Latest / Bloomberg Intelligence / 'Everyone's Back in the Pool' on Greek Debt Deal, Ballard Says

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'Everyone's Back in the Pool' on Greek Debt Deal, Ballard Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m 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
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Pim Fox,
• 0:32
  Speaker 1: let's take a trip to Greece, because it's beautiful there,
• 0:35
  Speaker 1: and it's gray and kind of rainy in New York. Uh.
• 0:38
  Speaker 1: In particular, Grease is selling bonds. Five billion dollars of bonds.
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  Speaker 1: We're back, yeah, exactly, the first bond sale since two
• 0:47
  Speaker 1: thousand and fourteen, at least international bond sale. And evidently
• 0:52
  Speaker 1: people really want to buy this stuff. To get a
• 0:54
  Speaker 1: better sense of why, let's bring in Simon Ballard, global
• 0:58
  Speaker 1: credit strategist for Bloomberg. He based in London. He has
• 1:01
  Speaker 1: been buying Greek bonds all morning. Simon, why has there
• 1:05
  Speaker 1: been so much demand for this debt? Everyone back in
• 1:08
  Speaker 1: the pool as they say, um, you know this is
• 1:11
  Speaker 1: this is the first public bond issue from Greece since
• 1:14
  Speaker 1: two thousand and fourteen. It is seen more importantly than
• 1:18
  Speaker 1: the deed itself, it is seen as a lead into
• 1:21
  Speaker 1: a continued ability to refinance itself going forward. So it's
• 1:24
  Speaker 1: seen as a very very key moment for the Greek economy,
• 1:28
  Speaker 1: for the Greek finance ministry in terms of drawing a
• 1:32
  Speaker 1: line under the bailout period. If you can do that,
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  Speaker 1: there are still many questions of course, in terms of
• 1:37
  Speaker 1: the indebtedness of the of the sovereign um and you
• 1:41
  Speaker 1: know where where it goes from here in terms of growth.
• 1:44
  Speaker 1: But nevertheless, as you say, there's been a very solid
• 1:46
  Speaker 1: response to the deal, which is looking like it's going
• 1:48
  Speaker 1: to be three billion euros in size. We have a
• 1:52
  Speaker 1: book reported to be somewhere in the region of six
• 1:54
  Speaker 1: and a half billion, to orders of six and a
• 1:55
  Speaker 1: half billion for those three billion, and pricing that has
• 1:58
  Speaker 1: been tightened from which looked fairly generous um in the
• 2:02
  Speaker 1: in the early stages, down to a yield of of
• 2:05
  Speaker 1: six and sorry four four and five four or four
• 2:08
  Speaker 1: and five eighths, Yeah, four point a little bit more
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  Speaker 1: than four point six um. And this is tighter, i
• 2:14
  Speaker 1: should say, than the last offering of five year bonds
• 2:18
  Speaker 1: from Greece in April, when that was priced with a
• 2:22
  Speaker 1: nearly five percent coupon. I just have to wonder, you know,
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  Speaker 1: how much does this just demonstrate the risk on sentiment
• 2:30
  Speaker 1: that is washing over the European Union. I mean, you
• 2:33
  Speaker 1: could see the peripheral bonds yields just absolutely plummeting relative
• 2:39
  Speaker 1: to German and French yields. At what point does this
• 2:42
  Speaker 1: become unsustainable? Well, that's a very very good point. And
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  Speaker 1: I think you know, today's deal would not be being
• 2:48
  Speaker 1: done were it not for the demand for yield, the
• 2:52
  Speaker 1: the you know, the the the insatiable hunt for yield
• 2:54
  Speaker 1: among the investor bases if you wish. And as you know,
• 2:56
  Speaker 1: those peripheral yields have been declining to Germany as as
• 3:00
  Speaker 1: the investor pushed themselves further down the quality curve within sovereigns,
• 3:03
  Speaker 1: within corporates, within financials um as we've as we've reported
• 3:07
  Speaker 1: many times, um at what point does this becomes unsustainable? Well,
• 3:11
  Speaker 1: the point of which it becomes unsustainable is probably when
• 3:13
  Speaker 1: we get a more hawkish rhetoric coming from the FED,
• 3:15
  Speaker 1: when we start to talk about normalization of policy within
• 3:19
  Speaker 1: the CB, or at least the tapering of of quantitative
• 3:22
  Speaker 1: easing more meaningfully within the within the e c B
• 3:25
  Speaker 1: and we move into a high yield environment, at which
• 3:27
  Speaker 1: point investors don't have to chase yield further and further
• 3:29
  Speaker 1: down the quality curve. They can, in fact, you know,
• 3:32
  Speaker 1: get their yield bogie. They can hit their yeld target
• 3:34
  Speaker 1: in something that's a little bit closer to home with
• 3:37
  Speaker 1: stronger fundamentals. Perhaps, Simon, is it at all uh accurate
• 3:43
  Speaker 1: that the buyers of this debt are in some way
• 3:47
  Speaker 1: forced to buy it because they may be small and
• 3:51
  Speaker 1: mid sized banks that in a sense oh their survival
• 3:55
  Speaker 1: to their associations with local governments and perhaps even the
• 3:59
  Speaker 1: European Union. There will be there will be a degree
• 4:03
  Speaker 1: of not benchmark waiting, but a degree of you know,
• 4:07
  Speaker 1: having to buy, as you say, from some of the
• 4:09
  Speaker 1: smaller from some of the smaller banks. But I think
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  Speaker 1: a three billion deals such as this is being bought
• 4:14
  Speaker 1: with institutional money that is being brought on the basis of,
• 4:18
  Speaker 1: you know, the long term sustainability, the optimist optimism around
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  Speaker 1: long term sustainability of the of the Greek economy and
• 4:24
  Speaker 1: continued to war war war hold On, Simon, I'm looking
• 4:27
  Speaker 1: right now at the function e c f C on
• 4:31
  Speaker 1: the Bloomberg and I'm looking at the unemployment rate of Greece. Yes,
• 4:37
  Speaker 1: it has gotten better now. It is expected to be
• 4:40
  Speaker 1: UH twenty two point five percent, down from twenty three
• 4:44
  Speaker 1: point five percent last year. These are incremental changes. That
• 4:48
  Speaker 1: means still nearly a quarter of the population is unemployed,
• 4:51
  Speaker 1: or at least are reported to be unemployed, with the
• 4:54
  Speaker 1: actual unemployment rate probably being a lot higher. We're still
• 4:57
  Speaker 1: looking at a GDP that is a rarely growing and
• 5:01
  Speaker 1: we have a huge hall of debt that they still
• 5:03
  Speaker 1: need to repair. If you if you saw that, if
• 5:05
  Speaker 1: you saw the hand signals that Lisa Brown was right,
• 5:11
  Speaker 1: you would be drinking that red Cina wine and it
• 5:13
  Speaker 1: wouldn't help. Let me tell us me, pull me, pull
• 5:15
  Speaker 1: me under glass. No, let's not. Let's not get this
• 5:17
  Speaker 1: out of context. Let's this is nowhere near an investment
• 5:19
  Speaker 1: grade credit. The fundamentals are still very weak. This is
• 5:21
  Speaker 1: still a C double A two single B minus triple
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  Speaker 1: C rate. It so very very low quality, high yield
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  Speaker 1: issue of which the fundamentals are still questionable. Yes, unemployment,
• 5:33
  Speaker 1: it's going to be probably near a thirty percent. If
• 5:35
  Speaker 1: you look at the youth unemployment, as we've discussed over
• 5:37
  Speaker 1: the last several years. But the fact is that they've
• 5:39
  Speaker 1: managed to get the deal away for the first time
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  Speaker 1: since two thousand and fourteen. Um it is seen as
• 5:45
  Speaker 1: a window to future financing ability and for that reason
• 5:48
  Speaker 1: they had to make sure they still worked. They couldn't
• 5:50
  Speaker 1: squeeze it too much. I am not sitting here and
• 5:52
  Speaker 1: saying that this is the end, and you know, this
• 5:54
  Speaker 1: is the beginning of some form of growth rally within
• 5:56
  Speaker 1: sort of the Greek economy. We've still got a one
• 5:59
  Speaker 1: eighty debt to GDP ratio. I think it's probably about
• 6:02
  Speaker 1: one hundred and seventy six now, depending on where you
• 6:04
  Speaker 1: look at the numbers, but certainly a very high debt
• 6:07
  Speaker 1: to GDP ratio within the country. But nevertheless, this is
• 6:10
  Speaker 1: a positive step forward, albeit with myriad question marks around it.
• 6:15
  Speaker 1: All right, well, Simon, I'm just trying to get my
• 6:16
  Speaker 1: head around the fact that, you know, if you were
• 6:18
  Speaker 1: if if you were the country, if you were Greece
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  Speaker 1: and you had this big debt load, would I really
• 6:24
  Speaker 1: lend you any more money? Wouldn't that be like giving
• 6:26
  Speaker 1: you the you know, the gasoline to pour on the fire.
• 6:29
  Speaker 1: Well there is that, and that is that is the worry.
• 6:31
  Speaker 1: I mean, some of the guys that we've spoken to
• 6:33
  Speaker 1: this morning are sort of yes, it's an interesting level
• 6:35
  Speaker 1: of yield, but no, there's still the potential for for
• 6:38
  Speaker 1: restructuring again when we move into two thousand and eight,
• 6:41
  Speaker 1: multi syllabic words to just describe the feeling of fear
• 6:44
  Speaker 1: that you would get if you had lent to someone
• 6:46
  Speaker 1: like that. We got, we gotta, we gotta, we gotta
• 6:49
  Speaker 1: leave it there. But I want to thank you very much.
• 6:51
  Speaker 1: Simon Ballard, he's in checting a little bit of rationality
• 6:54
  Speaker 1: into this situation. He's our global credit strategist for Bloomberg News,
• 6:58
  Speaker 1: joining us from London. Well, I want to take a
• 7:14
  Speaker 1: look at emerging markets credit. There's been a lot discussed
• 7:18
  Speaker 1: about this asset class. We've seen an unprecedented amount of
• 7:22
  Speaker 1: money flow in, largely through indexed funds, and that has
• 7:26
  Speaker 1: led a lot of people to wonder has this asset
• 7:29
  Speaker 1: class gone too far too fast? With us to let
• 7:32
  Speaker 1: us know what he thinks is Stephen oh, Global head
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  Speaker 1: of Credit and fixed income at pine Bridge Investments. Pine
• 7:38
  Speaker 1: Bridge manages more than eighty billion dollars globally and is
• 7:41
  Speaker 1: based in Los Angeles. Steven thank you so much for
• 7:45
  Speaker 1: joining us. So what's your take. I mean, there has
• 7:47
  Speaker 1: been a lot of concern recently kind of highlighted about
• 7:51
  Speaker 1: the ongoing rally within emerging markets credit. I think emerging
• 7:55
  Speaker 1: markets and thanks for having me as well, But emerging
• 7:58
  Speaker 1: markets is really following the broad trend across all risk
• 8:02
  Speaker 1: and credit markets currently where there is substantial demand across
• 8:06
  Speaker 1: the board given the low yield environment that we're operating
• 8:09
  Speaker 1: in with specifically within emerging markets itself. While there is
• 8:13
  Speaker 1: some concerned that perhaps there is too much money flowing
• 8:17
  Speaker 1: in and valuations are getting relatively tight and somewhauld argue
• 8:22
  Speaker 1: in spots overvalued, uh, the underpinning longer term outlook is
• 8:27
  Speaker 1: that the fundamentals of emerging markets are on the uptrend
• 8:31
  Speaker 1: and positive, and it supports an environment of somewhat overvaluation,
• 8:35
  Speaker 1: although if fund flows continues to come in, there is
• 8:39
  Speaker 1: the risk, of course that we could become very overvalued
• 8:42
  Speaker 1: sometime in the near future. Steven, I wonder if you
• 8:45
  Speaker 1: could focus your attention on China and just explain to
• 8:48
  Speaker 1: people how you physically buy Chinese that are there are
• 8:51
  Speaker 1: lots of buyers, are there lots of sellers? Is that
• 8:53
  Speaker 1: a big liquid market, how do you know what to buy?
• 8:57
  Speaker 1: You know, And and that's a great question. And within
• 9:00
  Speaker 1: China there's a variety of different types of that's to
• 9:03
  Speaker 1: purchase within the areas that we like to look at.
• 9:07
  Speaker 1: You know, it's primarily on the corporate side. There are
• 9:10
  Speaker 1: a significant amount of corporate issuers from China or have
• 9:16
  Speaker 1: Chinese exposure that are actively issuing debt out in the
• 9:19
  Speaker 1: marketplace overall. And I think it's a situation where rather
• 9:23
  Speaker 1: than buying China, uh, this theme in emerging markets overall
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  Speaker 1: is selecting the right bonds, the right companies, the right
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  Speaker 1: countries because unlike the past where there was a lot
• 9:33
  Speaker 1: of beta exposure, I think what we see is dispersion
• 9:37
  Speaker 1: that's taking place with good performers versus uh, poor performers,
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  Speaker 1: and being selective is the key to how you purchase debt,
• 9:45
  Speaker 1: not only in China but across all of emerging Okay,
• 9:48
  Speaker 1: so let's talk about where you think there's still is
• 9:51
  Speaker 1: value and where you think, uh, some of the securities
• 9:54
  Speaker 1: have gotten completely overvalued at this point. Sure, you know,
• 9:58
  Speaker 1: starting off from a broad standpoint, we do think that
• 10:00
  Speaker 1: given that valuations are stretched generally across the board that
• 10:05
  Speaker 1: taking a little bit of a defensive bias is the
• 10:07
  Speaker 1: right approach. So what that means is UH favoring the
• 10:12
  Speaker 1: higher quality investment grade where you're getting paid less but
• 10:16
  Speaker 1: on a risk adjusted basis. We think that's a better
• 10:19
  Speaker 1: place to be on the versus the below investment grade
• 10:22
  Speaker 1: and high your composente, are you talking sovereign and you're
• 10:25
  Speaker 1: talking corporate at this point, I'm talking primarily on the
• 10:27
  Speaker 1: corporate side, but it really relates to sovereign as well, frankly,
• 10:31
  Speaker 1: but more so on the corporate side. And local currency
• 10:33
  Speaker 1: or hard currency. You know, we like aspects of local currency,
• 10:37
  Speaker 1: but again I think you have to be careful because
• 10:40
  Speaker 1: we like specific countries and local currency. We like Indonesia,
• 10:44
  Speaker 1: we like Peru, UH as opposed to you know, blindly
• 10:48
  Speaker 1: saying we like local currency overall. And the reason why
• 10:51
  Speaker 1: we do have a favorable outlook on many parts of
• 10:54
  Speaker 1: local currency is the fact that you know, many countries
• 10:58
  Speaker 1: are shifting UH their policy mix in their macro approach
• 11:03
  Speaker 1: toward having come out of a highly inflationary environment where
• 11:07
  Speaker 1: they were aggressively raising interest rates to defend the currency,
• 11:11
  Speaker 1: to an environment of more declining UH inflationary expectations, as
• 11:17
  Speaker 1: well as policies that will either maintain a stable rate
• 11:21
  Speaker 1: or perhaps even in some cases reducing interest rates, which
• 11:24
  Speaker 1: is very supportive of dead instruments. Stephen, how how do
• 11:28
  Speaker 1: you reassure investors that number one, the collateral that would
• 11:33
  Speaker 1: be offered for any of these corporate bonds is actually
• 11:36
  Speaker 1: good and gettable, meaning you could actually access it, and
• 11:40
  Speaker 1: isn't there at disadvantage in many emerging markets because, for example,
• 11:44
  Speaker 1: in China, if you're going to go to court, chances
• 11:47
  Speaker 1: are you going to be there for a long time
• 11:48
  Speaker 1: and then eventually lose. I think it's fair to say
• 11:51
  Speaker 1: that if you're evaluating the potential default outcomes, you're in
• 11:57
  Speaker 1: a bad situation. Uh. You don't want to go there.
• 12:00
  Speaker 1: The outcome is not particularly forecast double per se. Uh.
• 12:05
  Speaker 1: And so the key in emerging market investing is rather
• 12:09
  Speaker 1: than relying on the collateral and the bankruptcy default loss
• 12:12
  Speaker 1: risk in the way that you would with you know,
• 12:15
  Speaker 1: US bank debt or even high your bonds, UH, you're
• 12:18
  Speaker 1: looking to investing companies that will not ever get into
• 12:22
  Speaker 1: those situations and businesses that will continue to show resilient
• 12:27
  Speaker 1: cash flow characteristics. Okay, So Stephen where do you think
• 12:31
  Speaker 1: is the most overvalued asset in emerging market step right now? Uh,
• 12:38
  Speaker 1: that's a good question. I would say in pockets of
• 12:43
  Speaker 1: high yield corporate credit, where you have spreads across many
• 12:49
  Speaker 1: parts of the corporate credit landscape, where the yield that
• 12:53
  Speaker 1: you're getting is right on top of developed market and
• 12:56
  Speaker 1: so you're not getting a risk premium. And even though
• 12:59
  Speaker 1: the fund mentals as I mentioned are looking more attractive
• 13:03
  Speaker 1: longer term for emerging market areas, there is absolutely incremental
• 13:08
  Speaker 1: risk that investors need to get paid for. And then
• 13:11
  Speaker 1: there are many pockets where you're simply not getting paid
• 13:13
  Speaker 1: for that right now, particular in the high yield segment,
• 13:15
  Speaker 1: any any countries in particular, and a we're talking hard
• 13:17
  Speaker 1: currency or local at this point, primarily hard currency overall. Uh.
• 13:22
  Speaker 1: And you know, I think it's fair to say that
• 13:25
  Speaker 1: the way we think about overvaluation isn't necessarily on an
• 13:29
  Speaker 1: absolute basis, but on a relative basis. And so we
• 13:32
  Speaker 1: tend to be a bit more cautious of areas where
• 13:36
  Speaker 1: everyone thinks they're great investments and more money is chasing those.
• 13:40
  Speaker 1: And conversely, when no one wants to touch a situation
• 13:44
  Speaker 1: because perhaps they think the risk is too high. Now. Oftentimes,
• 13:48
  Speaker 1: even though the risk may be high, investors tend to
• 13:50
  Speaker 1: overshoot any of those circumstances. So let's talk e t
• 13:53
  Speaker 1: F because there's been a huge focus on the incredible
• 13:56
  Speaker 1: amount of money that's flowed into emerging markets debt through
• 13:59
  Speaker 1: e t F s. In this raises a liquidity concern.
• 14:01
  Speaker 1: In other words, the shares of ETFs are liquid, the
• 14:03
  Speaker 1: underlying not so much. What happens if you get an exodus.
• 14:06
  Speaker 1: How concerned are you? The e t F as well
• 14:09
  Speaker 1: as retail fund flows does create a liquidity concern because
• 14:14
  Speaker 1: even though emerging markets is a very large market, you know,
• 14:18
  Speaker 1: it is a market where in times of stress, it's
• 14:23
  Speaker 1: very difficult to execute on selling bonds uh and and
• 14:27
  Speaker 1: so with the e t F growth, there is a
• 14:30
  Speaker 1: greater level of risk that if everyone heads for the
• 14:33
  Speaker 1: exit doors at the same time, you could get price
• 14:36
  Speaker 1: gaps overall, but off setting some of that, and what's
• 14:39
  Speaker 1: less talked about is technicals and emerging market debts is
• 14:42
  Speaker 1: actually improving because there is a substantial amount of institutional
• 14:47
  Speaker 1: money that has come into the marketplace, which is much
• 14:50
  Speaker 1: more difficult to track. Because I like E t F s.
• 14:53
  Speaker 1: There is no easy scorecard where you can see the
• 14:55
  Speaker 1: fund flows on a daily or weekly basis, but we
• 14:58
  Speaker 1: do see the institutional flows coming in both directly from
• 15:03
  Speaker 1: the investors that we talked to and from our competitors
• 15:06
  Speaker 1: as well as our execution counterparties overall, and that represents
• 15:11
  Speaker 1: a very stable source demand. We've got to leave it there, Stephen, Oh,
• 15:14
  Speaker 1: thank you very much, Global head of Credit and Fixed
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• 17:10
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• 17:56
  Speaker 1: be key. Hey, Michael, just let's go to some detail.
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  Speaker 1: You say, cheaper drinks, right, less expensive drinks. I already
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  Speaker 1: breakfast was one of the first things that they adopted,
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  Speaker 1: So all of those things were kind of caused some pushback,
• 18:26
  Speaker 1: but that really got the ball rolling here, there's no
• 18:29
  Speaker 1: doubt about And is it still accelerating. They haven't given
• 18:31
  Speaker 1: too much color on that in particular. Um, but it's
• 18:35
  Speaker 1: just like I said from the beginning, it's like part
• 18:37
  Speaker 1: of the puzzle, you know. Um, but the one and
• 18:39
  Speaker 1: two dollar drinks is interesting because, um, you know, that
• 18:43
  Speaker 1: could hurt Sonic. Sonic sells more than of you know,
• 18:46
  Speaker 1: more than of their sales are in beverages and that's
• 18:49
  Speaker 1: very high. That's like and it gets traffic. Yeah, so
• 18:53
  Speaker 1: you know, McDonald's could be taking share from them. Another
• 18:55
  Speaker 1: one to maybe that may feel a little bit a
• 18:57
  Speaker 1: bit of pain here, could be Burger King right because um,
• 19:01
  Speaker 1: they're same source of sales. Trends were pretty strong until
• 19:04
  Speaker 1: the third quarter of last year, and that's when McDonald's
• 19:06
  Speaker 1: really started to pick up. So being number two in
• 19:08
  Speaker 1: the US having a lot of overlap is probably not
• 19:11
  Speaker 1: a good place to be right now for Bardaking. You
• 19:13
  Speaker 1: know what Lisa wants to know. She wants to know
• 19:15
  Speaker 1: what is going to happen to those Chippotle stores are
• 19:18
  Speaker 1: they gonna all turn into McDonald What is going on
• 19:22
  Speaker 1: with K like a breakfast burrito? I mean, I don't
• 19:24
  Speaker 1: see what. I haven't done a breakfast burrito. I want
• 19:27
  Speaker 1: to breakfast burrito, like now. Everyone loves breakfast burritos, don't they.
• 19:30
  Speaker 1: I mean, I get them. What's going on here and
• 19:35
  Speaker 1: doesn't matter right because it's going to be backward looking anyway.
• 19:38
  Speaker 1: And this whole scanning issue with health and sickness and
• 19:41
  Speaker 1: all that just nailed it. You just nailed it so
• 19:44
  Speaker 1: um from where I sat, um, the street was very
• 19:48
  Speaker 1: negative and there's a lot of um dropping of numbers
• 19:51
  Speaker 1: on the second quarter mid quarter, I think they kind
• 19:53
  Speaker 1: of looked into some um margin guidance a little too closely.
• 19:58
  Speaker 1: You know, they slightly lowered more guidance like ten twenty
• 20:01
  Speaker 1: basis points, and then everyone came out of What Works
• 20:03
  Speaker 1: saying their sales are going to go down. This means
• 20:05
  Speaker 1: there's gonna be deleveraging. It's not gonna be as good
• 20:07
  Speaker 1: as you thought. So I thought it was just kind
• 20:08
  Speaker 1: of a chance for a lot of cell side analysts
• 20:10
  Speaker 1: kind of kick them when they were down. Everybody's got
• 20:12
  Speaker 1: a celebrating on it. They you know, see an opportunity
• 20:14
  Speaker 1: to kick them, they do it. Um. So I thought
• 20:16
  Speaker 1: it was actually setting up for a good quarter, that
• 20:18
  Speaker 1: the expectations have been lowered to a point where they
• 20:20
  Speaker 1: may have a decent beat. But like you said, it's
• 20:23
  Speaker 1: not even gonna matter. What's really gonna you know, people
• 20:26
  Speaker 1: want to hear what they're saying about this outbreak. Everyone
• 20:29
  Speaker 1: wants a neurovirus in the Virginia store, I believe, yes, exactly.
• 20:32
  Speaker 1: It wasn't just that, right, there were some other issues too,
• 20:35
  Speaker 1: and so people are starting to wonder whether again the
• 20:38
  Speaker 1: supply chain or whether there's something that is unable to
• 20:41
  Speaker 1: catch these viruses. Yeah. So it's it's tough because else
• 20:46
  Speaker 1: has kind of set himself up for some um backlash
• 20:49
  Speaker 1: because he went out and said last year that we're
• 20:51
  Speaker 1: going to be the safest restaurant you can need at.
• 20:53
  Speaker 1: But that's impossible because they have sneeze cards, so anyone,
• 20:56
  Speaker 1: you know, somebody as an employee can be sick and
• 20:58
  Speaker 1: not know it, or somebody could sneeze over the glass
• 21:00
  Speaker 1: into your let's not go there. Okay, So you're talking
• 21:04
  Speaker 1: to Stevels is the chairman, the CEO, and the founder
• 21:08
  Speaker 1: of Chippells. Alright, let's let's you know, I I said,
• 21:10
  Speaker 1: we started off, I said, you know, I'm kind of
• 21:12
  Speaker 1: hungry as getting Please please don't talk about anything to appetising.
• 21:16
  Speaker 1: You did it, absolutely did it when Yeah, you're the
• 21:19
  Speaker 1: diet or. Um, all right, we're gonna be looking for
• 21:21
  Speaker 1: those results just after the close of trading today for Chippotle. Uh, Domino's.
• 21:27
  Speaker 1: What's going on in the pizza market. So pizza market
• 21:30
  Speaker 1: in terms of sales is great, and Domino's is continuing
• 21:32
  Speaker 1: to take share their two year trends and sales are
• 21:35
  Speaker 1: off the charts. But um, you know that stock is up,
• 21:39
  Speaker 1: was up over two from you know, maybe two dollars
• 21:42
  Speaker 1: and fifty cents during the depths of the depression of
• 21:45
  Speaker 1: the recession. I'm sorry. And uh so it's been a
• 21:48
  Speaker 1: great run. There's very high expectations baked in, so to speak.
• 21:52
  Speaker 1: But also it's been like a tech company, right, They've
• 21:54
  Speaker 1: gotten really good at delivery and online. Yeah, and they
• 21:58
  Speaker 1: and they you know, they're the best in class technology. Well,
• 22:00
  Speaker 1: and that's what McDonald's is trying to become. And they're
• 22:03
  Speaker 1: catching up pretty fast. But Dominoes is way ahead of everyone.
• 22:06
  Speaker 1: I would say, Dominoes and Para are one and two. Um,
• 22:09
  Speaker 1: But the thing is, it's not the sales, it's not
• 22:11
  Speaker 1: the technology. The issues are some of the restaurant margin
• 22:14
  Speaker 1: issues like labor insurance costs were way up. Also, they
• 22:18
  Speaker 1: have a high class problem of having to build more
• 22:21
  Speaker 1: distribution centers because sales grew so much, it's gonna cost
• 22:24
  Speaker 1: cap bax. So the streets used to getting, you know,
• 22:28
  Speaker 1: a few hundred million dollars worth of share buybacks every year,
• 22:30
  Speaker 1: and that those are gonna happen. That white DPC is down,
• 22:33
  Speaker 1: it's done eight and a half percent today. Yeah, that's
• 22:35
  Speaker 1: those are all a big part of it. I would say.
• 22:37
  Speaker 1: Also international slowed a bit, only increased about two and
• 22:40
  Speaker 1: a half percent, real quick, Who is Domino's stealing share
• 22:45
  Speaker 1: from Pizza Hutt and Mom, Mom and Pops Regional uh
• 22:49
  Speaker 1: pizza joints. To Michael Helen, thank you so much for
• 22:52
  Speaker 1: joining us. It's always a pleasure. Michael Helen is our
• 22:54
  Speaker 1: senior restaurant analyst for Bloomberg Intelligence. Pizza. I was about
• 22:58
  Speaker 1: to say, we can usually find him if we go
• 22:59
  Speaker 1: down stairs and survey the local restaurants. Well, Michael Core's
• 23:14
  Speaker 1: holdings agreed to buy Jimmy Chew for about one point
• 23:18
  Speaker 1: two billion dollars. It's combining handbags with shoes. I guess
• 23:22
  Speaker 1: that's got the retail landscape well covered. Sarah Halzack is
• 23:26
  Speaker 1: our Bloomberg Gadfly columnists covering retail, and Sarah, thank you
• 23:29
  Speaker 1: for being with us. Why is uh, why is Michael
• 23:33
  Speaker 1: Core's doing this? Sure? So, Michael Cores is on a
• 23:36
  Speaker 1: mission to be an international luxury conglomerate. It wants to
• 23:40
  Speaker 1: compete more with the likes of an LVMH or a
• 23:43
  Speaker 1: carrying over in Europe, and it's watching when it's competitor
• 23:46
  Speaker 1: coaches doing on this front. It just bought Cape Spade
• 23:48
  Speaker 1: for two point four billion dollars, so it wants to
• 23:51
  Speaker 1: be a more diversified company, and Jimmy cho looked like
• 23:53
  Speaker 1: a good target. So Michael Core's shares are down nearly
• 23:58
  Speaker 1: a percent that there is some concluding by our GATFI
• 24:01
  Speaker 1: columnist colleagues that perhaps Michael Core's overpaid for Jimmy Choose
• 24:07
  Speaker 1: in their ambition to become something more like LVMH. Was
• 24:12
  Speaker 1: your take on that, Yeah, so they did pay like
• 24:15
  Speaker 1: a premium on yesterday's share price. That is a little
• 24:18
  Speaker 1: bit high, but I think what it's going to come
• 24:20
  Speaker 1: down to is the execution, right. So one thing that
• 24:23
  Speaker 1: they said today was that they really planned to stick
• 24:25
  Speaker 1: with this idea of opening just ten stores a year
• 24:28
  Speaker 1: in the Jimmy Chow brand, And that's probably an encouraging
• 24:32
  Speaker 1: sign given that one of the things that is really
• 24:34
  Speaker 1: felt cores in the last couple of years is just
• 24:36
  Speaker 1: this break connect page of store openings. They had four
• 24:39
  Speaker 1: hundred stores now up to nine hundred and sixty stores,
• 24:43
  Speaker 1: and they're having to pull back that throttle. So it's
• 24:45
  Speaker 1: an encouraging sign that they planned to pump the brakes
• 24:49
  Speaker 1: with Jimmy Chew and do a more realistic pace and
• 24:52
  Speaker 1: not get overstored. I think the thing that gives me
• 24:54
  Speaker 1: pause is that they said they planned to double sales
• 24:57
  Speaker 1: to one billion dollars by and it's are to see
• 25:00
  Speaker 1: how they're going to be able to pull that off well,
• 25:02
  Speaker 1: and not just be able to pull it off, but
• 25:04
  Speaker 1: how they continued to maintain the sheen around Jimmy Choose
• 25:08
  Speaker 1: when the sex and the city allure and the high
• 25:10
  Speaker 1: end nature of the shoes, while also increasing the volume
• 25:15
  Speaker 1: of sales to such a degree where they become more commonplace.
• 25:18
  Speaker 1: I would think that to do that they would have
• 25:20
  Speaker 1: to lower prices or at least offer something that is
• 25:23
  Speaker 1: at a lower price point. Yeah, that's a good possibility,
• 25:27
  Speaker 1: and I agree that that would be sort of concerning
• 25:29
  Speaker 1: for them because we saw what happened with Michael Core's
• 25:31
  Speaker 1: and Coach when they did the same thing. Right, their
• 25:33
  Speaker 1: product lost cache when it became too widespread and they
• 25:37
  Speaker 1: were selling too many things at entry level price points. UM.
• 25:40
  Speaker 1: Some of the things that the executives said today that
• 25:42
  Speaker 1: might suggest they have an alternative path getting to that
• 25:44
  Speaker 1: billion dollars UM. So they kept saying that the men's
• 25:47
  Speaker 1: shoes line was a hidden jewel. UM. That was their wording.
• 25:50
  Speaker 1: And so perhaps if they can ring more growth out
• 25:52
  Speaker 1: of that UM, they could do that without sort of
• 25:54
  Speaker 1: tipping away at that sex in the city cache. Another
• 25:57
  Speaker 1: thing to keep in mind, I is that UM, they
• 26:00
  Speaker 1: only get about of their revenue from wholesale, and so
• 26:04
  Speaker 1: they could perhaps do some more in department stores without
• 26:07
  Speaker 1: tripping away at cache. Is there any way that Michael
• 26:10
  Speaker 1: Cores as a brand is done. Is that possible? Because
• 26:15
  Speaker 1: this was a stock that was you know, this was
• 26:16
  Speaker 1: like a stock and now we're trading at thirty four
• 26:20
  Speaker 1: and a half, that the duel of Men's Well yeah,
• 26:23
  Speaker 1: I mean really, I mean, if you know, it's like okay,
• 26:25
  Speaker 1: if if it's if Jimmy Choo is such a great business,
• 26:28
  Speaker 1: then why would they sell it? First of all? And second,
• 26:31
  Speaker 1: does Michael Cores have any experience actually making this kind
• 26:35
  Speaker 1: of acquisition work? So in terms of why it would
• 26:38
  Speaker 1: be sold, Jab Holdings, who is the majority stakeholder, is
• 26:41
  Speaker 1: really trying to get in this pasture of focusing more
• 26:43
  Speaker 1: on food and beverage. That's why they purchased Panera earlier
• 26:47
  Speaker 1: this year. Um. And in terms of Cores, No, you're right,
• 26:50
  Speaker 1: they don't have a track record of pulling off an
• 26:52
  Speaker 1: acquisition like this, And a lot of it may come
• 26:54
  Speaker 1: down to, you know, how they're able to do in
• 26:56
  Speaker 1: less penetrated markets like Asia Pacific. Jimmy Choo doesn't have
• 26:59
  Speaker 1: a big presence over there, and if they can get
• 27:01
  Speaker 1: that right, then course can really capitalize on that. Can
• 27:04
  Speaker 1: we get a sense of who else was in the
• 27:06
  Speaker 1: running to buy Jimmy Choose, because I assume that, uh,
• 27:09
  Speaker 1: there was a competitor, otherwise they wouldn't have paid such
• 27:13
  Speaker 1: a high price. I'm not quite sure, but I'm sure
• 27:16
  Speaker 1: there's there's a case to be made that an lvmhor
• 27:19
  Speaker 1: Are Caring or Richmond could have looked at it and
• 27:22
  Speaker 1: that might have been better for Jimmy Choo in some way,
• 27:24
  Speaker 1: right because perhaps um, by being tied up with those
• 27:28
  Speaker 1: I'm really premium high on luxury brands as opposed to
• 27:32
  Speaker 1: the core is accessible luxury brand that could have been
• 27:35
  Speaker 1: good for their reputation. Not Jimmy Choo, as you said,
• 27:39
  Speaker 1: is a perhaps not as well distributed in Asia, yet
• 27:43
  Speaker 1: it was founded by a Malaysian based in the UK. Correct, Yes,
• 27:48
  Speaker 1: that's right, um and so, and that's still a very
• 27:51
  Speaker 1: promising marketplace for them. And uh, we'll see, you know what,
• 27:56
  Speaker 1: cores of strategy. I think they have an investor day
• 27:57
  Speaker 1: coming up in August and we'll kind of see when
• 28:00
  Speaker 1: the articulate a clear strategy for penetration there that it's
• 28:03
  Speaker 1: something that seems to make sense, you know. I gotta say,
• 28:06
  Speaker 1: on a broader level, are you expecting when you talk
• 28:09
  Speaker 1: to your sources, are you expecting a lot more M
• 28:12
  Speaker 1: and a activity among retailers or do you think that
• 28:15
  Speaker 1: it's going to slow just due to the high valuations
• 28:17
  Speaker 1: right now. I think they're all hungry for more of it,
• 28:21
  Speaker 1: and so I think we can expect to see more
• 28:23
  Speaker 1: of these kinds of tie ups. Coaching cores really both
• 28:26
  Speaker 1: see this as their strategy for competing going forward. U,
• 28:29
  Speaker 1: and so I think we should keep an eye out
• 28:30
  Speaker 1: for more. Is Tomorrow Melan at all involved in the
• 28:34
  Speaker 1: company anymore? No, not to my knowledge. Okay, all right,
• 28:39
  Speaker 1: well that's very asked an answer. I don't know. I mean,
• 28:42
  Speaker 1: because Tomorrow Melan, who was the accessories editor at Vogue,
• 28:46
  Speaker 1: I believe was really responsible for turning this into such
• 28:50
  Speaker 1: a huge global brand. Jimmy Choo. Well, and I think
• 28:53
  Speaker 1: Sex in the City really did have also just the
• 28:56
  Speaker 1: whole thing. It was like, get my Jimmy choose on
• 28:58
  Speaker 1: and go out in New York City. Sarah How's, thank
• 29:00
  Speaker 1: you so much for joining us. She has our new
• 29:02
  Speaker 1: Bloomberg Gadfly columnist. She is fabulous. She comes from the
• 29:05
  Speaker 1: Washington Post and she writes a great stuff. Sarah how Zac,
• 29:09
  Speaker 1: thank you so much. Thanks for listening to the Bloomberg
• 29:14
  Speaker 1: P and L podcast. You can subscribe and listen to
• 29:17
  Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you
• 29:21
  Speaker 1: prefer I'm pim Fox. I'm on Twitter at pim Fox.
• 29:25
  Speaker 1: I'm on Twitter at Lisa Abramo wits one Before the podcast,
• 29:29
  Speaker 1: you can always catch us worldwide on Bloomberg Radio