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Chipotle CFO on the Challenging Labor Environment · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Now, I want to
• 0:21
  Speaker 1: go to Chipotle for lunch after this program, and I
• 0:26
  Speaker 1: don't know if I should go there or if I
• 0:28
  Speaker 1: should order it online. This is a conundrum that I've
• 0:32
  Speaker 1: started having post pandemic, because so many businesses have migrated
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  Speaker 1: to digital so well, and delivery is so fast and
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  Speaker 1: efficient now and uh, one of the biggest success stories,
• 0:43
  Speaker 1: at least on the stock market has been Chipotle, Chipotle,
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  Speaker 1: Mexican Grill, Tickard, cmg UM absolutely soaring since releasing second
• 0:52
  Speaker 1: quarter earnings on Tuesday. Stock now at what an all
• 0:55
  Speaker 1: time high? At least if these two weekends all time high? Alright,
• 0:58
  Speaker 1: let's bring in the see the CFO. Jack Hartongue joins
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  Speaker 1: us UM right now, chief financial officer forced to put Chipotle, Jack,
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  Speaker 1: what do you think should I order in or should
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  Speaker 1: I just walk down Third Avenue and pick it up.
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  Speaker 1: You know, it is a conundrum. Uh, you know, I
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  Speaker 1: had that choice yesterday and I actually was doing the
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  Speaker 1: same thing you did during the pandemic, ordering a lot
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  Speaker 1: of digital a lot of delivery. I dec had to
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  Speaker 1: go into the restaurant interact with the team, eat my
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  Speaker 1: ball right there in the restaurant. It was absolutely delicious,
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  Speaker 1: So um, I would encourage you to go into the restaurant.
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  Speaker 1: All right, Jack, we know you know sales have been
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  Speaker 1: very strong and we're just looking at your most recently
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  Speaker 1: released results there. I want to talk about the cost
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  Speaker 1: side and margins because I know you guys in the
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  Speaker 1: restaurant businesses are dealing with two challenges right now. One
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  Speaker 1: is rising food cost prices and number two is labor.
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  Speaker 1: Shortage of labor. Talk to us about those two issues
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  Speaker 1: and how they're impacting your margins. Yeah, you know, late
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  Speaker 1: labor in the US is a real challenge right now,
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  Speaker 1: and it's it's one of, if not the most challenging
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  Speaker 1: labor environments I've seen, where everybody at the same time
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  Speaker 1: needs to hire people. The economy is opening up, you know,
• 2:01
  Speaker 1: we're opening up our dining rooms. People want to dine
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  Speaker 1: in Um. You know now that the pandemic is, you know,
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  Speaker 1: in the late stages, and so everyone's trying to hire
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  Speaker 1: at the same time, and at the same time employees
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  Speaker 1: are they've been cooped up for either working from home
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  Speaker 1: or for other reasons cooped up at home. They're really
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  Speaker 1: thoughtful and discerning about where they want to work and
• 2:21
  Speaker 1: where they don't want to work. And so we had
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  Speaker 1: to take a big move a couple of months ago.
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  Speaker 1: We announced in May, and then we actually enacted in
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  Speaker 1: June a significant increase in wages where we went up
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  Speaker 1: about from somewhere around thirteen dollars plus to average rate
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  Speaker 1: of fifteen dollars. And it's worked really really well since then.
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  Speaker 1: Our application flow is increased dramatically, uh you know, the
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  Speaker 1: turnover are losing of people to other folks who were
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  Speaker 1: paying one or two dollars more has slowed down quite
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  Speaker 1: a bit, and so it's worked out really related well
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  Speaker 1: for us. Now, we did have to raise prices a
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  Speaker 1: bit um, you know, to fund that fifteen percent increase.
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  Speaker 1: We did raise prices about we're going to but we
• 3:01
  Speaker 1: feel like that was a very fair trade. The customers
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  Speaker 1: who have commented so far have said they'll gladly pay
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  Speaker 1: an extra thirty cents for exactly to make sure that
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  Speaker 1: people can, you know, earn a living wage. And so
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  Speaker 1: we think that went really well. By the way, the
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  Speaker 1: people when they make more money, they spend more money,
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  Speaker 1: and we think that's good for the economy. So and well,
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  Speaker 1: there there's an old Henry Ford a lesson for you.
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  Speaker 1: My my thing is, and to be fair, you know,
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  Speaker 1: we're relatively wealthy. We have good jobs here, so um,
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  Speaker 1: you know there are some people in the country that aren't,
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  Speaker 1: that aren't able to But I'm happy to pay a
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  Speaker 1: couple of dollars more for a meal if I know
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  Speaker 1: that the employees are getting paid better. And usually I
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  Speaker 1: find the customer experience is much better if the employees
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  Speaker 1: are getting paid more. Do you I mean, I know
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  Speaker 1: you've got to keep your eye on costs, but do
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  Speaker 1: you find that you know, your workers are happier to
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  Speaker 1: serve food to customers if they if they're getting these raises. Listen,
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  Speaker 1: I think you can look at the business and look
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  Speaker 1: at the labor line as an expense, or you can
• 4:01
  Speaker 1: look at labor as um. Those are your people, that's
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  Speaker 1: the lifeblood of your restaurant. In our case, we run
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  Speaker 1: all of our restaurants. We don't franchise any We have
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  Speaker 1: over ninety employees. And when we were able to attract
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  Speaker 1: great employees who really love to work in the kitchen,
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  Speaker 1: they love to serve customers, they love to be part
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  Speaker 1: of a team atmosphere, they are better employees. They make
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  Speaker 1: the team better and they make the customer experience better. So,
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  Speaker 1: you know, the investing in the higher wages along with
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  Speaker 1: other things we've done, like we've invested in offering debt
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  Speaker 1: free degrees to our folks. And you know, we have
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  Speaker 1: benefits in terms of physical health benefits and mental health benefits.
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  Speaker 1: And we're about to launch something to to help from
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  Speaker 1: a financial standpoint, to make sure that our our our teams,
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  Speaker 1: our individual employees are able to understand what it means
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  Speaker 1: to be financially healthy and make good financial decisions. These
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  Speaker 1: are all things that we make. Those investments in our folks,
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  Speaker 1: they make investments back. They want to stay with us,
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  Speaker 1: and they want to advance their career with us as well.
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  Speaker 1: And because we're a growth company, you know, we've got
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  Speaker 1: three thousand restaurants, but we know we can have at
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  Speaker 1: least six thousand in the US, and that doesn't doesn't
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  Speaker 1: even count outside the US. We need lots of future leaders,
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  Speaker 1: and we hire great people who are really bought into
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  Speaker 1: what we're trying to do today. They will be our
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  Speaker 1: future leaders tomorrow. That's kind of where I went to
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  Speaker 1: go Jack, Given some of those challenges that uh, you
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  Speaker 1: know we're seeing across this economy in terms of labor,
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  Speaker 1: What has that done to your store opening strategy here
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  Speaker 1: maybe you know, in the next six twelve months. Yeah,
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  Speaker 1: it really hasn't changed it a bit. You know, we've
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  Speaker 1: had a few interruptions here and there where we've had
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  Speaker 1: to delay in opening by maybe a week or ten
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  Speaker 1: days something like that, and that was just so we
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  Speaker 1: can make sure that we have the full complement of
• 5:35
  Speaker 1: crew and their world trained. The thing you don't want
• 5:37
  Speaker 1: to do. You don't want to rush and opening, and
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  Speaker 1: you know, if you target a July one day and
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  Speaker 1: you don't have the team up and ready to go
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  Speaker 1: and fully train, it's the right decision to wait until
• 5:47
  Speaker 1: a week or ten days later. You only get a
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  Speaker 1: chance to make a first impression one time with new
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  Speaker 1: customers in a new trade area. And so we've had
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  Speaker 1: minor delays like that. But we actually just announced yesterday
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  Speaker 1: that that we're going to exceed the early year guidance.
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  Speaker 1: We give guidance of two restaurants that we would open
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  Speaker 1: this year. We now expect that we will not only
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  Speaker 1: hit that number, we will exceed that number. And so
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  Speaker 1: our development team they're doing a great job getting the
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  Speaker 1: sites up and running and constructed. And then are HR
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  Speaker 1: and our os folks are doing a great job and
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  Speaker 1: making sure that people trained to open those restaurants. All right, Jack,
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  Speaker 1: thanks so much for joining us. CAP is fifty billion
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  Speaker 1: dollars right now, this round number. It's it's a pleasure
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  Speaker 1: talking to you. And u uh. The story has been amazing.
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  Speaker 1: I've been following it, you know, for years, because we
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  Speaker 1: used to have a Chipotle here north and now we
• 6:35
  Speaker 1: have them down south, and so I've been eating the
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  Speaker 1: food and that makes me want to follow a story
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  Speaker 1: all the more, Jack Carton, there is a chief financial
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  Speaker 1: officer of Chipotle. After um fantastic earnings, the street bids
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  Speaker 1: the stock up sighties six to an all time high.
• 6:52
  Speaker 1: This is Bloomberg. Let's get over to David Kudla right now.
• 6:58
  Speaker 1: We've been telling you um that he's that he's coming
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  Speaker 1: on with us, and now he's finally here. So we're
• 7:04
  Speaker 1: happy all as always to talk to um David. He
• 7:08
  Speaker 1: has a you know, as I was saying earlier, a
• 7:11
  Speaker 1: big following in terms of, uh, the listeners just right
• 7:15
  Speaker 1: into us whenever you come on, David. So UM, we're
• 7:19
  Speaker 1: always grateful to get your insight. Mainstay Capital Management UM
• 7:23
  Speaker 1: out on out in Michigan. There three not billion dollars
• 7:26
  Speaker 1: of assets under management. The question I've been asking for
• 7:30
  Speaker 1: weeks and I haven't gotten a sufficient answer to is
• 7:33
  Speaker 1: what's going on with rates? Why are we at one
• 7:36
  Speaker 1: on the tenure? Why is the real yield negative one
• 7:40
  Speaker 1: per cent? What does it mean to you? Uh, it
• 7:44
  Speaker 1: doesn't mean the same thing to me. Uh, good morning,
• 7:48
  Speaker 1: Matt And and I hope the I hope the listeners
• 7:50
  Speaker 1: are writing in good things about me, of course, but yeah,
• 7:53
  Speaker 1: but it doesn't mean the same thing to me that
• 7:56
  Speaker 1: it means to some people. I think that you know, Uh,
• 8:00
  Speaker 1: there's still people that are that that are looking for
• 8:03
  Speaker 1: signals from the bond market. Uh, like the old days.
• 8:08
  Speaker 1: And when I say the old days, I mean before
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  Speaker 1: there was so much manipulation of rates by the federal reserve,
• 8:15
  Speaker 1: and we could count on the bond market to send
• 8:17
  Speaker 1: us signals about the economy and to send us signals
• 8:20
  Speaker 1: and and you know, normal reaction functions that that could
• 8:24
  Speaker 1: help us in our our investments and where we should
• 8:26
  Speaker 1: be going in the markets. But especially in the past
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  Speaker 1: fifteen months, but even before that, UM, I think it
• 8:33
  Speaker 1: says more about the amount of liquidity, the amount of
• 8:38
  Speaker 1: asset purchases, but not just by our FED, but by
• 8:41
  Speaker 1: the ECB and other central banks. They're just pushing yields
• 8:45
  Speaker 1: down and it is just distorted. Um the pictures so much.
• 8:50
  Speaker 1: If you think about back in the nineteen eighties when
• 8:52
  Speaker 1: we were at five and a half percent inflation, where
• 8:56
  Speaker 1: we're bond yields then compared to today, we're sitting here
• 9:01
  Speaker 1: UH at UH one point to seven seven basis points
• 9:06
  Speaker 1: on a ten year on a thirty year with inflation.
• 9:10
  Speaker 1: Last read we had at five point four p UM.
• 9:13
  Speaker 1: So it's it's not it's it's not about a reraction
• 9:18
  Speaker 1: of the economy, iraction inflation. It's about the FED. We
• 9:21
  Speaker 1: are just a wash with liquidity. The asset purchases mostly
• 9:26
  Speaker 1: by the FED, bombs and NBS is mostly being purchased
• 9:29
  Speaker 1: by the FED and just driving rates down. Hey, David,
• 9:33
  Speaker 1: you know, the pandemic unfortunately is still with us. We
• 9:36
  Speaker 1: a lot of folks feel like we're on the other
• 9:38
  Speaker 1: side of it, but there's still that delta variant. How
• 9:41
  Speaker 1: are you guys thinking about it from a stock selection
• 9:44
  Speaker 1: perspective or sector perspective as it relates to Hey, this
• 9:48
  Speaker 1: thing might be with us maybe a little bit longer. Well,
• 9:50
  Speaker 1: you know, it was, it was it was an easy
• 9:54
  Speaker 1: I'll just say it was an easy trade last year
• 9:56
  Speaker 1: and not saying that in hindsight. Uh. You know, we
• 10:00
  Speaker 1: went with the stay at home I T e. Commerce, uh,
• 10:03
  Speaker 1: those trades last year, and I think a lot of investors,
• 10:06
  Speaker 1: a lot of professionals did very well in that environment,
• 10:09
  Speaker 1: and a lot of investors and professionals are frustrated this
• 10:12
  Speaker 1: year with this, uh, this constant rotation back and forth
• 10:15
  Speaker 1: between value and growth, whether it's a month to month,
• 10:19
  Speaker 1: week to week, or like this week day to day,
• 10:21
  Speaker 1: just the difference between Monday and Tuesday. And uh, you know,
• 10:25
  Speaker 1: one of the things that we're looking at that that uh,
• 10:29
  Speaker 1: we think makes sense for investors in their portfolios for
• 10:32
  Speaker 1: two reasons. Uh, is you know, there's the this this
• 10:37
  Speaker 1: constant argument where the leadership will be between growth and
• 10:40
  Speaker 1: value is to look at defensives. And you know, defensives,
• 10:45
  Speaker 1: we haven't had five per cent correction in the market
• 10:48
  Speaker 1: or fire I should say pullback, uh since last October.
• 10:52
  Speaker 1: We usually get or the averages at least three of
• 10:55
  Speaker 1: those in a year, at least one crushing in a year,
• 11:00
  Speaker 1: and so there's concerned about that. That's where defensive position
• 11:03
  Speaker 1: in a portfolio can help. Also, um so one area's
• 11:07
  Speaker 1: healthcare to look at is a good one for that.
• 11:10
  Speaker 1: And with these renewed concerns about COVID with the delta variant,
• 11:14
  Speaker 1: one area we like in particular is um is medical devices,
• 11:19
  Speaker 1: medical technology and devices because as we saw and you've
• 11:23
  Speaker 1: been reporting on the show, we are seven day average
• 11:26
  Speaker 1: in cases in this country had gotten down at the
• 11:29
  Speaker 1: end of June to about eleven thousand, and you know,
• 11:32
  Speaker 1: we we've ramped back up to over forty with the
• 11:34
  Speaker 1: delta variant. You I want. I was wondering because you're
• 11:38
  Speaker 1: in um in Michigan near Detroit, right just north of
• 11:42
  Speaker 1: Royal Oak there, and you have about three and a
• 11:45
  Speaker 1: billion in assets under management, but you're one of the
• 11:48
  Speaker 1: top one independent financial advisors for years and years um
• 11:54
  Speaker 1: at Barons uh Forbes rates you one of the top
• 11:57
  Speaker 1: one hundred wealth advisors. You want to Stanford and did
• 12:01
  Speaker 1: all of everything that the super smart um Wall Street
• 12:04
  Speaker 1: guys need to do. But you're not on Wall Street.
• 12:06
  Speaker 1: What what's business like there? Is any different? Are your
• 12:09
  Speaker 1: clients calling in from here or do you have a
• 12:12
  Speaker 1: local base? So we have, I mean, we really consider
• 12:16
  Speaker 1: ourselves a national advisor. We have we have clients and
• 12:20
  Speaker 1: forty seven states and twelve other countries because of people,
• 12:25
  Speaker 1: you know, businesses global these days. We have investors that
• 12:29
  Speaker 1: that move around the country or from around the country
• 12:32
  Speaker 1: and move around the world. Certainly we have a lot
• 12:35
  Speaker 1: here in Michigan, a lot of clients that that are
• 12:38
  Speaker 1: in the auto industry. Um, so we do I mean,
• 12:42
  Speaker 1: but certainly represent you know, entire country. Yeah, in global business.
• 12:48
  Speaker 1: All right, David, thank you so much for joining us.
• 12:50
  Speaker 1: We always appreciate getting your insight. We appreciate your time.
• 12:52
  Speaker 1: David Cood left, founder, CEO and chief investment strategist for Mainstake.
• 12:55
  Speaker 1: We should ring there, you know, we should should go
• 12:57
  Speaker 1: there at because there's obviously a lot of people for
• 13:00
  Speaker 1: us to interview and then you could get David and
• 13:02
  Speaker 1: do a round table. End we are going to talk
• 13:08
  Speaker 1: stocks right now. We have got the senior US equity
• 13:11
  Speaker 1: strategist from UBS Global Wealth Management, Nadia level with us
• 13:15
  Speaker 1: and uh, what a market? I mean, where do we begin? Nadia? Um,
• 13:21
  Speaker 1: It's been such an incredible run. I was reading about
• 13:24
  Speaker 1: a really successful hedge fund manager this morning that was
• 13:26
  Speaker 1: up seven percent year to date, and I thought, well,
• 13:29
  Speaker 1: I would rather just be in the SNP five double
• 13:31
  Speaker 1: that return. Does this continue? Do we continue to hit
• 13:35
  Speaker 1: new highs? Yes, we think that you would continue to
• 13:39
  Speaker 1: hit new highs from here. Our expectation is that the
• 13:42
  Speaker 1: SNP five hundred will reach five hundred by year end.
• 13:46
  Speaker 1: And what's really going to drive that is strong economic
• 13:49
  Speaker 1: growth driven by the consumer and earning's upside. We're ready
• 13:53
  Speaker 1: seeing that this week during earning season that earnings beaten
• 13:57
  Speaker 1: too the upside. We look for that to continue. That's
• 14:00
  Speaker 1: kind of where I wanted to go now here. Get
• 14:02
  Speaker 1: just kind of getting into the meat of the earning
• 14:04
  Speaker 1: season here, And I guess it's all important really about
• 14:06
  Speaker 1: the guidance here, because a lot of folks have some
• 14:08
  Speaker 1: valuation worries and and feel like you know a lot
• 14:12
  Speaker 1: of these stocks, a lot of this market needs to
• 14:14
  Speaker 1: earn its way into the multiple kind of big picture,
• 14:17
  Speaker 1: what are you looking for earnings and growth and that
• 14:19
  Speaker 1: type of thing. Absolutely, so, as you know so far,
• 14:23
  Speaker 1: about of the SMP companies have reported and for a quarter,
• 14:29
  Speaker 1: we are actually looking for earnings to grow about eighty
• 14:32
  Speaker 1: percent year over year, and that's higher than where consensus is.
• 14:36
  Speaker 1: Consensus coming into this season without about six uh this season,
• 14:41
  Speaker 1: unlike last season, we are seeing companies awards for those feats.
• 14:45
  Speaker 1: And so when we look out for the full year
• 14:47
  Speaker 1: for twenty one, we expect earnest to grow over percent.
• 14:52
  Speaker 1: That's the bove where consensus is, and we expect some
• 14:55
  Speaker 1: of that momentum to continue into twenty two. Obviously they'll
• 14:59
  Speaker 1: grow three role moderated twenty two because we're just coming
• 15:03
  Speaker 1: off of a higher base, but we still look for
• 15:05
  Speaker 1: healthy earliest growth in two of about ten percent. So
• 15:09
  Speaker 1: what do you think when when people start talking about
• 15:12
  Speaker 1: growth fears, A lot of people were attributing low rates
• 15:16
  Speaker 1: that we're seeing two concerns that, um, we're not going
• 15:19
  Speaker 1: to get a lot of growth. I think some JP
• 15:21
  Speaker 1: Morgan analysts said, even though they expect three and a
• 15:25
  Speaker 1: half percent growth over the next twelve months. The bond
• 15:29
  Speaker 1: market is indicating zero point five percent. Yes, there's a
• 15:34
  Speaker 1: disconnecting the bond, but some of that is technical in nature.
• 15:38
  Speaker 1: All of you is the last month that you've seen
• 15:41
  Speaker 1: this pullback in in yield and the flat and of
• 15:44
  Speaker 1: the yield coat has to do with some technical factors.
• 15:47
  Speaker 1: We think most of that is behind us, and so
• 15:49
  Speaker 1: we look for the tenure to sort of trend back
• 15:52
  Speaker 1: up higher. Our target for urine is two percent, and
• 15:56
  Speaker 1: so we expect that the current is steepen and that's
• 15:59
  Speaker 1: just you positive. We don't think that we are necessarily
• 16:03
  Speaker 1: at peak growth. We might hit peak growth into three However,
• 16:07
  Speaker 1: we do think that the economy will make above trend
• 16:11
  Speaker 1: growth and that's what's important for markets. All Right, Donna,
• 16:15
  Speaker 1: Given all that backdrop, what are some of the sectors
• 16:18
  Speaker 1: that you guys at GBS are focusing on right now?
• 16:22
  Speaker 1: You know, we continue to like value over growth and
• 16:25
  Speaker 1: we have approach to capual tilt in our sect or preferences,
• 16:29
  Speaker 1: so we favor consumer, discretionary, energy, financials, and industrials. I
• 16:35
  Speaker 1: know that value has lacked over the last month or
• 16:38
  Speaker 1: so due to the fall in interest rates in the
• 16:41
  Speaker 1: flat and of cars. But we think, as I said,
• 16:43
  Speaker 1: some of that what we're reverse in common months and
• 16:45
  Speaker 1: that should save our value, particularly financials, as we know
• 16:49
  Speaker 1: is a larger segment in value. And you believe inflation
• 16:52
  Speaker 1: is transitory. I think that's consensus on the street and
• 16:57
  Speaker 1: probably among the smartest economists in the world as well. However,
• 17:02
  Speaker 1: I continue to hear from c e O S and
• 17:04
  Speaker 1: I don't know if they're in a sense talking their book,
• 17:07
  Speaker 1: but from Statlantis to uh Unilever input costs to Siemens,
• 17:13
  Speaker 1: input costs are higher and they're passing those price increases
• 17:16
  Speaker 1: onto their customers. We are in the camp that we
• 17:21
  Speaker 1: think inflation will be transitory. However, it will take a
• 17:24
  Speaker 1: few months for us to get past those high spices
• 17:27
  Speaker 1: and inflation, and we think that we get there in
• 17:29
  Speaker 1: the fall. But I think it was important for the
• 17:32
  Speaker 1: markets and companies is as you know, that is the
• 17:34
  Speaker 1: ability of companies to pass on those higher costs two consumers.
• 17:38
  Speaker 1: We're seeing that happened broad based in the smp PI
• 17:41
  Speaker 1: found to be able to protect margins and so from
• 17:45
  Speaker 1: a market standpoint, we're not concerned about the increase in inflation.
• 17:49
  Speaker 1: We think it will will subside as we head into
• 17:51
  Speaker 1: the back half of the year, and we think that
• 17:54
  Speaker 1: companies will continue to protect their margins. And more importantly,
• 17:57
  Speaker 1: you want to also focus on companies that have powers
• 18:01
  Speaker 1: that consumers. Got it, Nadia, thanks so much for joining us.
• 18:06
  Speaker 1: Nadia level their senior US equity strategist at UBS Global
• 18:10
  Speaker 1: Wealth Management. All right, Matt, it seems like the whole
• 18:15
  Speaker 1: world's going to electric vehicles. We've got Mercedes benz Senor
• 18:18
  Speaker 1: gonna spend forty seven billion dollars on their e V
• 18:22
  Speaker 1: business over the next decade. And what happens to internal
• 18:26
  Speaker 1: combustion engines? Is that going to be an extinct relic
• 18:29
  Speaker 1: at some point? It's something I spend a lot of time,
• 18:33
  Speaker 1: you know what. I spent a lot of time thinking
• 18:34
  Speaker 1: about that and talking about Barry Riholtz. Do we have
• 18:36
  Speaker 1: them on today? I think we can do that. I
• 18:37
  Speaker 1: think we haven't at d N Yeah. Yeah. Let's chat
• 18:40
  Speaker 1: with Michael Dean. He's an expert all this stuff. He's
• 18:42
  Speaker 1: the auto analyst covering all the European autos for Bloomberg Intelligence.
• 18:46
  Speaker 1: He's based in London. Is one of my faves over there.
• 18:49
  Speaker 1: So Michael, this sounds big to me that Mercedes is saying,
• 18:53
  Speaker 1: all right, we're putting all our chips in here on
• 18:56
  Speaker 1: these evs. Tell us how big this is. Yes, So
• 18:59
  Speaker 1: that doubled their target for x cvs, which which are
• 19:03
  Speaker 1: plug in so include hybrids. By two thousand of the
• 19:07
  Speaker 1: seals mixed they were, but now they're saying they want
• 19:10
  Speaker 1: to go a hundred percent by two thousand and thirty.
• 19:13
  Speaker 1: Now there was a caveat. It depends on the markets.
• 19:15
  Speaker 1: And I don't know about you, but I don't think
• 19:17
  Speaker 1: the US market is going to go a hundred percent
• 19:19
  Speaker 1: by two thousand and thirty. But it's a very encouraging
• 19:22
  Speaker 1: sign and it shows they're fully committed to electric vehicles.
• 19:25
  Speaker 1: It's to me, I've wondered why, Um, none of the
• 19:30
  Speaker 1: big carmakers has already done this, And I know Volkswagen
• 19:34
  Speaker 1: kind of did, but I mean five years ago. You know,
• 19:36
  Speaker 1: when I drove a Tesla for the first time in
• 19:38
  Speaker 1: two thousand and ten with Jason Harper from Road and Track,
• 19:42
  Speaker 1: I was like, damn, this is awesome. Um, and I
• 19:46
  Speaker 1: think there's no there's no roar of the engine, so
• 19:48
  Speaker 1: what do you can do with your Lamborghini, your or
• 19:50
  Speaker 1: your Lambo when you get back here. I mean, if
• 19:52
  Speaker 1: I have a Lamborghini, um, I would probably have another
• 19:54
  Speaker 1: car too. So but Michael, why didn't any big car
• 19:59
  Speaker 1: maker get this idea before the pandemic? What? They certainly
• 20:04
  Speaker 1: didn't take Tesla seriously for many years. It wasn't until
• 20:06
  Speaker 1: two thousands and seventeen. And part of that is because
• 20:09
  Speaker 1: electric vehicles don't make any money. You can see from
• 20:12
  Speaker 1: Tesla the majority of their profits come from selling regulatory
• 20:15
  Speaker 1: credits and that's still the case. But because they're scaling
• 20:19
  Speaker 1: up and because they see battery costs going to below
• 20:22
  Speaker 1: a hundred dollars the killer what tow by two thousand
• 20:24
  Speaker 1: twenty five, they can see those profits on the horizon.
• 20:27
  Speaker 1: And so Daynler now saying that theirselves will be electric.
• 20:31
  Speaker 1: They're still sticking to their double digits margin targets. So
• 20:34
  Speaker 1: that is encouraging. So, Michael, just give us a sense
• 20:37
  Speaker 1: of kind of the driving public in Europe. What's the
• 20:40
  Speaker 1: embrace of evs. Because here in the U S it's
• 20:44
  Speaker 1: it's it's coming. But until again you put a four
• 20:47
  Speaker 1: D F one fifty fully EV you know, electrified, I'm
• 20:50
  Speaker 1: not sure this market is gonna move that much. What's
• 20:52
  Speaker 1: it like in Europe? Yeah, it's still modest, So it's
• 20:56
  Speaker 1: about fift market share for plug ins, So that's literally
• 21:00
  Speaker 1: evenly and that's really been pushed by government incentives. So
• 21:03
  Speaker 1: in Germany you can get nine and a half thousand
• 21:05
  Speaker 1: euros off a plug in car. Globally, if you look
• 21:08
  Speaker 1: at BMW and Mercedes, the market shell battery electric vehicles
• 21:12
  Speaker 1: is only three UM, so three percent battery electric, ten
• 21:16
  Speaker 1: percent um plug in in total, and in Europe it's
• 21:19
  Speaker 1: a probably double the market shell that it is. Globally,
• 21:23
  Speaker 1: it does seem like it's picking up. It does seem
• 21:25
  Speaker 1: like there's something more prestige for a fully battery electric vehicle.
• 21:29
  Speaker 1: And I've not understood this either. If I have the
• 21:31
  Speaker 1: option and the means, I'd much rather have what BMW
• 21:36
  Speaker 1: called a range extender, right, I'd much rather have a
• 21:39
  Speaker 1: sweet electric vehicle that also has a little triple in it. Right.
• 21:44
  Speaker 1: Why why is that not so popular? Well? Um well, firstly,
• 21:49
  Speaker 1: from a market's perspective, they see hybrids as a sort
• 21:52
  Speaker 1: of interim technology. And if you look at Tesla, it's
• 21:55
  Speaker 1: getting the valuation because it's pure electric. If you look,
• 21:58
  Speaker 1: what's happened to Volksbag in this year Because they've given
• 22:00
  Speaker 1: a battery electric target out to two thousand and thirty,
• 22:04
  Speaker 1: it's got some tech recognition. So that's why other companies
• 22:08
  Speaker 1: want to push the battery electric angle more um than
• 22:12
  Speaker 1: than hybrids. But from a consumer's perspective, guest, because there's
• 22:17
  Speaker 1: range anxiety, there's there's not enough charging points, hybrid is
• 22:21
  Speaker 1: a much better option in the short term. So my god,
• 22:24
  Speaker 1: that's what where I want to go is to the
• 22:26
  Speaker 1: charging stations. It seems like there's that could be a
• 22:29
  Speaker 1: little kink in the rollout of the electrified vehicle plant.
• 22:34
  Speaker 1: Who does that and that what's what's the play there? Yes, so,
• 22:38
  Speaker 1: so the companies themselves are putting money in, they need
• 22:41
  Speaker 1: the governments to invest um that. There's collaborations with the
• 22:45
  Speaker 1: oil companies as well. Um So, so there're certainly investing
• 22:49
  Speaker 1: in sort of recharging points, but you're right, there's still
• 22:53
  Speaker 1: very few of them and it's going to take a
• 22:55
  Speaker 1: huge investment to get to where they want to be,
• 22:58
  Speaker 1: especially if if months um and you want to m
• 23:02
  Speaker 1: you know, achieve their mission targets out to two thousand thirty.
• 23:05
  Speaker 1: Where they're looking for another reduction in co two kilometer
• 23:09
  Speaker 1: for their cars, and by that time I just can't
• 23:11
  Speaker 1: I can't understand why it's taking so long. And I've
• 23:13
  Speaker 1: asked Ben burden um this and and other oil majors.
• 23:18
  Speaker 1: Like in Germany, when you're driving the auto barn, you
• 23:21
  Speaker 1: you see every few kilometers either a shell or in
• 23:25
  Speaker 1: a row. Why not spend the next six months putting
• 23:29
  Speaker 1: charging stations at each one? You know you can do it.
• 23:33
  Speaker 1: We have the technology. I feel like they're pushing back
• 23:36
  Speaker 1: a little bit against this. Yeah, they are expensive though,
• 23:40
  Speaker 1: so a fast charging point is about forty dollars, so
• 23:43
  Speaker 1: you need quite a few of them. And it's no
• 23:45
  Speaker 1: good going to a petrol station which has charging points
• 23:48
  Speaker 1: where the petrot sivation might take you five minutes to refill.
• 23:51
  Speaker 1: What if there's a queue um at a charging points
• 23:54
  Speaker 1: and it's going to take minutes to recharge. You know,
• 23:57
  Speaker 1: that's quite a long stage. So you can see the
• 23:59
  Speaker 1: attractions still of the combustion engine for sure, for sure,
• 24:02
  Speaker 1: But for the gas stations, like if I've got you
• 24:04
  Speaker 1: for thirty minutes, I could sell you a lot of
• 24:07
  Speaker 1: stuff exactly. I think Tesla's it has us doing that right,
• 24:12
  Speaker 1: that's very true. That's very true that there is a
• 24:14
  Speaker 1: different angle there. But people want convenience as well. So
• 24:17
  Speaker 1: you know, like the porsh you take and it's expensive,
• 24:19
  Speaker 1: but you can recharge the vehicle to in fifteen minutes.
• 24:23
  Speaker 1: And this technology will be rolled out to other cars,
• 24:25
  Speaker 1: I think probably over the next three or four years.
• 24:28
  Speaker 1: It's a hot car, but it's two under grand for
• 24:30
  Speaker 1: the Yeah, that's what I'm saying. All right, So Michael,
• 24:33
  Speaker 1: talk to us, just give us an update on just
• 24:35
  Speaker 1: production for the European companies. Are they still suffering from
• 24:38
  Speaker 1: a lack of chips as this can continue to be
• 24:41
  Speaker 1: an issue for the remainder of the year. It's interesting.
• 24:44
  Speaker 1: So the first half numbers most of the companies are
• 24:46
  Speaker 1: pre released so much better than expected. We had that
• 24:48
  Speaker 1: from Mercedes yesterday, UM Fox, Fagan them w still to release,
• 24:53
  Speaker 1: but the outlook from Mercedes was that they're not going
• 24:57
  Speaker 1: to make their sales expectations. So instead of having silicificutly
• 25:00
  Speaker 1: higher sells, they're just gonna be at the prior level.
• 25:03
  Speaker 1: They're blame me um semi conductor shortages and that is
• 25:06
  Speaker 1: the issue. But also if you look at Europe, the
• 25:09
  Speaker 1: underlying demand for autos in Europe is still quite weak.
• 25:12
  Speaker 1: Although it's up in the first half, it's still below
• 25:15
  Speaker 1: that of two thousand and nineteen. So I think it's
• 25:17
  Speaker 1: maybe a combination of uncertainty over demand, but also you know,
• 25:21
  Speaker 1: semi conductors is an issue and it continues to be
• 25:24
  Speaker 1: an issue in the second half. Hey, Michael just got
• 25:26
  Speaker 1: thirty seconds here. Why did Folkswagen do the Remac deal
• 25:30
  Speaker 1: with Bugatti? What does that what? What value does that
• 25:33
  Speaker 1: add for herberts Well. I just think that they want
• 25:37
  Speaker 1: to take the lead in terms of electric supercars and
• 25:40
  Speaker 1: they can do that with Remac and Bugatti, and it
• 25:43
  Speaker 1: also gives Porsche the technology in the future. On the
• 25:46
  Speaker 1: e D side, I think thanks for listening to the
• 25:49
  Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
• 25:53
  Speaker 1: of Apple Podcasts or whatever podcast platform you prefer. I'm
• 25:57
  Speaker 1: Matt Miller. I'm on Twitter at Matt Miller en seventy three.
• 26:01
  Speaker 1: On Fall Sweeney, I'm on Twitter at pt Sweeney. Before
• 26:04
  Speaker 1: the podcast, you can always catch us worldwide at Bloomberg Radio.