Bloomberg Markets: The Close 01/04/2024

Bloomberg Markets: The Close 01/04/2024

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The wait for that jobs report live from a dark studio to here at bloomberg headquarters in New york. I'm Romaine Bostick and i'm Scarlet Fu. Let's kick you off to the closing bell here in the United States. All right. The S&P 500 clawing its way back, clinging on to its first gain of the new year.

So it is on track. Do we have the screen up to end a three day decline? There we go. See it up by 1/10 of 1%. U.S. treasuries are under pressure right now, pushing yields up across the curve. You had private jobs data that showed U.S.

companies continue to hire last month, raising the stakes for tomorrow's big jobs report and, of course, the Fed's timeline for eventually starting to cut interest rates. You can see the ten year yield still below that 4% level. At the moment. The yen is weakening against all the major currencies at the moment. On speculation, it'll be difficult for the Bank of Japan to exit its negative interest rate policy following the earthquake earlier this year. And we're looking at New York crude down by two thirds of 1%, paring some of its losses. This is after domestic stockpiles rose

to a six month high. Ramy, we're going to talk a lot today, of course, about what's going on crew, what's going on in currencies. But also we're going to talk a lot about what's going on in the job market because the trajectory of the labor market or more precisely, the trajectory of wage growth, that is the focus ahead of that big monthly jobs report scheduled to come out Friday morning. A trickle of advanced data coming out today that includes from ADP, which showed private payrolls increasing the most since August. Good. A separate government report showing weekly applications for unemployment insurance falling to the lowest level since October. Also good. And then there was that Challenger, Gray

and Christmas report that showed a labor market cooling, but largely coming in the form of weaker hiring instead of actual job cuts. You put it all together, and while it does suggest economic resiliency, it does not provide a backdrop to justify five or six rate cuts for this year, at least not yet. The jobs data nudging Treasury yields higher. Some investors really confronting that reality. Fed funds rate the swaps trade also

suggesting a tempering of rate cut expectations. Now the swaps market pricing in about 140 basis points of cuts. Remember, just yesterday they were pricing in 145. So a modest tempering of expectations, but one to keep an eye on. The net effect of all of this is basically, well, you have an equity market right now that remains mired in a great deal of uncertainty.

In fact, the Nasdaq 100 today, that was a world beater last year looking like getting beat up today, down for a fifth straight day. That's the longest losing streak that we've seen on the index. Believe it or not, going back to late 2022, 80 of the Nasdaq, 100 companies over that five day stretch are in the red.

That includes 5% drop for Amazon and Apple, about an 8% drop out there for some of the other names like Tesla and a 10% drop Scarlet Fu on names like AXP Semi. And we're going to talk about a little bit later Walgreens. Yeah. So here's another way of looking at how what was once the U.S. market strength big tech has now become a significant drag. This is the magnificent seven plus three other chip names. We're talking about Broadcom, AMD and Intel.

They make up the biggest losers by market cap over the past week. You can see Apple shedding $140 billion almost in market value. Tesla losing about $73 billion altogether. These bottom ten have seen more than $400 billion in equity value wiped out in a week. Now, this rotation out of big tech really picked up steam in the past week, but you can actually see that there were signs of this starting in late October because that was when the ten year yield peaked on an intraday basis on October 23rd.

Thanks, by the way, to Chris Warren of strategics for pointing all of this out. The equal weight S&P 500, that is the white line there has you know of course all the 500 companies influencing the index in the same way Mohawk industries has the same weighting as Microsoft. It has handily outperformed the Magnificent Seven, which is the blue line to the tune of more than four percentage points remain. All right, let's kick things off to the close here on this Thursday afternoon with Bryan Levitt. He's INVESCO global market strategist, joining us here in Studio two.

Brian, great to see you here. I don't know if we can still say Happy New Year and happy New Year. My wife told me last night, I said it way too much. Let me say it again. Happy New Year. Week. I think you I think we get another couple of days. I am curious, though. I mean, Scarlett had that chart up and

as you know, 2023 was really dominated by those big cap stocks. But we saw towards the end of the year a little bit of a embrace of some of the small caps, some of the cyclicals. And I know that's been a little disjointed over the last couple of days, but do you see maybe a little bit more appetite to go down the ladder a bit in terms of market cap? Yeah, we do. I mean, what we what we had was an environment where interest rates were were moving up. You had a deep inversion of the yield curve and you had investors looking for larger cap mega-cap quality names versus now what we're looking ahead towards and what the market is focusing on is an easing cycle on the re of the yield curve. Historically that has benefited a

broader array of names within the broad indices, more value oriented, more small caps. So it's not surprising the way the market's been behaving. Is this, though, that trade, is this simply to kind of that catch up, the idea that some of these names are so beaten down or are people really looking at. Some of these companies in that small cap space and actually finding fundamental value. The idea here that, yeah, you can buy into something that maybe isn't as profitable or as growth as some of those other names, but they will catch on. Yeah, I mean, there's fundamental value, but just because something is reasonably priced doesn't mean it's not going to stay reasonably priced. It requires a catalyst.

And so when you look around the world, we've all known for a while now that mega-cap US stocks are trading above their long term averages versus small cap, which are not value oriented, which aren't, and international stocks which haven't been. But again, it requires a catalyst. And what investors are looking ahead to is a catalyst in the form of stable growth, you know, inflation being behind us and the Federal Reserve, that's easing. Okay. So you're describing macro conditions. Well, earnings provide any kind of

catalyst. I mean, will any of these companies, the CEOs of these smaller cap companies say anything that'll get investors excited enough? Yeah, I mean, I think a lot of a lot of what you hear from these companies is that demand still remains quite sound. I mean, the reason for valuations being increasingly attractive is because investors, a lot of investors thought we'd be in a recession by now. A lot of thought credit spreads would have blown out and smaller capitalization names would have would have seen demand erode significantly. That's not the backdrop that we're in. It's still a, you know, maybe below trend, but still a stable growth environment, enough growth to be supportive for corporate earnings. I hear a lot about how it's time maybe

to expand beyond the US market and look at international markets. So it's curious that there are people saying, you know, maybe it's time to look at small caps, which are definitely more leverage to the US domestic market and also look abroad to international markets. How do you square that? Yeah, it's a risk on trade. You know, in essence, if you think it's an economy that's going to continue to persist in this reasonably Goldilocks soft landing environment, then you want to broaden your exposure to where valuations are more attractive.

So that's in smaller cap, that's in international, and it all kind of works on the same play in that if the Fed's done raising rates, typically that starts to take some of the steam out of the US dollar. The Fed starts to normalize that yield curve again. Historically, smaller caps and international have performed well. You need catalysts. And what we're looking for is, you know, leading indicators in Europe, leading indicators in China, which have been quite depressed, actually look like they're starting to turn a bit at a time when the dollar's come off the boil. So it's it's it's all lining up for it.

Now, the one caveat is we got a lot of good returns quickly. Yeah. At the end of the year and so will we'll need the next time I get to the question though as to whether that really was kind of a pull forward, that was kind of the fear that effectively people were kind of taking some of the gains that maybe we should have been stretched out for a little bit longer or is that the wrong way to look at it? Well, I think if you want to look at it very short term, there's something of that going on. But if you want to look at it over the next few years, I think investors should look beyond minute to minute and look over a, you know, a few quarters or beyond the market. The minute is so exciting. It is very exciting.

And we should point out the minute to minute ends up making up the year It does. You just have to put it all together. But markets tend to do very well in the years after inflation has peaked and that was over a year ago. Policy tightening has peaked, interest rates have peaked. And so that has been the story.

If you think back to when inflation peaked in June 2022, we've done very well in the subsequent year and beyond. Similarly, we would expect a similar story with with policy tightening, with a peak in interest rates. Could you have some challenges along the way? Yeah, sure, there will be some challenges and maybe we did pull forward some of those returns quickly, but over the intermediate term time period should be a good backdrop for risk assets. So. All right. Well, I think we're out of time here,

Brian. I got a lot more questions. I do wonder if the Fed is really going to be out of the way like some people think. I want to ask about that. I want to ask you about some of the geopolitical issues. And I wanted to get your thoughts here on whether you're Michigan Wolverines are going to finally figure, I think we are, too, that really I think we're going to win, You know, What do you say? Yeah, we're going to we're going to win. We're not succumbing to anything. All right.

Well, the pride of the University of Michigan and, of course, global market strategist over at INVESCO Bryan Levitt, helping us kick things off to the close here on this Thursday afternoon. Coming up, a sit down with Michelle Meyer, the chief economist over at the MasterCard Economics Institute, her insight on consumer spending, the economic outlook for the year and that big jobs report tomorrow. Plus, the tensions in the Red Sea are causing a rise in global spot container rates. We're gonna have the latest on what it means for supply chains and inflation.

And we're going to get some insight into the business of college football. It is big business, as you heard. It's a big game coming up on Monday here. We're going to sit down with George Pine

is the founder and CEO of Bruin Capital to talk about the economics behind the big game and whether some of those folks on the screen deserve a little bit more of a cut. All that more coming up in the second on the close right here on Bloomberg. And. The jobs report last month beat estimates. That is a stunning number and it's what

nobody was expecting. A bullish train has left. The station says what Powell does not want to see this Friday. Tom, Jonathan, Lisa and Mike will bring you crucial data and expert analysis at terminals B, you're really not seeing the level of restrictiveness show up yet in the labor market. Significant job growth and high labor force participation. It's a very strong chance that the

market is mispriced for 2024 December jobs report Friday on Bloomberg Television and Radio. T minus one two, the monthly U.S. jobs report. Let's get a preview now and check in with Abigail Doolittle. And it could be a big one, Scarlett, given the fact that it is one of the data points, it will, of course, go into the Fed's decision making around whether or not to start cutting rates in March. And relative to expectations for the December jobs report due out tomorrow at 8:30 a.m., the consensus is flipping between 171 and 170,000 jobs added last month.

The month of November was 199. So kind of right in line. Now, one reason to think that it could come in in-line or even slightly above. Jobless claims fell for the final week of December. That's not in that payrolls report, but just the trajectory. We also had that ADP report coming in a bit hot, that more so than expected, 164,000 jobs were added. The consensus had been for 125 and in

November it was 103. And then we also, of course, were just talking about the idea that this would be a really important point for the Fed now relative to December and how they stack up recently for the number of jobs added. Let's take a look at what we've had going on. And so the number now, it actually has actually ticked up to 174. That's kind of in the sweet spot of most

of these jobs that we've had added in the month of November, going back a number of years. You can see that the pandemic low of 2020 and then the high of 2021, sort of the outliers. Let's see whether or not we get that Goldilocks report.

And then returning to that idea of whether or not the ADP report that came in better than expected is that any kind of tell on the nonfarm payrolls? Probably not, but we can see where we're at in general. So and what we're looking at in white is the ADP report going back many, many months in blue. We're looking at the nonfarm payrolls report. So there's the 199 of last month in November. Here's the 164 that was just added. So again, we're looking romaine for 174 kind of right in this Goldilocks area. That question of will it be too hot or too light? If plants weren't here, it'll probably be okay.

But a real outlier. Well, maybe tomorrow will be volatile. Those numbers coming out at 8:30 a.m. Washington time tomorrow morning. Team surveillance. We'll have full coverage as it drops. But the full context that you need, it happens right now. Michelle Meyer, chief economist over at the MasterCard Economics Institute, joining us to talk a little bit more, less about, I guess, some of the day to day stuff. And Michelle really want to get your

take. I guess on kind of the broader outlook for 2024 and I guess at the core of that outlook certainly here in the U.S. has to do with your view on the labor market and whether it is indeed still healthy. Absolutely remain so. And the MasterCard Economics Institute, we just published a big Outlook piece where really star views for 2024 and it's still very positive. And that's in its economy in the U.S. that's continuing to expand.

The business cycle has room left to go, but it is a business cycle that's evolving. And that's really important to keep in mind that, you know, we are seeing inflation continue to moderate. That means overall nominal consumer spending or nominal GDP growth will be continuing to see some some slowing into something that's more sustainable relative to the growth rates we had over the prior few years. And the labor market is critical in that perspective, which is that throughout 2023, the labor market beat expectations. We saw very healthy job creation, as Abigail just showed in the charts before, an unemployment rate that stuck at low levels and therefore wage growth that has continued to run at a rate above what would be considered trend growth. And that's been a very big support for

consumers and boosting their purchasing power. Of course, all the discussion right now is how do you sort of, I guess, contain some of that growth in the labor market in a constructive way to keep inflation, to actually we'll bring it back down to that 2% target here. And we know there's been a big focus on wage growth. It's kind of interesting, though, when you hear some of the comments that we heard out of Powell, as well as some of the other policymakers, this idea that they actually think we're a lot closer to getting there, primarily because they see a trend line in wages that is working in their favor.

I'm not sure I see that in my economic data, but I'm not an economist. You are. Do you see that? Yes. So, you know, the Federal Reserve is setting policy not off of what's happening right now, but really what's offered what will happen, The expectation, because monetary policy works with, as they always say, long and variable lag.

So when you look at the trend, wage growth is still quite elevated, but it has started to decelerate and that has come with some of the other more early indicators in the labor market showing some slowing in churn in the workforce. Look at the survey that was just released. We did see some drop in the quit rate, some drop in job opening rate. So it's still healthy, it's still showing job creation, but it's not as red hot as it was this time last year. So my Fed's perspective, that makes them more comfortable starting to think about the possibility. I've removing some of the tightness of monetary policy and beginning to see a path towards cutting interest rates. If you anticipate that we will further

see wage growth slow and therefore that will solidify this downward trend in inflation. Of course, another input to inflation is oil prices. And I think about what's happening in the Middle East, the attacks in the Red Sea and increased shipping rates as a result. How big a threat is that to the disinflation narrative? Because it's an exhaustion as shock.

And I know the Fed pays attention to core, which strips out food prices and oil prices, but these things have a way of seeping into the rest of the economy. They certainly do. And we have to pay a lot of attention to these external forces, even if they're virtually impossible to forecast.

So, yes, the Fed pays attention to core pays attention to those underlying measures of inflation that are going to be dictated by the tightness in the real economy. But to the extent to which we do have an upward oil price shock, it could matter through expectations, in particular inflation expectations and consumer expectations. People are very sensitive to how much they're paying at the pump. They pay a lot of attention to those regular purchases and what prices are doing for that. So it is something we certainly have to monitor. The Federal Reserve is obviously paying

very close attention to, but it's very hard to forecast and it's very hard to set forward policy based off of these exogenous factors. So I think for the moment, the main attention will be on those dynamics in the real economy. That should have a better appreciation for what will come from the path forward for inflation and therefore monetary policy. In terms of drivers for the economy, consumer spending, the huge part of it, at least in the United States.

And we talk about how the consumer, when they're feeling confident they will spend. But I think it's been pretty clearly established that even when consumers are anxious, they will spend maybe they just spend a little differently. What do we know about how companies and enterprises spend when things are uncertain and that uncertainty is likely to increase? Well, you know, I would argue that throughout this whole cycle, there has been heightened uncertainty because of the nature of this past recession. It was a highly unusual one, driven by

the pandemic that was then matched by extraordinary amounts of monetary fiscal stimulus. So this has been a very unusual time for consumers and for businesses alike, which means that I think there has been a level of caution that we've experienced over the last few years. We have not really seen overinvestment or too much inventory build or, you know, intentional inventory build. And similarly, when you look at consumers and you think about their balance sheet, it's remained very solid and healthy as well. So I don't anticipate that it's going to

be very different this year from an uncertainty shock perspective than it has been the past few years, where companies have really been operating an environment where there are a lot of unknowns and they've been some are cautious in that sense. Yeah, well, the consumer will continue spending and companies will continue to deal with the known unknowns. Michelle, really appreciate your time. Michelle Meyer is chief economist and head of the Economics Institute over at MasterCard Economics Institute.

Coming up, we've got shares of Mobileye plunging as the self-driving technology firm releases its full year revenue forecast. What is the ripple effect on the rest of the semiconductor sector? This is the close. I'm Bloomberg. Welcome back to The Closer Focus on the markets and a focus on some of the big individual movers out there. Mobileye one of the biggest decliners today, plunging after the self-driving technology company released a full year revenue forecast that came in well short of Wall Street estimates. Bloomberg Technology co-host Ed Ludlow joining us right now from San Francisco.

Talk a little bit more about what's going on. We should point out this is a behemoth of a company. It's Israel's most valuable publicly traded company. Last time I checked, there was still a key player in the autonomous driving revolution, if you will. But there's a speed bump, apparently,

that's taking place right now. Explain to us what's actually happening. It's a reality check about the end markets, which is the automotive sector. Right. The revenue outlook for 24 of 1.83 billion to 1.96 billion, even at the high end is significantly below Wall Street expectations of $2.5 billion for 24. And the story's really clear. Mobileye makes the chips or systems that

go into advanced driver assistance features on a car and at the low end of autonomous technology. And in that market, after the supply crunch of 2020, lots of the Tier one suppliers and automakers bought up as many of those chips as they could. But now they've got big inventories to work through. So simply put, they've stopped ordering. And that manifests itself in what Mobileye sees as being a 55 0% drop in sales year on year in the first quarter of this year.

It's a pretty eye popping number there. So this has less to do with what automakers see as the road ahead and more to do with just cleaning up their inventory, how they manage it. Is that right? Yeah, there's two parts to it. So on a consumer call, you have the sensor suites that make up ADAS advanced driver assistance.

Think about the cameras and sensors that help you stay in the lane and lower functionality like that and the upper end of the market, some lower level autonomy. The tier ones are the ones that make the off the shelf components and they're really the bottleneck here. They bought way too many chips is a knee jerk reaction. But we also know in the context of electric vehicles, for example, that Ford has cut its production outlook for this year. Many others have too. So downstream they've stopped ordering

those components as well. And it's not just mobileye. Think about Analog Devices, Texas Instruments and XP. They spent ages telling us that the automotive sector had bottomed out, but now they too are revising their outlook because those end markets there, it just isn't the demand in it. And it's kind of like a famine to feast scenario, right? Everyone was so anxious about the supply crunch that they now ended up with a large glut of these automotive chips. Yeah, absolutely. Here. And it's interesting to see the share reaction as investors come to terms with that and not know. You can catch them every day here as

co-host of Bloomberg Technology right here on this network, a closer look at Mobileye shares down 26% here on the day. And we should point out that that's the biggest drop its ever had, though, we should point out, has had a relatively short history as a public company just going public. But I look at the ripple effect and the Philadelphia Semiconductor Index, which has 30 members, 27 of them are down with Allegro Microsystems off by more than 7%, all in video. AMD, GM, Micron, some of the chip related names are bucking the decline.

This could actually prove to be one of the bigger stories of 2020 for as it unfolds the EV revolution, the autonomous driving revolution, and all of the parts and the stocks that feed into that. Stick with us. We'll be back with more coverage right here on the close on Bloomberg.

This is the countdown to the close, just about 230 here in New York, with stocks mixed here on the day coming off, two pretty severe days of losses. Meanwhile, let's check in on the commodities space because we continue to see oscillations there, particularly in the energy market. Abigail Doolittle. She's standing by with our commodities

class. Yeah, it's looking a little heavy again today. Romaine, take a look at New York crude, I should say again, because we, of course, have had a couple of updates this week. But your crude today down about three quarters of 1% and inventories for crude came in below expected. So that would be a positive. But for gasoline, they surged.

I think there's a little bit of a sympathy trade here, but you can see that gasoline clearly down more copper down 4/10 of 1%. And it's interesting because nickel is down more than 2%. So these industrial metals, I think copper, a little bit of a sympathy trade to nickel. And then soybeans also lower, down about 8/10 of 1%, although off the lows. And I've been talking in recent weeks about the rains in Brazil, apparently it's raining a lot there again, which means a better crop for soybeans. More supply traders don't like it.

So we have some weakness for the grains. All right. A nice wrap up there by Abigail of what's going on in the commodities space. When we talk about those grains and we talk about those energies, of course, those things have to be transported across the globe. And well, the cost to do that has been rising. Global spot container rates soaring as much as 173% on reduced capacity caused by the threats to cargo vessels in the Red Sea. She point out that 173% drop is just over the last couple of weeks Class. Now, joining us right now over at

Bloomberg Intelligence to discuss some of these numbers and I remember kind of early in the pandemic, we were all so obsessed with these container shipping rates, which of course, just went through the roof here. Are we going to see a repeat of that in terms of the levels that they reached back in 2020 and 2021? I don't think so, because we're well below those rates today. The peaks that we saw during the pandemic were about like 70% still below that. Rates are just moving above break even levels for a lot of operators. So while it's staggering numbers that you're seeing rates going up 200% over the last two weeks, take put that in context. You know, one of the largest liners out there, Maersk, probably will still lose money in the first quarter. Obviously, the biggest

driver will be how long the issue in the Red Sea lasts. It depends on what, you know, other governments are going to be do to protect global trade. And sure, as you know, about 12% of global trade goes through the Suez Canal.

So not only are you know, is the US and Europe interested in making sure that the Suez Canal is open and free. Yeah, but also, you know, most economies around the world. Yeah. Well at least for right now, we know it's not open and free. You combine that with disruptions, climate related disruptions in the Panama Canal, and we've talked so much about how these global shippers have had to find alternative routes, routes that take longer, routes that are more expensive. Is that going to basically be the story for much of this year, or do you see the potential for some of this normalizing? I personally think it's going to normalize.

I mean, you know, I'm hoping that what we're seeing in the Red Sea doesn't doesn't last, you know, through the whole year. I hope it's a weeks or a month kind of kind of issue and things resume. And the reality is there's just a lot of structural challenges within the container liner market supply growth. So the amount of capacity that's coming on to the water is supposed to grow at a rate twice that of what demand growth is. And that's going into what was already a

depressed rate environment before this whole fiasco in the Red Sea. Yeah, you mentioned maybe it'll be resolved in a month or so. Next month, of course, is the Lunar New Year and there is going to be a lot of congestion, I'm guessing before that. China, you know, wanting to make sure that things are in place. Talk a little bit about that timeline and how that contributes to congestion in the Red Sea and what the likes of Maersk in its we need to do. Yeah, a lot of factories in and around

Asia try to push their product out before the lunar New Year so their folks can go home and go on vacation. And so there's usually a rush of demand, obviously what's happening in the Red Sea and as you mentioned, what's happening in the Panama Canal is really choking or absorbing a lot of the slack capacity that's out there because of the longer times that these ships are taking to go to deliver whatever goods they have to go around Africa, content can take anywhere between 10 to 12 extra days of versus going through the Suez Canal. So that's going to eat up and capacity and that's going to keep rates high probably, you know, as you mentioned, probably, you know, until the Lunar New Year, assuming there's not a really major change going on in the Middle East. Yeah, never run, never count on anything happening on that front because there's so many structural issues there. Ali, really appreciate your joining us.

Lee COSCO of Bloomberg Intelligence covers shipping and the like the likes of that. Still ahead on the close, despite sales and earnings per share topping estimates, we're looking shares of Walgreen falling today. Why is that? We'll discuss. That is our stock of the hour. This is close. I'm going back.

And. And. And. All right. Let's get a view from the sell side with our top calls, the big movers on the back of analysts recommendations.

And we start off with the big one, Apple Piper Sandler giving the iPhone maker its second downgrade this week alone, cutting to neutral from overweight, with the analysts saying growth rates have peaked for smartphones worldwide. With China's economic struggles weighing heavily on iPhone demand, Apple shares down for another day here, 9/10 of a percent. Next up, let's take a look at Dollar General, an upgrade there to overweight over at Barclays with the analysts shifting to a more balanced view on food and hard line retailers. Now, the analyst says sales and margins

could improve if Dollar General continues to clean up inventory as it has and invest more in its stores, which it has yet to do. The shares higher on the day by about two and a half percent. And finally, big pharma company Merck lifted to outperform over at TD Cowan, the analyst urging investors to focus on patent expirations and other new assets, which he says could create a pipeline for making Merck an above average performer at 2024. I guess that's better than below average shares doing well today, up 2%. And those are some of our top calls,

let's say, in the sell side space, let's say in the health care space and back. And take a look at Walgreens. It posted its first quarter report earlier today. And while sales and earnings per share

did beat estimates, the results overshadowed in a big way by an almost 50% reduction in that dividend, shares having their worst day in months and of course, not necessarily the best start for their new CEO, Charles Reed. Joining us right now, he's TD Cowan, senior research analyst, managing director, covering health care technology, still has an outperform rating on Walgreens shares. All right. This is going to be a bit of a referendum, I think, on Wentworth and his sort of a new tenure, which is still relatively new. And I wonder if the commentary, Charles, that we got today out of him when it comes to the dividend and some of the other cost cutting measures that he appears to be taking, whether this is sort of that proverbial get all the bad stuff out of the way. So at some point in the near future, you

could start focusing on growth. Yeah, remain. Thanks for having me. And yeah, I would agree with you there. You know, I think the dividend cut was largely expected and obviously, I think you're you're seeing sort of the natural reaction probably with some funds having to to sell on that. But, you know, the the main core of the issue here is is cash flow. And, you know, the sustainability, the

dividend I think was has been called into question for some time. And I think what cutting the dividend does here, it really kind of lessens the pressure on on Tim here as he moves forward with his strategic vision for the company and I think gives him more flexibility down the road to make the right investments going forward. Right. It gives him some room, but at the same time by slashing its dividend in half, does that change the complexion, the composition of its investor base? Well, you know, maybe in the short term it does.

But I mean, I think if you look at the yield, you're still even with half of it being cut at these levels. You know, I think the yield is still very attractive relative to peers in the healthcare services space. So I'm not sure that will really detract people going forward. I think ultimately what we're looking for is, you know, how do we reinvigorate growth in the company? You know, how do we move forward from here? And that's sort of the task in front of them. Yeah, we're looking at a yield of 4.2% still for Walgreens even after that reduced dividend. So cost cutting is really the focus here.

How how deep can Wentworth cut costs before it starts to really hit that muscle? Well, you know, I think it depends on where you're looking to cut here. And I think what he kind of outlined is that, you know, the pharmacy remains central to their strategy. But clearly, you know, what that footprint looks like going forward remains to be seen. And I think when you pair that with their other assets, you know, you think of Shields pharmacy, you think of know Centrex, their investments in VillageMD Summit, you put all those together and you know I think looking forward we can think about you know, what does it mean to be a national chain in a world where you have e-commerce and, you know, virtual options today? I think that does present some opportunities to maybe, you know, shrink that footprint a little bit to be more what you call it in areas like density of your assets and going forward that could be more effective. Well, but that gets to this idea here. Do we are we going to see an even more of a fuller embrace of the health care side of this business? I mean, we can go in right now and do basic things, you know, get flu shots and things like that here. But I know there's been a lot of talk, at least prior to Wentworth arriving when Ross Perot was still there, about how much deeper you can push into the space without the regulatory blowback from doing just that.

Oh, absolutely. You know, I think that is the core strategy here at Walgreens. And it is similar to when you look at someone like CVS as well. Right. I mean, most of us probably go to our pharmacy more often than we ever go to our doctors in a single year.

It is a location where you can get care. I think we should think of the pharmacy as a care setting, and there's no reason why more care can't be delivered in integrated way through the pharmacy location. You know, even beyond just getting, let's say, your annual vaccines and flu shots. So, you know, I think this is something where you think about home care, home delivery care, all those kind of kind of services. You know, there's no reason why pushing it through a retail pharmacy network shouldn't be effective. All right. Well, it'll be interesting to see just

how much more they can turn things around there. Charles, great to catch up with you, Charles. Re analyst over at TD cowen. And a closer look at Walgreens Boots Alliance. Remember, this was a stock that had an

awful 2023 down 30% replace their CEO and unfortunately starting off 2024 on the wrong foot. But we've seen this play out before. Anytime you get a new CEO, there's always this tendency, let's get the bad stuff out the kitchen sink. And then at some point in theory, a few quarters from now, maybe we'll start to hear more about the growth plan. Walgreens has had a rough couple of years. I go back and think about Theranos and how they had bet big on Theranos and wanted to kind of transform their whole business model based on this idea that people can come into their stores and go to labs.

And of course, that didn't work out at all. And they had to pay huge payments to settle class action lawsuits. Yeah, absolutely. Here are interesting to see how that could be a big story as well for 2024 as we continue to move along here in today's show. Coming up in just a bit, we're going to

focus in on sports and particularly the business of sports. George Pyne over at Bruin Capital, who's the founder and CEO stopping by the big program. We're going to discuss the NCAA, its proposal to pay college athletes and more. That's coming up next here on the close on Bloomberg. Welcome back to the close. It's time now for our Wall Street Week daily segment, the host of Wall Street Week.

David Westin joins us as he does every day around this time. And, David, a lot of talk right now about college football, the big championship game on Monday. You noticed that, did you? I didn't know that. I should. I forget. I know it's one of our Big Ten,

but yeah, Michigan Wolverines and Washington Huskies. But a lot of talk not just about the game on the field but the money behind it and whether how much of that is going to be shared with the players. And boy, is there a lot of money going around to take a serious somebody who really knows college football like nobody else? George Pine is Bruin Capital founder and CEO. George, great to have you back with us. So first of all, the news today, ESPN's got an extension now on the championship games. I think a lot of it may have to be football.

Just under $1,000,000,000. $1,000,000,000 are by now. Is there anything left of the amateur part of this athletics as opposed to the professional? Well, there's a lot of value in college sports. That's exciting. And of course, that's for 40 sports men's and women. You know, the $4 billion or 100 million or so a year, you know, the college football playoffs going to go for a billion, 5 to 2.3 billion just for the playoffs in college football. So that shows the disparity between college football and all the other sports out there.

So so where does this all go next? As you know, some coaches, including Mr. Harbaugh, my coach at Michigan, has said we should start paying the players. Is that inevitable? Well, a couple of things. One, great games this weekend. Both games went down to the last play. So the player movement really didn't hurt the quality of the competition.

Where it's headed. I think you're going to have to pay the players. I mean, college football's the number two sport in America. In attendance in television ratings generates 6 to $8 billion a year. And I think what those players deserve

to be paid and I think you see the courts now recognizing that that the players, you can't restrict their trade, their motion. They need to be paid and share in some of that money. What does that look like, though? Where does that money come from? Does that flow from the schools directly or is that going to come from the NCAA? It's going to come from the schools, Right. And what you're going to see, I think, eventually is the players will be bargaining collectively. I think that they're probably going to have to do individual contracts so that they can restrict the movement.

I mean, competitors, universities, competitors cannot restrict the movement of players without compensation. And with that kind of money generating round, you're going to have to bargain collectively and guys will have to do individual contracts. That's going to be interesting. And of course, that's going to be messy for a lot of schools. And I am curious, I mean, not to brag, David, but Northwestern University, the Wildcats, the team that actually attempted several years ago to unionize and of course with that ran into failures in the court system. What's different now that would allow something like that to happen that they couldn't do 15 years ago? I think the money has just become so significant. So if you take a step back, it's the

success of college sports. It's amazing. People love it, but it's a huge business. And I think as a fairness principle in the game, you think about a college football playoff, they're going to be getting over 100 million for one game. So the guys participating in that game share in that economic success.

I think nine out of ten reasonable people say yes. So I think, you know, the money's so overwhelming that it's how much how much do you think could actually go to the players? I mean, we're talking a situation where a college player, in theory, a top tier college player, could be making more than maybe sort of a middle of the road professional athlete. I don't know. We'll have goes that far, but I think there'll be some sharing. And of course, you have other things to work conditions. You know how much they do in training, what the off season looks like, how people move around. And it's complicated because people are there to get an education. So you're trying to balance education,

economic fairness and keeping a reasonable model. And those are the things the industry is grappling with and it's quite complex. And part of the hard part is it's complex in a fragmented industry.

Well, exactly. It's complex and it's a huge change, a real sea change. Who's going to really be in charge of managing this? Is the NCAA up to that job? Not everybody has complete confidence in NCAA.

I think the NCAA has a very difficult job. There are 1100 members. We're talking probably 130 football members here. And even that you could argue a smaller number. And so the NCAA is in a no win

situation. And the challenges, it's very fragmented industry colleges, as you know, the colleges switch conferences, coaches switch teams, athletic directors move around, presidents move around, players are restricted, players are not compensated, and that's not going to fly. So I think you're going to it's either going to have one or two things. The courts are going to lead like they

did with the NFL. People knew the NFL was coming for five years. The industry could not agree. The courts led the way. Same thing here. The courts will be the lead the way. Or I hope because I love the sports, I'd

love to see the industry coalesce and come together with the solution. So it'll be one or two, the courts or the industry. The reason it's up in the air is it's so fragmented. So you say you love the sport? We do.

I know Roman loves the sport. How do you preserve the sport, though? The competitiveness of the sport? Because in the professional, for example, you have to really manage parity because otherwise you get the haves and the have nots and the games aren't very good, right? Can be very complicated. You have all those issues education, parity, fairness, very complex issues. And that's why it's hard to find a

consensus amongst competitors of what to do. And so that's why it's going to be tricky. And that's why the inability to agree can lead to the courts deciding and not the industry. We've had a little space now since the name, image, likeness became a law of the land, for lack of a better phrase here. Is there anything we can learn from the rollout and implementation of that and intent in terms of extrapolating what a roll out of actually paying the payers directly would be? Well, there were now always hoped to be based on endorsement revenue.

It became a legal way to pay players. Right. And it had unintended consequences in the competition of the sport. And people don't like that. And that's why I think be better if you had things collectively bargained and people did contracts because you'd have predictability, you'd have rules, it'd be better organise.

The nil kind of led to a free for all. And the intended consequence intention was to pay the players for endorsements and it came really pay to play. So we've talked about some of the disparities among schools. What about among sports? Because we're having our football here. What does this do to the so-called lesser sports in all of these schools? Do they get left behind? It's primarily football. Basketball has meaningful value, too, but the rest of the sports are really not in the same area. And one of the concerns there are one, a

Title nine, how it infects women's athletics. And two, is the Olympic movement. The Olympic movement internationally, many of the best athletes in the world come to America to train as well as the American athletes, and that system has provided for that for those sports. So those sports are being underwritten by the revenues primarily from football.

And so if that money goes to the players, that money may not be there for those other sports. George, you've been in the US so long. If you were to guess, how long is this process going to take? One was settle back down. I think it'll take 3 to 5 years to shake out. I think if the industry does it, it'll be within the next three years. If it's settled through the courts, it'll take a little longer, maybe five years.

The idea, though, also of just amateur sports in general, and in addition to the actual collegiate itself, that whole universe of Olympic athletes who of course have had their own battles and been able to get compensated for their images and for their performance as well here. Have we kind of moved to the stage in society now where there really won't any be true amateur sports, at least not at the elite level? No, I think there will be. I mean, the legal for these other sports, I think will remain immature. But like but like the Olympics and the Olympics, there was a time where you couldn't have pros in the Olympics.

Yeah, they transition, they modernize, and people love the Olympic Games. I think that's my hope is the same can happen for college athletics, but you're going might have to separate football and basketball from the other sports because those issues are quite different than the other sports. It's all inevitable. Is it good for the sport, in your judgment? I think it will. But, you know, we've heard so much negativity about the transfer portal and player movement. Look, those games this weekend were fantastic. So I think the game will stay true.

This is a choppy period. It's an evolution, hopefully not a revolution. David's afraid to ask you this question, but who's going to win on Monday? Huskies or the Wolverines? I wouldn't sleep on the Washington Huskies because that quarterback Michael Penix, is a great quarterback. But I think you have to go with the

maize and blue. They've done an amazing job, Jim Harbaugh. They've done incredible built a program over ten years, three straight trips to the CFP.

I don't think you can go against the maize and blue Romania. I can't add anything. That's the final word, no question. But really great to have you as George Pine, a Bruin Cavaliers, the founder and CEO there. So this is really very exciting, I must say. I'm looking forward to. Aren't you? Yeah, absolutely. I'm good. I mean, obviously, I don't have a

rooting interest for either team, but I guess I'll root for the Big Ten since I'm from the big time. There you go. Yeah, I'm in for Northwestern, by the way. Thank you. Yeah, I do think it's a great school. It's a great school. Okay.

On Friday, we're going to have a talk with David Autor. He's an MIT professor of economics. We talked to him in detail about what's going on with generative A.I. and how it's going to affect the labor market, particularly.

That's at 6 p.m. Eastern Time on Friday. All right. A lot of great conversations are coming up with David Westin, who joins us every day around this time for our Wall Street Week daily segment. And of course, you can check them out

once a week on his own show, which airs at 6 p.m. every Friday evening here in New York. Stick with us here. We're rounding out into the final hour of trading here on this Thursday afternoon. A bit of a, I guess, less interesting market than what we had the prior two days. But the net effect of it all is about the same here. Stocks remain on the back foot, still awaiting the next big catalyst, a big one on deck starting tomorrow morning with that U.S.

jobs report. Stick with us. This is the close on Bloomberg and. Just about 3 p.m. here in New York. This is the countdown to the close. Let's get a view from the top.

I'm Romaine Bostick and I'm Scarlet Fu. And after two days of losses, pretty big losses. In fact, in the equity markets, things are starting to come back to normal a bit. Yeah, I mean, kind of the oscillations here, I don't know how much conviction are in any of these trades, either to the upside or to the downside. Maybe this is folks waiting for, I guess, more definitive catalysts.

We do get one of those tomorrow morning potentially I would support. But of course, I think people really do want more clarity on the rates picture. And you're probably not going to get that until you hear from well, the one person who can sort of give you that guidance, and that's Jay Powell. And they don't meet until the end of the month.

While we do have that jobs report before then, we also have inflation numbers before then. And we also have bank earnings before then as well. Yeah. And the bank earnings could be big as well.

I mean, we always kind of pooh pooh them to a certain extent because you never really learn anything, but then you always learn something because particularly not necessarily in the numbers themselves, but in the commentary we get out of Jamie Dimon government and the rest of the cohorts here in the U.S., a flip up the board here, because there was one call that I wanted to focus on here, because we've been talking a lot about the dollar and whether that's going to be a big factor in the markets this year. Morgan Stanley It was actually one of the few big firms out there. There was still a betting of for the dollar to weaken this year. Here it is now reversed that call and it's basically citing the decline that we've been seeing in Treasury yields here. I put this chart up here because this is the CFTC data, which is where everyone's basically been betting. Last position has been positioning

around dollar weakness here. So it'll be interesting to see sort of who ends up right or wrong. But this kind of puts them more in line with the rest of Wall Street. Yeah, well, there's a lot of question marks over what happens with the dollar, especially when it comes to the yen, for instance, because of the Bank of Japan. How does it move forward with

extricating itself out of negative interest rates? Yeah. All right. Let's take a look at some individual movers. There was some M&A this morning. And so APA, which is a buyer here, are formally known as Apache, down as much as seven and a half percent on plans to buy Callon Petroleum for about 3831 a share in an all stock transaction, adding more oil exposure to its asset base in the Permian Basin. Yeah and this is this is going to be the big story.

I mean, how many I've lost track, we've had at least two big deals and then about three smaller deals already at this. That's a fourth and that's in the span of, what, about three or four weeks. There's more to come as they keep telling us. All right. We're also looking at WW, formerly known as Weight Watchers, down as much as 16% after Lilly e losing weight anymore. Not so much that Eli Lilly is launching a digital health care platform to deliver weight loss drugs, which poses a threat to what WW had done because they bought a telehealth obesity drug provider last year.

That is a check and made what exactly Quantumscape a battery developer rallying as much as 47% on above average volume. Volkswagen yesterday said a solid state battery prototype from Quantumscape significantly exceeded industry targets in recent tests. Yeah, okay, that's good. I mean, I guess we need, you know, more

of this technology, sort more suppliers. The question, though, is what's the end market looking like now? We were speaking with Ed Ludlow earlier about it was obviously a focus on autonomous driving, but it all kind of lumps in as to whether these new technologies are ready for Massachusetts. Everyone says long term positive, short term, bumpy. Absolutely. Here. Meanwhile, we are one hour away from the

closing bell here on this Thursday afternoon. Our cross-platform coverage better than anywhere else. It starts right now. Come down to the close. Bloomberg's comprehensive cross-platform coverage ahead of the U.S. market close starts right now. This is the countdown to the close. Romaine Bostick alongside Scarlet Fu, we're joined right now by our colleagues Carol Massar and tim Stanwick in the radio booth as we welcome our audiences across all of our Bloomberg platforms, TV Radio, Bloomberg Originals, and our partnership here with YouTube on, I guess, Jobs Eve.

Carol Massar I guess everyone's just waiting. Mark It's not really doing much today, which are probably welcome relief given just how poorly it did the previous two days. But I think a lot can change any 30 AM tomorrow. I think with the data points, certainly in the labor markets of our showing that there's nothing urgent that the Fed has to do right now. Having said that, they're still unemployed for now. The bad still, we all said that at the same time.

One of the things that we've been looking for, right, because we look for other statistics and data points to help us tell what's going on in the economy. And we've talked about the holiday shopping season, especially when it comes to online. We saw a bump up from the year before. It was a record number, this from Adobe. But what's interesting is that a lot of

people were doing it with the buy now pay later programs. In fact, that hitting an all time record number for those that track it. So it makes me say, okay, great, we're spending. But hey, at some point, like you got to pay for all this stuff and you do wonder whether that's going to cause some problems down the road. Yeah, I have a lot of questions about this data and that number, by the way, an all time high of $16.6 billion for e-commerce purchases just in the last

two months of the year. Scarlett. Are people using buy now pay later? More now. Because of the availability of the service, more and more companies are using it like, you know, a firm sign that big partnership with Wal-Mart recently. So it's available in more places. Are they using it because they know about it more? Are they using it in place of credit cards? And at the end of the day, is it necessarily a good thing if people don't have the cash to pay for this stuff now and they're paying for it? Created internal question. I don't think so.

Right. I mean, for the younger generation, certainly it is replacing credit cards, but it'll be interesting to hear from the banks when they start reporting what they say about credit quality over such debit card use here. But why should we know, in all seriousness, why should I be concerned about this? Because I and I don't and I'm not trying to be a flip here. Right. But if we're talking about people using basically a form of credit to make their purchases here, is that the fact that it's under these buy now pay later services, is that materially different than if they had just put it on a traditional.

It is because these these buy now pay later service system. I understand they don't have the same credit checks of the people who are using the services. So you don't have to go through the same credit worthiness process, although they would argue that, you know, that's a biased process and it's not necessarily. Yeah. And that's a whole nother there's a lot of teenagers using buy now pay later Let's just go with that also are they're saying well we've had oh really well teenagers shouldn't I mean it's going on in the food household here.

I don't know if you have credit card say you're young enough or is younger shoppers about that. But there was some we've had some guests on who said, well, people feel confident to do buy now, pay later. They're like, I'm going to have that money.

We know I've got to put aside. I'm just going to do it, take advantage of this and then pay later. So I don't know. U.S. consumers eternally confident and

optimistic. Yes. Yes. All right. Let's talk about how Microsoft is moving forward with integrating air into its hardwar

2024-01-07 14:59

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