December 19, 2024 • 43 mins
Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Intelligence Semiconductors Analyst Jake Silverman reports on Micron Technology's revenue forecast missing projections due to sluggish demand for smartphones and personal computers. Eric Hansotia, CEO of AGCO, talks about the company's forward looking financial forecast. Silvio Tavares, CEO of VantageScore, discusses how Fed policy is impacting the credit market. Bloomberg News AI Reporter Rachel Metz provides the details of her Businessweek Magazine story AI Giants Seek New Tactics Now That ‘Low-Hanging Fruit’ Is Gone. And we Drive to the Close with Ana Arsov, Global Head of Private Credit & Financial Institutions at Moody’s.
Hosts: Carol Massar and Tim Stenovec. Producer: Paul Brennan.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business
Wait inside from the reporters and editors who bring you
America's most trusted business magazine, plus global business finance and
tech news. The Bloomberg Business Week Podcast with Carol Messer
(00:23):
and Tim Stenebek from Bloomberg Radio.
Speaker 2 (00:26):
All Right, everybody shares in Micron Technology. They are the
biggest decliner in the Nasdaq one hundred. They are right
now down I think about sixteen and a half percent. Yeah,
pullin it up just off their lows of this session,
So big hit down the most in more than four years,
since March of twenty twenty. And this is coming after
the largest US maker of computer memory chips put out
a revenue forecast that miss projections, reflecting sluggish demand for
(00:49):
smartphones and personal computers. And then there's also a headline
involving Intel that we kicked off our hour with. So
we've got a lot to talk about when it comes
to the semi space.
Speaker 3 (00:57):
Now, what we need to know when it comes to Intel,
Micron and the broad world of semiconductors. Here with us
as Bloomberg Intelligence, a semiconductor's analyst, Jake Silverman. Here in
our Bloomberg Business Week studio, as Carol mentioned, Micron selling
off big time, sixteen point five percent of the downside
right now, worst day going back four years, sluggish PC
and smartphone demand. Yesterday when this broke, I was thinking
to myself, didn't we know about sluggish PC and smartphone demand?
(01:20):
Why is this such a surprise.
Speaker 4 (01:22):
Yeah, so part of that is that.
Speaker 5 (01:25):
This is more so an inventory correction than it is
actually a change in demand profile suddenly. So over the
last it seems like maybe six months, five six months,
there was a build up of inventory.
Speaker 2 (01:38):
Which happens in the semi space.
Speaker 6 (01:40):
Yeah, it does.
Speaker 4 (01:41):
It happens all the time. Yeah, it's frequent.
Speaker 5 (01:43):
You go through up cycles and down cycles, and so
PC and smartphone customers were built, were building up inventory
ahead of price increases which did occur. And so now
what's happening is they haven't adequate levels of inventory and
demand isn't necesscessarily that strong. So there's not a lot
of demand for Micron's memory chips right now.
Speaker 2 (02:05):
So is it kind of like whoa, whoa whoa? Investors
understand that the reason their's sluggish demand is not that
you know, we've known that about the troubles in the
PC market. But it's not like everything's going to hell
in a handbasket, right, It's just a case of people
had built up inventories.
Speaker 4 (02:19):
Yeah, sure, no.
Speaker 5 (02:20):
And there's also something to keep in mind though that
there's a number of different moving parts. I think there
is obviously the AI aspect of it, but people are
also I think somewhat concerned about just how long, how
prolonged this inventory correction will last, and how much excess
inventory is actually in the channel right now, because I
thought they kind.
Speaker 2 (02:38):
Of checked the check the box when it came to AI.
Speaker 4 (02:40):
Their AI, Yeah, I was pretty strong.
Speaker 5 (02:43):
Yeah, I mean data center related demand group forty six
percent sequentially.
Speaker 3 (02:46):
So, well, remind everybody where where they play in this
space where Micron fits in. If you look at the
supply chain analysis feature on the Bloomberg terminal, you see
that Apple's one of its biggest customers. Dell LG like Tronics,
WPG Holdings is actually its biggest customer. Where does it play?
Speaker 4 (03:05):
Yeah, well, so it's pretty broad.
Speaker 5 (03:07):
I mean every consumer electronics device, everything that you know,
every electronic device.
Speaker 4 (03:11):
Needs memory, needs storage to some extent.
Speaker 5 (03:14):
And so what's been happening is you know, over time,
it's well over the last several months, last year or so,
demand has improved a lot in the data center. So
now that you're starting to see more demand from customers
like Nvidia as well as other like A six as well,
you know, the customers of Broadcom and Marvel who are
also you know, creating their own AI servers or you
(03:36):
know a six Hey chick.
Speaker 2 (03:38):
One thing I'm going to as you said, the data
center related revenue did okay, grew four hundred percent in
the quarter. That's pretty okay from a year earlier. The
unit now accounting for more than half the company's total sales,
but it wasn't enough to offset the weaker our orders
from makers of devices aimed at consumers. Having said, that
is the data center, what this company really becomes that
(04:00):
area in the future, Like that's going to be the
dominant business.
Speaker 5 (04:04):
Yeah, I mean, it depends entirely on how much additional
AI infrastructure buildouts occur. If there's continual incremental spend over
the next decade or so, you know. But the thing is,
if you know, high bandwidth memory is an area that
they're seeing a lot of demand for, but it's still
so early for them. So what you're seeing a lot
of the data center demand or growth this past quarter
(04:25):
was actually not necessarily all related to HBM. In fact,
the vast majority of it was actually like high capacity
modules as well as LPDDR that goes into servers and
AI servers. An area that was a little bit of
a concern was actually that data center SSDs, though took
a bit of a pause. They're moderated in terms of demand.
(04:46):
We're not exactly sure if that's how temporary that is.
Speaker 3 (04:49):
Hey, Jake, I promise we talk a little bit about Intel.
We learned just in the last hour that Intel has
shortlisted a number of buyout firms for the next round
of bidding for its Altera unit. This, according to people
familiar with the matter, this is the chip maker faces
headway on a process started by it's now ousted CEO.
What do what does our investing audience need to understand
about this?
Speaker 7 (05:07):
Yeah?
Speaker 5 (05:08):
No, I mean I think for Intel it's just an
opportunity to really unlock value. We've seen them do very
similar plays with their with Mobile Eye, for example, and
one of their other businesses within their foundry. So this
is an opportunity for a pretty high margin, data Center
mostly play but still somewhat diversified in Altera for Intel
to get so much needed cash, all.
Speaker 2 (05:30):
Right, so it just sounds like stay tuned. More to
come from Intel.
Speaker 1 (05:34):
Yeah.
Speaker 5 (05:34):
I mean, we'll see how much value they can truly unlock.
But you know, it is a higher margin business, somewhere
around the mid mid to low sixty percent versus you know,
much lower margins, well relatively speaking for their other businesses
like PC and data center.
Speaker 2 (05:48):
All right, and I should say that Intel shares are
just down a little bit. They were down about one
percent at its lows up two percent, and its ties
right now down about eight tens even percent, so it
kind of bouncing around.
Speaker 1 (05:58):
Yeah.
Speaker 3 (05:58):
PE firms including Francisco Park Ourtner silver Lake Management are
competing alongside with Lattice Semiconductor in a second round for Altera.
Speaker 2 (06:04):
All right, Jake and Lee with there. Thank you so much.
Jake Silverman, he's sevenconductor analyst with our Bloomberg Intelligence team.
Speaker 1 (06:10):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm Eastern. Listen
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Bloomberg Business app or want us live on YouTube, ACO hosting.
Speaker 2 (06:24):
It's ALS Day today and giving an update on its business.
Shares of the company selling off the most in nearly
two months, at least at its lows down about four
and a half percent as we speak after the form
Equipment Company projected net sales of nine point six billion
in twenty twenty five, down from about twelve billion this year.
That forecast, by the way, trailing the average analyst estimate
of ten point seven billion dollars.
Speaker 3 (06:45):
Ahead of that meeting, the company's largest shareholder, Tractors in
Farm Equipment Limited, urge management to address several issues, including
what they call agco's quote lagging performance compared to peer's
successive quarters of performance misses and downward revisions and guidance,
diminishing compitive position, and value erosion through failed acquisition.
Speaker 2 (07:03):
It's a rough setup, but we're so delighted to have
with us the CEO, chairman, President of a COO, Eric Hansodia.
He's here in studio. We had to lay it out,
but you know what's been going on more than most
tell us first of all about the analyst meeting and
some of the serious issues that investors wanted to know about.
Speaker 8 (07:20):
Well, you know, this is a wrap up of a
pretty amazing year on the one hand, but mostly is
a forecast forward. So this year we made the largest
ag tech deal in the history of the industry. We
sold off our lowest margin, lowest growth business in the
green and protein division, and managed through a significant downturn
in the industry, one of the most severe in the
last ten years.
Speaker 6 (07:39):
These things happen, but it was all coming together this year. Now.
Speaker 8 (07:44):
Our analyst meeting was all about forecasting forward, and the
first one I did we made a claim of being
a ten percent margin, never done that in the history
of the company.
Speaker 6 (07:51):
We delivered.
Speaker 8 (07:52):
Then the last time two years ago raised the bar
to twelve percent and we're on track to deliver that.
Speaker 9 (07:56):
Now.
Speaker 8 (07:56):
We raised the bar again to day to a fourteen
to fifteen percent range, and our team is very confident
that we're going to deliver on that.
Speaker 3 (08:02):
Eric, you mentioned it's a quote amazing it's been a
quote amazing year. An investor watching right now might have
issue with that and say, what are you talking about.
Shares are down about twenty five percent so far this year.
Where's the disconnect?
Speaker 8 (08:14):
Well, it's all about the cycle. So the industry went
through like that. That was one of the three things
that made it an amazing year. I mean amazing has.
Speaker 6 (08:22):
Both positive and negative and good and bad.
Speaker 8 (08:25):
So the demand came down a lot, but the restructuring
of the company to position it for the future much
more focus on technology, high margin.
Speaker 6 (08:34):
High growth, less distraction.
Speaker 8 (08:36):
From a low growth business, really sets ad Co up
to prosper as the industry comes back, and it will.
You know, these industries go through a normal pattern where
there's a big correction year.
Speaker 6 (08:47):
That's the year we're in.
Speaker 8 (08:47):
We went from about one hundred and five percent of
the cycle down to ninety and one year.
Speaker 6 (08:51):
That's a big correction.
Speaker 2 (08:52):
That's pretty rough.
Speaker 8 (08:53):
But in twenty five we'll probably find the bottom and
then we'll start working back AUP. And our mission is
to control what we can control. We can't control industry,
but we can position the company to be strong on
the way back.
Speaker 2 (09:03):
So Eric, twenty twenty five will be the bottom in
your view.
Speaker 6 (09:05):
That's our first cycle, that's right.
Speaker 2 (09:07):
What about all the kind of global trade, you know, environment,
tariff's trade, geopolitical, how might that change that?
Speaker 8 (09:13):
Well, you know, there's a number of balls in the
air right now and things that are uncertain. At the
end of the day, though, the same number of mouths
want to eat, and so grain may shift around a
little bit, maybe one farmer's advantage, one's farmer's disadvantage, but
it'll just shift where that grain comes from. We're a
very global company, you know, only twenty five percent of
(09:34):
our businesses in North America, So if grain moves to
a different market, we'll serve it from those markets, so
you know we so.
Speaker 2 (09:42):
Global trade war would not impact farmer equipment purchases at
least for you guys. I amsud your global.
Speaker 8 (09:48):
But I don't want to make it that concrete because
any anybody buying capital.
Speaker 6 (09:54):
Goods wants certainty.
Speaker 8 (09:55):
And so if we have a very uncertain, fast changing environment,
then folks could hold back. But that's different from if
the rules shift and say there's an advantage here and
a disadvantage there, but they're stable. Now that we know
the new rules, and then we know the new guard rails,
then everybody can plan around that. And so I think
the uncertainty is the bigger issue than a shift in
(10:18):
the framework.
Speaker 3 (10:19):
Sort of on Carol's questions about uncertainty and a potential
trade work. If we look at the first Trump administration,
the way that farmers in the US had to be
bailed out as a result of retaliatory tariffs that were
put into place by countries during that time. How do
you prepare for the next Trump administration? How does that
change your business? How does it change your outlook?
Speaker 8 (10:36):
Well, we've done a lot of scenario planning looking at
all types of things.
Speaker 6 (10:39):
Because there's two levels.
Speaker 2 (10:40):
There are many different scenarios.
Speaker 8 (10:41):
Oh over a dozen for sure, go ahead, Yeah, And
so the notion here is you have to plan on
a couple different levels. One is the cost for the company,
but on the other one, it's the impact of farmers globally.
Speaker 3 (10:54):
And that's what I was thinking of.
Speaker 8 (10:55):
More so so it's the supply side and the demand side,
and how do you respond to both of those. So
none of it is certain yet you've got to kind
of just decide where it could land. At the end
of the day. Our major competitors also have very global
supply chains, and so to some degree, this will impact
all the companies to some degree the same. Now, there
(11:17):
could be nuances of elements that'll be different, but at
the macro level, we'll all have some of the same
influences and the global grain will re establish itself and
find its way to the market.
Speaker 2 (11:27):
What about production cuts and your production schedules is the
one any kind of cuts copying in the first quarter
and then do you see production gradually increasing throughout the year.
Speaker 8 (11:36):
Yeah, we expect, you know, we're expecting this downturn, which
was very dramatic in twenty twenty four, to continue into
twenty twenty five probably start finding its way back up. Already,
Asia and parts of South America are showing green.
Speaker 6 (11:48):
Shoots of growth.
Speaker 8 (11:50):
They were the first to go into the market or
going to the downturn, they're coming to back out. So yes,
the first quarter is going to be probably the worst
as we're underproducing to retail demand, to c out the
pipeline of inventory in our dealer network, and then likely
recovery in the second half.
Speaker 2 (12:04):
I want to take a step back because I don't
think I said to you when you kind of walked
in that we don't necessarily spend a lot of time
talking about the agricultural economy. We just kind of assume
all this stuff's going to happen until there's war and
we have shortages and we're like, what's going on here.
So what is different Eric about this agg downturn versus
what we've seen in prior cycles. To help kind of
people understand, well.
Speaker 6 (12:25):
Two things. Number one is how fast agg co is responding.
Speaker 8 (12:28):
And I think some of our peers are doing the
same thing, but much more aggressive response, way faster action
on cost and on inventory. So instead of letting this
downturn linger and stretch out, everybody's much.
Speaker 6 (12:41):
More responsive and proactive. That number one.
Speaker 8 (12:43):
Number two is the role of technology. You know, we
just launched a kit that makes an existing tractor autonomous.
You can take the driver right out. Yeah, it works
with the combine drives up alongside, you, unload on the goal,
and then the tractor drives away. Nobody in the tractor
the whole time. So in artificial intelligence, in our spray
identify there between a weed and a plant, only spread
the weed. All this technology is making these machines much
(13:06):
more capable and making the farmer much more productive. So
even though there's ebbs and flows in the market, farmers
see the opportunity to make themselves more profitable. Even in
down markets. They say, I got to have that latest
technology to make myself more efficient. So technology is playing
a much bigger role this time than last cycle.
Speaker 3 (13:24):
The autonomous technology. Is it one hundred percent there for you?
Speaker 6 (13:26):
Yeah, we're selling it today.
Speaker 8 (13:28):
So we demonstrated it last fall last fall to journalists
and our analysts.
Speaker 6 (13:33):
And we're selling them right now.
Speaker 3 (13:34):
And are there any regulatory issues around it in different
parts of the world where can it be?
Speaker 8 (13:37):
Well, we don't take it on the we don't take
it on the road. That's a big difference. So we're
staying in the field. And the fail safe mold when
it runs into a situation where it doesn't hasn't been,
doesn't understand what to do, it stops and so then
we can remotely monitor into that machine and say, okay,
either pull back and drive around or go or drive
(13:58):
through it.
Speaker 3 (13:58):
But because it's not on the it's not regulated at all,
so you don't have to worry about any of that stuff.
Speaker 6 (14:03):
Largely, that's true, that's right.
Speaker 8 (14:05):
Fundamentally, the regulations are on road and that's where the
bigger challenges. That's why some of the automotive they have
a much bigger challenge than we do.
Speaker 6 (14:13):
But our opportunity, you know, our solution fits on multiple
brands of equipment.
Speaker 8 (14:18):
It's a retrofit kit that then can take an existing
machine and you can use it either way. You can
either continue to drive it the way you do today
or make an autonomous in many applications on the.
Speaker 2 (14:26):
Farm, I've said, I've driven a tractor like one of
the big ones from a competitor. I'm not going to
go into it, but it's pretty amazing.
Speaker 3 (14:32):
These just tell us what color it was, then maybe
we'll know right orange.
Speaker 2 (14:37):
Having said that, I mean, these are not inexpensive devices.
So when a farmer or a big company is buying them,
they have to think about it, right, and they have
to think about what's coming. Talk to us about pricing.
What's the outlook for next year?
Speaker 8 (14:50):
Well, pricing is is uh, you know we say zero
to one percent pricing with just.
Speaker 6 (14:54):
A little bit of price probably.
Speaker 8 (14:56):
Yeah, it's a low pricing environment with weak man where
you know, we don't see much opportunity to put in price.
You know, we priced a fair bit during the COVID
time when there's a lot of inflation, and but we
try and keep pricing just a little bit above our cost.
So if costs are going up two percent, we try
and price just a little over two percent.
Speaker 6 (15:16):
So that's usually kind of how the industry.
Speaker 2 (15:17):
Operates, and you stay with that.
Speaker 6 (15:18):
Yeah, yeah, that's that's kind of how it's been going.
As throughout the cycle.
Speaker 3 (15:22):
Where are you seeing in the supply chain inflationary profess
inflationary pressures right now?
Speaker 6 (15:27):
If at all.
Speaker 8 (15:28):
We see a little bit of inflationary pressure still, but
but largely it's muted. The supply chain has healed dramatically,
you know, like our on time and full rating of
how the supply performance it was in the seventies during COVID,
Now it's in the mid nineties. It's it's better than
it was pre COVID. So the supply chain is healed.
Everything's flowing nicely. We still have friction in the in
(15:49):
the freight situation where there's you know, areas where we
have to go a longer route because of some of
the Middle East issues, but not a huge problem, nothing
like we had during COVID.
Speaker 2 (16:00):
When you look at markets and regions around the globes,
into our global companies, you've reminded us, I mean, where
are you most optimistic for the new year?
Speaker 8 (16:08):
Well, in the short term, you know, probably Asia Pacific.
They went into the market, Australia New Zealand Asia. That
region went into the downturn first, we're seeing them forecast
to come out of it sooner. Next would be South
America for a couple of reasons. One is just their
natural cycle sequencing, but they may have the best benefit
(16:30):
of this green moving around, and their currency is weaker
and so on. So Brazil is you know, big picture,
they're probably one of the biggest growth regions over time.
They have more land to put into production, fantastic climate,
they can grow two crops a year, so they're essentially
as soon as the combind goes through harvesing, the plant
comes right behind it and plants the next crowd.
Speaker 6 (16:51):
Is it safe to say?
Speaker 8 (16:52):
Can you know?
Speaker 2 (16:52):
We've talked so much over the last year or two
about the pushback on globalization and more near shoring or
on shoring, and that's happening in your indoor as well.
Right People are rethinking, certainly coming off the Russian Ukraine
war like kind of rethinking where they're getting their food supplies.
Speaker 8 (17:08):
Absolutely, both food supply and then as a company we're thinking,
we're changing the same thing in terms.
Speaker 6 (17:12):
Of our supplier relationship walks.
Speaker 8 (17:14):
So absolutely we've changed more supplier relationships in the last
two or three years than I think we did maybe
in the last in the five or ten before that,
lots of change in our supply base.
Speaker 3 (17:24):
Hey, very briefly, have have you seen climate change affect
your business at all?
Speaker 8 (17:28):
Well, climate change is a big thing on the mind
of our farmers because they have a lot more severe
weather impacts and so they have either too much water,
not enough water.
Speaker 6 (17:37):
And things like that.
Speaker 8 (17:38):
So they really want to use precision technology tools to
make sure that they're planting with the most efficiency and
then managing that crop through the growing cycle. So yes,
it's something that we're managing. And we're also helping farmers
take advantage of carbon sequestration, so taking the carbons in
the air, trapping in the soil and helping the farmers.
Speaker 2 (17:59):
Get paid for ten seconds left, we said, your stocks
down about four percent, so underperforming the market. What do
you say to investors right now? Be patient, real quickly.
Speaker 6 (18:06):
This is the cycle.
Speaker 8 (18:07):
We're closer to the bottom than anything else. It will
come back. It's not a matter of if, it's a
matter of when we're positioned for the future.
Speaker 6 (18:14):
We're going to come back strongly.
Speaker 2 (18:15):
Well, we hope you come back to you and continue
to give us an update. Eric Hansodia, he is Chairman Presidency.
You have ag Co joining us right here on Bloomberg
Business Week. This is Bloomberg.
Speaker 1 (18:26):
You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 3 (18:45):
Okay, we heard a lot from beet Chow J. Powell
yesterday on the economy, the consumer, and how the FED
is thinking about rates. Here's just a couple of things
that he said. Quote growth of consumer spending has remained resilient.
Speaker 6 (18:55):
Check quote.
Speaker 3 (18:57):
The economy is strong overall and has made significant progress
toward our goals over the past two years. Check check quote.
We think the economy is in a really good place,
and we think policy is in a really good place.
Speaker 2 (19:08):
Tech tech.
Speaker 3 (19:09):
Okay, so that's what we heard. Sounds pretty good from
the faget does sound pretty good? I mean yesterday's market reaction.
Speaker 6 (19:14):
Not with standing.
Speaker 2 (19:15):
Yeah, exactly for a check out.
Speaker 3 (19:17):
How the consumer is doing. Let's bring back Sylvia Tavares,
CEO at the credit data and credit risk analytics from
vantage Score. It's a joint venture of Experience, Equifax, and TransUnion.
Sylvia joins us from San Francisco. Sylvia, I wanted to
talk to you because you have so much good data
about consumer health. How would you characterize the consumer right now?
Speaker 10 (19:39):
Well, Chairman Powell is spot on the consumers healthy and
that's good news. That's good news for us as consumers.
It's good news for the economy. The challenge that we
have seen and the big change is that inflation is
more stubborn than anticipated, and that's the big thing that changed.
And we heard from Chairman power O, Well, they're going
(20:01):
to keep rates higher for longer and that means less
bank lending and probably less consumer credit utilization as well.
Not great for merchants.
Speaker 3 (20:09):
Hey, we had Mike McKeon earlier, but he made the
point yesterday during his turn to speak that we haven't
seen rates come down, that rates consumer rates excuse me,
thank you, Carol, consumer rates come down when we're talking mortgages,
we're talking credit cards.
Speaker 6 (20:25):
And the like.
Speaker 3 (20:26):
How are you looking at that over advantage score and
what that means for your Well, I was going to say,
your clients are customers, but kind of like we're all.
You have a view of all of us, whether we
know it or not.
Speaker 10 (20:39):
Yes, very much so. As you mentioned, van Score is
the largest national credit scoring company, and we take data
from trans Union experience in EQOFAX to assess the health
of the consumer and lower interest rates. The cut was anticipated.
The cut that happened this week was anticipated, and if
(20:59):
you look back at November, basically banks anticipated it and
they actually opened up more credit accounts credit new credit
card accounts in particular were up modestly in November, but
consumers only spent slightly more. Credit card balances were up
a little bit, you know, about thirty bucks November compared
(21:23):
to October and about two hundred bucks year over nearer.
And so overall, the interest rates and the expected cut
tended to increase new credit accounts and increase spending a
little bit, but not a lot, And so that's not
necessarily bad news. In some ways, it's good news. Consumers
are being disciplined about their credit usilation not getting in
(21:45):
over their heads, and banks are also somewhat modestly increasing
credit lines but still being cautious and we're going to
expect to see that continue into next year.
Speaker 2 (21:55):
Yeah, just listening to you, and I am curious, like
the number of accounts being opened. Is that a good
sign because people can do it and they get approval?
Is it a bad sign because people are opening up
new counts so that they can find new places to
spend and create bigger credits. So help us understand the
data that you get. You get so much in real time.
(22:15):
It feels like, what are the words that you use
to describe the consumer credit picture right now?
Speaker 10 (22:22):
Well, I would say it's healthy. You know, a low
score credit score for consumer is three hundred. The maximum
possible credit score is vantage score eight fifty, and the
average consumer is seven oh two through the end of
November and that's, you know, the earnest start of the
holiday spending season. So consumers are credit healthy, and we're
(22:44):
seeing modest increases in consumer spending and we're also seeing
modest increases in consumer lending. So overall, steady as she goes,
for sure. The challenge is as you look to next year.
The news we got this week from the FED is
they anticipate inflation to be much more a significant issue.
(23:06):
Than before the election, And so that's the main area
for concern as we go forward. Is the FED going
to be able to tame interest rates? Because if those
interest rates, if those inflation rates get out of control,
they're not going to be able to cut interest rates
as much and as aggressively as they signal to us before.
Speaker 3 (23:27):
You mentioned seven hundred and two for the average managage
score four point zero credit score. Carol and I just
both saying to each other, that seems high, given that
the highest you could get is eight hundred and fifty.
Speaker 6 (23:39):
Yah, is that high?
Speaker 3 (23:39):
That seems high for average?
Speaker 10 (23:42):
You're absolutely right, and it's high by historical standards. And
what that tells you is consumers overall are actually very
credit healthy. They're managing their credit cards well, they're not
getting in over their head on personal loans or their
mortgage and that's a really good thing. And I think
that's a bit of what's and lost as we saw
the wild swings in the stock market since the FED
(24:06):
announced its zero point two five percent cut. What's lost
in all of that market swooning is the fact that
overall the economy is doing very well and consumers are
actually doing very well, and the key problem that the
economy is facing is making sure that inflation doesn't get
out of control. That's obviously that reaction to inflation is
(24:28):
what impacted the election, and it's the main thing that
all the new members of Congress are thinking about. It's
what the President elect is thinking about, and it's certainly
what the FED is focused on, is just managing that
inflation so it doesn't get out of people. But the
reality is we've got a great economy right now.
Speaker 2 (24:45):
Sylvia, tell us, though, what do you know about the
demographics of the folks that from the data that you
get and the credit scores that are issued, Like, what
do we know about that pool of people? Because I
also do wonder and something Tim and I talk a
lot about folks at Bloomberg talk a lot about is
the underbanked. You know, folks that maybe can't get that
(25:05):
credit card, so they're not even in you know, that
average score statistical bunch, if you will, so give us
an idea of what you know about the demographics of
your business and the people that you basically rank.
Speaker 10 (25:17):
Well, that's one of the advantages of the vantage score.
We actually include a lot of people that traditionally were
left out of credit scores, we actually include about thirty
million more consumers. Many of those consumers are folks that
historically didn't get a credit score, but we're able to
score them using our advanced techniques. And you know, if
you think about the average consumer overall, they are at
(25:39):
fact doing better than they were a year ago, and
they're actually using credit slightly more than they were a
year ago. And that's the high end as well as
the low end consumer when they can't access that credit.
So we're seeing a pretty uniform picture overall, consumers doing
(26:02):
modestly better than they were a year ago. The key, though,
as we look into the new year, what we're expecting
is the FED is going to keep rates interest rates
higher for longer, and what that's going to mean is
fewer consumers are going to get new credit accounts, and
that's going to disproportionately impact the low end, but it
also means that the high end consumer, they're going to
(26:24):
be more reluctant to use credit.
Speaker 3 (26:27):
Hey I'm curious about buy now, pay later and those
types of firms, the sort of instant credit that's offered
at checkout at places, are they using Vantage Score?
Speaker 10 (26:39):
Absolutely many of those firms use a credit score to
manage the access to new BNPL accounts. However, many of
those firms, by now Pay Later companies, they don't provide
data on the performance of those loans, and that is
a blind spot for the end history that we're working
(27:01):
on because that has grown the utilization by now Pay Later.
You want to get the data on whether people are
actually paying up in three or fourth installment, are they Well,
it's tough to tell. It's tough to tell. What we
can see is that overall delinquencies that's the industry jargon
(27:21):
for whether people pay their credit card loans on time,
those delinquencies are actually pretty good, and in fact they're
better than the pre pandemic averages and they're polding steady.
We saw that in the most recent November credit gage.
And what that shows is again consumers remain credit healthy.
(27:41):
We're not seeing a significant deterioration in delinquencies, and that's
actually very good news for the economy.
Speaker 2 (27:48):
Hey, how when it starts to go bad, though, does
it all of a sudden turn quickly? Like, do you
guys get indications that all right, we got some trouble
here when it comes to consumer credit. Tell us about
kind of that bill to kind of forecast, because I
know in some indicators, when they start to go bad,
they go bad really quickly and then they just drop
off well.
Speaker 10 (28:08):
And we've certainly seen that there's been a period of
unprecedented credit volatility over the last two to three years.
Things do change quite rapidly, and it's one of the
reasons why we are seeing our customers, banks, our stakeholders
in Congress and at the Federal Reserve, we're seeing them
(28:29):
turn to more high frequency data. You've got to check
what's happening in the market more regularly. It's one of
the reasons that Vantage Score was an industry leader in
publishing insights on a monthly based basis. We call that
Vantage Coore Credit Age, and in fact, we're publishing that
tomorrow morning. The data I'm sharing with you is an
exclusive that we provided to Bloomberg in advance. But the
(28:51):
reality is, if you're a bank, if you are a policymaker,
you've got to be checking quickly more regularly because things
move quickly, and I actually anticipate that's going to accelerate.
Things are going to move even more quickly as we
head into twenty twenty five. New administration, new regulators, new policymakers.
Speaker 7 (29:08):
All of that's going.
Speaker 10 (29:09):
To bring more.
Speaker 2 (29:09):
Yes, a few things going on in the new year,
no doubt about it. Sylvia, thank you so much. Have
a good holiday, Happy New Year. Silvio Tavaris, he's chief
executive officer Advantage Score, joining us on this Thursday from
San Francisco.
Speaker 1 (29:22):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm. Easter Listen
on Applecarplay and then Broud Auto with a Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (29:35):
Let's talk about kind of what's next.
Speaker 3 (29:37):
Very that low hanging fruit the perfect segue, because that's
exactly how our next guest describes what the last two
years have looked like when it comes to AI. We
got with us Rachel Met She's Bloomberg News AI reporter.
She writes about what the AI giants are doing now
that that low hanging fruit is gone two years after
the introduction of chat GPT. She joins us from San Francisco.
(29:57):
Check out Rachel's story on the Bloomberg Terminal and at
Bloomberg dot com Slash business Week. Rachel what is the
tone that we've heard over the last few weeks, over
the last few months from these AI giants, I mean Anthropic, Google,
Meta Open Ai about training these models and sort of
what's next when it comes to this so called AI revolution.
Speaker 11 (30:17):
Well, it kind of depends who you ask, when you
ask them, and how you ask them, but definitely in
our reporting we found that a number of companies, Anthropic,
Google and OpenAI are having some challenges I would say,
in training their cutting edge AI models. They are running
out of data they are or not having the right
(30:39):
kinds of data to train them to what they want
them to be.
Speaker 7 (30:43):
And also, these models cost so.
Speaker 11 (30:44):
Much money to make, so you really want to make
sure that if you're putting a ton of money into
something that is going to be good enough to be
worth it.
Speaker 10 (30:51):
Right.
Speaker 11 (30:51):
So they're seeing, as we put it, I think, diminishing
returns in some cases with their most cutting edge technology.
And some people such as Google's CEOs under the CHAI
have talked about this, and some other people have been
you know, a little bit quieter about it, like you
might see or they say the opposite, like you might
(31:12):
see Sam Altman on social media saying there is no wall,
and I'm like, well there was a wall exactly.
Speaker 2 (31:18):
I have to tell you you saying this. I am
obsessed with this story that our Linda Wan put out
on December thirteenth, and I highly recommend, just like Rachel,
read everything she writes. Check out the story because it
basically said AI wants more data, more chips, more power,
more everything. But that concept of more data, I think
we thought, oh, the world is a wash in data.
I give it tons of data every day, and yet
(31:40):
there was this concept of actually really useful smart data
that helps AI kind of keep growing and get to
the next level. I mean that sounds like that could
be kind of a supplied demand imbalance.
Speaker 10 (31:52):
Yeah.
Speaker 11 (31:53):
I mean it's important to keep in mind that not
all data is created equal, and a lot of the
data that is used to build these large language models,
which is the kind of AI that powers chatbots like
chat GBT, it's a lot of it is coming from
the Internet and it has been largely scraped at this point.
So if you want to make bigger, better models, you
need more and more data. So companies are starting to
(32:15):
think about, well, where could we get more data from,
and some of that could involve paying professionals, people with
PhDs or other type of higher degrees to label data
for like math models that can be really good at
math or coding things like that. You might look to
people in the medical field, like a nurse, for instance,
(32:36):
to label data related to medical professions, because you really
want to have good data to train these models to
be accurate and good at specific things going forward.
Speaker 3 (32:46):
Here, why don't you take all this stuff so I
won't have a job anymore. Why don't I teach you
how to do my job?
Speaker 2 (32:52):
So then if that sarcasm, mister, that's just I know,
I know.
Speaker 3 (32:55):
I'm oversimplifying it, Rachel, but I see you're laughing.
Speaker 7 (32:57):
So my mission is a competent Okay, There'll still be
plenty for us to do.
Speaker 2 (33:01):
Okay, I'm so glad. I'm so glad. I don't know,
So how do you read this? Because I do feel
like it has been nothing, but you know, not even
a marathon. It's been just a fast race the last
one and a half years, two years. In terms of
the AI spend ramping up, it just feels like anything
that came, you know, in terms of AI or you know,
(33:21):
when we do earnings, right, we wanted to see is
the AI spending there and so on and so forth.
But it does feel like a reminder that all of
this is going to take time. How do you think
about this cycle?
Speaker 7 (33:33):
I think that what you said that at the end
there is really spot on. It is going to take time.
Speaker 11 (33:37):
And also, as we've seen in other industries, sometimes the
piece of innovation doesn't always you know, it's not always
the same. It goes and fits and starts. Sometimes things
are really fast, sometimes things even seem to go backwards
a little bit. I spoke for this story is latest story.
I spoke with Jonathan Frankel, who is a scientist and
(33:57):
he works at Data Bricks Yet Data Bricks, Yeah, and
he said something that I thought was really spot on.
And I've actually heard this from a couple people that
we should look to the chip industry, and you know,
the chip industry, we've seen different innovations over time, and
sometimes directions change depending on where's the best way to innovate.
(34:19):
And that seems to be what we're seeing with AI,
and that's what I would expect to see going forward,
is people trying different things. Sometimes they work, sometimes they don't,
and sometimes things go fast and sometimes they go.
Speaker 2 (34:29):
A little slower, hey, Rachel, really quickly ten fifteen seconds.
I mean, might twenty twenty five be that, like, I
don't know, take a breath, you know, slow you slow
your roll everybody when it comes to AI, Might that
be the twenty twenty five year or who knows?
Speaker 7 (34:42):
I don't think so. Actually, I mean that would be
really nice. It would be relaxing for the news cycle.
Speaker 11 (34:47):
But I think that we're going to see a lot
of people working on so called AI agents. This would
be AI software that can perform more complicated tasks with
not much help from humans and some other things that
we're going to see compies doing. I think they're really
pushing ahead, and we have to remember they still have
a lot of these companies will have lots of money
to burn, so they're going to keep plugging away.
Speaker 2 (35:08):
Well good, that means we get to continue talking to you.
So love, so love Rachel Matt's Bloomberg News AI reporter.
Check her out on the Bloomberg Time, Bloomberg Terminal, and
of course at Bloomberg dot com.
Speaker 7 (35:18):
Um brother, mac.
Speaker 1 (35:22):
Journal, Now about you let me drive? No no, no job, honey, please?
Speaker 6 (35:29):
How do the riding gravels?
Speaker 10 (35:31):
Let's wait I want to try it.
Speaker 7 (35:34):
It's a good question.
Speaker 6 (35:39):
This is the drive to the Globe dot com. Tim
think we'll buy around yother.
Speaker 1 (35:44):
Don on Bloomberg Radio.
Speaker 2 (35:46):
All right, everybody, TikTok. Everyone, almost twenty minutes left to
go until we wrap up the trading day on this Thursday.
And you've got stocks bouncing around. We are green across
the screen. They'll call the NAIs deck one hundred. Pretty
much unchanges up a couple of points. You just start
Charlie uh Bill Maloney just breaking down the trade. But
we're off our best levels of the session, but still
up about four tens of a percent on the S
and PNS. I said, the Nasdaq one hundred is flat.
(36:08):
I know you're going to go to the Dow. It's
up about half a percent.
Speaker 1 (36:10):
Oh well then okay, well no I got nothing.
Speaker 4 (36:13):
Sorry, took it for you.
Speaker 6 (36:15):
I got nothing.
Speaker 1 (36:15):
Sorry.
Speaker 3 (36:16):
But we were talking this week about the losing streak
that the DOO has had. Yeah, I mean we're talking
one that was like decades until today.
Speaker 2 (36:24):
All right, So one thing, don't care.
Speaker 1 (36:26):
She's in care.
Speaker 3 (36:27):
She'sn't care.
Speaker 2 (36:27):
I'm losing care about the I want to talk about
private credit because we have a great guest back with
us Anna Oursofs. She's a global head of private credit
and financial institutions over at Moody's. And I keep thinking about,
I don't know private credit. Everybody's all in firms. Private
credit firms are expanding beyond corporate lending to finance areas
like auto loans, residential mortgages, chip manufacturing, data censor centers.
(36:49):
Excuse me, so we're talking about a potential market size
of forty trillion dollars. Again, it's a market that many
would argue there isn't a lot of transparency. Are there
checks and balances as you see in the private credit world?
Speaker 9 (37:04):
First, thanks for having me. I really appreciate obviously the
being a repeated guest. And uh, and yes, we are
focused on the same point that you're raising. We don't
think that there is an equal level of transparency in
all of the aspects of private credit. And namely, I
would probably separate the BDC portfolio, which is business development companies.
(37:25):
These are closing funds focused on investing in middle market
loans that we rate with a lot of good granular disclosure. Publicly,
these are mostly public trading vehicles. There are some private
privately traded, but really most of them are public public vehicles.
Speaker 10 (37:41):
With great disclosures.
Speaker 9 (37:42):
But that market is roughly around three hundred billion, pretty
small part of the what we estimate three trillion dollar
a nord of market growing into the next couple of years.
So again I would say that disclosure is still it's improving,
but not where it needs to be for such to
growing market and particularly growing market and wants to tap
(38:03):
retail money.
Speaker 3 (38:04):
Where do you think it needs to be? I mean, like,
what would what would make you say, Okay, now I'm
comfortable with their view that they want retail money. There's
enough disclosure there, Like what do they need to do well?
Speaker 9 (38:16):
I think that we don't have in aligned rules for
example and valuations of private companies. You know, every fund
can choose its own governance around relations which is very
important driver into how these person all portfolio companies are estimated,
and particularly the private loans that lend to these portfolio companies,
which is usually on a loan to value basis as well.
(38:36):
So so again relations an area that we would like
to see more coherence and focus on transparency. In the
same way of discussing, for example, defaults in the public market,
we have a very clear view what a default is
for for a loan, not necessarily in the private markets,
you know, they're a long compitter structured multiple times without
necessarily occurring a default. Ever, so again there's some alignment
(38:59):
between the public pride markets on the current site. It
needs to happen in order for this market I feel
to be full institutionalized.
Speaker 2 (39:05):
I do wonder though, like so, how do you go through,
you know, the supply chain that is private credit? I mean,
is there some area I don't know? You know, I
feel like the traditional big banks are looking to get,
you know, kind of more involved in it, Like, so,
how do you go about you know, providing kind of
the legwork, the framework, the due diligence. And again and
in an area where we don't have a lot of
(39:27):
oversight or a lot of information.
Speaker 9 (39:29):
Look, one of the one of the areas that we've
been also focused on is looking at the regulated sector
at the ends of the day, either investing like the
insurance industry or lends to, which is the banking industry.
So private credit could not really grow to the level
it grows without one of the major investing classes are
regulated industries, which is insurance, and without the leverage provided
(39:50):
by the banks. So one way to improve that is
for those regulators of those sectors to really have a
sense of kind of the risks that a provision to
the private credit market. And actually the banking regulators in
the US are making a very good stride. Starting in
Januer of this year, the banks will be mandated to,
for example, provide more regularity about lending into this, uh,
(40:15):
this market, and I don't know, make financials market in
general with better granularity what is private credit, what is
private equity, et cetera. So I think that that would
be a move forward. The insurance industry is always the
very heavily invested, particularly in the US. We estimate around
percent of the insurance industries in some kind of way
of alternatives, if you will, and that's going to continue
(40:35):
growing based on the CIO surveys. So I think both
of those industries have a very high vested interest and
the regulators to help disclosures in the private markets.
Speaker 2 (40:44):
And from what you know about the private credit world,
do you think it is wise that we look to
open this up to more and more retail investors accredited
or otherwise.
Speaker 9 (40:59):
The depends on the format and the actually as a
matter of fact, the business development companies are largely a
retail product. But as I noted, those are they have
their funded primarily at least the rated universe, which we
rate the largest you know, thirty plus vehicles in the space.
They actually have a pretty good disclosures publicly to the
to the to the public by on a lone even
(41:22):
level granularly performance and also to the ones. We actually
provide for liquidity on a quarterly basis. You know, we
do in depth analysis in terms of how much liquidity
they have to have provision for that liquidity of let's ay,
maximum twenty percent a year five percent of core so
that you can plan for that because that vehicle again
doesn't have an ability necessarily withdraw the money from a
(41:44):
client immediately overnight like a deposit or like an ETF market.
On the other hand, EDF market has daily liquidity. So
they're the mismatch of that ill liquid underlying asset class
with a daily liquidity.
Speaker 3 (41:57):
Something that is about our concern which of course, Carol,
you're supposed to get compensated for when it comes to returns, right,
you know, if you can't have access.
Speaker 2 (42:05):
Right right, Your assumption is that those returns are going
to be, you know, better because overall market right, because
you're kind of leaving your money there. I don't know
a lot to be known, and we'll see what twenty
twenty five holds when it comes to private credit, but
it certainly has consumed our conversation on the investment side
of things really for at least the last couple of years,
if not longer, and oursov thank you so much. Happy holidays,
(42:28):
Global head of Private Credit and Financial Institutions over at Moody's.
Speaker 1 (42:33):
This is the Bloomberg Business Week podcast, available on Apple, Spotify,
and anywhere else you can get your podcasts. Listen live
weekday afternoons from two to five pm Eastern on Bloomberg
dot com, the iHeartRadio app, tune In, and the Bloomberg
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Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business
Wait inside from the reporters and editors who bring you
America's most trusted business magazine, plus global business finance and
tech news. The Bloomberg Business Week Podcast with Carol Messer
(00:23):
and Tim Stenebek from Bloomberg Radio.
Speaker 2 (00:26):
All Right, everybody shares in Micron Technology. They are the
biggest decliner in the Nasdaq one hundred. They are right
now down I think about sixteen and a half percent. Yeah,
pullin it up just off their lows of this session,
So big hit down the most in more than four years,
since March of twenty twenty. And this is coming after
the largest US maker of computer memory chips put out
a revenue forecast that miss projections, reflecting sluggish demand for
(00:49):
smartphones and personal computers. And then there's also a headline
involving Intel that we kicked off our hour with. So
we've got a lot to talk about when it comes
to the semi space.
Speaker 3 (00:57):
Now, what we need to know when it comes to Intel,
Micron and the broad world of semiconductors. Here with us
as Bloomberg Intelligence, a semiconductor's analyst, Jake Silverman. Here in
our Bloomberg Business Week studio, as Carol mentioned, Micron selling
off big time, sixteen point five percent of the downside
right now, worst day going back four years, sluggish PC
and smartphone demand. Yesterday when this broke, I was thinking
to myself, didn't we know about sluggish PC and smartphone demand?
(01:20):
Why is this such a surprise.
Speaker 4 (01:22):
Yeah, so part of that is that.
Speaker 5 (01:25):
This is more so an inventory correction than it is
actually a change in demand profile suddenly. So over the
last it seems like maybe six months, five six months,
there was a build up of inventory.
Speaker 2 (01:38):
Which happens in the semi space.
Speaker 6 (01:40):
Yeah, it does.
Speaker 4 (01:41):
It happens all the time. Yeah, it's frequent.
Speaker 5 (01:43):
You go through up cycles and down cycles, and so
PC and smartphone customers were built, were building up inventory
ahead of price increases which did occur. And so now
what's happening is they haven't adequate levels of inventory and
demand isn't necesscessarily that strong. So there's not a lot
of demand for Micron's memory chips right now.
Speaker 2 (02:05):
So is it kind of like whoa, whoa whoa? Investors
understand that the reason their's sluggish demand is not that
you know, we've known that about the troubles in the
PC market. But it's not like everything's going to hell
in a handbasket, right, It's just a case of people
had built up inventories.
Speaker 4 (02:19):
Yeah, sure, no.
Speaker 5 (02:20):
And there's also something to keep in mind though that
there's a number of different moving parts. I think there
is obviously the AI aspect of it, but people are
also I think somewhat concerned about just how long, how
prolonged this inventory correction will last, and how much excess
inventory is actually in the channel right now, because I
thought they kind.
Speaker 2 (02:38):
Of checked the check the box when it came to AI.
Speaker 4 (02:40):
Their AI, Yeah, I was pretty strong.
Speaker 5 (02:43):
Yeah, I mean data center related demand group forty six
percent sequentially.
Speaker 3 (02:46):
So, well, remind everybody where where they play in this
space where Micron fits in. If you look at the
supply chain analysis feature on the Bloomberg terminal, you see
that Apple's one of its biggest customers. Dell LG like Tronics,
WPG Holdings is actually its biggest customer. Where does it play?
Speaker 4 (03:05):
Yeah, well, so it's pretty broad.
Speaker 5 (03:07):
I mean every consumer electronics device, everything that you know,
every electronic device.
Speaker 4 (03:11):
Needs memory, needs storage to some extent.
Speaker 5 (03:14):
And so what's been happening is you know, over time,
it's well over the last several months, last year or so,
demand has improved a lot in the data center. So
now that you're starting to see more demand from customers
like Nvidia as well as other like A six as well,
you know, the customers of Broadcom and Marvel who are
also you know, creating their own AI servers or you
(03:36):
know a six Hey chick.
Speaker 2 (03:38):
One thing I'm going to as you said, the data
center related revenue did okay, grew four hundred percent in
the quarter. That's pretty okay from a year earlier. The
unit now accounting for more than half the company's total sales,
but it wasn't enough to offset the weaker our orders
from makers of devices aimed at consumers. Having said, that
is the data center, what this company really becomes that
(04:00):
area in the future, Like that's going to be the
dominant business.
Speaker 5 (04:04):
Yeah, I mean, it depends entirely on how much additional
AI infrastructure buildouts occur. If there's continual incremental spend over
the next decade or so, you know. But the thing is,
if you know, high bandwidth memory is an area that
they're seeing a lot of demand for, but it's still
so early for them. So what you're seeing a lot
of the data center demand or growth this past quarter
(04:25):
was actually not necessarily all related to HBM. In fact,
the vast majority of it was actually like high capacity
modules as well as LPDDR that goes into servers and
AI servers. An area that was a little bit of
a concern was actually that data center SSDs, though took
a bit of a pause. They're moderated in terms of demand.
(04:46):
We're not exactly sure if that's how temporary that is.
Speaker 3 (04:49):
Hey, Jake, I promise we talk a little bit about Intel.
We learned just in the last hour that Intel has
shortlisted a number of buyout firms for the next round
of bidding for its Altera unit. This, according to people
familiar with the matter, this is the chip maker faces
headway on a process started by it's now ousted CEO.
What do what does our investing audience need to understand
about this?
Speaker 7 (05:07):
Yeah?
Speaker 5 (05:08):
No, I mean I think for Intel it's just an
opportunity to really unlock value. We've seen them do very
similar plays with their with Mobile Eye, for example, and
one of their other businesses within their foundry. So this
is an opportunity for a pretty high margin, data Center
mostly play but still somewhat diversified in Altera for Intel
to get so much needed cash, all.
Speaker 2 (05:30):
Right, so it just sounds like stay tuned. More to
come from Intel.
Speaker 1 (05:34):
Yeah.
Speaker 5 (05:34):
I mean, we'll see how much value they can truly unlock.
But you know, it is a higher margin business, somewhere
around the mid mid to low sixty percent versus you know,
much lower margins, well relatively speaking for their other businesses
like PC and data center.
Speaker 2 (05:48):
All right, and I should say that Intel shares are
just down a little bit. They were down about one
percent at its lows up two percent, and its ties
right now down about eight tens even percent, so it
kind of bouncing around.
Speaker 1 (05:58):
Yeah.
Speaker 3 (05:58):
PE firms including Francisco Park Ourtner silver Lake Management are
competing alongside with Lattice Semiconductor in a second round for Altera.
Speaker 2 (06:04):
All right, Jake and Lee with there. Thank you so much.
Jake Silverman, he's sevenconductor analyst with our Bloomberg Intelligence team.
Speaker 1 (06:10):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm Eastern. Listen
on Apple car Play and and Broud Auto with a
Bloomberg Business app or want us live on YouTube, ACO hosting.
Speaker 2 (06:24):
It's ALS Day today and giving an update on its business.
Shares of the company selling off the most in nearly
two months, at least at its lows down about four
and a half percent as we speak after the form
Equipment Company projected net sales of nine point six billion
in twenty twenty five, down from about twelve billion this year.
That forecast, by the way, trailing the average analyst estimate
of ten point seven billion dollars.
Speaker 3 (06:45):
Ahead of that meeting, the company's largest shareholder, Tractors in
Farm Equipment Limited, urge management to address several issues, including
what they call agco's quote lagging performance compared to peer's
successive quarters of performance misses and downward revisions and guidance,
diminishing compitive position, and value erosion through failed acquisition.
Speaker 2 (07:03):
It's a rough setup, but we're so delighted to have
with us the CEO, chairman, President of a COO, Eric Hansodia.
He's here in studio. We had to lay it out,
but you know what's been going on more than most
tell us first of all about the analyst meeting and
some of the serious issues that investors wanted to know about.
Speaker 8 (07:20):
Well, you know, this is a wrap up of a
pretty amazing year on the one hand, but mostly is
a forecast forward. So this year we made the largest
ag tech deal in the history of the industry. We
sold off our lowest margin, lowest growth business in the
green and protein division, and managed through a significant downturn
in the industry, one of the most severe in the
last ten years.
Speaker 6 (07:39):
These things happen, but it was all coming together this year. Now.
Speaker 8 (07:44):
Our analyst meeting was all about forecasting forward, and the
first one I did we made a claim of being
a ten percent margin, never done that in the history
of the company.
Speaker 6 (07:51):
We delivered.
Speaker 8 (07:52):
Then the last time two years ago raised the bar
to twelve percent and we're on track to deliver that.
Speaker 9 (07:56):
Now.
Speaker 8 (07:56):
We raised the bar again to day to a fourteen
to fifteen percent range, and our team is very confident
that we're going to deliver on that.
Speaker 3 (08:02):
Eric, you mentioned it's a quote amazing it's been a
quote amazing year. An investor watching right now might have
issue with that and say, what are you talking about.
Shares are down about twenty five percent so far this year.
Where's the disconnect?
Speaker 8 (08:14):
Well, it's all about the cycle. So the industry went
through like that. That was one of the three things
that made it an amazing year. I mean amazing has.
Speaker 6 (08:22):
Both positive and negative and good and bad.
Speaker 8 (08:25):
So the demand came down a lot, but the restructuring
of the company to position it for the future much
more focus on technology, high margin.
Speaker 6 (08:34):
High growth, less distraction.
Speaker 8 (08:36):
From a low growth business, really sets ad Co up
to prosper as the industry comes back, and it will.
You know, these industries go through a normal pattern where
there's a big correction year.
Speaker 6 (08:47):
That's the year we're in.
Speaker 8 (08:47):
We went from about one hundred and five percent of
the cycle down to ninety and one year.
Speaker 6 (08:51):
That's a big correction.
Speaker 2 (08:52):
That's pretty rough.
Speaker 8 (08:53):
But in twenty five we'll probably find the bottom and
then we'll start working back AUP. And our mission is
to control what we can control. We can't control industry,
but we can position the company to be strong on
the way back.
Speaker 2 (09:03):
So Eric, twenty twenty five will be the bottom in
your view.
Speaker 6 (09:05):
That's our first cycle, that's right.
Speaker 2 (09:07):
What about all the kind of global trade, you know, environment,
tariff's trade, geopolitical, how might that change that?
Speaker 8 (09:13):
Well, you know, there's a number of balls in the
air right now and things that are uncertain. At the
end of the day, though, the same number of mouths
want to eat, and so grain may shift around a
little bit, maybe one farmer's advantage, one's farmer's disadvantage, but
it'll just shift where that grain comes from. We're a
very global company, you know, only twenty five percent of
(09:34):
our businesses in North America, So if grain moves to
a different market, we'll serve it from those markets, so
you know we so.
Speaker 2 (09:42):
Global trade war would not impact farmer equipment purchases at
least for you guys. I amsud your global.
Speaker 8 (09:48):
But I don't want to make it that concrete because
any anybody buying capital.
Speaker 6 (09:54):
Goods wants certainty.
Speaker 8 (09:55):
And so if we have a very uncertain, fast changing environment,
then folks could hold back. But that's different from if
the rules shift and say there's an advantage here and
a disadvantage there, but they're stable. Now that we know
the new rules, and then we know the new guard rails,
then everybody can plan around that. And so I think
the uncertainty is the bigger issue than a shift in
(10:18):
the framework.
Speaker 3 (10:19):
Sort of on Carol's questions about uncertainty and a potential
trade work. If we look at the first Trump administration,
the way that farmers in the US had to be
bailed out as a result of retaliatory tariffs that were
put into place by countries during that time. How do
you prepare for the next Trump administration? How does that
change your business? How does it change your outlook?
Speaker 8 (10:36):
Well, we've done a lot of scenario planning looking at
all types of things.
Speaker 6 (10:39):
Because there's two levels.
Speaker 2 (10:40):
There are many different scenarios.
Speaker 8 (10:41):
Oh over a dozen for sure, go ahead, Yeah, And
so the notion here is you have to plan on
a couple different levels. One is the cost for the company,
but on the other one, it's the impact of farmers globally.
Speaker 3 (10:54):
And that's what I was thinking of.
Speaker 8 (10:55):
More so so it's the supply side and the demand side,
and how do you respond to both of those. So
none of it is certain yet you've got to kind
of just decide where it could land. At the end
of the day. Our major competitors also have very global
supply chains, and so to some degree, this will impact
all the companies to some degree the same. Now, there
(11:17):
could be nuances of elements that'll be different, but at
the macro level, we'll all have some of the same
influences and the global grain will re establish itself and
find its way to the market.
Speaker 2 (11:27):
What about production cuts and your production schedules is the
one any kind of cuts copying in the first quarter
and then do you see production gradually increasing throughout the year.
Speaker 8 (11:36):
Yeah, we expect, you know, we're expecting this downturn, which
was very dramatic in twenty twenty four, to continue into
twenty twenty five probably start finding its way back up. Already,
Asia and parts of South America are showing green.
Speaker 6 (11:48):
Shoots of growth.
Speaker 8 (11:50):
They were the first to go into the market or
going to the downturn, they're coming to back out. So yes,
the first quarter is going to be probably the worst
as we're underproducing to retail demand, to c out the
pipeline of inventory in our dealer network, and then likely
recovery in the second half.
Speaker 2 (12:04):
I want to take a step back because I don't
think I said to you when you kind of walked
in that we don't necessarily spend a lot of time
talking about the agricultural economy. We just kind of assume
all this stuff's going to happen until there's war and
we have shortages and we're like, what's going on here.
So what is different Eric about this agg downturn versus
what we've seen in prior cycles. To help kind of
people understand, well.
Speaker 6 (12:25):
Two things. Number one is how fast agg co is responding.
Speaker 8 (12:28):
And I think some of our peers are doing the
same thing, but much more aggressive response, way faster action
on cost and on inventory. So instead of letting this
downturn linger and stretch out, everybody's much.
Speaker 6 (12:41):
More responsive and proactive. That number one.
Speaker 8 (12:43):
Number two is the role of technology. You know, we
just launched a kit that makes an existing tractor autonomous.
You can take the driver right out. Yeah, it works
with the combine drives up alongside, you, unload on the goal,
and then the tractor drives away. Nobody in the tractor
the whole time. So in artificial intelligence, in our spray
identify there between a weed and a plant, only spread
the weed. All this technology is making these machines much
(13:06):
more capable and making the farmer much more productive. So
even though there's ebbs and flows in the market, farmers
see the opportunity to make themselves more profitable. Even in
down markets. They say, I got to have that latest
technology to make myself more efficient. So technology is playing
a much bigger role this time than last cycle.
Speaker 3 (13:24):
The autonomous technology. Is it one hundred percent there for you?
Speaker 6 (13:26):
Yeah, we're selling it today.
Speaker 8 (13:28):
So we demonstrated it last fall last fall to journalists
and our analysts.
Speaker 6 (13:33):
And we're selling them right now.
Speaker 3 (13:34):
And are there any regulatory issues around it in different
parts of the world where can it be?
Speaker 8 (13:37):
Well, we don't take it on the we don't take
it on the road. That's a big difference. So we're
staying in the field. And the fail safe mold when
it runs into a situation where it doesn't hasn't been,
doesn't understand what to do, it stops and so then
we can remotely monitor into that machine and say, okay,
either pull back and drive around or go or drive
(13:58):
through it.
Speaker 3 (13:58):
But because it's not on the it's not regulated at all,
so you don't have to worry about any of that stuff.
Speaker 6 (14:03):
Largely, that's true, that's right.
Speaker 8 (14:05):
Fundamentally, the regulations are on road and that's where the
bigger challenges. That's why some of the automotive they have
a much bigger challenge than we do.
Speaker 6 (14:13):
But our opportunity, you know, our solution fits on multiple
brands of equipment.
Speaker 8 (14:18):
It's a retrofit kit that then can take an existing
machine and you can use it either way. You can
either continue to drive it the way you do today
or make an autonomous in many applications on the.
Speaker 2 (14:26):
Farm, I've said, I've driven a tractor like one of
the big ones from a competitor. I'm not going to
go into it, but it's pretty amazing.
Speaker 3 (14:32):
These just tell us what color it was, then maybe
we'll know right orange.
Speaker 2 (14:37):
Having said that, I mean, these are not inexpensive devices.
So when a farmer or a big company is buying them,
they have to think about it, right, and they have
to think about what's coming. Talk to us about pricing.
What's the outlook for next year?
Speaker 8 (14:50):
Well, pricing is is uh, you know we say zero
to one percent pricing with just.
Speaker 6 (14:54):
A little bit of price probably.
Speaker 8 (14:56):
Yeah, it's a low pricing environment with weak man where
you know, we don't see much opportunity to put in price.
You know, we priced a fair bit during the COVID
time when there's a lot of inflation, and but we
try and keep pricing just a little bit above our cost.
So if costs are going up two percent, we try
and price just a little over two percent.
Speaker 6 (15:16):
So that's usually kind of how the industry.
Speaker 2 (15:17):
Operates, and you stay with that.
Speaker 6 (15:18):
Yeah, yeah, that's that's kind of how it's been going.
As throughout the cycle.
Speaker 3 (15:22):
Where are you seeing in the supply chain inflationary profess
inflationary pressures right now?
Speaker 6 (15:27):
If at all.
Speaker 8 (15:28):
We see a little bit of inflationary pressure still, but
but largely it's muted. The supply chain has healed dramatically,
you know, like our on time and full rating of
how the supply performance it was in the seventies during COVID,
Now it's in the mid nineties. It's it's better than
it was pre COVID. So the supply chain is healed.
Everything's flowing nicely. We still have friction in the in
(15:49):
the freight situation where there's you know, areas where we
have to go a longer route because of some of
the Middle East issues, but not a huge problem, nothing
like we had during COVID.
Speaker 2 (16:00):
When you look at markets and regions around the globes,
into our global companies, you've reminded us, I mean, where
are you most optimistic for the new year?
Speaker 8 (16:08):
Well, in the short term, you know, probably Asia Pacific.
They went into the market, Australia New Zealand Asia. That
region went into the downturn first, we're seeing them forecast
to come out of it sooner. Next would be South
America for a couple of reasons. One is just their
natural cycle sequencing, but they may have the best benefit
(16:30):
of this green moving around, and their currency is weaker
and so on. So Brazil is you know, big picture,
they're probably one of the biggest growth regions over time.
They have more land to put into production, fantastic climate,
they can grow two crops a year, so they're essentially
as soon as the combind goes through harvesing, the plant
comes right behind it and plants the next crowd.
Speaker 6 (16:51):
Is it safe to say?
Speaker 8 (16:52):
Can you know?
Speaker 2 (16:52):
We've talked so much over the last year or two
about the pushback on globalization and more near shoring or
on shoring, and that's happening in your indoor as well.
Right People are rethinking, certainly coming off the Russian Ukraine
war like kind of rethinking where they're getting their food supplies.
Speaker 8 (17:08):
Absolutely, both food supply and then as a company we're thinking,
we're changing the same thing in terms.
Speaker 6 (17:12):
Of our supplier relationship walks.
Speaker 8 (17:14):
So absolutely we've changed more supplier relationships in the last
two or three years than I think we did maybe
in the last in the five or ten before that,
lots of change in our supply base.
Speaker 3 (17:24):
Hey, very briefly, have have you seen climate change affect
your business at all?
Speaker 8 (17:28):
Well, climate change is a big thing on the mind
of our farmers because they have a lot more severe
weather impacts and so they have either too much water,
not enough water.
Speaker 6 (17:37):
And things like that.
Speaker 8 (17:38):
So they really want to use precision technology tools to
make sure that they're planting with the most efficiency and
then managing that crop through the growing cycle. So yes,
it's something that we're managing. And we're also helping farmers
take advantage of carbon sequestration, so taking the carbons in
the air, trapping in the soil and helping the farmers.
Speaker 2 (17:59):
Get paid for ten seconds left, we said, your stocks
down about four percent, so underperforming the market. What do
you say to investors right now? Be patient, real quickly.
Speaker 6 (18:06):
This is the cycle.
Speaker 8 (18:07):
We're closer to the bottom than anything else. It will
come back. It's not a matter of if, it's a
matter of when we're positioned for the future.
Speaker 6 (18:14):
We're going to come back strongly.
Speaker 2 (18:15):
Well, we hope you come back to you and continue
to give us an update. Eric Hansodia, he is Chairman Presidency.
You have ag Co joining us right here on Bloomberg
Business Week. This is Bloomberg.
Speaker 1 (18:26):
You're listening to the Bloomberg Business Week podcast. Listen live
each weekday starting at two pm Eastern on Applecar Play
and Android Auto with the Bloomberg Business app. You can
also listen live on Amazon Alexa from our flagship New
York station. Just say Alexa Play Bloomberg eleven thirty.
Speaker 3 (18:45):
Okay, we heard a lot from beet Chow J. Powell
yesterday on the economy, the consumer, and how the FED
is thinking about rates. Here's just a couple of things
that he said. Quote growth of consumer spending has remained resilient.
Speaker 6 (18:55):
Check quote.
Speaker 3 (18:57):
The economy is strong overall and has made significant progress
toward our goals over the past two years. Check check quote.
We think the economy is in a really good place,
and we think policy is in a really good place.
Speaker 2 (19:08):
Tech tech.
Speaker 3 (19:09):
Okay, so that's what we heard. Sounds pretty good from
the faget does sound pretty good? I mean yesterday's market reaction.
Speaker 6 (19:14):
Not with standing.
Speaker 2 (19:15):
Yeah, exactly for a check out.
Speaker 3 (19:17):
How the consumer is doing. Let's bring back Sylvia Tavares,
CEO at the credit data and credit risk analytics from
vantage Score. It's a joint venture of Experience, Equifax, and TransUnion.
Sylvia joins us from San Francisco. Sylvia, I wanted to
talk to you because you have so much good data
about consumer health. How would you characterize the consumer right now?
Speaker 10 (19:39):
Well, Chairman Powell is spot on the consumers healthy and
that's good news. That's good news for us as consumers.
It's good news for the economy. The challenge that we
have seen and the big change is that inflation is
more stubborn than anticipated, and that's the big thing that changed.
And we heard from Chairman power O, Well, they're going
(20:01):
to keep rates higher for longer and that means less
bank lending and probably less consumer credit utilization as well.
Not great for merchants.
Speaker 3 (20:09):
Hey, we had Mike McKeon earlier, but he made the
point yesterday during his turn to speak that we haven't
seen rates come down, that rates consumer rates excuse me,
thank you, Carol, consumer rates come down when we're talking mortgages,
we're talking credit cards.
Speaker 6 (20:25):
And the like.
Speaker 3 (20:26):
How are you looking at that over advantage score and
what that means for your Well, I was going to say,
your clients are customers, but kind of like we're all.
You have a view of all of us, whether we
know it or not.
Speaker 10 (20:39):
Yes, very much so. As you mentioned, van Score is
the largest national credit scoring company, and we take data
from trans Union experience in EQOFAX to assess the health
of the consumer and lower interest rates. The cut was anticipated.
The cut that happened this week was anticipated, and if
(20:59):
you look back at November, basically banks anticipated it and
they actually opened up more credit accounts credit new credit
card accounts in particular were up modestly in November, but
consumers only spent slightly more. Credit card balances were up
a little bit, you know, about thirty bucks November compared
(21:23):
to October and about two hundred bucks year over nearer.
And so overall, the interest rates and the expected cut
tended to increase new credit accounts and increase spending a
little bit, but not a lot, And so that's not
necessarily bad news. In some ways, it's good news. Consumers
are being disciplined about their credit usilation not getting in
(21:45):
over their heads, and banks are also somewhat modestly increasing
credit lines but still being cautious and we're going to
expect to see that continue into next year.
Speaker 2 (21:55):
Yeah, just listening to you, and I am curious, like
the number of accounts being opened. Is that a good
sign because people can do it and they get approval?
Is it a bad sign because people are opening up
new counts so that they can find new places to
spend and create bigger credits. So help us understand the
data that you get. You get so much in real time.
(22:15):
It feels like, what are the words that you use
to describe the consumer credit picture right now?
Speaker 10 (22:22):
Well, I would say it's healthy. You know, a low
score credit score for consumer is three hundred. The maximum
possible credit score is vantage score eight fifty, and the
average consumer is seven oh two through the end of
November and that's, you know, the earnest start of the
holiday spending season. So consumers are credit healthy, and we're
(22:44):
seeing modest increases in consumer spending and we're also seeing
modest increases in consumer lending. So overall, steady as she goes,
for sure. The challenge is as you look to next year.
The news we got this week from the FED is
they anticipate inflation to be much more a significant issue.
(23:06):
Than before the election, And so that's the main area
for concern as we go forward. Is the FED going
to be able to tame interest rates? Because if those
interest rates, if those inflation rates get out of control,
they're not going to be able to cut interest rates
as much and as aggressively as they signal to us before.
Speaker 3 (23:27):
You mentioned seven hundred and two for the average managage
score four point zero credit score. Carol and I just
both saying to each other, that seems high, given that
the highest you could get is eight hundred and fifty.
Speaker 6 (23:39):
Yah, is that high?
Speaker 3 (23:39):
That seems high for average?
Speaker 10 (23:42):
You're absolutely right, and it's high by historical standards. And
what that tells you is consumers overall are actually very
credit healthy. They're managing their credit cards well, they're not
getting in over their head on personal loans or their
mortgage and that's a really good thing. And I think
that's a bit of what's and lost as we saw
the wild swings in the stock market since the FED
(24:06):
announced its zero point two five percent cut. What's lost
in all of that market swooning is the fact that
overall the economy is doing very well and consumers are
actually doing very well, and the key problem that the
economy is facing is making sure that inflation doesn't get
out of control. That's obviously that reaction to inflation is
(24:28):
what impacted the election, and it's the main thing that
all the new members of Congress are thinking about. It's
what the President elect is thinking about, and it's certainly
what the FED is focused on, is just managing that
inflation so it doesn't get out of people. But the
reality is we've got a great economy right now.
Speaker 2 (24:45):
Sylvia, tell us, though, what do you know about the
demographics of the folks that from the data that you
get and the credit scores that are issued, Like, what
do we know about that pool of people? Because I
also do wonder and something Tim and I talk a
lot about folks at Bloomberg talk a lot about is
the underbanked. You know, folks that maybe can't get that
(25:05):
credit card, so they're not even in you know, that
average score statistical bunch, if you will, so give us
an idea of what you know about the demographics of
your business and the people that you basically rank.
Speaker 10 (25:17):
Well, that's one of the advantages of the vantage score.
We actually include a lot of people that traditionally were
left out of credit scores, we actually include about thirty
million more consumers. Many of those consumers are folks that
historically didn't get a credit score, but we're able to
score them using our advanced techniques. And you know, if
you think about the average consumer overall, they are at
(25:39):
fact doing better than they were a year ago, and
they're actually using credit slightly more than they were a
year ago. And that's the high end as well as
the low end consumer when they can't access that credit.
So we're seeing a pretty uniform picture overall, consumers doing
(26:02):
modestly better than they were a year ago. The key, though,
as we look into the new year, what we're expecting
is the FED is going to keep rates interest rates
higher for longer, and what that's going to mean is
fewer consumers are going to get new credit accounts, and
that's going to disproportionately impact the low end, but it
also means that the high end consumer, they're going to
(26:24):
be more reluctant to use credit.
Speaker 3 (26:27):
Hey I'm curious about buy now, pay later and those
types of firms, the sort of instant credit that's offered
at checkout at places, are they using Vantage Score?
Speaker 10 (26:39):
Absolutely many of those firms use a credit score to
manage the access to new BNPL accounts. However, many of
those firms, by now Pay Later companies, they don't provide
data on the performance of those loans, and that is
a blind spot for the end history that we're working
(27:01):
on because that has grown the utilization by now Pay Later.
You want to get the data on whether people are
actually paying up in three or fourth installment, are they Well,
it's tough to tell. It's tough to tell. What we
can see is that overall delinquencies that's the industry jargon
(27:21):
for whether people pay their credit card loans on time,
those delinquencies are actually pretty good, and in fact they're
better than the pre pandemic averages and they're polding steady.
We saw that in the most recent November credit gage.
And what that shows is again consumers remain credit healthy.
(27:41):
We're not seeing a significant deterioration in delinquencies, and that's
actually very good news for the economy.
Speaker 2 (27:48):
Hey, how when it starts to go bad, though, does
it all of a sudden turn quickly? Like, do you
guys get indications that all right, we got some trouble
here when it comes to consumer credit. Tell us about
kind of that bill to kind of forecast, because I
know in some indicators, when they start to go bad,
they go bad really quickly and then they just drop
off well.
Speaker 10 (28:08):
And we've certainly seen that there's been a period of
unprecedented credit volatility over the last two to three years.
Things do change quite rapidly, and it's one of the
reasons why we are seeing our customers, banks, our stakeholders
in Congress and at the Federal Reserve, we're seeing them
(28:29):
turn to more high frequency data. You've got to check
what's happening in the market more regularly. It's one of
the reasons that Vantage Score was an industry leader in
publishing insights on a monthly based basis. We call that
Vantage Coore Credit Age, and in fact, we're publishing that
tomorrow morning. The data I'm sharing with you is an
exclusive that we provided to Bloomberg in advance. But the
(28:51):
reality is, if you're a bank, if you are a policymaker,
you've got to be checking quickly more regularly because things
move quickly, and I actually anticipate that's going to accelerate.
Things are going to move even more quickly as we
head into twenty twenty five. New administration, new regulators, new policymakers.
Speaker 7 (29:08):
All of that's going.
Speaker 10 (29:09):
To bring more.
Speaker 2 (29:09):
Yes, a few things going on in the new year,
no doubt about it. Sylvia, thank you so much. Have
a good holiday, Happy New Year. Silvio Tavaris, he's chief
executive officer Advantage Score, joining us on this Thursday from
San Francisco.
Speaker 1 (29:22):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm. Easter Listen
on Applecarplay and then Broud Auto with a Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (29:35):
Let's talk about kind of what's next.
Speaker 3 (29:37):
Very that low hanging fruit the perfect segue, because that's
exactly how our next guest describes what the last two
years have looked like when it comes to AI. We
got with us Rachel Met She's Bloomberg News AI reporter.
She writes about what the AI giants are doing now
that that low hanging fruit is gone two years after
the introduction of chat GPT. She joins us from San Francisco.
(29:57):
Check out Rachel's story on the Bloomberg Terminal and at
Bloomberg dot com Slash business Week. Rachel what is the
tone that we've heard over the last few weeks, over
the last few months from these AI giants, I mean Anthropic, Google,
Meta Open Ai about training these models and sort of
what's next when it comes to this so called AI revolution.
Speaker 11 (30:17):
Well, it kind of depends who you ask, when you
ask them, and how you ask them, but definitely in
our reporting we found that a number of companies, Anthropic,
Google and OpenAI are having some challenges I would say,
in training their cutting edge AI models. They are running
out of data they are or not having the right
(30:39):
kinds of data to train them to what they want
them to be.
Speaker 7 (30:43):
And also, these models cost so.
Speaker 11 (30:44):
Much money to make, so you really want to make
sure that if you're putting a ton of money into
something that is going to be good enough to be
worth it.
Speaker 10 (30:51):
Right.
Speaker 11 (30:51):
So they're seeing, as we put it, I think, diminishing
returns in some cases with their most cutting edge technology.
And some people such as Google's CEOs under the CHAI
have talked about this, and some other people have been
you know, a little bit quieter about it, like you
might see or they say the opposite, like you might
(31:12):
see Sam Altman on social media saying there is no wall,
and I'm like, well there was a wall exactly.
Speaker 2 (31:18):
I have to tell you you saying this. I am
obsessed with this story that our Linda Wan put out
on December thirteenth, and I highly recommend, just like Rachel,
read everything she writes. Check out the story because it
basically said AI wants more data, more chips, more power,
more everything. But that concept of more data, I think
we thought, oh, the world is a wash in data.
I give it tons of data every day, and yet
(31:40):
there was this concept of actually really useful smart data
that helps AI kind of keep growing and get to
the next level. I mean that sounds like that could
be kind of a supplied demand imbalance.
Speaker 10 (31:52):
Yeah.
Speaker 11 (31:53):
I mean it's important to keep in mind that not
all data is created equal, and a lot of the
data that is used to build these large language models,
which is the kind of AI that powers chatbots like
chat GBT, it's a lot of it is coming from
the Internet and it has been largely scraped at this point.
So if you want to make bigger, better models, you
need more and more data. So companies are starting to
(32:15):
think about, well, where could we get more data from,
and some of that could involve paying professionals, people with
PhDs or other type of higher degrees to label data
for like math models that can be really good at
math or coding things like that. You might look to
people in the medical field, like a nurse, for instance,
(32:36):
to label data related to medical professions, because you really
want to have good data to train these models to
be accurate and good at specific things going forward.
Speaker 3 (32:46):
Here, why don't you take all this stuff so I
won't have a job anymore. Why don't I teach you
how to do my job?
Speaker 2 (32:52):
So then if that sarcasm, mister, that's just I know,
I know.
Speaker 3 (32:55):
I'm oversimplifying it, Rachel, but I see you're laughing.
Speaker 7 (32:57):
So my mission is a competent Okay, There'll still be
plenty for us to do.
Speaker 2 (33:01):
Okay, I'm so glad. I'm so glad. I don't know,
So how do you read this? Because I do feel
like it has been nothing, but you know, not even
a marathon. It's been just a fast race the last
one and a half years, two years. In terms of
the AI spend ramping up, it just feels like anything
that came, you know, in terms of AI or you know,
(33:21):
when we do earnings, right, we wanted to see is
the AI spending there and so on and so forth.
But it does feel like a reminder that all of
this is going to take time. How do you think
about this cycle?
Speaker 7 (33:33):
I think that what you said that at the end
there is really spot on. It is going to take time.
Speaker 11 (33:37):
And also, as we've seen in other industries, sometimes the
piece of innovation doesn't always you know, it's not always
the same. It goes and fits and starts. Sometimes things
are really fast, sometimes things even seem to go backwards
a little bit. I spoke for this story is latest story.
I spoke with Jonathan Frankel, who is a scientist and
(33:57):
he works at Data Bricks Yet Data Bricks, Yeah, and
he said something that I thought was really spot on.
And I've actually heard this from a couple people that
we should look to the chip industry, and you know,
the chip industry, we've seen different innovations over time, and
sometimes directions change depending on where's the best way to innovate.
(34:19):
And that seems to be what we're seeing with AI,
and that's what I would expect to see going forward,
is people trying different things. Sometimes they work, sometimes they don't,
and sometimes things go fast and sometimes they go.
Speaker 2 (34:29):
A little slower, hey, Rachel, really quickly ten fifteen seconds.
I mean, might twenty twenty five be that, like, I
don't know, take a breath, you know, slow you slow
your roll everybody when it comes to AI, Might that
be the twenty twenty five year or who knows?
Speaker 7 (34:42):
I don't think so. Actually, I mean that would be
really nice. It would be relaxing for the news cycle.
Speaker 11 (34:47):
But I think that we're going to see a lot
of people working on so called AI agents. This would
be AI software that can perform more complicated tasks with
not much help from humans and some other things that
we're going to see compies doing. I think they're really
pushing ahead, and we have to remember they still have
a lot of these companies will have lots of money
to burn, so they're going to keep plugging away.
Speaker 2 (35:08):
Well good, that means we get to continue talking to you.
So love, so love Rachel Matt's Bloomberg News AI reporter.
Check her out on the Bloomberg Time, Bloomberg Terminal, and
of course at Bloomberg dot com.
Speaker 7 (35:18):
Um brother, mac.
Speaker 1 (35:22):
Journal, Now about you let me drive? No no, no job, honey, please?
Speaker 6 (35:29):
How do the riding gravels?
Speaker 10 (35:31):
Let's wait I want to try it.
Speaker 7 (35:34):
It's a good question.
Speaker 6 (35:39):
This is the drive to the Globe dot com. Tim
think we'll buy around yother.
Speaker 1 (35:44):
Don on Bloomberg Radio.
Speaker 2 (35:46):
All right, everybody, TikTok. Everyone, almost twenty minutes left to
go until we wrap up the trading day on this Thursday.
And you've got stocks bouncing around. We are green across
the screen. They'll call the NAIs deck one hundred. Pretty
much unchanges up a couple of points. You just start
Charlie uh Bill Maloney just breaking down the trade. But
we're off our best levels of the session, but still
up about four tens of a percent on the S
and PNS. I said, the Nasdaq one hundred is flat.
(36:08):
I know you're going to go to the Dow. It's
up about half a percent.
Speaker 1 (36:10):
Oh well then okay, well no I got nothing.
Speaker 4 (36:13):
Sorry, took it for you.
Speaker 6 (36:15):
I got nothing.
Speaker 1 (36:15):
Sorry.
Speaker 3 (36:16):
But we were talking this week about the losing streak
that the DOO has had. Yeah, I mean we're talking
one that was like decades until today.
Speaker 2 (36:24):
All right, So one thing, don't care.
Speaker 1 (36:26):
She's in care.
Speaker 3 (36:27):
She'sn't care.
Speaker 2 (36:27):
I'm losing care about the I want to talk about
private credit because we have a great guest back with
us Anna Oursofs. She's a global head of private credit
and financial institutions over at Moody's. And I keep thinking about,
I don't know private credit. Everybody's all in firms. Private
credit firms are expanding beyond corporate lending to finance areas
like auto loans, residential mortgages, chip manufacturing, data censor centers.
(36:49):
Excuse me, so we're talking about a potential market size
of forty trillion dollars. Again, it's a market that many
would argue there isn't a lot of transparency. Are there
checks and balances as you see in the private credit world?
Speaker 9 (37:04):
First, thanks for having me. I really appreciate obviously the
being a repeated guest. And uh, and yes, we are
focused on the same point that you're raising. We don't
think that there is an equal level of transparency in
all of the aspects of private credit. And namely, I
would probably separate the BDC portfolio, which is business development companies.
(37:25):
These are closing funds focused on investing in middle market
loans that we rate with a lot of good granular disclosure. Publicly,
these are mostly public trading vehicles. There are some private
privately traded, but really most of them are public public vehicles.
Speaker 10 (37:41):
With great disclosures.
Speaker 9 (37:42):
But that market is roughly around three hundred billion, pretty
small part of the what we estimate three trillion dollar
a nord of market growing into the next couple of years.
So again I would say that disclosure is still it's improving,
but not where it needs to be for such to
growing market and particularly growing market and wants to tap
(38:03):
retail money.
Speaker 3 (38:04):
Where do you think it needs to be? I mean, like,
what would what would make you say, Okay, now I'm
comfortable with their view that they want retail money. There's
enough disclosure there, Like what do they need to do well?
Speaker 9 (38:16):
I think that we don't have in aligned rules for
example and valuations of private companies. You know, every fund
can choose its own governance around relations which is very
important driver into how these person all portfolio companies are estimated,
and particularly the private loans that lend to these portfolio companies,
which is usually on a loan to value basis as well.
(38:36):
So so again relations an area that we would like
to see more coherence and focus on transparency. In the
same way of discussing, for example, defaults in the public market,
we have a very clear view what a default is
for for a loan, not necessarily in the private markets,
you know, they're a long compitter structured multiple times without
necessarily occurring a default. Ever, so again there's some alignment
(38:59):
between the public pride markets on the current site. It
needs to happen in order for this market I feel
to be full institutionalized.
Speaker 2 (39:05):
I do wonder though, like so, how do you go through,
you know, the supply chain that is private credit? I mean,
is there some area I don't know? You know, I
feel like the traditional big banks are looking to get,
you know, kind of more involved in it, Like, so,
how do you go about you know, providing kind of
the legwork, the framework, the due diligence. And again and
in an area where we don't have a lot of
(39:27):
oversight or a lot of information.
Speaker 9 (39:29):
Look, one of the one of the areas that we've
been also focused on is looking at the regulated sector
at the ends of the day, either investing like the
insurance industry or lends to, which is the banking industry.
So private credit could not really grow to the level
it grows without one of the major investing classes are
regulated industries, which is insurance, and without the leverage provided
(39:50):
by the banks. So one way to improve that is
for those regulators of those sectors to really have a
sense of kind of the risks that a provision to
the private credit market. And actually the banking regulators in
the US are making a very good stride. Starting in
Januer of this year, the banks will be mandated to,
for example, provide more regularity about lending into this, uh,
(40:15):
this market, and I don't know, make financials market in
general with better granularity what is private credit, what is
private equity, et cetera. So I think that that would
be a move forward. The insurance industry is always the
very heavily invested, particularly in the US. We estimate around
percent of the insurance industries in some kind of way
of alternatives, if you will, and that's going to continue
(40:35):
growing based on the CIO surveys. So I think both
of those industries have a very high vested interest and
the regulators to help disclosures in the private markets.
Speaker 2 (40:44):
And from what you know about the private credit world,
do you think it is wise that we look to
open this up to more and more retail investors accredited
or otherwise.
Speaker 9 (40:59):
The depends on the format and the actually as a
matter of fact, the business development companies are largely a
retail product. But as I noted, those are they have
their funded primarily at least the rated universe, which we
rate the largest you know, thirty plus vehicles in the space.
They actually have a pretty good disclosures publicly to the
to the to the public by on a lone even
(41:22):
level granularly performance and also to the ones. We actually
provide for liquidity on a quarterly basis. You know, we
do in depth analysis in terms of how much liquidity
they have to have provision for that liquidity of let's ay,
maximum twenty percent a year five percent of core so
that you can plan for that because that vehicle again
doesn't have an ability necessarily withdraw the money from a
(41:44):
client immediately overnight like a deposit or like an ETF market.
On the other hand, EDF market has daily liquidity. So
they're the mismatch of that ill liquid underlying asset class
with a daily liquidity.
Speaker 3 (41:57):
Something that is about our concern which of course, Carol,
you're supposed to get compensated for when it comes to returns, right,
you know, if you can't have access.
Speaker 2 (42:05):
Right right, Your assumption is that those returns are going
to be, you know, better because overall market right, because
you're kind of leaving your money there. I don't know
a lot to be known, and we'll see what twenty
twenty five holds when it comes to private credit, but
it certainly has consumed our conversation on the investment side
of things really for at least the last couple of years,
if not longer, and oursov thank you so much. Happy holidays,
(42:28):
Global head of Private Credit and Financial Institutions over at Moody's.
Speaker 1 (42:33):
This is the Bloomberg Business Week podcast, available on Apple, Spotify,
and anywhere else you can get your podcasts. Listen live
weekday afternoons from two to five pm Eastern on Bloomberg
dot com, the iHeartRadio app, tune In, and the Bloomberg
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Carol Massar
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