandemic averages whereas value PS are still below pre pandemic averages. So that divergence only gets bigger when you think about the growth forecast really coming under fire coming under question and valuations still being distorted because of the pandemic trade. Gina how do we value innovation though in this kind of environment. We've got a natural event coming out this evening. We may not get it this time but we're going to get it soon.

We're going to get hints that we're gonna get virtual reality glasses some sort of step in that direction which could be game changing. How in this kind of a market do I value that kind of shift. Yeah I think it's very difficult frankly. I think first you have to ask yourself is the innovation that much more robust and that different than it was in say 2017 2018 2019. I would argue that these trends have been ongoing for quite some time.

Innovation does deserve a premium but that premium is probably closer to a pre pandemic average premium at best. And then you have to think about what it means with rates rising. I mean one of our favorite charts that we published last week is the Venture Capital Index definitive does a venture capital index. And you look at the valuation of V C which is very tech and

health care sort of centric. That's down 50 percent from its peak while the Nasdaq is only down about 23 percent. So very clearly we're repricing not only of sort of these themes that large but what we want to pay for those themes. Earnings growth should be faster than the rest of index longer term. It's

not going to be short term. That's that's an impediment. But where does that earnings growth land given innovation's role in this economy is a huge question mark. I would say it's probably closer to long term average not the 20 20 to 20 22 expectation that we pushed into prices. And Gina makes a really strong point when it comes to the earnings story. But also at

some of the what's going on with the stock price action is also going to be simply a function of fund flows as well. And if you have to I think macro this out and say well if you're talking about the Haven bid if you're talking about where the money actually comes from. Take a look at what's happening. Cross asset here. We talk about supply chains. We talk about sky high commodity prices and chip shortages. But take a look at what's going on in the affects market. You have a stronger dollar that's actually impeding the foreign bid to hop into some of these tech names. Oh a weaker

dollar though those actually encouraging perhaps a lot of these foreign investors in Asia in Europe to hop into these tech names in particular. Now that bid has kind of disappeared as we talk about a stronger dollar thanks to the interest rate differential. So I think you also have to talk about the fund flows in addition to some of the earnings fundamentals which I was just talking about. Yeah just look at Microsoft on Friday with their dollar preannouncement. Guys thanks a lot. Bloomberg Pretty Gupta Energy Demand Adams Bloomberg Intelligence are great to spend early Monday with you. Thank you very much. So coming up we're going to have more on this question of the day. What is next for tech. So our next guest says the market isn't pricing in a recession yet. We're gonna talk to the chief investment officer of New

Edge Wealth. Well Cameron Dawson. This is Bloomberg. NASDAQ one hundred up strong. Up almost 2 percent and that brings us to the Question of the Day. What is next for tech is still 10 year yields right around that 3 percent level. When I asked Cameron Dawson New Edge well the chief investment officer Cameron great to get your perspective. It's a broad question but one as we're an inflection point really when the economic data still kind of confusing. What is next for tech. Well I think if we look at the tech index overall it still is rather expensive.

It's still trading at a 20 percent premium to the S&P. And so this would argue that there's still room for that premium to fall prior to 2019. Tech actually traded at a slight discount to the market. And if we look at earnings estimates for tech for the overall sector they've actually held in really well. Despite all of the uncertainty and a really rough earnings season they're still running at 13 percent. They haven't really been cut. Now that's not to say that there's not opportunity within tech. We just have to be very very selective and very disciplined about valuation. There's lots of quality names

within tech that have strong free cash flows really good ability to be able to return capital to shareholders. You can't pay any price for that. And the valuations we got to at the end of last year were so extended. And so there's a few areas where we seen valuations compressed enough to get us interested. But overall the sector still looks both optimistic and rather expensive. OK. So we in your view need to get some sort of a rerating still on the downside. At what point does tech start to look attractive though Cameron. If we go into a recession a deep recession but relatively short recession how do you want to play

tech across that chasm. Tech is quality in a lot of areas it has superior growth it has better balance sheets. It really comes down to again being disciplined about valuation because we look at the last cycle look at 2020 when we saw a big sharp correction in earnings growth. Tech actually grew earnings through that period where the rest of the market saw big cuts to earnings growth. Now growing earnings over those two years in 2020 and 2021 likely pulled forward some of that earnings growth. So it's unlikely that we would see the same dynamics that really caused tech to have that super normal growth. But it is a very good point that it has been a good place to hide in prior downturns because of

its earnings for resiliency and ability to outgrow the market. Karen what happens if we get if the Fed can actually do a soft landing. I feel like the jobs number heading into potentially inflation that won't go any higher. That is becoming a more distinct possibility if that happens. Is a change how you feel about tech. Not necessarily because if we are going into a soft landing where we're not having the most dire of economic outcomes it could be that we see more cyclical parts of the market start to recover first. So areas in consumer discretionary that have been the most hard hit if you look at those earnings estimates they've gone from forty five percent growth to start this year down to just 25 percent today. So if we are going into a scenario where growth can start to rebound from here and I think

that remains a big if tech certainly should be part of portfolios it's a dominant weight likely kind deserve overweight if we resolved the valuation premium part of that question but then we'd look to layer in some more cyclicality a little bit more. Beda. If we're going into a better economic environment. Talking of the soft landing how late cycle we. How far away is the recession. You think we are very late cycle. I think it's too late or too early to say a recession is imminent. If we look at the technical definition of a recession two quarters of negative GDP growth. We do not look to be as if we are fulfilling that Dow Jones definition at this time. Yes GDP was negative last quarter but if we look at the data year or quarter to date Atlanta Fed still has us about 1 2 percent. You look at the labor market that still looks to be very tight using some but coming off a record

tight levels PMI services and manufacturing still an expansion. So we're not in a recession yet. OK. But it's a soft ish landing a soft this recession. I'm still just people talk about these things. I don't really ever see them nailed down properly. We can get a recession but cannot be a soft this recession. And how different is investing in a soft ish recession vs. a a full recession. Well I think it comes down to duration and magnitude. A full on

recession that comes with a debt crisis has deeper drawdowns that are more protracted. That's when it really makes sense to dial back equity positioning going into more defensive positioning in fixed income. If it's just a growth recession that doesn't have a debt crisis associated with it it's more inflation. It's likely that there's less downside and that it lasts a lot less long. And so this is something I think that we'll have to watch yields to give us an indicator of how deep we might go if yields continue to march higher. That would be an indication that we probably aren't going into a recession

because the bond market will sniff out growth fears indistinct growth fears a lot earlier than equities will. OK so just wrapping it up on that point. Bloomberg had a note out that said that hedge funds net short on treasuries at the end of May. The most net short since June of 2021. Would you agree with that assessment. Or at some point you need to also add some diversification here. Well I think we can also see in CFTC positioning that Treasury positioning has become rather short. It's not as short as it was in twenty eighteen when we saw yields peak. So that could argue

that there's still some upward pressure on yields even though we have moved short. If you look at the trends within yields as well yes we've pulled back a little bit over the last couple of weeks but we remain in very distinct uptrend. Yields in the ten year have corrected right down to their 50 day moving average bounced right back off of it. So that would indicate that even though there's been a narrative that we've seen peak yields that it's not really being reflected in market pricing yet.

Congratulations on the new gig Cameron. Great to have you back on Bloomberg Television Cameron Dawson of New Age Wealth thank you very much indeed. What's next. The dogfight over Spirit Airlines Jet Blue just boosted its offer as a big vote coming up on the 10th. Spirit investors are due to vote Friday on that rival offer from Frontier. We'll talk about who's going to win out here. That's next. This is Bloomberg. But it's difficult for us to assess any proposal from JetBlue Blue right now because what we've told them is that the regulatory hurdle is too high and in many respects a very difficult one for them to a narrative for them to tell. And so

we gave them some feedback and some instructions on ways they could actually turn it into a more manageable deal from the regulatory perspective. And they simply have not done that. Spirit Airlines CO2 Christie is speaking to us Friday before JetBlue JetBlue upped its offer to buy spirit this morning. Will it be enough to get the deal done. So it was interesting listening to that that the line on some of the changes that could be made may be to compensate for that regulatory risk. So JetBlue are now putting more cash up fronts hopefully to be able to mitigate some of that risk. Is it going to be enough. Let's get an opinion. Brooke Sutherland joins us now from Bloomberg Opinion. What do you make of the latest offer Brooke.

I thought it was very interesting in a couple of respects. They clearly are trying to respond from what we saw from Frontier last week where Frontier actually added a reverse termination fee to its offer that would pay out in the event that antitrust regulators blocked that deal. JetBlue is now offering three hundred and fifty million and a reverse termination fee. And as you said a portion of that will be paid upfront. What I think is interesting is there's maybe some different definitions about what upfront means. Remember that JetBlue did participate in the Carers Act. The loan portion of that financial aid program during the pandemic there are conditions tied to that that have to do with share repurchases and dividends. So there was an interesting footnote in the press release that that payment is tied to carers act limitations. And we'll have to get more

information from JetBlue about exactly what that means. I also thought it was very interesting that nowhere in the press release was a mention of that. Thirty three dollars a share initial offer that JetBlue made for spirit. If you recall in their last update they said that was still on the table pending due diligence. Now it's not clear to me if that is still the case or if they are now taking that off of the table. But I thought it was very notable that that number was not in the press release. And so I think if you are a spirit shareholder you have a lot to think about right now in terms of not just

regulatory risk. Yeah but how do you feel about the financial gap between these two offers. Well Brooke it's such a good point. That was my question. Is it we're our shareholders lining up for because Frontier always also has the option of trying to increase cash in their bid and not just make it stock. They haven't really done that yet. So I wonder sort of if shareholders are gonna put the pressure on frontier or spirit or they could increase the stock portion. I mean one interesting

thing about this is that Spirit has been very clear that they view the stock portion as very attractive. That's something that Glass Lewis highlighted as well. These airlines still have not really recovered from the pandemic. So there is a benefit to participating in future upside if you are a spirit shareholder. It's notable that JetBlue hasn't added a stock component to its offer as well which raises questions about how their own investors might feel about this transaction. But to your point I remain somewhat mystified that Frontier has not actually raised its offer at any point in this process. They've added the reverse termination fee which clearly was in response to concerns about shareholders about having some kind of protection because that deal of course is not without its own regulatory risks. But they have not changed the underlying financial terms

in any way whether to add more stock or to add cash. And I feel like they could make it very easier husband selves and spirit shareholders if they would do something to bridge that gap between Jeff LaSalle offer. Does the operating environment play any role in what is happening here and will happen going forward in the way that shareholders and management think about this. I've just spent my weekend reading report after report here in Europe about the chaos that is being caused by the way that the industry is set up right now. Can't get the staff at the airports can't get the staff on board the aircraft in the right place. That's playing out to a lesser extent in the United States. But it is playing out. How do you think that will affect the way that deals not just this one but others go forward.

I think that's absolutely a factor and one of the reasons why you see Jet Blue pursuing this as aggressively as it is. I mean it is very difficult to get new planes right now especially if you're trying to get Airbus planes. You are at the back of the line for. For several years. But even Boeing has his challenges delivering planes. It's difficult to get staff. It's just very hard to grow right now organically as an airline in this operating environment. And I think JetBlue realizes that they see spirit as an easy way to add capacity. And that to me is why they are pursuing this as strongly and strenuously as they are.

Brooke thanks so much. We always appreciate it. Brooke Sutherland of Bloomberg Opinion. Thanks so much for joining us. And Guy does other things and just read reports on airlines over the weekend. Okay. I promise you that. More coming up. We'll take a look from D.C. This is Bloomberg. For an hour into the trading session tech holding onto its gains here. Bloomberg's Abigail Doolittle is tracking some of those

moves. Abigail. Hey Alex. Well what a difference a weekend makes because of course on Friday we had stocks lower but today a nice bounce up up one point four percent for that S&P 500. And to Alex's point take a look at the Nasdaq 100. That tech heavy index gaining even more. Up one point nine percent. This despite the fact that we have yields higher. That of course though means haven bonds are down. So it's truly a risk on field here. And with yields having that 10 year you'll having been as high as about 320 a few weeks ago. It seems as though investors this morning at least on the China reopening and some other macro factors are comfortable with 3 percent. This is showing up in one of the barometers of risk sentiment bitcoin up 6 percent

and close to thirty two thousand dollars per bitcoin. As for some of those big tech winners. Let's take a look at what's going on there. And the big heavyweights especially Apple the biggest heavyweight up 2 percent at 148 148. Twenty nine per share. Really holding on to support there despite the fact that there's a death cross in place suggesting the rally could continue. Take a look at Amazon because if we were looking at this stock on Friday whether it was up or down it would've been closer to twenty five hundred dollars. But that 24 1 split in place a more

palatable perhaps to the retail investor in video up two point six percent. And Oracle. Old school tech up three point eight percent. This is Morgan Stanley is saying defensive tech is where you want to be. And this is one such defensive name. Also raising their price target to eighty eight dollars per share suggesting there's some nice upside potential where there is not so much upside potential at least today. Twitter the Twitter shares down. The last time I took a look right now down

at thirty eight fifty. So let's call it down 3 to 4 percent. This of course on the latest set of headlines. Elon Musk recently filing an amended 13 D saying that he believes that the company's withholding information about those Twitter those bots and those spam accounts. He wants proof that less than 5 percent of the accounts are those quote unquote fake accounts. And he could breach he could terminate the agreement based on this. This spread to his big price of one hundred and fifty dollars of excuse me fifty four dollars and 20 cents. Now greater than 15 dollars. Not at the all time low but nonetheless a great deal of uncertainty hangs around this deal. Will it happen at a lower price. Will it happen at all. I guess we'll find out.

And then finally relative to the S&P 500 where of course is a member of it not helping out today. But the big question is how much higher could the index go if we're in a bear market rally or maybe this is the beginning of something new. Here is a year to date. Charts are overall down 13 percent sort of grim but you can see that there's a bottoming pattern here. There's an area of congestion that makes the case. You could see

the S&P 500 go back up toward let's call it forty four hundred even forty five hundred in-line with that downtrend. It seems as though the risk on tone that we have today guy could continue to extend at least for another week a couple of weeks. Who knows. Let's find out. A lot of headroom up there. If that's correct. We got great stuff.

Thank you very much indeed. IBEX Abigail Doolittle. Let's turn to trade. U.S. Commerce Secretary General Mondo says it is well it may make sense to lift some of the tariffs on some goods as a way of cooling inflation. Take a listen. Steel and aluminum we've decided to keep some of those tariffs because we need to protect American workers.

And we need to protect our our steel industry. That's a matter of national security. There are other products know household goods bicycle et cetera. And it may make sense. So this is this is where we stand. President Biden's team is weighing what to do with former President Trump's tariffs on

around 300 billion dollars worth of goods that are imported from China. We've got some comments coming through from USTR Tie Katharine tie us tariff cuts in the Pacific region off the table for the moment. It's a really difficult balancing act for the president. He needs to deal with inflation. This is the major policy challenge he faces at the moment. But going into

November. Does he want to go soft on China right now. Greg Valliere EGF investments chief U.S. policy strategy is joining us now. Which side you think we come down on. Inflation is such a big problem Greg. Anything that can be done about it maybe should be done by this administration. But is a cutting of China tariffs a step too far. Yes I think politics will be the dominant factor. I agree that it could help a bit on inflation. But can you imagine the

criticism that Biden would get if he lifted tariffs on China. People think he's soft on China. And I guarantee you guy that you would get all sorts of comments about Hunter Biden and his deals with China right ahead of an election. Maybe next year we can lift terrorists. But any time this year certainly before the election. Very unlikely. Well to that point Greg it feels like the real issue is how to bring down inflation more quickly whether it's gas prices whether it's steel whether it's whatever how to bring it down fast. And I wanted to point out a New York Wall Street Journal poll that said that 83 percent of respondents described the state of the economy as poor or not so good. That is really bad. Is there anything that President Biden can do in the next three months. Not a lot. I mean the Federal Reserve is going to do what it

can. I mean the Fed will raise rates by 100 basis points this summer. That's a virtual guarantee. But no in terms of the extreme inflation heading into the election I don't see much. And I'm beginning to think this election will be a wave has in tidal wave election with the Democrats badly losing the House. And I'm not sure they can even hang on to the Senate. There are some numbers that Greg. Well in the house God I think that the Republicans could pick up 20 25. Some people are higher than that thinking it could be 30. All the Republicans need is five. That's a no brainer. They'll

get at least five in the Senate which as you know is tied. There's a chance the Democrats could hold on in a tie or maybe gain a seat. But I think that in a tidal wave election they're going to lose the Senate as well. Greg is there any Republican you just need to kind of sit back and let the Democrats self combust. Or do the Republicans need to actively do something on

something to kind of flip the Senate. I think they have to do something on guns. And it may be another week or so but the deal will be innocuous but at least they'll do something. I think the Republicans just basically have to go into a stall. They have to play that takeaway and not doing anything that could wind up being controversial.

I guess the phrase would be run out the clock. I think that's what Mitch McConnell would like to do. Great. Should we look at polling numbers or should we look at gasoline prices as the best predictor for the upcoming election. I'd say gasoline prices right now. I mean we're getting in California way above six dollars a gallon. And I think that it's

going to be a huge factor. I think that's probably the most dominant story politically right now. You know Greg it was really interesting. Who is the administration talking to about gasoline. I was talking to the CEO of Chevron on Friday and he says he's going to D.C. and he probably will talk to the administration. But I didn't get the sense that there he was on speed dial. And this is the CEO of Chevron. And you would think that all the oil exacts in the refineries would be on speed dial from the White House. That's a great point. And you would also think that this administration would finally say we can't rely on renewables. They've got to look at fossil fuels oil gas and coal. I think

the president in July is going to go to Saudi Arabia. What an irony with the president seeking more fossil fuels. When you have his base the environmentalists furious over that. But I think he's in a really tough bind right now. And it's going to have to even ask the Saudis for some assistance. Greg the issue is not just with barrels of oil it's barrels of

gasoline and barrels of diesel that come out of refineries. The oil industry is now talking and Alex is just referencing this talking about the idea that we may never see a new refinery being built in the United States. If that is the case even with the ample supply of oil that the United States does it hasn't got the capacity to refine that crude. Isn't the U.S. running the risk of being even more beholden to foreign powers for energy. And there are a lot of bad actors you know Venezuela Iran these these aren't countries that we want to rely on. No I think within the industry there's a growing feeling that why should they invest more in exploration and production. Why should they even think about a pipeline like Keystone. Because

these things have all been rejected. This can change though. Politics are cyclical. And if next year we're looking at a Republican House and a Republican Senate you might get the stuff that the industry likes. But for now the industry is deeply skeptical about cooperating on energy. Greg before I let you go I just have to ask you about the January 6th hearings that we're going to take place later on this week there in prime time. This is not something that usually happens. You get a hearing at 8:00 p.m. in primetime. And I'm just trying to understand what what they're trying to accomplish by doing that. And what do you

think the effect might be. Well it's to affect opinion Alex and I think it might have a modest impact. I think more people will watch the soundtracks against the Warriors. But I do think that there will be explosive revelations over the next few weeks. The key though is will it really move the needle. Will it really change folks. I have my doubts. It's hard to make that argument when you're paying like eight bucks in California for a gallon of gasoline. Greg thanks a lot. We really appreciate it. Way of looking out to catch up with you on this Monday. Greg Valliere EGF investments chief U.S. policy strategist. Coming up we're

back on Tech Watch today as at 100 still up by about 2 percent. You got duties up. Amazon stock split takes effect. That stock up. The most powerful performer within the Nasdaq right now Apple has its annual developers conference. We're going to speak with the CEO of a firm specializes in investing in tech. Mark Lehman of GMP Securities. This is Bloomberg. This is Bloomberg Markets CAC Gupta. You're looking at a live shot of the principal room. Coming up

Patrick hopefully Credit Suisse's senior equity strategist at Bloomberg Television 330 p.m. New York time. Don't miss it. This is Glenn Beck. Keeping you up to date with news from around the world here's the first word I could get to. In the UK Prime Minister Boris Johnson is fighting for his job. Rebel members of his Conservative Party forced a confidence vote later today after a series of scandals. Johnson wrote to toy lawmakers saying the vote gives the party a chance to end weeks of speculation and

take the country forward. Live in Beijing is taking another step towards returning to normal. The city is rolling back coronavirus restrictions after declaring the latest outbreak was under control. Public transport will resume in most parts of the city. Restaurants will resume dine in service and movie theaters will reopen with limited capacity. Shares of China's right ailing giant Didi are soaring according to the Wall Street Journal. Chinese regulators are preparing to wrap up their

investigation of the company and restore its main apps to mobile stores. The report also says it will face a relatively large fine. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries and can get. This been beanbag Alec. All right. Thanks so much. More to go. Let's stick with that tech for a second and start out with Twitter. There's a lot of stories in the industry right now. But Elon Musk said in an amended filing that he believes that Twitter is breaching their merger agreement by not providing information about spam and fake accounts. You see Twitter stock down now about 3 percent in over two days. So Mark Lehman GMP Securities CEO a citizen's company a GMP specializes in investing in tech. So there's a lot of different stories to focus on. Yes tech is up

but Twitter is down. It feels like this is the latest step from Elon Musk to get out of this Twitter bid. What do you think. I think you're right. I think it's either his latest attempt to get out of the trade or reprice the trade. It also will be an enormous test for Delaware corporate law because so much of this is so foreign to the way most transactions take place. Like you've reported the spread between the actual deal price that was announced and where the stock's been trading for quite some time is large. I think the street doesn't expect that to take place. But every single week we have a new tweet and a new twist if you will. And this is no surprise because I think street and the spread has continued to grow. Mark if this does get handed to the lawyers how does Twitter trade and how does Tesla trade during that process.

Well it's interesting. I was skeptical from the start when the deal was announced that stock has rocketed towards the 50 range while the market plummeted. So this spread not just between that stock and the entire market was so great but obviously the spread has decreased as the markets come back a little bit. I think Twitter stock kind of states sideways while that happens. And we've seen Tesla's stock go up a fair amount today as the opportunity for Eli must just focus on Tesla's increased. I think Twitter stock kind of trade sideways here with the market. Yeah it's so interesting. You can see them trading just straight up an opposition right. You have Twitter down 3 percent has is up 3 percent because look they're moving a

little bit like that. Mark does it do anything to the broader tech industry. So before when you had Twitter selling off big that actually did move the overall tech market. Right. Same thing with Tesla. Is going to have the same kind of effect here if the deal doesn't go through. I don't think so. Again the stock is trading like it's not going to price to the 50 range that we had seen. The headline number I think it's less a statement about the overall market than a lot of people would like to make. I think the market has found some footing here in the last few weeks albeit with some wild volatility that we've been getting used to unfortunately for the entire calendar year. But I don't think this bespeaks a trend

for the NASDAQ. Either way I think this is going to be a fascinating case. Obviously he's taken his case to the public which I'm not sure is the right forum. We may be Delaware courts which will be much more interesting. Mark Didi is off its highs. The ADR is up 52 percent. Looks like Chinese regulators are going to be backing off. Is now the time to get back into Chinese tech. How investable is it. It's a nice bear market rally obviously D.C. has had a terrible time in the US markets banking yourself on Chinese regulation and Chinese regulators has not been good that over time. I think

investors obviously have lost a great deal of money betting on Chinese companies here and hoping that the regulators stay out of those kitchens. Even a slight announcement has taken the stock to great heights. But if you do any chart greater than today it's not pretty. So I would not expect that to be a bellwether for China and for investors. I think now is the time to plow back in. I think they're really focused on U.S. markets. I think that's what's happened over the last two quarters this year. People are much more focused on the US. I think some of the foreign noise whether it's war whether it's China whether it's Covid has made us want to focus much more on the U.S. markets. And I think D.D. is just a symptom of one piece of news today. I would not be there. OK so then talk to us about the broader question. This is our question of the day. If it's going

to be about U.S. tech what is next for U.S. tech. You're seeing a pretty chunky sell off in the back end of the bond market here up 8 basis points for the yield over 3 percent. They're still like you mentioned regulatory hurdles in different areas. What's next. It's a great question. We're going to get a little bit of a tone this week in San Francisco with the RSA Conference which is big on cyber and other issues that tech faces. I think you'll hear optimism about that market. Obviously cybersecurity continues to be a focus for investors frankly in the last few weeks. Both JP and our partners and citizens have seen much more discussions talking about capital formation and about transactions. I would

not say that B speaks in a wide open IPO market. That's not going to happen anytime soon. But I think investors as well as companies are getting much more comfortable with current valuations and the outlook for interest rate hikes for where the tenure is around 3 percent. And now they got to get back to business and decide what they're going to do about it. So before there's a little bit of fear there's a little bit of denial. And I think we're in the acceptance phase going on right now. And I think that's really important to pay attention to. OK. Let's just kind of this talk about that acceptance. Acceptance of what acceptance that we are in a new low evaluation paradigm acceptance that these companies are going to grow more slowly acceptance that we're not going to see the same level of innovation going forward. What are we accepting here. Because I'm looking at the Apple event tonight for instance I'm going to be fascinated to see what ultimately comes out. Are we going to

get VR headsets etc.. What am I valuing here right now in tech. Well I'd say yes to everything you said except for the innovation engine the global innovation engine slower. I think what we have and we are getting comfortable with is that they invest in anything at any price that we saw through 2021 is a thing of the past. And the ever effervescent market given extremely low rates for a very long time is a thing of the past. I also think we're seeing an economy that is continues to be robust and I think that is something that we question in the last part of this quarter. In the beginning of the year. And I think that's getting less question mark. So Fed's very active obviously. I think the market has found its comfort in a 3 percent interest rate. If it hovers around there I think people are getting much more comfortable that they have a valuation perspective that's much more reasonable. We've seen some Emma Chandra activity as

you know in the public markets which is also a great sign that both public companies as well as private equity people are willing to put capital where work at these valuations. And that's accelerate in the last few weeks and months. And that again is a good sign that we're comfortable that we've got this acceptance phase of where the market is. So Mark the acceptance phase before would be go by boring old tech right. Oracle IBM etc. The scenario that you just laid out and if consumers actually hold up OK do we need to think about the consumer tech and I mean for example Amazon. Even you can consider Apple now that they're going to really try and pivot even more to service revenue. It's a great question. I think we've had such volatility this year and that has really not slowed down throughout the entire

year. Well you look two Fridays ago when the market was at its absolute bottom mid-morning and the NASDAQ rallied over a thousand points in two weeks which is obviously historic. I think the issue is you find these great companies and you find these days and weeks where they trade really in a wonky way. If that's a word where you have opportunities to put some capital

to work overtime and evaluations you probably didn't expect. I think the death of the consumer has been greatly exaggerated. That effort technically greatly exaggerated. We're seeing much more productive conversations at reasonable valuations that is reasonable to historical than we've seen. And again if rates stay at 3 percent we're much more comfortable

with the way valuations are today. And I just pick those great companies and you're going to find some of these companies the IPO windows being shut for nine months. As long as that window say shut you're going to have much more I think a focus on the currently public companies. And I think people are still have eyes open to them. One topic we haven't even discussed is the death of the spark market. And that's been a very very difficult sign for investors and people who put money to work there. Not every one of these companies is going out of business. I know that's not popular to say that there's a lot of two and

three dollar stocks that are going to dust off pay attention to that have ample cash on the balance sheet to get the cash flow break even. And that again is an opportunity for investors to do their work to make a real amount of money in this in this very difficult market of 20 20 to. Maybe this is an acceptance that you've got to do the work this time rather than just everything working. Mark great stuff. Thank you very much indeed. Mark Gurman J. P Securities CEO Oh so thank you very much indeed. This is.

Thirty five minutes of the European closed this Monday. Let's talk about the price action as we see it right now. Stock 600 up were up by one point to three percent. Decent rally every single sectors in positive territory except for the healthcare sector. That tells you this is a front foot risk on kind of market vibe. We're certainly seeing today China probably a big factor behind that. But it does seem as if the US is now leading as well. The stocks 600 up by one point to three percent. The footsie one

hundred is up by half of 1 percent today. The reason for that we're going to have a big announcement at 9 p.m. today. Has Boris Johnson succeeded in seeing off a vote of no confidence. We're going to talk about that next. Professor John Curtis a legend here in the UK professor of politics at Strathclyde University will be joining us to discuss the implications of this vote. Where does it take UK politics next. We will find out. Professor John Curtis. Coming up right here this is.

2022-06-07 21:46

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