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AMZN, JPM, BRK Health Care Venture May Pioneer New Model: Nisen · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg P M L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com, Amazon
• 0:32
  Speaker 1: dot Com, Berkshire Hathaway, and JP Morgan Chase. They say
• 0:35
  Speaker 1: that they're going to collaborate on a way to offer
• 0:37
  Speaker 1: healthcare services to their US employees. Here to tell us
• 0:41
  Speaker 1: more is Max Nisson, our Bloomberg Gadfly calumnists. He covers
• 0:45
  Speaker 1: all things related to healthcare. Max, thanks very much for
• 0:48
  Speaker 1: coming in. We spoke earlier in the morning. What if
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  Speaker 1: you learned by investigating whatever details they have released about
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  Speaker 1: this collaboration. So the thing about it is that there
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  Speaker 1: are so few details that you can sort of read
• 1:02
  Speaker 1: the release and and the potential for the future of
• 1:04
  Speaker 1: this endeavor really anyway you want. Um. If you're an
• 1:08
  Speaker 1: optimist or you're just intrigued by the idea, you can
• 1:10
  Speaker 1: see it as the potential for these companies to kind
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  Speaker 1: of pioneer a new model of employer healthcare where they
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  Speaker 1: eventually are running their health coverage on their own and
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  Speaker 1: can potentially export that model to other companies. If you're
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  Speaker 1: a skeptic, on the other hand, um, you see this
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  Speaker 1: as a kind of just a pr play um given
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  Speaker 1: added luster by the names involved, and you know, you
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  Speaker 1: point out the fact that technology is more often referred
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  Speaker 1: to as a healthcare savior than um actually you know,
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  Speaker 1: being able to deliver it. And the fact that this
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  Speaker 1: isn't the first time that a consortium of companies has
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  Speaker 1: gotten together to try to bring down healthcare costs. Well, okay,
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  Speaker 1: let's let me just play devil advocate here, because none
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  Speaker 1: of these companies are healthcare companies. None of them have
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  Speaker 1: ever run healthcare companies. What makes them think that they
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  Speaker 1: can do it better than the companies and the organizations
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  Speaker 1: that have devoted their entire lives to this. It's not
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  Speaker 1: as if anyone goes out to create a bad or
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  Speaker 1: imperfect health care system. So I think they definitely acknowledge
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  Speaker 1: this in their press release that you know, we we
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  Speaker 1: don't know much about this, but they also point to
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  Speaker 1: the fact that perhaps it needs kind of an untested
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  Speaker 1: skeptic one that's kind of less involved in sort of
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  Speaker 1: the labyrinthine weirdness of the U S health care system.
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  Speaker 1: But that's going to be the really difficult thing to
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  Speaker 1: for them. I think what they point to as their
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  Speaker 1: potential advantage is the fact that they're looking to take
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  Speaker 1: kind of the profit motivation UM out of some particular
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  Speaker 1: parts of the health care system. You know, with insurers
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  Speaker 1: and and PBM is really any middlemen in the health
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  Speaker 1: care system, You've got this sort of competing dual mandate
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  Speaker 1: where your your job is to bring down you know,
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  Speaker 1: deliver healthcare as inexpensively and efficiently as possible, but you
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  Speaker 1: also with the highest quality exactly, but you also have
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  Speaker 1: a profit motivation. You're trying to you know, generate a
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  Speaker 1: return for your shareholders. So you see the kind of
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  Speaker 1: conflict not all the time where you know, PBMs they
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  Speaker 1: do a lot to bring down healthcare costs, but also
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  Speaker 1: since they benefit when you know, they negotiate a higher
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  Speaker 1: rebate on an expensive drug, they have sort of this
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  Speaker 1: perverse effect where they push the list price of medicines up,
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  Speaker 1: and um, you know, while most people don't pay the
• 3:23
  Speaker 1: list price, it does severely impact the subset of the
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  Speaker 1: population and and does create a lot of problems. So potentially,
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  Speaker 1: by you know, taking that little profit margin out, um,
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  Speaker 1: they'll potentially be able to deliver at a lower cost
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  Speaker 1: over time. Okay, but doesn't that mean that someone else
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  Speaker 1: is going to have to pick up the tab for
• 3:44
  Speaker 1: that lack of profit? Oh? Absolutely, I mean they're they're
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  Speaker 1: going to be Whenever you introduce new players or or
• 3:51
  Speaker 1: take out one perverse effect, you're gonna introduce another one.
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  Speaker 1: You know. In this case, one that immediately comes to
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  Speaker 1: mind is the fact that, you know, the reason that
• 3:59
  Speaker 1: self ensured employ lars kind of work the way they do,
• 4:02
  Speaker 1: UM with the health insurer administrating the plan, even if
• 4:04
  Speaker 1: they're you know, the ones actually funding the insurance. Um.
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  Speaker 1: It's so when someone gets a claim denied, they look
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  Speaker 1: to the insurer. They don't look at their employer. But um,
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  Speaker 1: if you can think about, you know, the reaction, um,
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  Speaker 1: even if it's just their own employees, when they know
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  Speaker 1: that it's their employer denying a service, denying a drug.
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  Speaker 1: Because at the end of the day, you know, really
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  Speaker 1: the only way in a lot of ways, unless you
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  Speaker 1: make a lot of systemic changes to control healthcare costs
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  Speaker 1: in the nearer long term is to limit choice. If
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  Speaker 1: people get whatever care they want, whenever they want, you
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  Speaker 1: get very expensive care. And the fact that there's a
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  Speaker 1: lot of choice in the US healthcare system and a
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  Speaker 1: lot of variation in terms of how it gets paid
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  Speaker 1: for it by whom it's what makes it so expensive.
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  Speaker 1: So does anybody bring up the term socialized medicine anymore?
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  Speaker 1: I mean now? And then I think I saw a
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  Speaker 1: couple of people referring to Warren buff in the past,
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  Speaker 1: is said single payer insurance is perhaps the best model
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  Speaker 1: in the long run. Um, this is definitely not that.
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  Speaker 1: If anything, it kind of reinforces the kind of current dichotomy. Well,
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  Speaker 1: that's why I asked that, because on the one hand,
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  Speaker 1: you would think that, all right, if you were saying
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  Speaker 1: that what you want is high quality healthcare out of
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  Speaker 1: what they would consider to be a fair or reasonable price,
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  Speaker 1: everybody that participates in the delivery of that healthcare needs
• 5:27
  Speaker 1: to be paid. And no matter how transparent or how
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  Speaker 1: much technology you throw at the situation, I have a
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  Speaker 1: hard time understanding exactly what kind of competition is going
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  Speaker 1: to drive these prices down other than a heavy handed
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  Speaker 1: corporate entity that says, look, we have over a million
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  Speaker 1: insured people, you better give us the best price. I mean,
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  Speaker 1: that's really the question. Um. At the end of the day,
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  Speaker 1: it comes down to negotiating power a lot of the time,
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  Speaker 1: which is why you've seen so much consolidation basically everywhere
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  Speaker 1: in the healthcare sector. You know, one point two million
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  Speaker 1: is a lot of people, and I think you can
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  Speaker 1: add some weight behind the fact that you know there
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  Speaker 1: also be some families that will be insured, and just
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  Speaker 1: the pure financial might of these companies. But United Health
• 6:12
  Speaker 1: just its employer arm you know, we're not even gonna
• 6:15
  Speaker 1: get into Medicare and Medicaid that's insurance or administers the
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  Speaker 1: insurance of somewhere around thirty million people. So you're you're
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  Speaker 1: not you're not competitive on the negotiating side with them.
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  Speaker 1: The question is whether if you kind of take out
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  Speaker 1: their profit margin, maybe you don't have to quite get
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  Speaker 1: as good of a price to still have an outcome
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  Speaker 1: that's potentially superior. But that's a that's a pretty slim margin,
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  Speaker 1: and that's a big difference in negotiating powers. So um,
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  Speaker 1: it's going to be a challenge to for them to
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  Speaker 1: get prices downe in a significant way. If again, they
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  Speaker 1: are going the route of actually managing health care plans
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  Speaker 1: is opposed to, you know, tinkering around the edges with technology,
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  Speaker 1: which might really be the case. We don't actually know,
• 6:55
  Speaker 1: given you know, on one hand you of this very
• 6:57
  Speaker 1: grandiose statement, but very little on what actually they're gonna do.
• 7:00
  Speaker 1: All right, Let's say that Warren Buffett calls Max Nisson
• 7:03
  Speaker 1: later today and says, Max, I'd be curious what would
• 7:07
  Speaker 1: you recommend to begin? What should we do when we
• 7:12
  Speaker 1: deliver healthcare to our employees? What would be one of
• 7:15
  Speaker 1: the things that you would recommend. I think the first
• 7:21
  Speaker 1: thing you have to look at is the places where
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  Speaker 1: the most health the most healthcare spending is done. Um.
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  Speaker 1: You know, people like to point at drugs a lot
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  Speaker 1: of the time, but at the end of the day,
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  Speaker 1: even though they are very expensive, it's less than of
• 7:34
  Speaker 1: healthcare expenditure. So the place to start, I think is
• 7:37
  Speaker 1: definitely on the point on care and um, just starting
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  Speaker 1: to look at what are people spending the most care
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  Speaker 1: out and how do we direct people to lower cost entities?
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  Speaker 1: And that that's not easy again because people hate being
• 7:50
  Speaker 1: pushed into healthcare decisions. By figuring out how to get
• 7:53
  Speaker 1: people you know, invest more in preventative care, in attempting
• 7:57
  Speaker 1: to avoid at least really like a cute event inventions
• 8:00
  Speaker 1: and hospitalizations, UM by getting ahead of time. And and
• 8:04
  Speaker 1: this might actually be easier for them because this is
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  Speaker 1: going to be generally relative to the entire you know,
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  Speaker 1: spectrum of the U. S population, pretty healthy people. These
• 8:13
  Speaker 1: are people that are in generally like pretty good jobs,
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  Speaker 1: working for excellent corporations. UM. On the younger side. You know,
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  Speaker 1: you don't have Medicare and medicaiding here, so UM, just
• 8:24
  Speaker 1: trying to figure out the subset of those less healthy people.
• 8:28
  Speaker 1: You know, people with chronic conditions. Target those first. But
• 8:30
  Speaker 1: you know that's that's that's not a unique prescription. But
• 8:35
  Speaker 1: maybe your voice add your voice to it. Maybe warm
• 8:37
  Speaker 1: Buffett will call. If he does, I know you're gonna
• 8:39
  Speaker 1: let us know. Thanks very much. Max Neeson is our
• 8:43
  Speaker 1: Bloomberg gad Fly columnist for all things healthcare. You want
• 9:00
  Speaker 1: to visit now with Robert Lawrence. He is the Albert
• 9:02
  Speaker 1: Williams Professor of International Trade and Investment at Harvard Kennedy School.
• 9:08
  Speaker 1: Professor Lawrence, thanks very much for being with us. You're welcome.
• 9:11
  Speaker 1: Can you start off just going to a little bit
• 9:14
  Speaker 1: of a history for US about frozen chicken and the
• 9:18
  Speaker 1: Subaru bratt and I think you know why I'm combining
• 9:23
  Speaker 1: both of those. I'm actually not sure why. Well, Okay,
• 9:28
  Speaker 1: this goes back to something you were talking about having
• 9:30
  Speaker 1: to do with trade, and back in nineteen sixty to
• 9:33
  Speaker 1: the European Common Market, bard access to US frozen chicken
• 9:37
  Speaker 1: imports at the same time. Okay, go for it. Yeah,
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  Speaker 1: I didn't realize they were frozen, to be honest, Okay,
• 9:44
  Speaker 1: they are frozen. You know, Europe formed a common market,
• 9:49
  Speaker 1: and when they did, they raised tariffs on American chicken.
• 9:55
  Speaker 1: And as a result of that, the United States was
• 9:57
  Speaker 1: entitled to retaliate and uh raise some tariffs on the Europeans.
• 10:03
  Speaker 1: And we looked around and we thought, well, where could
• 10:06
  Speaker 1: we find a European product that would be vulnerable, And
• 10:11
  Speaker 1: we actually raised tariffs on the Combi, the Volkswagen buses
• 10:16
  Speaker 1: that were being sold in the US. But in fact,
• 10:19
  Speaker 1: when we raised those tariffs, we did it for all
• 10:23
  Speaker 1: countries we were entitled to, and on all trucks. So
• 10:27
  Speaker 1: in effect, the United States is protected. The United States
• 10:33
  Speaker 1: economy has a tariffs on all trucks that are imported
• 10:37
  Speaker 1: into the US. That compares with the two point five
• 10:41
  Speaker 1: percent tariff that we have on finished automobiles. So the
• 10:45
  Speaker 1: result is even to this day, as a result of
• 10:49
  Speaker 1: that Chicken Wall, the US has very high tariffs and
• 10:53
  Speaker 1: high protection on trucks, and there are very sensitive issue
• 10:57
  Speaker 1: as you could imagine in any of our trade negotiating
• 11:00
  Speaker 1: as indeed, and the reason I brought up the Subaru
• 11:03
  Speaker 1: bratt is because in order to sort of rebrand it
• 11:07
  Speaker 1: as an open air passenger car, they put two rear
• 11:11
  Speaker 1: facing seats in the bed of the actual pick up, right,
• 11:17
  Speaker 1: because you want to be classified as a car rather
• 11:20
  Speaker 1: than a truck. You're an important all right, now we
• 11:23
  Speaker 1: can Can we tie this to the ongoing renegotiation of
• 11:27
  Speaker 1: NAFTA having to do with automobiles, trucks and the amount
• 11:31
  Speaker 1: of content that comes from the United States in these vehicles. Yes, absolutely,
• 11:36
  Speaker 1: you see, um, the intention of the administration is to
• 11:40
  Speaker 1: try to get more production in the United States, and
• 11:45
  Speaker 1: actually one way they're going to try to do that
• 11:49
  Speaker 1: is to insist that UH products have more North American
• 11:55
  Speaker 1: and more US content in them in order to qualify
• 11:58
  Speaker 1: for the tariff reduction that you get through the North
• 12:01
  Speaker 1: America Free Trade Agreement. Now, when it comes to automobiles, UH,
• 12:07
  Speaker 1: since the tariff is only two and a half percent,
• 12:10
  Speaker 1: the administration doesn't really have much leverage over the foreign
• 12:14
  Speaker 1: countries over Mexico or Canada, because at worst, UH, those
• 12:19
  Speaker 1: UH product producers will simply pay this two and a
• 12:23
  Speaker 1: half percent tariff if they can't meet the local content productions.
• 12:27
  Speaker 1: But when it comes to trucks, since the tariff rate
• 12:30
  Speaker 1: is well, there is a huge incentive to qualify for
• 12:37
  Speaker 1: the NAFTA reduction. And that's where I think the the
• 12:40
  Speaker 1: administration has some more negotiating leverage. So if you were
• 12:45
  Speaker 1: advising the administration and you have worked in previous administrations,
• 12:49
  Speaker 1: what would you be telling Robert Lightheiser are offering as advice. Well,
• 12:55
  Speaker 1: you see, I don't think UM, that this is a
• 12:58
  Speaker 1: great idea in the first place, because UM putting a,
• 13:04
  Speaker 1: we we have very integrated supply chains between ourselves and Mexico,
• 13:10
  Speaker 1: and if in fact we do UH disrupt those supply chains,
• 13:15
  Speaker 1: a lot of the products that are produced trucks and
• 13:19
  Speaker 1: cars in the US have Mexican content. UH. If there
• 13:23
  Speaker 1: is now a much more restrictive policy, it's going to
• 13:28
  Speaker 1: raise the cost of production, and I think could damage
• 13:32
  Speaker 1: employment in the auto industry and truck industry in the
• 13:35
  Speaker 1: US as well as in Mexico. So I think we
• 13:39
  Speaker 1: I think the NaSTA, the NaSTA had adjustment costs that
• 13:43
  Speaker 1: we've gone through those, and now I think to to
• 13:46
  Speaker 1: reopen this whole question of the content of automobiles, uh
• 13:51
  Speaker 1: is going to be so disruptive for the supply chains
• 13:54
  Speaker 1: that in fact it's not going to help the people
• 13:57
  Speaker 1: that the administration claims it's trying to help. Well, is
• 14:00
  Speaker 1: there a way for them to walk back from this
• 14:03
  Speaker 1: position without seeming to let's say, given to the Canadians
• 14:07
  Speaker 1: and the Mexicans, Well, uh, you know they I do think. Um,
• 14:15
  Speaker 1: there are a lot of issues and NAFTA is a
• 14:17
  Speaker 1: very complex agreement, and and everybody, both the Canadians and
• 14:22
  Speaker 1: the Mexicans agreed that say things like digital trade, internet trade,
• 14:29
  Speaker 1: other kinds of issues can should be introduced into a
• 14:33
  Speaker 1: modern trade agreement. There's also a general consensus that the
• 14:38
  Speaker 1: labor and environmental provisions in the trade agreements, of which
• 14:44
  Speaker 1: were only side agreements in the NAFTA, could be included.
• 14:48
  Speaker 1: So it's quite possible to come up with a big
• 14:50
  Speaker 1: package and to say you've renegotiated the NAFTA. So in
• 14:54
  Speaker 1: my view, that would be one way you could in
• 14:57
  Speaker 1: a sense walk it back. So, Lawrence A, You've written
• 15:02
  Speaker 1: quite extensively about international trade and globalization. What do you
• 15:06
  Speaker 1: say to critics of globalization? Has it gone too far?
• 15:10
  Speaker 1: And is there a way to in a sense fix
• 15:14
  Speaker 1: it without tearing it down? Well, I think the globalization
• 15:20
  Speaker 1: on balance has been beneficial, but it has caused disruption
• 15:25
  Speaker 1: and there are people and firms and others who have lost.
• 15:30
  Speaker 1: So I think we need both to sustain it because
• 15:35
  Speaker 1: I think we get benefits from it, and many others
• 15:38
  Speaker 1: around the world have been lifted from poverty as a result.
• 15:41
  Speaker 1: But we also need to improve the policies that we
• 15:44
  Speaker 1: have to help those who are who have been dislocated
• 15:47
  Speaker 1: and who whoo who have lost their jobs. I don't
• 15:51
  Speaker 1: think in the US we've done a very good job
• 15:54
  Speaker 1: in in helping displaced workers uh and in retraining them,
• 16:00
  Speaker 1: and I think that's what needs to be emphasized rather
• 16:02
  Speaker 1: than erecting new trade barriers. Give you about ten seconds.
• 16:06
  Speaker 1: Is there anything specific you would like to hear from
• 16:08
  Speaker 1: President Trump in Tonight's State of the Union message. Well,
• 16:14
  Speaker 1: I think he started along the right track link at
• 16:17
  Speaker 1: Davos UH and I'd like to see him continue to
• 16:22
  Speaker 1: U to recognize the value of a trading system based
• 16:26
  Speaker 1: on rules that are negotiated with all of our trading partners.
• 16:30
  Speaker 1: Thank you very much for being with us. Professor Robert Lawrence,
• 16:33
  Speaker 1: Professor of International Trade and Investment at the JFK School
• 16:37
  Speaker 1: of Government at Harvard University in Boston, home to Bloomberg
• 16:41
  Speaker 1: one oh six one Boston, Newburyport, and in Metro West
• 16:45
  Speaker 1: and the South Shore, and we welcome all of our listeners.
• 17:02
  Speaker 1: His mission is to help you see better using American
• 17:07
  Speaker 1: made products. Scott Shapiro is the chief executive and the
• 17:10
  Speaker 1: co founder of State Optical. They are based in Vernon Hills, Illinois.
• 17:14
  Speaker 1: That's just outside Chicago. But Scott joins us in our
• 17:17
  Speaker 1: eleven three oh studios here in New York. Scott, thanks
• 17:20
  Speaker 1: for being here. Tell us about State Optical. Why did
• 17:23
  Speaker 1: you create this luxury eyeware manufacturing business and what makes
• 17:28
  Speaker 1: it distinctive? So thanks for having me. Um. You know,
• 17:32
  Speaker 1: my family has been in eyewear for forty years now. Um,
• 17:35
  Speaker 1: just like everybody else, importing frames from overseas a matter
• 17:39
  Speaker 1: of fact, they're their companies called Europe Eyewear because when
• 17:42
  Speaker 1: they started the company in nineteen all frames were imported
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  Speaker 1: from Europe. That's what they did. Um. You know, we
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  Speaker 1: started this project about five years ago because we felt
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  Speaker 1: like we needed a differentiator in the marketplace. Of course,
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  Speaker 1: there's a lot of pride to making things in the
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  Speaker 1: United States. Were really proud that we have fifty craftsmen
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  Speaker 1: in our factory today that are producing eye wear. Wouldn't
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  Speaker 1: be wouldn't have those jobs if we were outsourcing that overseas.
• 18:09
  Speaker 1: But really, you know, from a storytelling perspective, we felt
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  Speaker 1: like consumers had a real distrust with eye wear, a
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  Speaker 1: lot of cynicism about their eyewear, partially because of so
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  Speaker 1: much licensing, partially because there's huge conglomerate corporations that that
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  Speaker 1: take up a lot of space in the eye wear industry,
• 18:29
  Speaker 1: and so we wanted to connect people with the way
• 18:31
  Speaker 1: the craft of eyewear, the the way that their frames
• 18:34
  Speaker 1: are actually made. Well, just to give you the perspective, right,
• 18:38
  Speaker 1: and I'm sure you know about this, but Selore, which
• 18:40
  Speaker 1: is a French based company, announced the well the combination
• 18:44
  Speaker 1: to takeover of Look, so Atica. Uh. And that was
• 18:47
  Speaker 1: a fifteen point six billion euro deal that was back
• 18:52
  Speaker 1: in January of last year. Uh. The acquisition is still pending,
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  Speaker 1: looks like it might go through. But they're the pound
• 18:59
  Speaker 1: gorilla in the end ustry, aren't they? Oh? Yeah, so uh.
• 19:01
  Speaker 1: And I'll tell you it's funny because I run into
• 19:04
  Speaker 1: people all the time who know I work in the
• 19:06
  Speaker 1: eyewear industry, and their first question is always, Hey, do
• 19:09
  Speaker 1: you work for that company that owns everything in the
• 19:12
  Speaker 1: eyewear industry? Of course that's a uh, that's an exaggeration.
• 19:16
  Speaker 1: They don't own everything in the in the eyework industry.
• 19:18
  Speaker 1: There's lots of small companies like ours who are making
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  Speaker 1: our own way. But that's really what our brand is
• 19:23
  Speaker 1: all about. By making it here in the United States,
• 19:26
  Speaker 1: we can kind of cut through all the bs and
• 19:28
  Speaker 1: really show people what they're paying for, what the what
• 19:31
  Speaker 1: our brand is about, and how we make it. Okay, So,
• 19:33
  Speaker 1: if if I sign up and you can sign up
• 19:36
  Speaker 1: for a factory tour, if I were to show up
• 19:39
  Speaker 1: at your factory, what would I see just outside of Chicago? Yeah?
• 19:44
  Speaker 1: Great questions. So, and we do encourage you phim or
• 19:46
  Speaker 1: any of your listeners to come and and see that,
• 19:49
  Speaker 1: uh that process. First of all, most people don't realize
• 19:52
  Speaker 1: in our factory it takes about seventy steps to make
• 19:54
  Speaker 1: one pair of ascetate frames. So it's a very in
• 19:57
  Speaker 1: depth process. And most importantly, of those seventy steps, about
• 20:01
  Speaker 1: fifty of those have to be done by hand. So
• 20:04
  Speaker 1: that's why it's so rare for eye wear to be
• 20:06
  Speaker 1: made in the United States because hand labor is very
• 20:09
  Speaker 1: expensive here in the US, and we don't have the
• 20:11
  Speaker 1: skilled labored labor force to easily hire and get to
• 20:15
  Speaker 1: work doing that job. Each frame takes about two weeks
• 20:19
  Speaker 1: to completely uh be finished, So there's a lot that
• 20:23
  Speaker 1: goes into making high quality eyewear. And I think most
• 20:27
  Speaker 1: consumers are under the impression today that pay your pair
• 20:30
  Speaker 1: of glasses a pair of glasses, that maybe there's some
• 20:33
  Speaker 1: machine in China that spits these things out two hundred
• 20:36
  Speaker 1: at a time. But when they come into our facility,
• 20:39
  Speaker 1: they see that the handwork that goes into it, they
• 20:41
  Speaker 1: see the detail that goes into the frames, and it's
• 20:44
  Speaker 1: a totally different experience. And it's not only just manufacturing
• 20:47
  Speaker 1: in the units that you do have to source some
• 20:50
  Speaker 1: products over some pieces overseas, but it's all put together here, correct.
• 20:54
  Speaker 1: So unfortunately, you know, one of the things that people
• 20:57
  Speaker 1: don't talk about when they talk about bringing manufacturing job
• 21:00
  Speaker 1: back to the United States is how difficult it is
• 21:02
  Speaker 1: because there's no infrastructure to make things here in the
• 21:04
  Speaker 1: United States. We don't have a skilled labor force, we
• 21:06
  Speaker 1: don't have the machinery here in the United States, and
• 21:08
  Speaker 1: we don't have the raw materials. So um, the metal
• 21:11
  Speaker 1: part of the hinge and the acetate itself, the raw
• 21:14
  Speaker 1: plastic we have to import um. But everything else, all
• 21:18
  Speaker 1: those seventy plus steps are all done in our in
• 21:20
  Speaker 1: our factory. Okay. So if this is a assembly as
• 21:25
  Speaker 1: well as a design business, it is what kind of
• 21:29
  Speaker 1: price points are we talking about? So our frames retail
• 21:32
  Speaker 1: for somewhere between uh three hundred fifty to four UM,
• 21:38
  Speaker 1: which is not inexpensive, certainly, uh it's but it's sort
• 21:41
  Speaker 1: of like at the entry level of the luxury eyewear world.
• 21:44
  Speaker 1: It's it's not completely out of the question when you
• 21:46
  Speaker 1: talk about what you see when you walk into an
• 21:48
  Speaker 1: independent office, what what level of sophistication do you need
• 21:53
  Speaker 1: to really get good lenses? Because it's one thing to
• 21:55
  Speaker 1: talk about the frames which actually look through the lenses. Yeah.
• 22:00
  Speaker 1: Also to be perfectly honest with you. Unlike and Lexotica,
• 22:04
  Speaker 1: our company is devoted just to making the frames. So
• 22:06
  Speaker 1: when you when if you go into an independent optometrist,
• 22:09
  Speaker 1: for instance, you see our product, you can buy our
• 22:12
  Speaker 1: product from that optometrist and then he takes care of
• 22:16
  Speaker 1: sourcing the lenses from a different company. Yeah, but you
• 22:18
  Speaker 1: want to make sure that it's the same quality as
• 22:20
  Speaker 1: the lens as the frames that you're buying. Good point.
• 22:22
  Speaker 1: That's why we sell our frames almost exclusively through those
• 22:25
  Speaker 1: independent optometrists. So we're in about eleven hundred uh independent
• 22:29
  Speaker 1: offices across the country and and we work only with
• 22:32
  Speaker 1: optometrists that and opticians that use the best lenses. What's
• 22:35
  Speaker 1: the biggest challenge for State Optical right now? Wow? So,
• 22:40
  Speaker 1: like any startup, getting our story out there is what
• 22:43
  Speaker 1: we focus on. Number one. Now, you know, we have
• 22:45
  Speaker 1: to be able to make a quality product and we
• 22:47
  Speaker 1: have to be able to justify the price point. So
• 22:50
  Speaker 1: we can't just say to the average consumer, hey, you're
• 22:53
  Speaker 1: gonna pay an extra hundred dollars or so just because
• 22:56
  Speaker 1: the frames are made in the United States. No, we
• 22:58
  Speaker 1: have to make a product that's as good, if not
• 23:01
  Speaker 1: better than what's made in Italy or France that's priced
• 23:04
  Speaker 1: at the same price. So that's always a continuing challenge.
• 23:07
  Speaker 1: I think we've mostly met that now. Our challenges to
• 23:11
  Speaker 1: get our story out there, to get people who care
• 23:13
  Speaker 1: to hear the story, well, thanks very much. They can
• 23:16
  Speaker 1: hear it, of course on a podcast P and L
• 23:19
  Speaker 1: podcast for Bloomberg, but they can also check it out
• 23:21
  Speaker 1: at the factory of State Optical just outside of Chicago.
• 23:24
  Speaker 1: Thanks very much. Scott Shapiro, he's the chief executive and
• 23:27
  Speaker 1: the co founder of State Optical. We consult our own expert,
• 23:44
  Speaker 1: Ira Jersey. He is chief US interest rate Strategist for
• 23:47
  Speaker 1: Bloomberg Intelligence. And I I gotta pose a question. I
• 23:50
  Speaker 1: don't know whether you have the answer, but is the
• 23:53
  Speaker 1: United States really a worse bet in terms of its
• 23:57
  Speaker 1: sovereign debt compared the countries like France, Italy and Spain.
• 24:02
  Speaker 1: How does this make any sense? You're talking about the
• 24:06
  Speaker 1: yield differentials between them, right, Yeah, for the US tenure
• 24:11
  Speaker 1: and in France zero point five two percent in Italy
• 24:16
  Speaker 1: and one point four in Spain. Well, one of the
• 24:18
  Speaker 1: big things that I think we always have to realize,
• 24:20
  Speaker 1: you know we always look at these big yield differentials,
• 24:22
  Speaker 1: is that you have to look at what is the
• 24:24
  Speaker 1: funding cost in that currency. So the funding cost in
• 24:28
  Speaker 1: the US is say the FED Funds rate or something
• 24:30
  Speaker 1: similar to that, and you're talking about one point one
• 24:34
  Speaker 1: for that in the US, whereas in Europe that's a
• 24:37
  Speaker 1: negative number and you know, negative negative fifty basis points
• 24:41
  Speaker 1: or so. So when you look at when you look
• 24:44
  Speaker 1: at that difference, that difference is to two percent right there.
• 24:47
  Speaker 1: So if you look at France versus the US, you
• 24:49
  Speaker 1: can say, okay, maybe the US is you know, twenty
• 24:52
  Speaker 1: basis point cheap and um to to UH to France
• 24:56
  Speaker 1: based on based on that, but you know that's there's
• 24:59
  Speaker 1: some noise in a too um and and not not
• 25:02
  Speaker 1: only that, but you know we always say, hey, let's um,
• 25:06
  Speaker 1: let's look at these yield differentials. And if you're a
• 25:08
  Speaker 1: European investor, you've gotta love the US because because we're
• 25:11
  Speaker 1: two basis points higher. But then you're taking massive foreign
• 25:15
  Speaker 1: exchange risk. And as you can see just what's going
• 25:17
  Speaker 1: on with the dollar recently. Um, you know, the dollar
• 25:20
  Speaker 1: can move several percent in just a month. Are you
• 25:22
  Speaker 1: willing to take that amount of volatility, and if you
• 25:24
  Speaker 1: hedge all of that out, the yields are almost exactly
• 25:27
  Speaker 1: the same if you if you do all of the
• 25:30
  Speaker 1: assets swapping that you need to do to um UM
• 25:33
  Speaker 1: to make those equal. Alright, So, well, that is that
• 25:35
  Speaker 1: likely to remain is that is that is that sort
• 25:39
  Speaker 1: of coordination or that the comparison is that likely to
• 25:43
  Speaker 1: remain true as interest rates rise in the United States
• 25:46
  Speaker 1: and we've got to sell off at the long end
• 25:47
  Speaker 1: right now? Yeah, I I do, I do think that
• 25:51
  Speaker 1: that will that that will persist at least for for um,
• 25:54
  Speaker 1: at least for the next couple of couple of quarters. Um.
• 25:57
  Speaker 1: You know whether or not that persistent the next year.
• 26:00
  Speaker 1: You know that there's a lot of flow related data
• 26:02
  Speaker 1: that that matters. And you know what happens with trade
• 26:04
  Speaker 1: and does the Federal reserve um keep up, does the
• 26:08
  Speaker 1: ECB end up reducing its asset purchases again, which might
• 26:12
  Speaker 1: have some flow effects of in Europe or maybe back
• 26:15
  Speaker 1: into Europe if if they start to yield start to
• 26:18
  Speaker 1: go up a lot there. So there's a lot that
• 26:21
  Speaker 1: goes into that, and you know, I'm not sure, I'm
• 26:23
  Speaker 1: prepared to make a call on on what's going on
• 26:26
  Speaker 1: in Europe, just because there is a lot of uncertainty
• 26:29
  Speaker 1: about what the ECB's plan ultimately will be over the
• 26:32
  Speaker 1: next eighteen months with their own quantitative using purchases. Okay,
• 26:36
  Speaker 1: so let's focus then on the United States and the
• 26:41
  Speaker 1: availability of bonds funds. You've got all you can eat, right, Yeah, Well,
• 26:47
  Speaker 1: well that's that's true insofar is there's a lot of
• 26:50
  Speaker 1: corporate debt that's been issued, although not all of that
• 26:53
  Speaker 1: has been in the long end. One of the things
• 26:55
  Speaker 1: that that I think is interesting, there's this idea that
• 26:57
  Speaker 1: because um the equity markets performed the fixed income markets
• 27:02
  Speaker 1: so much over the last year or two, that you're
• 27:05
  Speaker 1: going to have a lot of people reallocating by selling
• 27:08
  Speaker 1: equities and then buying fixed income assets. And it's not
• 27:12
  Speaker 1: in the in the private pension land. That's not obvious
• 27:14
  Speaker 1: to me, primarily because you have a lot of investors
• 27:18
  Speaker 1: who care about what they're expected return is based on
• 27:22
  Speaker 1: their asset allocation, and you don't. You haven't had the
• 27:25
  Speaker 1: funded status and the amount of money that um uh,
• 27:30
  Speaker 1: the amount of assets that these companies have based on
• 27:33
  Speaker 1: the compared to their reliabilities that hasn't gone up so
• 27:35
  Speaker 1: much even with the equity market going up, And the
• 27:37
  Speaker 1: reason for that is they continued low interest rate environment,
• 27:41
  Speaker 1: particularly for corporate bonds, and the way that they have
• 27:43
  Speaker 1: to discount their liabilities. So what that means is until
• 27:47
  Speaker 1: you wind up getting a significant increase in the funded
• 27:49
  Speaker 1: status of these pension plans, they won't be doing any
• 27:52
  Speaker 1: of that reallocation. Are likely to stay heavily invested in
• 27:55
  Speaker 1: equity markets. Okay, but is that the right thing for
• 27:58
  Speaker 1: them to do well on a risk on a risk
• 28:01
  Speaker 1: adjusted basis. Would you rather be in US fixed income where, um,
• 28:05
  Speaker 1: you know, you might have returns of near zero, say
• 28:08
  Speaker 1: for the whole market over the next year or two
• 28:11
  Speaker 1: as they said hikes and you have modestly higher interest rates.
• 28:14
  Speaker 1: Or would you rather be an the equity market where
• 28:17
  Speaker 1: maybe valuations might seem stretched to some but where a
• 28:20
  Speaker 1: growing economy should should also help. Uh, it should also
• 28:24
  Speaker 1: help the underlying revenue sources of those companies. So what's
• 28:27
  Speaker 1: the move to support job preservation? I don't mean jobs,
• 28:31
  Speaker 1: I don't mean jobs in the economy. I mean jobs.
• 28:33
  Speaker 1: Are the people who have to hatch all the money
• 28:35
  Speaker 1: and meet these pension obligations. Sure, well that well, that's
• 28:38
  Speaker 1: your your risk limits, right. But if if you're um,
• 28:41
  Speaker 1: you know, managing risk is obviously going to be the
• 28:43
  Speaker 1: hard thing to do, I think for a lot of
• 28:45
  Speaker 1: these managers, because it's not obvious what the safe haven
• 28:48
  Speaker 1: is and you can't just put you know, a large
• 28:50
  Speaker 1: chunk of your assets in cash um making you know,
• 28:54
  Speaker 1: one and a half percent, you need to be in
• 28:56
  Speaker 1: in something that's going to have the potential to do
• 28:58
  Speaker 1: some much better than that. I think that's one of
• 28:59
  Speaker 1: the reasons why over the last several years you've seen
• 29:02
  Speaker 1: moves by some managers into hedge funds and even private
• 29:05
  Speaker 1: equity somewhere where it's not necessarily as correlated the returns
• 29:09
  Speaker 1: are necessarily as correlated to equities or fixed income markets.
• 29:12
  Speaker 1: I'm just gonna give you about ten seconds here, Janet
• 29:15
  Speaker 1: Yellen presiding over her final meeting as Federal Reserve Chief.
• 29:19
  Speaker 1: You expect anything tomorrow. I do expect them to be
• 29:21
  Speaker 1: a little bit more hawkish than they were at the
• 29:23
  Speaker 1: December meeting. UM, but no no hike. March is probably
• 29:26
  Speaker 1: a mom We're gonna get the hike, Thank you very much.
• 29:29
  Speaker 1: Ira Jersey or Chief US interest rate strategist for Bloomberg Intelligence.
• 29:35
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 29:38
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 29:42
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 29:45
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa
• 29:49
  Speaker 1: abramowits one before the podcast. You can always catch us
• 29:52
  Speaker 1: worldwide on Bloomberg Radio