Latest / Bloomberg Intelligence / AMC Seizes on Meme Stock Mania, US Core CPI Cools

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AMC Seizes on Meme Stock Mania, US Core CPI Cools · Bloomberg Intelligence

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Speaker 3: the weeds of everything you need to know in all
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Speaker 3: the market action. And one of them is Bailey Lipschualtz.
0:42
Speaker 3: He's been very busy. He had to actually cancel radio
0:45
Speaker 3: hosting yesterday.
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Speaker 4: I left Carol hanging the memes stock.
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Speaker 5: Crazy, give a day job. It's cool, it's cool.
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Speaker 3: So we know the memestocks did some stuff for three
0:55
Speaker 3: days and they rally and they're given back to a
0:56
Speaker 3: little bit today. Did any of them issue shares or
1:00
Speaker 3: anything and take advantage of this?
1:01
Speaker 4: So AMC had what we call an at the market
1:04
Speaker 4: offering that was approved back in March that enabled them
1:08
Speaker 4: to sell shares at the market. Have their bankers just
1:10
Speaker 4: keep pumping and creating shares to raise up to two
1:12
Speaker 4: hundred and fifty million dollars as fast as slow as
1:15
Speaker 4: they would want.
1:15
Speaker 6: They did about.
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Speaker 4: Half of that prior to the mania, and announced on
1:19
Speaker 4: Monday that they completed that, so raised another one hundred
1:22
Speaker 4: and twenty five million dollars on the back of Monday's
1:25
Speaker 4: what turned into was seventy eight percent pop.
1:27
Speaker 6: For the shares.
1:28
Speaker 4: Then today they announced plans to do a debtorate equity swap.
1:32
Speaker 4: So swap out some debt. Your debt debt holders now
1:36
Speaker 4: become equity holders. You create more of those shares, all
1:40
Speaker 4: to try to address the fact that they have a
1:42
Speaker 4: few billion dollars on their debt load. Most of that
1:46
Speaker 4: do in twenty twenty six, So the company has said
1:48
Speaker 4: they're actively talking to lenders to try to work on
1:51
Speaker 4: addressing those issues.
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Speaker 6: AMC Entertainment All right, it's down twenty percent today, but
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Speaker 6: just about a billion dollars of stock has traded to day.
2:01
Speaker 6: I mean, this isn't pennies, this is real and money.
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Speaker 6: When it goes back to my thing, like who's trade
2:07
Speaker 6: in this stuff, and that's what we wrote.
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Speaker 4: It in my view, a good story because obviously I
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Speaker 4: wrote it, But we wrote a story yesterday that kind
2:16
Speaker 4: of dove into the fact that when I talk to
2:19
Speaker 4: people who advise hedge funds, these momentum quants have gotten
2:24
Speaker 4: more sophisticated, caught onto the playbook from twenty twenty one,
2:27
Speaker 4: and are buying and selling and trading these shares, so
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Speaker 4: helping create that big rally we saw Monday and Tuesday
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Speaker 4: and likely getting out of the stock whether they're in
2:34
Speaker 4: the trade for two minutes or three days. They buy
2:37
Speaker 4: when stocks are going up, and then they quickly sell
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Speaker 4: and the whole goal is to as we wrote basically.
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Speaker 6: In a way front run retail. Whoa, WHOA. I'm looking
2:45
Speaker 6: at the is this right, AMC Entertainment's got nine billion
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Speaker 6: of debt that includes their leases lease, so call it
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Speaker 6: four and a half four and a four four and
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Speaker 6: a still they have.
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Speaker 4: It's sizable relative to their cases.
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Speaker 6: Yeah, and I'm looking at Ebithal. Let's just take twenty
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Speaker 6: twenty five's estimates five hundred million, so still ten times levered.
3:04
Speaker 6: Again having bank these guys in the past four times,
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Speaker 6: is the multiple is the leverage I would put on
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Speaker 6: this thing. Maybe if the sub sub guys want to
3:14
Speaker 6: go above it, that's their business. But crazy, but Lisa
3:18
Speaker 6: AMC's trying it.
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Speaker 3: Yeah, I was gonna say if we don't, we like
3:20
Speaker 3: the fact the CFO is like, guys, let's do this, right,
3:22
Speaker 3: that's a good thing.
3:23
Speaker 6: That's good and that was part of it.
3:24
Speaker 7: Right.
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Speaker 4: So a few years ago they created these eight preferred
3:27
Speaker 4: shares because they couldn't get approval from investors to sell
3:30
Speaker 4: more shares, because you have to get approval to create
3:33
Speaker 4: more shares to expand the number of fears you can
3:35
Speaker 4: have outstanding. Right now, according to b Riley's Eric World,
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Speaker 4: he estimates the company still has one hundred and ninety
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Speaker 4: one million common shares authorized but not yet issued, so
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Speaker 4: they can hit another ATM, or they can continue to
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Speaker 4: do some of these debt swap deals to try to
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Speaker 4: address again the fact that they have a lot of debt,
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Speaker 4: and they have a lot of near term debt, and Paul,
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Speaker 4: as you mentioned, the underlying business is not really doing
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Speaker 4: a whole lot.
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Speaker 6: Yeah, you know, you think about the theater business, it
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Speaker 6: goes to the fundamentals of post pandemic. What's the demand
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Speaker 6: for movies in theaters, and it is less, but it
4:08
Speaker 6: is still there. That probably the bigger issue, if you
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Speaker 6: ask the theater owners today is it's just not a
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Speaker 6: lot of movies. And that was in large part because
4:15
Speaker 6: of the writer's strike and the and the actors strike
4:18
Speaker 6: pushed it just about everything back about a year. And
4:22
Speaker 6: then you've had some decisions by Disney to saying, you
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Speaker 6: know what, we probably are overplaying our Marvel stuff, our
4:28
Speaker 6: Star Wars stuff, putting too close together. Let's spread that out.
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Speaker 6: So stuff that was gonna be in twenty four is
4:32
Speaker 6: in twenty five, twenty five, it's going to be in
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Speaker 6: twenty six. So you put all that together, and if
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Speaker 6: you're a theater owner, you're like, I ain't got that
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Speaker 6: much it put in my theater.
4:39
Speaker 4: When's the last time you saw a movie in the theaters.
4:42
Speaker 6: In the last few months? Last few months?
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Speaker 5: Yeah, a couple of weeks ago. I saw Doing two Oo.
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Speaker 3: Well, I like going to the Nighthawk in Brooklyn where
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Speaker 3: they have like drinks and scene they bring to your seat.
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Speaker 5: Like I like the whole experience.
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Speaker 3: Like I don't go to a straight up AMC and
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Speaker 3: just eat regular popcorn.
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Speaker 5: Wow anymore? So I do the whole.
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Speaker 3: It's cheaper than going out to dinner. You can spend
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Speaker 3: like one hundred and twenty bucks. You see movies, You
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Speaker 3: have dinner, you got drinks, you got dessert, versus going
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Speaker 3: and spending three hundred dollars at like getting pasta and
5:07
Speaker 3: that's been though.
5:09
Speaker 5: You can get a prosco at though.
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Speaker 6: Yeah.
5:11
Speaker 4: See they want to raise elevor they want to elevate it.
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Speaker 4: So they're making more margin, more money in terms of
5:16
Speaker 4: margins expanded on people.
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Speaker 8: Isn't like distracting though, you know everybody's chewing and eating
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Speaker 8: a baunch of movie.
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Speaker 3: No, they're doing it anyway, I after eating popcorn and stuff. No,
5:24
Speaker 3: it's you get used to. It's totally fine.
5:26
Speaker 6: The seats are awesome.
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Speaker 4: I saw a movie on Friday, I think, and the
5:31
Speaker 4: lay back seats.
5:32
Speaker 6: I'd never been to a love shore a movie theater.
5:34
Speaker 4: And you're like, wow, I'm laying completely horizontal watching a movie.
5:38
Speaker 6: This is awesome. And the thing is, you know, if
5:39
Speaker 6: you're a movie theater economics of the move movie theaters,
5:42
Speaker 6: you don't make really anything on the ticket sales or
5:45
Speaker 6: as much because you have to give half to uh,
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Speaker 6: the studio where you make it is in the popcorn
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Speaker 6: in this that that's all your margin right for the perpection.
5:53
Speaker 3: You can, yes, Brownie Sunday exactly so.
5:55
Speaker 6: And you know they've been giving you crap for a
5:57
Speaker 6: hundred years. You know at some they're just finally waking
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Speaker 6: up that if I ever want to get that person
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Speaker 6: off the couch in front of their eighty inch TV
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Speaker 6: in the surround sun, I got to up my game
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Speaker 6: a little bit.
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Speaker 3: Truffle salt butter popcorn dropped that right there.
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Speaker 5: It's just beautiful.
6:13
Speaker 3: Okay, before we let you go, what is the downside?
6:17
Speaker 3: You think you can we unwind all of the last
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Speaker 3: three days or what do you think?
6:21
Speaker 6: Probably?
6:22
Speaker 4: I mean, if you look at fund like why not, well,
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Speaker 4: what has changed fundamentally today versus a week ago, realistically
6:30
Speaker 4: versus three months ago?
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Speaker 6: Nothing?
6:32
Speaker 4: Really, And that's been the whole argument. When we saw
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Speaker 4: the big rally both stocks up more than seventy percent
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Speaker 4: on Monday, all on the back of the Roaring Kitty
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Speaker 4: post on Sunday evening, is that that really was just
6:43
Speaker 4: kind of like the match to get people back out
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Speaker 4: and trading this. It didn't actually change things. And one
6:49
Speaker 4: of the things that I think is worth pointing out
6:52
Speaker 4: is the difference between now in twenty twenty one is
6:54
Speaker 4: people were buying stocks for the first time. In twenty
6:56
Speaker 4: twenty one, the stock had already jumped, you know, five
6:59
Speaker 4: hundred percent for a lot of retail investors downloaded Robinhood
7:03
Speaker 4: found out how to fund it and buy call options.
7:05
Speaker 4: People who have been holding these stocks for a long
7:07
Speaker 4: time and are sitting on massive losses that if you
7:10
Speaker 4: see it go from sixteen to fifty and I got
7:12
Speaker 4: in at forty five, I might as well at least
7:14
Speaker 4: have some kind of gain as opposed to waiting around forever.
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Speaker 6: Right, good stuff, Billy, look the Schultz equity support of
7:19
Speaker 6: Bloomberg new joining us here on a Bloomberg interactive broker's studio,
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Speaker 6: you mentioned what kind of pop salt do you like?
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Speaker 9: Oh?
7:25
Speaker 5: Truffle?
7:26
Speaker 6: Have you ever gone truffle hunting?
7:28
Speaker 5: No?
7:29
Speaker 6: I have gone truffle hunting in the South of.
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Speaker 8: France with a How do you with a pig or
7:35
Speaker 8: a dog?
7:36
Speaker 6: They usually do pigs, but the smart ones use dogs
7:38
Speaker 6: because the pigs will sometimes eat the truffle. The dogs,
7:41
Speaker 6: you can train them not to eat the truffle, so
7:42
Speaker 6: they sniff them around underground, they start digging. You pull
7:45
Speaker 6: the dog away and then you dig think them out
7:46
Speaker 6: the right under the surface. Thank you to Keith Grossman,
7:50
Speaker 6: our former head of ad sales at Bloomberg, who had
7:53
Speaker 6: arranged these lovely outings two summers in a row, complete
7:57
Speaker 6: crazy Bacanelli in south of France. It was great.
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Speaker 3: And then and then and then do you like take
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Speaker 3: the trouble?
8:01
Speaker 5: You can't Coemple's home like to the US, like I
8:04
Speaker 5: had trouble.
8:05
Speaker 6: I'm not so so everything they have troubles. Yeah. Then
8:07
Speaker 6: they have this little store in this little farm. I'm
8:09
Speaker 6: still on the mailing list. And the French couple, young couple,
8:14
Speaker 6: and they have a little French truffle thing going on.
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Speaker 5: I love this.
8:17
Speaker 3: For another trip with at in.
8:22
Speaker 6: This you know in may Or so that's next on
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Speaker 6: the dockt.
8:26
Speaker 5: I love all of this. I'm going to ruminate on this.
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8:48
Speaker 6: Let's get to some of that economic data here today.
8:51
Speaker 6: Lydia user Joints and she's a senior economist at Ernst
8:55
Speaker 6: and Young. She joins us from New York City via
8:57
Speaker 6: that zoom thing. So, Lydia looks like like that inflation
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Speaker 6: scare that we had maybe the first three four months
9:04
Speaker 6: of this year is maybe moderating a little bit. Is
9:07
Speaker 6: that the takeaway from the CPI data that you looked
9:09
Speaker 6: at today?
9:11
Speaker 9: Yeah? Sure, I mean, I think the key takeaway is
9:14
Speaker 9: really that inflation continues to move in the right direction
9:17
Speaker 9: and that this inflation trend remains in place despite the
9:21
Speaker 9: bumping as that we had in the first quarter. I
9:24
Speaker 9: think the details of the report this morning were encouraging.
9:27
Speaker 9: Both on the goods and services side. We saw that
9:31
Speaker 9: cooling and core inflation call goods prices decline in April,
9:36
Speaker 9: and that really indicates that this more favorable and normalized
9:40
Speaker 9: supply chain environment continues to be conductive of deflation in
9:44
Speaker 9: the goods sector. And on the services side, we also
9:48
Speaker 9: saw aneasing in the pace of inflation, with many of
9:51
Speaker 9: the categories also showing some cooling. So overall, that's the
9:55
Speaker 9: report that suggests that we're still moving in the right direction.
9:59
Speaker 3: Something I'm still great happling with is why the event
10:02
Speaker 3: has such conditions, has such conviction that financial conditions are
10:06
Speaker 3: tight when you take a look at MEME stocks, when
10:09
Speaker 3: you take a look at the actual financial conditions index,
10:12
Speaker 3: do these numbers justify that confidence or no?
10:18
Speaker 9: When we look at the economy overall and the package
10:20
Speaker 9: of economy data that we got this morning. You mentioned
10:23
Speaker 9: retail sales early.
10:24
Speaker 5: On the show.
10:25
Speaker 9: Retail sales work quite soft, and they do suggest that
10:28
Speaker 9: consumers are increasingly cautious with your spending. We have an
10:32
Speaker 9: economic environment that's cooling, the label market is rebalancing, wages
10:37
Speaker 9: are moderating, and at the same time, we have you know,
10:40
Speaker 9: today's some evidence that we remain and we continue to
10:44
Speaker 9: see that these inflation happening, especially on the core side.
10:49
Speaker 9: So the progress has been slower, but overall, the economy
10:52
Speaker 9: continues to cool and inflation is likely to continue to
10:55
Speaker 9: gradually ease, you know, throughout the twenty twenty four and
11:00
Speaker 9: towards twenty twenty five. I think what will be important
11:03
Speaker 9: and important what's important to keep in mind is that
11:06
Speaker 9: we may hit the plateau when it comes to inflation.
11:09
Speaker 9: CPI inflation in the coming months. But overall, I think
11:13
Speaker 9: the report today has helped rebuild a bit of confidence
11:16
Speaker 9: that the FED had lost in the first quarter of
11:19
Speaker 9: the year.
11:20
Speaker 6: Liddy, We also yesterday had a little bit higher than
11:23
Speaker 6: expected PPI print. How do you kind of put that
11:27
Speaker 6: in the CPI data we got today? How do you
11:29
Speaker 6: put that Together's what's the narrative there?
11:32
Speaker 9: Yeah, I mean, looking at the PPI data, I think
11:35
Speaker 9: some of the details were more encouraging, especially looking at
11:38
Speaker 9: some of the key categories that we feed into the
11:41
Speaker 9: PC data, so looking at some of the underlying components
11:46
Speaker 9: of PPI. But overall, I think, you know, when we
11:49
Speaker 9: look at the overall trend in inflation and what that means.
11:52
Speaker 9: Also looking at these two reports for PC inflation, I
11:57
Speaker 9: think that we're likely to get, you know, a fairly
12:00
Speaker 9: encouraging print on the core PC data, and that overall
12:04
Speaker 9: core PC inflation should continue to gradually ease in the
12:09
Speaker 9: coming months. I think, you know, we're coming we're coming
12:12
Speaker 9: off of that first quarter where inflation has surprise on
12:15
Speaker 9: the obside, you know, for several months, and what we
12:18
Speaker 9: need to see going forward is really softer inflation print
12:22
Speaker 9: a string of softer inflation print that will help THEE
12:26
Speaker 9: the FED feel more confident that you know, they're in
12:29
Speaker 9: a good spot and can start you know, that is
12:31
Speaker 9: in cycle.
12:33
Speaker 3: Do you think the using cycle will be two cuts
12:36
Speaker 3: this year?
12:37
Speaker 5: One and then what.
12:40
Speaker 9: Yeah, so we have our view is that we're gonna
12:44
Speaker 9: get two cuts in the second half of this year.
12:47
Speaker 9: We do think that, you know, as I said, the
12:50
Speaker 9: economic environment will you know, will be you know, and
12:55
Speaker 9: will be favorable for those two great cuts. And when
12:57
Speaker 9: you think back at what Fetcher Powell said at the
13:00
Speaker 9: press conference, he really laid out three paths when it
13:03
Speaker 9: comes to a monetary policy going forward, and there are
13:07
Speaker 9: two of these paths that are leading.
13:09
Speaker 5: To rate cuts.
13:10
Speaker 9: You know, if you see a deteriration in label market
13:13
Speaker 9: conditions or if you see inflation moving sustainably towards two percent,
13:17
Speaker 9: our view is that, you know, the economy is going
13:20
Speaker 9: to continue to cool and that conditions are in place
13:23
Speaker 9: to continue to see that this inflation. We have an
13:26
Speaker 9: economy that's cooling and consumers that are growing increasingly cautious.
13:30
Speaker 9: We have a label market that's rebalancing and wages that
13:33
Speaker 9: are easing. We also have signs that companies are exercising
13:37
Speaker 9: less price in power, and we're likely to see more
13:40
Speaker 9: downward pressure on profit margins as well. And lastly, we
13:44
Speaker 9: also have more rent these inflation in the pipeline and
13:46
Speaker 9: the numbers this morning, we're also encouraging in that front
13:50
Speaker 9: where you know, we continue to see that downtrend in
13:53
Speaker 9: rent inflation. So overall, I do think that you know,
13:56
Speaker 9: this backdrop is going to lead the FED to start
13:59
Speaker 9: that is in cycle media and we see two rate
14:02
Speaker 9: cuts happening, so more of a recalibration that an aggressive,
14:07
Speaker 9: you know, rated cycle.
14:09
Speaker 6: So we also had the retail sales came in a
14:11
Speaker 6: little bit weaker than expected. What's your read across.
14:14
Speaker 9: There, Yeah, so the retail sales report weaker than expected.
14:19
Speaker 9: Looking at some of the details, it was quite mixed.
14:22
Speaker 9: I think there was some categories where we saw some payback.
14:25
Speaker 9: Looking at online sales for example, they were very strong
14:29
Speaker 9: in March, so they declined in April. And you know, overall,
14:33
Speaker 9: I think what these suggest is that a consumer spending
14:37
Speaker 9: momentum at the start of Q two is going to
14:39
Speaker 9: be you know, looking software, we came out of March
14:43
Speaker 9: with significant momentum when it comes to consumer spending and
14:47
Speaker 9: you have that robust carry over that's supporting positive consumer spending.
14:52
Speaker 9: But what it does suggest is that on the months
14:54
Speaker 9: of amounth basis, we've seen somewhat of a down shift,
14:58
Speaker 9: and we think that this is a trend that will
15:00
Speaker 9: continue because consumers are feeling you know, the impact of
15:04
Speaker 9: elevated prices, are your borrowing costs and just you know,
15:08
Speaker 9: a more challenging environment, especially for lower income hussles.
15:12
Speaker 3: All right, Lydia, thanks so much. We really appreciate your
15:15
Speaker 3: time today. Thank you so much, Lydio bassour Ey pantheon
15:18
Speaker 3: A senior economists, We very much thank you for your time.
15:21
Speaker 3: Speaking of retail, I was really struck by those Burgery numbers.
15:24
Speaker 3: Now luxury has been burbery, Yeah, like luxury has been
15:27
Speaker 3: certain areas of luxury have been struggling, and Burbery kind
15:30
Speaker 3: of doubled down on that.
15:31
Speaker 5: They had sort of weaker.
15:32
Speaker 3: Sales and their outlook wasn't that great for the first
15:35
Speaker 3: half either. So even the high high end continues to
15:38
Speaker 3: kind of get dragged down a little bit, which also
15:41
Speaker 3: you find to be a bit confusing.
15:43
Speaker 6: Well, whenever I think of retail and luxury retail, I
15:46
Speaker 6: think of the Chinese consumer is kind of the swing factor.
15:48
Speaker 6: I wonder what they're saying about the Chinese consumer.
15:51
Speaker 3: It's always about China, but also pockets of weakness in
15:54
Speaker 3: the US as well, So it's not just a China
15:58
Speaker 3: situation when it comes to retail.
15:59
Speaker 6: And a podcast about five percent here today.
16:02
Speaker 5: Ye weak demand China, n US.
16:04
Speaker 6: Yeah. So I mean it's it's you know, it's out there.
16:08
Speaker 6: It's concerning. But I mean, I guess the overall economic
16:10
Speaker 6: data is still generally pretty solid. I guess, you know.
16:15
Speaker 6: And it's is it solid enough for the FED to
16:17
Speaker 6: start pulling back on rates and if so, when so
16:20
Speaker 6: that'll be interesting.
16:21
Speaker 3: It's still what I find so interesting is still the
16:22
Speaker 3: hard and soft data. The soft data, I appreciate the
16:25
Speaker 3: NFIB was a bit better yesterday, but the feelings are
16:28
Speaker 3: negative even if the hard data is a little bit
16:30
Speaker 3: positive or at least stable. Particularly, we take a look
16:33
Speaker 3: at how many people are benefiting from the equity rally,
16:36
Speaker 3: and there was a great uh in John Author's piece.
16:38
Speaker 3: You really helped break it down. Oh no, it was
16:40
Speaker 3: a lu Wang had a piece where she broke it
16:42
Speaker 3: down and said, just x amount of people have money
16:45
Speaker 3: in the stock market that are benefiting and guess what,
16:47
Speaker 3: they're mostly older white people and everything else is a
16:50
Speaker 3: bit is a bit, dice Yer. It's a great piece.
16:51
Speaker 5: You's definitely check it out.
16:54
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Speaker 3: about two thousand companies and one hundred and thirty industries worldwide.
17:21
Speaker 3: We also sometimes take you outside the Bloomberg Intelligence world
17:24
Speaker 3: to those that work on the street. And for that
17:26
Speaker 3: we're gonna go to Marie Shore. She covers senior equity
17:30
Speaker 3: analyst over at Columbia thread Needle Investments. They have a
17:34
Speaker 3: great team over there. We love talking to these guys.
17:36
Speaker 3: Let's get breakdown after retail sales. Thanks for joining us, Mari,
17:39
Speaker 3: It's great to see you.
17:40
Speaker 1: Thank you so much for having me so.
17:43
Speaker 3: Breakdown two things. One where in the retail world makes
17:47
Speaker 3: sense and two do equities a record highs make sense.
17:51
Speaker 5: Yes, it's a great question.
17:53
Speaker 4: I think.
17:54
Speaker 1: You know, when we look at the retail sales print today,
17:57
Speaker 1: I think we see more of what we've been discussing,
18:00
Speaker 1: which is still a choiceful consumer still spending more on
18:04
Speaker 1: services over goods and needs over wants. So overall, my
18:09
Speaker 1: outlook for spend on more discretionary goods is more cautious.
18:14
Speaker 1: We still see things like home and electronics really weak
18:18
Speaker 1: versus strength in certain channels like e commerce and value retail,
18:24
Speaker 1: and in certain categories, like I thought today in the
18:27
Speaker 1: retail sales print, the improvement we saw in apparel was interesting,
18:32
Speaker 1: and we've seen some new trends in apparel, and it
18:35
Speaker 1: seems that some of the traditional apparel companies are taking
18:40
Speaker 1: share back, maybe from some of the athletic apparel companies.
18:45
Speaker 1: So that's I think an interesting trend to watch In
18:48
Speaker 1: terms of the valuations on some of these names. It
18:52
Speaker 1: definitely seemed like the group was a little over extended
18:57
Speaker 1: in the earlier part of the string following the rally
19:00
Speaker 1: that started in October, and now I think you really
19:04
Speaker 1: need to be selective, so I would say we're still
19:07
Speaker 1: willing to pay a premium for consistent quality growth that
19:12
Speaker 1: we see in names like Walmart and the off price retailers,
19:16
Speaker 1: which are all gaining share right now. I think, you know,
19:19
Speaker 1: given the relatively weak demand backdrop, we are willing to
19:24
Speaker 1: pay more of a premium for those retailers that are
19:27
Speaker 1: taking share.
19:28
Speaker 6: All right, Usually we chat with you via zoom, so yes,
19:31
Speaker 6: nice to have you in our studio, usually of Boston, right, yes, yes, okay,
19:35
Speaker 6: very good coming down to the big town. Okay, marishare
19:38
Speaker 6: you cover the equity space for Columbia thread Needle? We
19:41
Speaker 6: got Walmart tomorrow, and people who like me who don't
19:44
Speaker 6: follow the retail space, I looked at that name as
19:47
Speaker 6: kind of a barometer for how the US consumer's doing.
19:49
Speaker 6: What are you going to be looking for tomorrow?
19:51
Speaker 1: Well, I think we're likely to hear from Walmart still
19:54
Speaker 1: a more subdued tone on the consumer overall. You know,
19:58
Speaker 1: their core lower end customer is still under pressure. They are, however,
20:03
Speaker 1: taking share across category among higher income consumers, and that's
20:09
Speaker 1: been something they've been talking about for several quarters now.
20:12
Speaker 1: So I think that says a lot about the overall consumer,
20:15
Speaker 1: and you know, how they're looking to save money, are.
20:19
Speaker 3: They taking a share from them like Target and stuff
20:21
Speaker 3: like that.
20:22
Speaker 1: I think they are yes across category. You really see
20:25
Speaker 1: it from from Target and others, And I think that
20:28
Speaker 1: consumers are really looking to stock up, you know, and
20:32
Speaker 1: do that one stop shop at value retailog you know,
20:35
Speaker 1: you see it Walmart, you see it at costs go right.
20:37
Speaker 1: Their results have also been extremely strong, So I think
20:41
Speaker 1: that the results from Walmart tomorrow will show us what's
20:44
Speaker 1: happening from a macro level. But again I want to
20:47
Speaker 1: be mindful that any any strength that Walmart does show,
20:52
Speaker 1: I think is likely to reflect not just what's happening
20:55
Speaker 1: at the category level, but what's happening in terms of
20:57
Speaker 1: their share position within category worries.
21:01
Speaker 6: So how about the dollar stores? What happens to the
21:05
Speaker 6: dollar stores when the lower end of the economic environment
21:10
Speaker 6: is in fact struggling they are dealing with inflation. Does
21:13
Speaker 6: that benefit their business or does that hurt them even more?
21:16
Speaker 1: Yeah, it's sort of mixed. I would say it does
21:19
Speaker 1: hurt their core lower income consumer, and you've seen all
21:22
Speaker 1: the dollar stores talking about weakness in their discretionary business
21:26
Speaker 1: among that consumer cohort. However, there is the potential for
21:30
Speaker 1: them to capture that trade down from a hire income consumer,
21:35
Speaker 1: and so that is an opportunity I think for the
21:37
Speaker 1: dollar stores, for off price retailers like Burlington and Ross stores.
21:43
Speaker 1: But again, I feel like Walmart has really been the
21:46
Speaker 1: name among those value players that has captured the most
21:50
Speaker 1: share from that higher income consumer.
21:52
Speaker 3: So some of the dollar stores are just a disaster
21:55
Speaker 3: in terms of like shelf stocking, in terms of employees,
21:58
Speaker 3: like it's a real us, like it might be good
22:02
Speaker 3: to get a deal, but only if you actually find
22:03
Speaker 3: a product, John Tucker, why are.
22:05
Speaker 5: You laughing at me?
22:06
Speaker 8: One dext to me and I loved it. Just they
22:08
Speaker 8: closed up, it was gone. It was just like what
22:12
Speaker 8: happened like overnight, it's it's and they only had one
22:15
Speaker 8: employee in a pretty large store, and it was just like,
22:19
Speaker 8: you want to steal.
22:20
Speaker 5: Something, pretty much, go ahead like that. We can't do
22:22
Speaker 5: anything about that.
22:24
Speaker 3: So I don't know if you guys know, if we've
22:25
Speaker 3: talked about this, that I am the counter indicator for
22:27
Speaker 3: retail somorrio. So here's the deal.
22:29
Speaker 5: So I only shop on sale period.
22:31
Speaker 3: I will not ever pay full price. So usually where
22:34
Speaker 3: I'm shopping, the joke is is that I'm an indicator
22:36
Speaker 3: for what stock you want to short, because I'm only
22:39
Speaker 3: going there because the deal is really good and it's
22:41
Speaker 3: an inventory thing. So I definitely went over budget this weekend.
22:45
Speaker 3: I went to Northstroum Rack, but I was buying work clothes.
22:48
Speaker 5: So I felt okay about it.
22:49
Speaker 3: Am I an outlier here? Like are the discounters gonna
22:53
Speaker 3: win or are they gonna lose? And how much will
22:56
Speaker 3: I be spending for the rest of the years.
22:58
Speaker 9: Yeah?
22:59
Speaker 1: No, I think And again we saw it in the
23:00
Speaker 1: retail sales data today in the strength and the general
23:03
Speaker 1: merchandise category. I think all of these value retailers, whether
23:07
Speaker 1: it's the mass players, the off pricers, the dollar stores,
23:11
Speaker 1: the clubs, they will all continue to take share in
23:15
Speaker 1: this in this environment, in terms of the you know,
23:20
Speaker 1: in the hunt for deals, I would say I would
23:24
Speaker 1: expect more modest deals going for it only because you know,
23:28
Speaker 1: last year we saw inventory much better controlled, much more
23:32
Speaker 1: closely aligned with sales, and all of the retailers are
23:35
Speaker 1: really focused on protecting margin, so I think you will
23:39
Speaker 1: see lower markdowns going for it. Of course, the retailers
23:43
Speaker 1: will always use promotions to drive traffic, but in terms
23:47
Speaker 1: of those major markdowns. Yeah, probably won't see as many
23:53
Speaker 1: of those going forward.
23:54
Speaker 5: That's definitely gonna hurt a little bit there.
23:56
Speaker 3: Yeah, we went to this anecdotal obviously went to Tjmax,
23:59
Speaker 3: which is usually my life go to store.
24:01
Speaker 5: Inventory was horrific.
24:02
Speaker 3: There was like nothing that was really surprising, and I
24:05
Speaker 3: wondered if like they're if they're waiting for a cycle
24:08
Speaker 3: to come back, or if they're just really good at
24:09
Speaker 3: getting step off their shelves.
24:10
Speaker 6: Interesting. How about I'm just asking for John Tucker here
24:13
Speaker 6: the luxury sector accent. I'm just talking about Berbery. Yeah,
24:16
Speaker 6: some disappointing numbers. I thought luxury was kind of a
24:19
Speaker 6: relatively area of strength for retail Yeah.
24:22
Speaker 1: I mean, I would say over the past year or so,
24:25
Speaker 1: we've really seen a slow down among I would say,
24:28
Speaker 1: both like the true luxury segment and that more aspirational
24:32
Speaker 1: luxury segment, right, Yeah, and I think I think it
24:35
Speaker 1: really reflects, you know, those consumers now spending again on
24:39
Speaker 1: things like services and travel, and so we've seen, you know,
24:44
Speaker 1: there's not a lot of public retailers at this point
24:47
Speaker 1: in the true luxury segment in North America, but we've
24:50
Speaker 1: definitely seen a slow down, really globally, you know, across China, Europe,
24:56
Speaker 1: and I think it's that customer spending in other categories
25:00
Speaker 1: and also some of those brands that do have exposure
25:03
Speaker 1: to the wholesale channel, where you know, all of the
25:06
Speaker 1: department store is still managing inventory very tightly, so if
25:09
Speaker 1: you're selling into that channel, you may also see pressure is.
25:14
Speaker 6: In that business, and they did call that out there.
25:16
Speaker 5: Yeah, so I think it's.
25:17
Speaker 1: Really a combination of those two things. I think long
25:20
Speaker 1: term luxury is still well positioned, but we're still kind
25:24
Speaker 1: of coming off of this period of you know, excessive
25:28
Speaker 1: growth that we saw during the pandemic and watching demand normalized.
25:31
Speaker 3: I don't know, man, twenty six hundred dollars for a raincoat, please,
25:35
Speaker 3: well what kind of raincoat?
25:37
Speaker 5: Burbery raincoat like that?
25:38
Speaker 3: I appreciate that's aspirational, but hell no, that just feels
25:42
Speaker 3: like a waste of money.
25:44
Speaker 6: But don't you have some budget or clothes?
25:48
Speaker 3: Oh oh yeah, yeah, So like I give myself a
25:50
Speaker 3: budget of oh yeah, but not a trench coat and
25:55
Speaker 3: that definitely would not be in the budget.
25:56
Speaker 6: Yeah, they have a budget for wardrobe. Again, another benefit
26:02
Speaker 6: I don't really yea, no makeup, Nope.
26:06
Speaker 8: They don't send me to travel.
26:10
Speaker 2: Bakeup on you.
26:10
Speaker 5: You don't let them be you know, I don't know. Yeah,
26:13
Speaker 5: downstairs is a wardrobe room. We get our clothes picked
26:15
Speaker 5: and everything.
26:16
Speaker 6: Really I don't know that.
26:17
Speaker 5: Yeah, they don't chop on sale, but you know I do.
26:19
Speaker 6: All right, Marsha, thanks so much for joining us. Marish Shure,
26:21
Speaker 6: Senior Equitiana. She covers all the retail space, one of
26:24
Speaker 6: our go to voices for retail. She's a Columbia thread
26:27
Speaker 6: Needle Investments. They get they're all over the place. I
26:29
Speaker 6: first hit thread Needle, they're in London. Then there's been
26:32
Speaker 6: all these mergers with the asset managers and now it's
26:34
Speaker 6: all under like Columbias and they're good.
26:35
Speaker 5: Like they got some serious talent there.
26:38
Speaker 6: Up in Boston. But she joins us here on our
26:39
Speaker 6: Bloomberg in Act, the Broker Studio. Maybe she's walking up
26:42
Speaker 6: down Fifth Avenue and Madison. I'm kind of checking out
26:44
Speaker 6: the stores. That would be my guest.
26:46
Speaker 5: Let me know where the sales are, Yeah, exactly.
26:49
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
26:53
Speaker 2: weekdays at ten am Eastern on applecar.
26:56
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Speaker 2: You can also listen I have on Amazon Alexa from
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27:05
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27:07
Speaker 3: This is Bloomberg Intelligence Radio. We bring you all the
27:10
Speaker 3: top news and economics and finance, and with the help
27:12
Speaker 3: of our Bloomberg Intelligence analysts, they cover our two thousand
27:15
Speaker 3: companies and one hundred and thirty industries all around the world.
27:18
Speaker 3: We also bring you the view from the street. And
27:20
Speaker 3: what do you do in this market when you're at
27:22
Speaker 3: record highs and the direction is higher? You just buy
27:25
Speaker 3: the stuff. You buy stocks, you buy bond, you sell
27:27
Speaker 3: a dollar. That seems to be the trade. Let's get
27:29
Speaker 3: the trip with James Demert. He's chief investment officer at
27:33
Speaker 3: main Street Research. He joins us via zoom from New York.
27:37
Speaker 3: All right, James, do you buy the at a record?
27:39
Speaker 3: Simple question?
27:41
Speaker 10: Hi, Alex, you do? I think you do. I think
27:44
Speaker 10: investors have made a huge mistake for the last few
27:47
Speaker 10: quarters of just waiting for something to break before they buy,
27:51
Speaker 10: and it's been a mistake. I think it's going to
27:52
Speaker 10: be a mistake going forward.
27:55
Speaker 6: So what do you buy? James? Let's let's say it
27:58
Speaker 6: to the next level there, what do you buy? Do
28:00
Speaker 6: I just load into my big tech stocks that are
28:02
Speaker 6: work so well for me over the past couple of years,
28:05
Speaker 6: or I try to get a little creative.
28:07
Speaker 10: Well, I think that investors, you know, a lot of
28:09
Speaker 10: investors are focusing on the wrong thing, which is the FED,
28:12
Speaker 10: and they should be focusing on what's driving this market.
28:15
Speaker 10: It's what this market's doing. It's a discounting this new
28:18
Speaker 10: AI tech led business cycle in ball market. And so
28:22
Speaker 10: when we think about what to buy, even with at
28:25
Speaker 10: levels like this, we want to think, well, if this
28:28
Speaker 10: is the case AI tech led biz cycle, it's going
28:31
Speaker 10: to be productivity growth in fast growing earnings, where do
28:35
Speaker 10: I go for that? Right, there's ten eleven sectors in
28:37
Speaker 10: the economy, and if rates stay where they are, which
28:40
Speaker 10: we think they will, you want to go to tech
28:43
Speaker 10: for sure, you want to go to telecom in everywhere
28:46
Speaker 10: this AI productivity growth can affect. I think healthcare is
28:50
Speaker 10: definitely one of those. I think the utility senttor is
28:52
Speaker 10: sort of interesting here, very inexpensive industrial companies, financials, right,
28:57
Speaker 10: Jamie diamond saying a few weeks ago, how AI as
29:00
Speaker 10: impacting JP Morgan, So I think you kind of want
29:03
Speaker 10: to think about this as an allah nineteen nineties, if
29:06
Speaker 10: you will, where that's the last time we had this
29:09
Speaker 10: huge boom of productivity growth. That was a different technology,
29:12
Speaker 10: obviously the Internet. Now we're in the AI phase.
29:18
Speaker 3: Something to say on that, because nineteen nineties didn't always
29:20
Speaker 3: end well on that end. But before we get there
29:22
Speaker 3: for utilities, I find that so fascinating because usually you
29:25
Speaker 3: think of utilities as just a straight up dividend yield play. Right,
29:31
Speaker 3: Are utilities a growth sector right now? Can you play
29:34
Speaker 3: it and value it like a growth sector?
29:37
Speaker 10: Yeah, Alex, this was my grandmother's favorite sector because that's
29:41
Speaker 10: no volatility, very predictable.
29:45
Speaker 5: Dividend you.
29:46
Speaker 10: But here you have a different story, right if it's
29:47
Speaker 10: an AI tech led business cycle, particularly with evs, and
29:52
Speaker 10: you've got these AI chips just churning away, needing so
29:56
Speaker 10: much electricity. We're looking at the utility industry as potentially
29:59
Speaker 10: a their a big growth area. So the grid is
30:02
Speaker 10: going to have to get way bigger to support what
30:05
Speaker 10: we envision is a seven to nine year business cycle.
30:08
Speaker 10: It's led by AI profit growth, productivity growth. And I'll
30:12
Speaker 10: tell you not just the utilities, but who's going to
30:15
Speaker 10: build that grid the industrial companies, and I think that's
30:17
Speaker 10: one of the reasons you see, you know, the caterpillar,
30:19
Speaker 10: tractors and that sort of thing doing quite well over
30:21
Speaker 10: the last few courts. Discounting not what the Fed's gonna do,
30:24
Speaker 10: it's discounting. Hey, this is a new era, a very
30:28
Speaker 10: different type of business cycle.
30:30
Speaker 6: James. One of the names you have on your list
30:32
Speaker 6: is Apple, and it's on a lot of people's lists,
30:34
Speaker 6: but it's obviously facing some headwinds, notably China. But one
30:39
Speaker 6: thing that it hasn't yet quite gotten into its multiple
30:42
Speaker 6: is AI. Do you believe the AI, you know, pixie
30:46
Speaker 6: Dust can find Apple at some point.
30:49
Speaker 10: We do, and I think that Apple's on a lot
30:52
Speaker 10: of people's lists. As a bearish call, we are absolutely
30:55
Speaker 10: the one hundred and eighty degrees opposite bullsh and and
31:00
Speaker 10: we think they're late to the game, there's no question,
31:03
Speaker 10: and that's frustrating as a shareholder. But you know, as
31:06
Speaker 10: we listen to the conference calls and read the tea
31:09
Speaker 10: leaves of where Apple's going here, and you can see
31:12
Speaker 10: it with their recent sort of partnership with chat GBT,
31:16
Speaker 10: we think in June eleventh is going to be a
31:18
Speaker 10: big call from from Apple in Cooper, Tino and Cook,
31:22
Speaker 10: and I think they're going to talk about, hey, we're
31:24
Speaker 10: bringing AI to the iPhone. We we envision it as
31:28
Speaker 10: a supercharge sery, you know, like a personal assistance series,
31:31
Speaker 10: which is way better than what we have now. Might
31:34
Speaker 10: start with subscriptions. Think about the giant installed base around
31:37
Speaker 10: the world they have, and then it probably is going
31:39
Speaker 10: to force us all to get a new iPhone, maybe
31:42
Speaker 10: a few core to support it. So we are fans
31:45
Speaker 10: twenty seven times earnings neglected. You know, one of those
31:50
Speaker 10: that you want to you want to add here.
31:52
Speaker 3: Yeah, I know, it's like I haye one my phone
31:53
Speaker 3: just one day is like we're done here, take us
31:55
Speaker 3: to the store.
31:56
Speaker 5: We have to get a new one.
31:57
Speaker 3: You also like, ASML, why would that be a why
32:01
Speaker 3: do you like that for the AI trade? Like, there's
32:03
Speaker 3: tons of of those kind of guys that we can
32:05
Speaker 3: start playing with. Why is it that one for you?
32:08
Speaker 7: Yeah?
32:08
Speaker 10: ASML work global investors. We love the overseas exposure right
32:12
Speaker 10: from the Netherlands. But this is a company no debt,
32:15
Speaker 10: and this is an integral part of what makes an
32:18
Speaker 10: AI chip work. Right, So there's just a handful of
32:21
Speaker 10: companies that actually do the design that Nvidio uses. Right,
32:25
Speaker 10: So Nvidia is buying ASMML technology to design and fabricate
32:30
Speaker 10: these chips. So they're really at the beginning of the
32:34
Speaker 10: cycle of making the chips. Absolutely important company to own,
32:38
Speaker 10: not just a chip maker. They're the ones helping the
32:40
Speaker 10: chip makers make them make the chips. So very important
32:44
Speaker 10: to be at that front end, the most important company
32:47
Speaker 10: on that end.
32:49
Speaker 6: How about in a fixed income space, James, do you
32:51
Speaker 6: guys allocate there? And if so, how do you do?
32:53
Speaker 9: So?
32:54
Speaker 10: We do a third of our assets under management, we
32:56
Speaker 10: manage about two billion are in fixed income. And our
33:00
Speaker 10: you is the FED may not do anything. And so
33:04
Speaker 10: here's where you want to say, Well, if rates have
33:07
Speaker 10: let's say they peak, but they're not going to go down,
33:09
Speaker 10: you want to go out here in duration. I think
33:12
Speaker 10: it's safe to do that. I don't think the Fed's
33:14
Speaker 10: raising rates anytime soon. I think, in fact, at some
33:17
Speaker 10: point they'll lower them. I don't think it's this year.
33:20
Speaker 10: And so you want to go individual bonds high credit
33:23
Speaker 10: quality based on your tax circumstance, either own muni's or corporates.
33:27
Speaker 10: I love corporates in a non tax will account, and
33:30
Speaker 10: you know, don't feel uncomfortable going out twenty twenty five
33:33
Speaker 10: thirty years. Lock that yield in, make sure no one
33:36
Speaker 10: can take it away from you, because yes, eventually rates
33:39
Speaker 10: will come down and those will not be available. So
33:41
Speaker 10: we sort of ladder a little bit on the short end,
33:44
Speaker 10: tons in the middle, and lots on the long end.
33:46
Speaker 10: Very different than what we were doing three or four
33:49
Speaker 10: years ago.
33:52
Speaker 5: Our stock's expensive right now. How do you price that in?
33:54
Speaker 3: I mean, there's so many different metrics, particularly when you
33:57
Speaker 3: compare it to say, the yield you're getting on the
33:59
Speaker 3: ten years, So I might say, yeah, you're not getting
34:01
Speaker 3: compensated at all.
34:02
Speaker 5: That risk is not priced in.
34:03
Speaker 10: What do you think, Yeah, Alex, I think people are
34:06
Speaker 10: misunderstanding pe ratios. First of all, when you're at the
34:09
Speaker 10: beginning of a business cycle, pes can be sort of
34:11
Speaker 10: an illus right because we're looking at we look at
34:14
Speaker 10: four earrings and that E is underestimated all the time,
34:18
Speaker 10: so it sort of makes the pe and seem a
34:20
Speaker 10: little higher than it is. And more importantly, and I
34:23
Speaker 10: think this is the real problem investors are having is
34:26
Speaker 10: if you look at the S and P five hundred
34:28
Speaker 10: or any normal index, you've got seven stocks trading at
34:31
Speaker 10: thirty five times earnings, and you've got the rest of
34:33
Speaker 10: the market trading at fifteen. Now, anytime that you have
34:36
Speaker 10: financials at eleven times earnings, which is what's going on today,
34:39
Speaker 10: eleven times is almost historic for financial stocks and the
34:43
Speaker 10: rest of market trading at fifteen. That is a value
34:46
Speaker 10: proposition as we move towards a growing, expanding economy, and
34:51
Speaker 10: one that we view as GDP plus four percent, not
34:54
Speaker 10: GDP plus two, which is what we had for the
34:56
Speaker 10: last twenty years. So higher growth fifty teen time journings absolutely,
35:01
Speaker 10: and particularly all these sectors that I mentioned earlier, they
35:05
Speaker 10: have not yet been impacted by the power of AI
35:08
Speaker 10: and productivity growth.
35:10
Speaker 6: All right, James, thank you so much for joining us.
35:11
Speaker 6: James demmertt He is a chief investment officer at main
35:14
Speaker 6: Street Research. Joining us from New York City via zooms.
35:18
Speaker 6: We appreciate that.
35:21
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35:25
Speaker 2: weekdays at ten am Eastern.
35:27
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35:40
Speaker 6: Alex Dee and Paul Sweeney were live here in our
35:41
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35:45
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35:47
Speaker 6: Podcast and that's where you find us. All right, let's
35:50
Speaker 6: turn now to a conversation on artificial intelligence. Last Thursday,
35:54
Speaker 6: I attended the Boston Consulting Group EDGE Expo in Boston.
35:58
Speaker 6: A lotic great conversations with the execs at BCG. One
36:02
Speaker 6: was with North America Sharon Marshall. She speaks with CEOs
36:06
Speaker 6: daily about what they are dealing with with their own company,
36:09
Speaker 6: and one big issue that keeps coming up, Sharon said,
36:11
Speaker 6: was AI. I began by asking here what question she's
36:15
Speaker 6: being asked most by CEOs. Let's take a listen.
36:17
Speaker 11: I speak to CEOs on a daily basis, and I
36:21
Speaker 11: think the good news is there's cautious optimism. If you
36:24
Speaker 11: speak to most CEOs, they see a very very strong potential,
36:30
Speaker 11: some say infinite potential in terms of AI. Obviously, the
36:34
Speaker 11: economy is here in North America is performing very well
36:39
Speaker 11: and creates more stability in terms of capital investment. And
36:43
Speaker 11: I think the unknown is about the geopolitics and our
36:48
Speaker 11: current political environment and how that will all play out.
36:51
Speaker 11: But you know, in speaking to them, cautious optimism thinking
36:55
Speaker 11: about AI, how do I scale it, how do I
36:58
Speaker 11: get value out of it? And how do I fund
37:01
Speaker 11: the journey?
37:01
Speaker 5: So looking for opportunities for cost efficiencies.
37:04
Speaker 6: Well, let's go to that AI because that's been a
37:06
Speaker 6: topic here today. A lot of smart people we've spoken
37:08
Speaker 6: to from BCG about the AI business, about the ethics
37:11
Speaker 6: of AI, which is something folks really need to think about.
37:15
Speaker 6: But the bottom line is it requires, from my understanding,
37:18
Speaker 6: a lot of investment and over a long period of time,
37:21
Speaker 6: a real commitment here when you talk to CEOs, do
37:25
Speaker 6: they get that and are they willing to make that commitment?
37:28
Speaker 11: So, Paul, if you click back a year, we were
37:31
Speaker 11: doing a lot of conversations with boards and with CEOs,
37:34
Speaker 11: and there's a lot of experimentation that was going on.
37:37
Speaker 11: But it really it was just experimentation. It was use cases,
37:41
Speaker 11: and I think people were learning a lot. Now you
37:44
Speaker 11: flash forward a year and I think companies and CEOs
37:47
Speaker 11: are thinking, how can I create competitive advantage using AI?
37:51
Speaker 11: And what are the areas I'm going to pick to
37:53
Speaker 11: invest in? Because you can invest every it would be
37:56
Speaker 11: cost prohibitive to pick everything. And so it's interesting as
38:00
Speaker 11: you see some companies are picking what you would consider
38:03
Speaker 11: more strategic aspects of their business. So if you think
38:06
Speaker 11: about insurance, either claims processing or underwriting core processes which
38:11
Speaker 11: are strategic to really lean into and invest. Some other
38:15
Speaker 11: companies actually have chosen more of a backed office route.
38:19
Speaker 11: So really thinking about customer service, how can AI fundamentally
38:23
Speaker 11: transform how we do customer service to make it better
38:26
Speaker 11: and more efficient.
38:27
Speaker 5: So companies are in different journeys.
38:30
Speaker 11: It's going to be expensive, and they have to pick
38:32
Speaker 11: the places which is going to pan out for them
38:34
Speaker 11: and give them real advantage in the marketplace.
38:36
Speaker 6: And on the people side of the equation, there's concern
38:39
Speaker 6: out there in the marketplace that AI will take jobs,
38:42
Speaker 6: or if it doesn't take jobs, it's going to require
38:45
Speaker 6: a tremendous amount of retraining. How do the CEOs think
38:48
Speaker 6: about that? Are they again, are they concerned about that?
38:50
Speaker 6: Are they willing to make those investments in their people?
38:54
Speaker 11: I think that's exactly right. So AI is going to
38:57
Speaker 11: change a few things beyond the technology. It's going to
39:00
Speaker 11: change in many cases actually organization structure, it's going to
39:03
Speaker 11: change process and m process and also skills required. We
39:09
Speaker 11: often talk about the ten twenty seventy and the seventy
39:12
Speaker 11: percent of the change is going to be people and
39:15
Speaker 11: change management. If you speak to CEOs, I think they
39:18
Speaker 11: feel like it is worth it. It has to be
39:21
Speaker 11: done in order to stay at the head of the
39:23
Speaker 11: curve and to provide competitive advantage. But again being choiceful
39:27
Speaker 11: and where you choose to scale, because you can't change
39:30
Speaker 11: everything all at once.
39:32
Speaker 6: I was mentioning to my young producer that is one
39:35
Speaker 6: age is one has to really make the commitment to
39:38
Speaker 6: embrace change and be open to change. I'm case in point.
39:45
Speaker 6: When you go talk to the boards and to the CEOs,
39:48
Speaker 6: is it a tough sell to say, hey, Ai, this
39:51
Speaker 6: is an inflection point in what you've traditionally understood to
39:54
Speaker 6: be your tech spend.
39:57
Speaker 5: I think they understand it.
39:58
Speaker 11: I think they're not as familiar with the technology, but
40:03
Speaker 11: they're pushing themselves to get there because you're absolutely right.
40:05
Speaker 11: I mean, look, if we look at our own data WITHINBCG,
40:09
Speaker 11: the greatest adoption is with our less tenured people, and
40:13
Speaker 11: the adoption there is very, very high. But we I
40:16
Speaker 11: think all of our partners are most senior people as
40:19
Speaker 11: well as the CEOs and the board members realize they
40:22
Speaker 11: have to get the comfort level and upskill themselves in
40:27
Speaker 11: order to be relevant in the future.
40:29
Speaker 6: Are there some industries that are maybe doing a better
40:32
Speaker 6: job of kind of leaning into this AI and what
40:35
Speaker 6: it really means in the long term versus some others?
40:39
Speaker 11: Know, if it's versus some others, I mean, we're seeing
40:42
Speaker 11: a lot of activity, a lot of interests across all
40:47
Speaker 11: of our major sectors. So really thinking about healthcare as
40:50
Speaker 11: an example, so drug research would be an example, or
40:54
Speaker 11: medical records writing. So there's a lot in the regulatories
40:57
Speaker 11: here that can be improved through AI. If you think
41:00
Speaker 11: about insurance, there's an enormous amount of documentation and review
41:05
Speaker 11: and so in areas, specific areas within each industry and
41:09
Speaker 11: within each sector where there's a lot of documentation review,
41:13
Speaker 11: those are the areas that are.
41:14
Speaker 6: Being focused on all right, Speaking to CEOs, you have
41:19
Speaker 6: to talk about particularly for your global clients, I would
41:21
Speaker 6: think geopolitics, for better or worse, is at the top
41:24
Speaker 6: of their list or on their to do list. And
41:25
Speaker 6: you think about what's happened in Ukraine, the Middle East,
41:27
Speaker 6: and you know, you can never take your eye off
41:29
Speaker 6: Taiwan in Asia? Can you plan for it? This is
41:32
Speaker 6: a little bit different world than we had four or
41:34
Speaker 6: five years ago.
41:34
Speaker 11: It's interesting we did more work exactly on that topic
41:39
Speaker 11: last year than we're doing this year. I feel like
41:41
Speaker 11: there was a lot of preparedness and scenario analysis that
41:46
Speaker 11: was done last year. It's continuing to be done and updated.
41:50
Speaker 11: I think many companies are on that journey. And actually
41:53
Speaker 11: our recent CEO survey showed that sixty three percent actually
41:56
Speaker 11: felt much better prepared for a geopolitical event at this
42:00
Speaker 11: time this year versus last year.
42:02
Speaker 6: All Right, how about BCG in particular, I was thinking
42:05
Speaker 6: back way back to my days. Is the Fupal School
42:06
Speaker 6: of Business at Duke meeting with all the consulting companies.
42:10
Speaker 6: A couple of things that I remember. They paid pretty well,
42:13
Speaker 6: but they worked pretty hard. They travel quite a lot.
42:17
Speaker 6: How has your business changed since? Maybe since the pandemic,
42:20
Speaker 6: maybe with the advent of some new technologies.
42:22
Speaker 11: Great question. So look, you know it's super important that
42:26
Speaker 11: we travel and that we spend in time time with
42:29
Speaker 11: clients and at sites. I think the pandemic has also,
42:32
Speaker 11: just like many industries, given us a little bit more flexibility.
42:35
Speaker 11: I think our clients are sometimes very happy to meet
42:38
Speaker 11: with us on video and we do that quite a
42:41
Speaker 11: bit as well. And you know, of course, like any
42:43
Speaker 11: responsible business, we are trying to lower.
42:46
Speaker 6: Our carbon footprint.
42:47
Speaker 11: So it's something as we think about, for example, internal
42:50
Speaker 11: travel that we really try to manage. So I think
42:53
Speaker 11: it's better than when I joined BCG, but it's still
42:56
Speaker 11: a pretty demanding job.
42:57
Speaker 6: Still the demand job. It's still a lot of big
43:01
Speaker 6: NBA pipeline there. So talk to us about just kind
43:04
Speaker 6: of the business of consulting today. Hey, just how's business.
43:08
Speaker 5: Business is good.
43:09
Speaker 11: So if you if you look at last year, we
43:14
Speaker 11: we actually registered another year, which is twenty straight years
43:18
Speaker 11: of growth in terms of BCG. And I would say
43:21
Speaker 11: in North America specifically, our fourth quarter was our strongest
43:25
Speaker 11: quarter last year, and we're off to a really strong
43:27
Speaker 11: start this year as well, both in North America and globally.
43:31
Speaker 11: All of our regions are growing and all of our
43:33
Speaker 11: practices are growing.
43:35
Speaker 6: So that's Does that tell you that the c suite
43:38
Speaker 6: the board has some little of confidence that they're either
43:40
Speaker 6: willing to engage with you to make the investment in
43:42
Speaker 6: your type of services, they're looking to do stuff that's right.
43:46
Speaker 5: We always say that.
43:49
Speaker 11: Certainty in either direction, either optimism or pessimism, is good
43:54
Speaker 11: for our industry.
43:55
Speaker 5: What is bad for our industry is uncertainty.
43:58
Speaker 11: So if you don't know if there's going to be
44:01
Speaker 11: a recession, if you have fear but a lot of uncertainty,
44:04
Speaker 11: that's a tough time for our industry. I think there's
44:07
Speaker 11: greater certainty and energy and CEO is feeling they have to.
44:13
Speaker 6: Move, they have to move. Yeah, I would think with
44:15
Speaker 6: technology that would make it even more so, more pronounced
44:18
Speaker 6: than this whole AI thing. I have to get smart
44:20
Speaker 6: on it really quickly.
44:22
Speaker 11: Indeed, indeed, a big, a big part of big part
44:24
Speaker 11: of our business continues to be cost and resiliency, but
44:27
Speaker 11: a very big part is AI.
44:29
Speaker 6: All Right. That was Sharon Marshall. She is the North
44:32
Speaker 6: America chair for BCGOS chatting with her last week at
44:36
Speaker 6: conference up in Boston, and you know, I mean her
44:39
Speaker 6: job is basically just to take phone calls and field
44:41
Speaker 6: fold calls from CEOs their clients and try to help
44:44
Speaker 6: them with their problems. And she says, boy, it's like
44:46
Speaker 6: every single call is about AI. That types of investments
44:50
Speaker 6: that their clients should be making in AI, how they
44:53
Speaker 6: should be making those investments. How do you weave the
44:56
Speaker 6: whole ethics thing into this whole AI discussion? But it
44:59
Speaker 6: certainly top of mind for her and her you know,
45:02
Speaker 6: all the other consultants up there.
45:03
Speaker 3: Does BCG feel like they're behind that curve or on
45:06
Speaker 3: top of it because just as it's their clients are panicking,
45:09
Speaker 3: I would assume that they don't have all the answers either.
45:11
Speaker 6: No, they don't, but there's they have a lot of
45:13
Speaker 6: people there that are spending a lot of time on
45:15
Speaker 6: it and they're getting and the people I spoke to
45:17
Speaker 6: their at BCG were, you know, seem very well read
45:20
Speaker 6: in but acknowledged, like you said, way early in the game.
45:24
Speaker 6: But I think one of the key takeaways I had
45:26
Speaker 6: was you have to put the whole ethics of it
45:29
Speaker 6: first before you spend dollar one, which doesn't usually happen
45:32
Speaker 6: because usually people are spending on the tech, spend on
45:34
Speaker 6: the tech. But you really have to think about how you,
45:36
Speaker 6: as an institutions, as a company want to frame this
45:40
Speaker 6: investment in terms of the ethical applications of AI. You
45:43
Speaker 6: have to have a really strong call on that before
45:45
Speaker 6: you put the shovel in the ground, so that's kind
45:48
Speaker 6: of how they begin the discussion with their clients. But again,
45:52
Speaker 6: big dollars being spent, big commitments, that's for sure.
45:54
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